Announcer: 00:00 You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners, led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the number, your path to financial freedom starts now.
Dave: 00:36 All right folks, we’ll welcome to investing for beginners podcast. This is episode 131 tonight. Andrew and I are going to talk a little bit about the upcoming year. So Andrew had a great idea, and we’re going to talk about the year 2020 and things to consider for your investing and your personal finance in upcoming years. So Andrew’s got a whole list of things for us to talk about. So I’m going to go ahead and turn it over to my friend and we’ll get going.
Andrew: 01:03 Well, thank you, friend. You’re welcome. So many of the different things we can talk about. I want to talk about like the fed politics things and big themes to look out for next year. All sorts of things. I think it’s good to start with unemployment statistics. The latest figures for unemployment this is last month, November 2019, it’s down to 3.5%. So to me, when I think about what that means and how we look at the course of our finances, right? You want to make hay while that while the sun is shining and you, you want to look at a time like this where unemployment is so low as a time where you should be saving and not spending.
Andrew: 01:55 So I think if you think about, you know if you’re gainfully employed, and you know, I’m assuming a lot of people who listen to us now probably are, and they’re looking to grow their money. This needs to be a time where you build an emergency fund, you increased contributions to the various personal finance vehicles that you have and you try to take advantage of any prosperity that is out there. You know, we don’t know how long unemployment will stay this low and there are all [inaudible] cycles just like anything else. And so you know, it will, you have, whether you’re going to do with what you have now and how are you going to take the best advantage of it. It’s, it’s very easy to, to get a lucrative job. And then as you’re doing that, you’re getting into the rat race and always looking for the next best thing. So maybe after the new jobs, the new car and after the new car may be upgraded in house, right. And so really as you keep moving and you keep moving
Andrew: 03:08 What, what, what am I thinking of? You’re moving like the goalposts, so you’ll never reach them. And if you’re not putting, saving and investing, building an emergency fund, having some financial security and working towards that and that’s not a big part of whatever money you have available to you now. I think it’s hard to project that out into the future. I mean, we all know what, 2020. I think there’s a lot of speculation. You have the balls and the bears, the bears say a recession is imminent and you know, they’ve been saying it since 2015 and earlier, or you have the bowls who think we’re just going S and P 500, you know, 4,000 or whatever. So you have, you have these, these differing opinions. But I think it’s safe to say that we don’t know what the future will hold for next year or the following years. But it’s best to plan for prosperity no matter what happens. And so if you don’t have an emergency fund, I think this is a good time to start. If you’re thinking of, you know, that next expensive purchase, I think it’s a good thing to reconsider may be and try to project yourself into a situation where is unemployment higher? Are you at risk of losing a job, having to work two, three jobs to pay the bills?
Andrew: 04:34 The sorts of things that, you know, need to be going through our minds and not what’s the, what’s the moving goalposts, you know, what can I buy to make myself feel better? Instead, it’s let’s, let’s make hay while the sun is shining and let’s try to capitalize on any prosperity we might have now and maybe make that a point for next year.
Dave: 04:58 That’s all great stuff. And one thing that I was thinking about while you were talking about that as when you’re thinking about upcoming goals and upcoming plans. It’s always great to in some way, shape or form, put these in a place where you can refer to them again and again and again in the future, whether it’s, you know, Andrew and have, 15 spreadsheets with 17 tabs on each spreadsheet and, and having, it all like that. Or whether you’re a pen and paper kind of person or you like to put notes in your phone, whatever it may be. Any of those kinds of things are great ways to keep track of your goals and to refer to them on a somewhat regular basis, which helps you stay on track if you will. And I remember an article that I read not too long ago from our friend Vitaly, and he was talking about budgeting and some things that he learned from a friend of his.
Dave: 05:58 And one of the things that kind of stuck with me, which I thought was kind of brilliant and I don’t think it’s talked about enough, was planning for that next big purchase and starting to try to save money to do something like that as opposed to relying on, Oh crap, the car died, I got to get a new one. And then having to scramble or E, borrow more money and put yourself in possibly the same or worse situation than you were in before. And so that was something that he thought was eye-opening. And I kind of thought it was too as well because that’s not something that we ever think about. You know, we all have cars or Oh, a lot of us have cars and we all know we’re going to need another one at some point. But how many of us plan for replacing the car that we have now?
Dave: 06:46 And I’ll admit I did not until I read that article and then I started thinking about it. Well, you know the car I have now is about 140 some thousand miles on it, and it’s 2010 so it’s not a horrible car, but it’s got a few miles on it and it’s still running great and everything. But at some point I am going to have to replace it and what is my plan? Well, I don’t have one. So like Andrew was saying, now is the perfect time to start thinking about that, how setting aside extra money for something like that, or figuring out a way that you can earn a little more interest. Whether it’s an online saving account or going into your bank and talking to them and saying, Hey, is this the best you can do? There are all kinds of different options that you can utilize, which don’t take a lot of time and take a little bit of research and a little bit of effort, but can yield you a lot more results in the long run.
Dave: 07:34 But there’s that saying out there that those who fail to plan fail and you know, and this is, it’s kind of blunt, but it’s, it’s true. And if you don’t think about, you know what it is you’re trying to accomplish, then you’re never going to get where you want to go and money. Unfortunately, and this is why Andrew and I are doing this on money, unfortunately, tends to be something that people don’t think about or plan or organize like they do other parts of their lives. And that’s unfortunate and I think that’s something that needs to be a light shined on and try to encourage people to do more of those kinds of things as they go along. I’m glad you brought up that point about, you know, maybe part of a plan for next year is looking at what your, what vehicles your money is in now and. And whether your options, we’ve talked previously and this past month and maybe two months of the whole commission-free trading and how that’s changing everything. And maybe this is the year or even the decade to be like a broker, like a broker agnostic where you know, the days of like just having to have one broker and feeling locked into that. I don’t think that
Andrew: 08:57 That needs to be the case anymore. You know, with, with the whole elimination of commissions with pretty much almost every online broker, you know, just the, a lot of these brokers are offering competitive products and you have to figure what’s, what’s best for you and what’s not. I have, I’ve started to branch out myself. I just opened the account with fidelity. I have an account with Merrill and we’ve mentioned ally in the past. And so you know, what I’ll, I strength these to be with the very low commissions is now kind of industry standard. And so it’s worth taking a look and seeing how some of these brokers have positives and negatives. And you don’t need to have all your accounts with one broker, and you know, the way they make it these days; it’s, it’s super, super easy that to sign on to these accounts online, transfer money and do all of those things.
Andrew: 09:54 And so I think moving forward and trying to figure out what, what to do with, with different brokers and, and maybe, you know, keeping an eye on what’s going on with, with your finances from a contribution standpoint. So I know for the 401k, the contribution limit was 19,020 19. It’s going up to 19 five for 2020. If you’re 50 or older in 2020, it’s going to be 6,500 for workplace plans, which is up from 6,000 and for an IRA, it stays the same. So that’s 6,000 with a 1000 ketchup if you’re 50 or older. So with those things in mind, you know, is this the year where you’re going to do a rollover where you’re going to take an old 401k move it into an IRA, is that necessarily need to be with a break or with a broker you’re not too excited about?
Andrew: 10:56 No, it doesn’t, you know, have you never opened an account before, and you want to try that open one? This could be the year for that too. So all of these innovations in the financial industry are just great for the consumer, but it’s up to us too, to take advantage of it ourselves and just have the, just go out and take advantage. A couple of the other developments that have gone on in 2019 this is news as of yesterday, the fed announced that they’re going to freeze rates at least for the short term. So, you know, it’s confusing how the fed and interest rates and everything work, and it’s a huge complex machine. And I don’t want to try to say that it’s super simple. It’s not, but all and its most base level interest rates can determine how an economy booms and busts.
Andrew: 11:58 And so basically what it does is it controls the supply of money. And so there’s more money afloat when interest rates are lower, which tends to make the stock market higher. And when interest rates are higher, there’s not as much money sloshing around, and the stock market tends to drop. And so as a stock market events investor, when you see the fed announced that they’re keeping interest rates frozen or if they ever say they’re going to cut rates, wall street tends to like that and you’ll see stock prices move up higher. And not only will they do that on an announcement, but you’ll also see better business results and higher stock prices over time because those are real effects to the economy. And you know, not, not only do like stock prices move up higher with lower interest rates, but you have to think like if you take the average Joe Small business, maybe he needs to borrow some money.
Andrew: 12:57 When rates are lower, it’s easier for him to do that. He can put that capital to work, it goes into the economy and that all just kind of trickles out from there. So that’s, that’s what’s going on with the fed to kind of consideration we have government debt pretty high. I think you know, the thing that pisses me off about the whole government debt thing is, have you ever seen that that calculator ticker thing online or it, it’s showing them like, you understand that, right? The trillion. Yeah. That, that pisses me off beyond no. And because there’s no contact, at least the last time I checked, there’s no context there because you have to consider the debt compared to our GDP. And so you can scare people with trillions and trillions of dollars. Right? And then that sounds like this massive amount. Oh my gosh, it’s to the moon and back 50,000 times.
Andrew: 13:54 I get that. But we also need to understand that the way that money works and $1 trillion today is not the same as $1 million eight years ago, you know? So what we need to do is we need to compare apples to apples, get some context. And so from the context of GDP to debt, which is one metric that Warren Buffett has famously talked about before, we’re at about, depending on, I guess I’ll use the official Fred, this is M federal reserve bank of st Louis. There lay this chart Q3 2019; they have us at one. Oh, 5.46. So a hundred w you would think that’s a hundred percent of GDP would be as much as we bring in an income per year. So it’s high and it’s been high for the past decade, but this isn’t like the very first time we’ve had a high that the GDP, if you go back to the world war II, years to GDP was a 114% 119% in 1946 and then they got back down after that and through the cold war and then continue dropping.
Andrew: 15:15 So it’s not this, in a way, it’s unprecedented. Everything is, but we’ve had high debt before. And so where I think it gets problematic as if, as we’ve been doing the past several years that it’s not improving. But at the same time, I think so sounding the alarm bell and saying that, well it’s, it’s grown by however many trillion and it’s at this many trillion dollars, that doesn’t tell us anything. All it does is make us fearful. So as investors we might look at that and think, Oh man, you know, how can we ever pay this off and how can we ever get back from this? And that’s not the right conversation to be having. And so we need to understand is a, you can manipulate those debt numbers to justify an investment decision one way or the other. And I think we’ve talked about over and over again how futile that idea that you can kind of pick and choose where the get in and out of the market. How few tiles really that is to try to do and how you’re probably better off just creating an investing habit and sticking to that regardless of what happens next year with the budget.
Dave: 16:33 I agree with that. I like the thoughts on, on, on how that’s comparable and trying to put it in context, especially when you’re talking about the debt versus the GDP because I think that it has so much more of a correlation that I think we realize. And I know that you and I have both read, excuse me. We have both read the recent Ray Dalio book about the Big Debt Crisis. And that was fascinating and Oh my God, bright smart guy. Another thing along with these wines, if you’re not 100% sure about how the economy works and how debt works and those kinds of things, there is a ridiculously fantastic YouTube video that Ray Dalio created called how the economic machine works. It’s also in a book, but the video is about 30 minutes long or so, and it explains everything that Andrew was talking about.
Dave: 17:34 And it is a fantastic way to learn how all this is interconnected. Just in case you didn’t pay attention to in your government class back when you were a freshman in high school. I know I didn’t. So it was very for me to watch that years ago. So it’s fantastic — the next big development. I think we’d be remiss if we didn’t talk about this. Dave, I’d like to hear your thoughts there. We have a president who’s up for reelection and a couple of incumbents with their different ideas and everything. How do you think, maybe now is not the right question, but what are your thoughts on the presidential election and the potential impact on the markets from there? Oh boy, that’s going to be very interesting. I think this is probably going to be, I thought the last election was going to be probably one of the more contentious ones that I’ve ever seen and maybe we’ll see in my lifetime.
Dave: 18:29 I think this one’s going to be excited even to the next level for a variety of reasons. One, whether you like him or not, he has done some good things and some of the things he said he was going to do, he has done. And I know that’s going to get me in a lot of hot water with people, but you can’t argue that the economy has done, has been doing well. Now you can’t argue whether he’s had an impact on it or not. That could be another conversation for another day. But the fact of the matter is unemployment is incredibly low; the stock market is continuing to go up and up and up. People are making more money. And so those are pluses and bonuses. So you got that going on. Then you have the attempt to try to impeach him, which appears not to be going anywhere.
Dave: 19:27 And that is going to be a bonus in his favor as well because they tried to kick them out and they couldn’t. And so that’s going to be another factor. And I think they can’t get over the fact that he won. And I think people are just still upset about that. And I think that this is going to continue and it seems like we’re racing towards the kind of extremes in the political party as opposed to more of the middle. And I think that’s where we need to be more so personally. But it just seems like that the real, the only way to get anybody’s attention anymore is to be so extreme that that’s where it kind of stands out. And I think that I mean I feel like the policies that the other candidates want to try to enact would be incredibly detrimental to the company or the company, the country.
Dave: 20:26 And I don’t think they would be in our best interest in the long term. Do we have problems? Of course, these are the things we need to fix. Absolutely. But I don’t think that racing to the either extreme, whether it’s the writer of the left, I think is the right way to go about doing that. And the thing that I find intriguing or interesting about it is, you know if you think about if you see if you go far enough or to the right, you become left. And vice versa. If you go far enough to the left, you become, you go to the right.
Andrew: 20:56 I think like an investor looking at the upcoming election and trying to figure out, okay, how can I profit from this? I want to turn the history books back a couple of pages and remember that in 2016 everybody thought Hillary was going to win.
Andrew: 21:16 I think when Trump won, everybody expected the stock market to crash and it’s just not, you know, and you can, you can substitute so many different themes into, into thinking, well, this candidate is going to win. So this industry must boom, or this one must bust. And, and it’s just, I don’t think it’s investible, like a reliable investible plan and something to consider a Forbes. Heather Gray is the coal, and this was back in 2016 where they looked at the S and P 500 returns for every president since 1929. And they referenced a study done by Campbell and Lee in 2004 which is posted on the federal reserve website saying there’s no conclusive evidence suggesting the president’s party has any statistical least significant impact on us equity market returns. So, you know, we all maybe have our favorite side and we all have our ideas of
Andrew: 22:30 What would happen in the market based on what the president gets elected. But there are so many other factors that go into what sets prices on wall street and you know, you have economic cycles and, and just all of these sorts of things. And I, I don’t think it’s a good idea to either panic sell after a decision is made or maybe even panic sell before the election because you think whoever the next president is is, is going to be a disaster. It’s really; you got to stay the course and not make any rash decisions. And I think, I think in my mind, and maybe I’m wrong in my mind, the election is just a ton of noise.
Dave: 23:15 I would definitely, I would agree with that. It is a ton of noise and it’s very distracting. And I remember when President Trump was first elected and the panic selling that went on immediately after it was announced that he had, he had one and then you know the Trump rally, you know how boho everything kind of went back up from there. But you know, I agree. It’s just, it’s all noise and it’s just, it doesn’t, there’s, so like you said, there are many factors that are involved in what goes on with the economy in this and stock market and everything like that. Does it have, you know, influence on it? Of course. But I think the, you know to like you said, the one side or the other having a huge impact, you know that Republicans are going to be pro-business and they’re going to drive all these stock market returns versus the Democrats. I think, you know, that study that you were referencing, I would personally like to see that and I think I should put that in the show notes or at wink for that because I think that would be very unlikely.
Andrew: 24:30 Your way. A couple of other statistics may be on the other a little bit more useful. I think listeners will find useful. In 2019, the millennials were recorded as taking 5.6 trips per year. This is from my December 11 or issue compared to baby boomers at three and a half and generation X at four trips per year. So millennials make up the world’s largest population segment right now and they have an estimated 200 billion of spending power. And so, you know, I have certain investible trends that I’ve picked up during this year with things that are trending higher and seem to continue to go and not having to necessarily pay huge prices for to, to be a part of those sorts of things. Some other kind of stories that we’ve seen this year. You had lots of different IPOs; you had a lot of IPO failures.
Andrew: 25:39 Uber comes to mind. Spotify comes to mind. One very recent IPO that took off was Beyond Meat, which is the whole vegan Patty thing, which more power to more power to them. It just went crazy in the stock market. And so I think you can look at something like that and you can see while maybe this whole trend towards organic and healthy and, and like this obsession with healthy food and responsibly raised me in all of those sorts of things. Maybe those are real trends too, to consider looking for into the future. And so when I look at my portfolio, I can identify not only, Hey, I bought this stock at a great price. Hey, it’s got great growth. Recently, a lot of these different stocks, I’m buying two, I can look and I’m like, Hey, they, like their main product is responsibly raised and organic and all of those sorts of things.
Andrew: 26:49 This companies main demographic is millennials who are traveling more. That’s a direct boost to our bottom line. Those are, those are the sorts of things that we can look and we can, we can take a look at what’s going on in the world around us this year and try to figure out what’s going on next year and make some money based off of those things. Just having an observant eye and just paying attention to what’s going on, how the world’s changing and understanding that, yeah, maybe I would like to profit from more people being healthy. That doesn’t mean I want to buy the beyond me IPO because it’s, you know, we stay away from IPOs and it’s probably way overpriced, but maybe I found another stock that’s more of a traditional value stock, but they can, they profit from that trend in their way.
Andrew: 27:49 And so that’s, that’s something to consider kind of. The last little statistic I want to throw out there, this is from a report from Deloitte. They said six trends for 2019 the future of health. And they talked about how between 2017, the 2022 global healthcare spending is expected to rise 5.4% annually to just over $10 trillion. So, you know, there, there’s a huge, there’s a lot of attention, a lot of dollars going towards different industries. And so I think like the whole healthcare thing is playing out with the biotechs. I talked about the biotechs a little bit last week and how these things are just erupting these stocks. And so these are the types of things where we can pay attention and keep a watchful eye, but at the same time, you have to kind of corral yourself and don’t get super emotional.
Andrew: 28:51 Don’t let your emotions justify a bad investing decision. Remember that you’re in, you’re going to invest with a margin of safety. Emphasis on the safety in that margin of safety comes from numbers and valuation. But at the same time, you can use that to your advantage to maybe pick the stocks that might be better poised than others and have multiple ways that your stock can go up and provide a return rather than just being a do or die thing. That’s great. Yeah, that was, that’s great advice. And I, I, I like the thought of keeping an eye on what’s going on in the world and how that can impact what you’re looking at as far as you’re investing in. I mean, with things like you’re talking
Dave: 29:42 About with the, with the health care, it makes sense because as the baby boomers are getting older, they’re going to need more healthcare, and that’s a very large segment of the population in the world. And it makes sense that they’re going to need more healthcare as they get older. And it just, it’s a dog. But those are things that we don’t always think about. And that can shape what you’re thinking about investing in, especially if it falls within your circle of competence. And it’s something you feel comfortable investigating and warning you to know enough about that you can no what the company is doing and where they’re going to be in five to 10 years and how that can make you money. So I think that’s fantastic.
Andrew: 30:27 And you know, we have the certain things that are going on and the things we, we’ve observed this year, the big news stories, the things that seem to be trending in a certain direction for next year. But I think the last thing to realize is at the end of the day; valuation is timeless. And so we say it every week and if anything, we’re pounding it into our brains more than into yours, but invest with a margin of safety, emphasis on the safety. I think that’s always going to reign true. Whether we’re talking about 20, 20, 20, 23 or you know, 2120, right? Th this is something to keep in mind and kind of sits at the forefront. Everything else can help with your decision making. But I think this should be the main focus. And so, you know, with this time of the year we’re recording this near the end of 2019 this is going out see some of the second weeks of December will be the third week of December.
Andrew: 31:30 So for a couple of weeks, we’re going to reopen the Investing for Beginners master class. If you don’t know what we’re talking about when we talk about valuation, a margin of safety, emphasis on safety, if you wish, you have more clarity on exactly how that breaks down. You like detailed class formats, on how we define that, how we’ve taught it and how we implement it in our investing. The invest scene for beginners’ masterclass is the place to check it out. And so we’ve, we’ve only opened enrollment several times and you know, just like, what was it, three times, this will be the third time. I think Dave, we’ve opened in like the past two or three years. Yes. So definitely use the holidays, use the new year to kind of jumpstart. And if this is something that you’ve been thinking about learning about and wanting to take a masterclass that’s like this tangible thing where you can learn a lot of the things we talk about and have a structure to it and know it’s, it’s an online course.
Andrew: 32:41 You got a username and a password, and we’re, we’re going to offer, you know, it’s, it’s completely on the, on the honor system. So really you can do whatever you want, but we, Dave and I would like to offer the opportunity. If you get enrollment for the masterclass, you can share it with one other person to give to them as a gift. So that can be something you can take with somebody and go through the lessons together. Really at the end of the day, we, yes, we have to put food on the table for our daughters, but we are very passionate about spreading this message and getting people educated and informed in the ways that we weren’t growing up. So this is a great way to do it. Great way to learn about personal finance, the stock market valuation, margin of safety, all those great things all bundled up and the masterclass. And so we’re going to keep that open until January 3rd so if this is something you’ve thought about, we’ve talked about it in the past. As I said, it’s a limited enrollment, so make sure you get in while you can and then it’s going to close up and we don’t know when we’ll reopen it. So that will be, this is our PSA announcement.
Dave: 33:56 Yeah, exactly. And it’s geared towards beginners and so it has a lot of great stuff in there that can help you if you’re not sure about a lot of the things that Andrew and I talk about in a class and it goes through these things in-depth and really kind of help shine a light on a lot of those different kinds of terminology and topics and kind of a broad overview of value investing as well as just finance in general. You also will get information about different formulas that you can use, whether it’s a discount of cash flow, whether it’s dividend discount models, any of those kinds of things. There’ll be in there as well. So you can learn from the ground up how to do those kinds of things. And the other cool thing is, is that I just discovered this myself, is that you can do all this stuff on your phone as well.
Dave: 34:46 So they have a mobile app through teachable that you can use to watch all these things, so it doesn’t have to be on your laptop, which I thought was like kind of like mind-blowing for me. So it was kind of like you got to remember guys, a molder. So bear with me. All right. But I thought that was kind of cool. So anyway, without any further ado, we’re going to go ahead and sign us off for tonight. I hope you guys enjoyed our conversation about things to think about for 2020 and what you can start to prepare for and get a plan together for your finances for the upcoming year. So without any further ado, we’re going to go ahead and sign us off. You guys go out there and invest with a margin of safety, emphasis on safety. Have a great week and we’ll talk to y’all next week.
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