It’s Episode 122 and it’s official, we’re in a new booming bull market. The S&P 500 is up over 20% since last October as the economy continues to improve. Inflation coming down. The job market remains strong yet wages are growing at a slower pace. It’s almost like a Goldilocks scenario – we will give you our 2 cents. We’re past the debt ceiling now we’re looking into the future. Bob and I are going to read the tea leaves and tell you exactly what we think is going to happen in the economy.
On The Tipping Point, we’re going to talk about those gray areas that you have to make decisions on when it comes to your financial independence and you’ve got to make the right decision. We’re going to help you make the right decision.
Productivity is a tailwind for the economy
Businesses are improving their productivity
- When big tech companies bottomed in October they started laying people off which boosted their productivity and profit margins. After that, the stocks took off.
- More companies are making people go back to the office which adds a lot to productivity because people aren’t as productive when they’re home. It’s also good for commercial real estate.
- Technology such as AI will better productivity.
”Believe it or not.. it's shocking.. people aren't as productive when they're home.
Ryan Payne
Manufacturing is making a big comeback
- The government has passed bills that are providing funds to help manufacturing. Manufacturing’s making a huge comeback in our country.
”Manufacturing is a big tailwind for the economy that nobody's talking about.
Bob Payne
Bull market for the S&P 500 – but does it have bad breadth?
The S&P 500 rally has been led by tech, but if you look at other industries that bottomed in October, the 8 mega-tech companies are NOT the only ones doing well right now:
- Homebuilders are up 48%.
- Casinos and gaming stocks there are 42%
- Healthcare supply companies up 40%
- Construction and engineering companies up 38%
- Industrials are up almost 30%
- Semiconductor stocks are up
- Europe is up 40%
”The permabears ignore what's really happening. It's not just the mega tech stocks, it's not just Nvidia..
Bob Payne
The market has been led by tech and international – so what should an investor do?
Value stocks were a big winner last year. They’re lagging right now but they’re catching up quickly. You’ve got to get on board. It’s not too late.
”I would be careful here.. the big mega-cap 8 are 26% of the S&P 500.. so you're not getting the proper diversification.
Ryan Payne
The Tipping Point
Grey Areas in Your Financial Independence Plan
Payne Points
One of the things we do at Payne Capital Management is to address the gray areas that you have to make decisions on when you’re on your path to financial independence because at some point you want to live off of your assets. There are a lot of questions we get that are not necessarily black and white.
Grey Area #1 – How to handle your debt going into retirement
Should you pay off your mortgage going into retirement? It depends. Financially, if you have a 3% mortgage and you can get a 5% treasury, you probably don’t want to rush to pay the mortgage off. On the other hand, it can be an emotional decision, you may feel better just paying it off.
”If it keeps you up at night knowing you have a mortgage.. I'd say just pay it off right away.
Bob Payne
Grey Area #2 – What will happen with taxes in the future
Considering the national debt we have now, there’s a good chance taxes will go up from here. Tax rules are ever-changing. It’s so important to pay attention to your tax situation. If you put a lot of money into your 401k and IRA, at 73 you’re forced by the IRS to pay taxes on that money. So it may make sense, before you turn 73, to start a Roth conversion so that money is tax-free.
”Tax-free forever is music to my ears.
Bob Payne
Grey Area #3 – When to take social security
The longer you wait the higher your benefit. But what if you’re already retired? If you wait 4 years to age 70, that’s 4 years of benefits you’ve lost. It could take until age 80 to break even. On the other hand, it depends on how you feel about the future and your confidence in your investment strategy – you may want to take social security earlier.
Grey Area #4 – Should you take out a long-term care insurance policy?
Some of these long-term care policies aren’t terrible and they are worth looking at. But for a lot of you, it might just be better to self-insure. The question often is, am I going to invest the money better than the insurance company’s return on that long-term care policy? But when you’re in your fifties, you should start thinking about that. Don’t wait, because then the premiums become cost prohibitive.
”..always be careful with insurance. The insurance agent's not your friend
Ryan Payne
Hidden Facts of Finance
At 8.7%, Saudi Arabia recorded the fastest GDP growth in the world last year among all major economies, according to the IMF, and 2023, is expected to be another lucrative year for the world’s biggest oil exporter. The UAE was just behind at 7.6% and Qatar grew at 4.8%, its fastest rate in nearly a decade.
Hendrik Bessembinder found that just 86 companies accounted for half of all the gains in the stock markets since 1926. All the wealth creation in the stock market since then can be attributed to around 1000 of the top performing stocks, which was just 4% of the total.
With 1.4 billion people and counting, India will soon dethrone China as the world’s most populous nation. India’s population is also young. More than 40% of Indians are under age 25, and India’s real growth is projected to average 6.3% annually from 2021 to 2030, allowing it to surpass Japan and Germany as the world’s third-largest economy, according to S&P Global.
