Understanding Annuities & Market Outlook, Ep. #221

In this episode of The Capitalist Investor podcast, Derek and Tony discuss a variety of intriguing and timely financial topics. From annuity considerations to market insights and even a glimpse at the future of artificial intelligence, the conversation offered listeners a comprehensive look at the current financial landscape. Here are the top five hot topics discussed in the episode.

1. Annuities: The Good, the Bad, and the Ugly [00:02:28]
One of the main topics of discussion in this episode was annuities. Derek and Tony delved into the polarizing and sensitive nature of annuities as individuals approach retirement. They highlighted the challenge individuals face when bombarded with various types of annuities and the importance of thoroughly understanding their features and implications. The hosts emphasized the necessity of examining why a particular annuity was chosen and focused on the potential misuse of certain types of annuities, particularly in cases where a high percentage of retirement funds are allocated to them.

2. The Market Outlook: Slashing Sideways and Large Valuations[00:11:23]
The hosts also provided insights into the current market environment, noting that while there is significant activity, there is no major noise dominating the landscape. They discussed the market's relatively sideways movement and emphasized the importance of understanding the implications of large valuations in this environment.

3. Federal Reserve's Impact: Prospects and Considerations
The episode also touched on the Federal Reserve's impact on the market, particularly in light of recent considerations about potential interest rate adjustments. With a keen eye on inflation and job market dynamics, the hosts analyzed the implications of potential interest rate adjustments and how they could affect the current economic climate.

4. Cryptocurrency: Bitcoin's Volatility and Future Predictions[00:13:00]
Derek and Tony delved into the wild ride of cryptocurrency, particularly highlighting the recent volatility in Bitcoin's price. They contemplated the potential reasons behind such market fluctuations and offered a cautious, long-term outlook for crypto investments.

5. AI and Robotics: The Future of Automation and Its Implications [00:21:18]
The podcast also took a sharp turn into the future with a discussion on developments in artificial intelligence and robotics. Delving into the potential implications of AI surpassing human intelligence, the hosts examined the increasing role of automation in various industries and contemplated the potential challenges and opportunities in this rapidly advancing technological landscape.

#Annuities #FinancialPlanning #MarketNews #AI #RetirementPlanning #Investing #CapitalistInvestor #Podcast #Finance #WealthManagement

Transcript

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Hello and welcome to this week's episode of the Capitalist Investor. As always, you have me, diamond hands D, and no Luke this week. Yeah, he's on assignment, on assignments. So, Tony, how's it going, man? Good, man. Good. Brown's making some money moves. Oh, yeah. We have so much guaranteed money wrapped up into our roster. Awesome. They're certainly all in this year. It's got to happen. Something's happening. I think they picked up a good defensive lineman, too. I guess we'll see how everything shakes out. But, I mean, their roster is solid. The quarterback just needs to play. And then we got Mike Brabrel. As. A consiglieri to come in and do whatever. I mean, I don't know. They have a former head coach come in and just be a sounding board is what it sounds like. Yep. We'll see. Sounds like he was a Browns fan growing up. Yeah, I mean, he grew up. All right, well, today's show. So today's financial planning corner is going to be talking about annuity considerations, the good, the bad, and the ugly, kind of what you should be thinking about looking at do they make sense and how we tie them in, if appropriate, into financial plans. Then we have five quick takes on what's going on in the market right now because there's so much stuff, but there's nothing, I don't want to say it this way, but there's nothing like huge noise out there. It's kind of the markets just kind of slashing sideways at the present time. All right. At very large valuations. Very large. Yeah. So maybe the market is just digesting those. All right, so when we come to the financial planning corner for this week, we'll take a look at annuity considerations. And when I say the word annuity, I refer to as more of a polarizing and sensitive word, because as you approach annuities or, I'm sorry, approach retirement, you get bombarded about all the different kinds of annuities. And then I would imagine if you're new and trying to figure it out, it can be a very complicated and stressful and I don't know which way is up kind of situation. There's so many of them, right. And there's so many people talking about them. So I think we'll just kind of start by saying, for advisors that use them or don't use them, there's this big love hate relationship. I think a lot of advisors, they either use them or they don't. They either like them or they don't. They have a view and I guess there's a lot of bad actors out there because I feel like they're misused. They're some of the best ones for the situation, for people that if I meet with somebody for the first time and they walk in, they have an annuity. I love to know why this one? What does it do? How did you pick the amount that went in there? And typically the people scratch their head and be like, I don't know. I was just told to do this. And that's not a good answer. Right. The bad actors might misuse the type of annuity, and sometimes it's not always a fit. I've seen when you start approaching over 50% of your money going into an annuity, like, good God misuse. Right? Not a fit. My story with my mom is when my stepdad passed away, I sat down for the first time and looked at their finances because my mom's like, hey, this is a foreign language to me. And did it not take me very long to figure out that my stepfather, who passed away, put all of their retirement money into a variable annuity? I'm not here to tell you that variable annuities are good or bad. I'm telling you that 100% of their money in one was not the best idea. Yeah, I think that a lot of the negative connotations about annuities are really stem from variable annuities in that 2008 2009 time period, really, just because they were sold as products, features, and benefits. But it's got the mutual funds in there, and we're going to do this, and it's got a death benefit, and it's got all these bells and whistles. Those bells and whistles are expensive. Yes. The internal fee of a variable annuity is north of 2%. Yes. So you're always going to underperform the market. And when the market goes down like it did in 2008, 2009, you essentially get zero protection whatsoever. Right. So, yeah, understanding what type of annuity that you're looking at is really the first step in the battle, because like Tony said, we're not even talking products. You got variable annuities, you got fixed annuities, you got indexed annuities, speas, like. All kinds of variable annuities. And the annuities that your grandparents may have gotten into, where they start, the income, they pass away a year later and all the money's gone. That's an old school annuities. They typically don't work like that unless you design it that way. There's a lot of things you can do with them today that won't do that. There would be a death benefit that goes to the family joint income. Right. Like, there's ways to design them as long as you are working with somebody that has your best interest and knows what they're doing. Yeah. So I think kind of moving down the list here. Bad actors, you mentioned it already. If you're just out there looking for general financial advice, like a lot of people that show up to different presentations or dinner seminars or whatever the case may be, if you're being kind of pushed a product as kind of like the opening volley, if you will. Okay, well, I've heard about your situation for ten minutes, and I think this annuity is right for you. Right. Everyone's kind of chuckling here, but I think that's kind of how it happens. And that's why when people walk in the door, every third person seems to have just a random annuity attached to their situation. That's very true. To have a random annuity out there. How did this happen? I don't know. So the one thing I will say is that actually being in this industry and seeing different, starting from 2008 to today, actually annuities are the best I've actually seen. This is a sweet spot for them because we've had a historic rise in interest rates. And annuities are designed around interest rates. And I would say over the last year and a half, with a historic rise of interest rates, this has actually been the best annuities that I have seen in 1015 years. Literally, because the caps are high, the income. So I look at it this way. There's two types of annuities you can get. One's for an accumulation, so it grows, or there's ones designed for income where your money doesn't grow, but your income grows. Like Social Security, it's designing a personal pension. Right. The rates have been the best I've seen in years, and the caps are the highest. Income is the highest because of rising interest rates. So I mentioned that already. The way I would say this is that as strategic wealth partners, what we do is we start with the plan, because the plan will help us determine a, does an annuity fit your situation? B, what is the appropriate type? Do you already have a pension and Social Security? Do you need another income stream? No, probably not. I'll make that assumption. So does an accumulation annuity as a bond alternative make sense? So determining the type and the appropriate type is very important. And then the sizing the plan will help us understand the appropriate size of. Is it 5%, 1015, 20% of your liquid net worth go into something like this. I start getting internally upset when I start seeing those, like some type of fixed annuity, reaching that 50%. Plus it's normally not appropriate because these do not react like stocks. They react more like bonds. And we're looking at mid single digit returns at the most. Right. They're there for safety. Right. If the market does go down and your stocks do go down, this is something you tap into because it didn't lose money. Right. So that's kind of my two cent. On it. On it. Derek. Yeah. Last thing I'll say on that last point. Understanding why an annuity or any type of investment is helping your situation should be one of your top goals to figure out why. I feel like a lot of those people. It's not just annuities that we see as random investments. We see all kinds of, whether it's like real estate, we see a lot of REITs. Reits, a lot of ill liquid investments. Right. Every investment should have a purpose in your overall portfolio. So when we're using the planning software, we are actually using that to determine one. Can this product help, and if so, why? How is that helping the Monte Carlo, and how is that helping, really, the income strategy? I think that's an important part that people overlook quite often, is when the income gets turned off. Where am I pulling my money from? Where are my paychecks coming from? And understanding the right order in which to pull money out of your various investment accounts. All of that stuff goes into your income picture. So an annuity often fits as part of that. But you want to make sure you understand your overall income strategy for your retirement. It's very important. Yeah. Because one of the drawbacks on an annuity is there's a duration risk, five, 6710 years, that you have to have the annuity money inside the annuity. So that's why I always say that the sizing, the amount of money you put into it, is very important because every annuity, or at least every annuity that I know of, has a 10% withdrawal pattern that you can take out annually. And, yeah, you don't want to take out more than 3% of your money from your investments. But if this is a small sliver, we might be able to take a portion if counts are down, things like that. So we need to just understand, again why we're in it, what are we doing with it, and does it fit your right? All right. Good stuff. Yep. All right. So some of the top stories hitting the market right now is we'll do kind of a hot take on a couple items. So the first, the Fed is talking this week. Last year, Jerome came out and Jerome Powell came out and said, you guys. Are on a first name basis. I'll call him JP. JP came out and said that we're going to do probably three ratchet down interest rates three times in 2024. And the market somehow again heard six. And we have yet to realize one. Right. How do you lower interest rates when jobs are still plentiful? Inflation is still hot because lowering interest rates would be a form of stimulus. I don't think we need stimulus right now because that would jack up inflation. And we're already seeing the last CPI and PPI numbers were coming quote unquote hot. Right. They did not go down. They're accelerating again. So I don't expect much of anything this week. Yeah, nothing burger. Nothing burger. Bitcoin. Derek, your favorite time? Oh, yeah. Hit all time highs two weeks ago and now we're down 15% since then. Yeah, I will say I haven't opened up my Coinbase wallet in a long time until about two weeks ago, which was nice. I had a little just bitcoin and ETH left over and. Yeah, ever since then it's been straight down. You jinxed it. I got it. Now. As soon as we started talking bitcoin and blah, blah, blah, blah, tanks. But that could just be profit taking. The halving event is happening in April, so where the demand will go down and then when it's harder to mine these coins, there may just not be any more mining because it's going to get more expensive. So we might be looking at the locked in supply. Right. So we'll see what happens there. Any predictions? Well, my ETH prediction from two years ago is still haunting me, so I'm not going to make any predictions. No. Crypto, it's a long term play. I think it's going to be a risk asset. It's going to go through highly volatile periods like you're seeing right now. That's just part of doing business in crypto. And we've always said it, size it appropriately. Pretend crypto might go to zero tomorrow. That's the amount you should have in your account. Like if you're okay losing three to 5%, then that's how much you own. If you want to own, just be involved. 2% having more than that. I mean, that's just. You have to understand the risks. Right. So it's a highly volatile asset class at this point, Chipotle came out yesterday and said that they're going to do a 50 to one stock split because right now the stocks at like$2,500 or something like that. So now it's going to be $50. And the reason the company would do that is just so that somebody that has $100 can now buy two shares of Chipotle. Coming to the table with $2,500 to own one stock might kind of eliminates the smaller, newer dabbler investor. Right. Funny part is that Chipotle was up 5% after hours. So splitting your stock does not change anything about your stock. I mean, maybe there might be more buying because it is cheaper, but to be up about 5% after hours on an announcement like that. Yeah, I don't know. Yeah, that's just going to be the reaction that you always get. But Chipotle, it's hanging in there. I don't have nearly as many good Chipotle experiences as I used to in the past. I don't go there nearly as much as I used to. I can tell you're slowing down. So, yeah, I've been trying to been playing the old man basketball on Monday night. So that's good motivation to body holding up. Yeah, not bad. Not bad. Yeah, that's the number one goal is just to not get injured. I mean, maybe you need to eat chipotle the day before and carb. Carb load. Yeah, carb load. I think their shell alone has like 1200 calories. Does it really get out of here? Something like that. Oh, my God. Fact check me on that one. The shell is really good though. Yeah, that's the best part. It is the best part. And all the sour cream that goes in there. All right, now, intel, this news just came out today, on Wednesday that they won eight and a half billion dollar funding from the Chip act that the Biden administration put into place in 2022. And this is the way I view this is intel is playing this perfectly because they were crying about worker shortages and high construction costs. So that's when the chip act was created. And at the end of the day, I think the chip act is a very important act. I feel like we are not acting fast enough because what it's supposed to do is bring home the design and the fabrication of chips so that we don't have to import them. And that is what intel does. They actually design the chips and they make them where the Nvidias and the AMD of the world, they just design the chips. They don't make them right they pan it off on maybe Taiwan semi or an intel saying, hey, make our chips. Right. But I feel like intel is playing this perfectly because again, like they said, they were crying about worker shortages and high construction costs. We came out with the chip act. And now today intel made a comment earlier saying, hey, we need to push back construction because of, quote unquote, a chip. No one's, quote unquote, the sales are declining or something. And I'm like, I'm so confused. I thought we'd need chips. The chips are what make the world go round. So I don't know if they're saying, if they're telling the truth. I don't know. It's because maybe because they're not an know juggernaut like Nvidia and. Yep. But the big thing with intel, though, seriously, though, is that they design and fabricate. That's why they're building big plants in Columbus, $20 billion plant in Columbus. And I think they have two more, like in the desert, New Mexico, Arizona area. But what are your thoughts? D. On the surface, it obviously makes sense. The idea is not to back coming out of the pandemic, no one could get these chips. None of the manufacturers could get them. It was delaying cars and everything, basically. So the idea of it to have manufacturing and production capabilities inside of the US in case something bad happens or something bad happens with our relationships, that makes sense. But since the federal government is involved, I'm assuming it's just going to be a giant cluster from start to finish because that's what they have proven to do time and time again. But it does make sense. Right. The labor is going to be a lot more inside the United States than outside of it. That's why all the manufacturing moved overseas. So subsidizing it to get the security to have that capability in the country again definitely makes sense how it's going to be executed. And if it helps the american people, that will be seen over time. Exactly. I'll remain optimistic. I like it. All right, let's hope that, hope it's going in the right direction, right? Only hope. All right, man, this is your one. You pointed this out yesterday. AI Nvidia. What are they doing? What are they coming at us? You know, if you see in the headlines, there's like, I can't come up with his name right now. I'm sorry. The president of Nvidia, the guy with the leather jacket. But anyway, he came out, they did a whole thing. They have this new chip, basically, that's going to be like ten to 100 times faster than their current ones, and they're going to put it inside of AI robots. So we're just creating the terminators, essentially without the skin. But we all know the story. The Terminators, the T 2000s, that was the big upgrade. Right? They used to look like robots before, and now they can make them look like humans. So right now, we're in the robot stage. But I also saw, I believe it was Elon Musk who said, essentially, by the end of 2025, an AI chip is going to be smarter than a human. And by the end of 29, AI chips will be smarter than all of humans. This started way back in the day. Remember when they had the best chess player playing Watson? This started years and years and years ago. They started making it play chess. Right. And look where we are today. We're making robots that are going to eliminate us. Yes. That's what it looks like. Why are they doing this? I understand that probably to help with the workforce, they can work 24 hours a day, seven days a week, maybe 20 hours and 4 hours of charging. Who knows? But when they're smarter than us and they start talking to each other, that's a problem. Well, if they become, quote unquote smarter than us, then you would have to think they could be programmed to do anything. And that's kind of what this article was getting at with the robotics. I've seen clips of those, the Texas instrument robots that you've been seeing out there. They got one, like, harvesting crops, and it's right next to. There's a video of this robot cutting. I don't know exactly what it is, but some type of plant cutting, bundling, and then there's a human next to him, and he blows by the human in the 32nd clip. There's endless possibilities, and it's coming fast. I've said it during the pandemic, if we don't want to work, we don't want to go to work, because we're cool hanging out at home. That's a big problem, because companies are going to figure out how to replace a human being with technology that can do it longer, faster, more efficient, cheaper, whatever you want to call it. We're putting nails in our own coffin, literally. It seems to be headed that way. That's for sure. Yeah. All right, man. So there's our hot takes on the market. All right. Take us home, D. All right, well, good stuff. Well, enjoyed the planning corner this week, talking a little annuities. But if you guys are liking that, let us know. Hit us up at info@swpconnect.com show ideas, comments concerns always welcome there and thanks for listening. We'll talk to you next week. The opinions expressed in the podcast are for general informational purposes only and are not intended to provide specific advice or recommend foundations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.