Smarter Money Matters | Market Forecast Plus Trusts Probate and Keeping Your Affairs Private

Video Transcript:

Well, hey folks. This is obviously Jeff and Jonathan Camarda and Anna and Lou. And we’re going to do something a little bit different with the videos this week. Hopefully you like it. And kind of talk about a number of issues and then some financial planning topics that you may enjoy. So we’re going to begin with our impression of the unfolding world economic situation. And I know Jonathan has a number of deep thoughts on this as well, but you know, almost unexpectedly, things seem to be working out. This is apolitical. We’re not a fan of any political party, of course, but things seem to be working out better tariff-wise and inflation-wise than I think a lot of folks had expected. Surprisingly, the economy is holding up well. The inflation numbers are reasonable. The United States seems to be getting a lot of traction and a lot of revenue in the tariff strategy. So hopefully this continues. But the market so far has performed well in anticipation of continued economic strength. Jonathan, what’s your view on that?

Yeah, absolutely. In fact, the PPI numbers that came out today show producer price index and inflation. Absolutely. This is why we’re doing the group videos, right? So we can define that. So energy, food, and transportation all were actually mild. So from an inflationary front, Jeff is absolutely right. Dollar’s picking up though versus the yen. I know it’s been weak for most of the year, but picking up versus the yen, the euro, maybe short term, and so that bodes actually pretty well for large cap stocks, which we’ll get to in a little bit. So I do agree the dollar’s coming off the mat, but hasn’t been overtly strong, which obviously means inflation has been out of control. Jeff’s correct as well. The tariffs may be a little overbought, which is good for US exports, by the way.

Well, we’re going to get into that.

Yeah, absolutely. Because they export their goods, so it’s cheaper for other countries to buy. The tariffs are bringing in a lot more revenue as Jeff intimated than thought. In fact, trade deals might be optional. Maybe that’s not the ultimate goal. It’s just the revenue coming in. However, you know, consumers may be paying more, maybe sharing that with some of the companies here. But like Jeff said, the net’s been pretty good from an economic standpoint.

Yeah. So, overall, steady as she goes. Hopefully, you know, things continue in this vein and it’s good for the United States. So that’s very positive. Jonathan, why don’t we seg into where you think as our chief investment officer and lead portfolio strategist the market is heading? You know, it’s continuing to do well despite that gut kick that we had early in the year. Do you think that will continue? What’s your read on the market?

Yeah. Well, right now, as they say, up and to the right. Your leading sectors have been more of your bull type stocks: technologies, industrials, discretionaries, and communications are leading the way. Healthcare of course lagging, and staples as well, which in English means that again we have a bullish move. Now I will say seasonally towards the end of July into early August, September gets to be what they call hurricane season metaphorically speaking. So generally you can expect a pullback maybe 5 to 10%. But generally a buying opportunity because remember unlike when we got back in the market a lot of institutions have been out of the market and waiting to get back in. So new cash will likely flow in to try to catch up to make their year-end numbers there. Doctor, care to expand on that?

Yeah. No absolutely. So we see expansion in semiconductors and of course we’ve seen a run there and of course the 360 that we’ve had with China obviously you’ve seen with Nvidia, not to get into individual stocks compliance, but Nvidia, your AMDs that are benefiting, which is again a risk-on situation. As far as some of the tariffs recently, by the way, leading the uptrend oxymoronically even though inflation is not out of control you have your metals like copper really soaring now. We did just look at a tariff on copper—really it’s a tariff on China, guys—because if you really look at one of the major producers it is China. Refining is done in Latin America but China actually owns a lot of the Congo, so that’s kind of a backdoor tariff there to control because copper is not only an industrial metal, it’s national security regarding a lot of production on housing, transportation, and defense that we do here. Critical in construction, wires, and all kinds of—if I may on that a little bit—interestingly, the two tariff holds are Canada and China. But the asymmetry: we buy so much more from China than we sell to them. It’s really a drop in the bucket. We’ll impose much higher tariffs, but the actual cost of that is pretty nominal, right?

You know, we had a huge downturn in the spring and then the reversion. So, if you just woke up today Rip Van Winkle-style, it’d be a normal year return-wise. If you really just fell asleep through all the drama. But we still are in the midst of “sell in May and go away.” So we’ll see what happens before hurricane season is over. And that brings up a really interesting point. You know, Camarda is one of the few, I think, investment advisors that actually practices technical analysis, downside protection, market timing if you will. The point is that we have a number of custom strategies, some of which are designed, intended to protect against the downside and others are mostly risk-on and stay exposed to the market. And as clients, it’s important really to have a sense for which sort of investor you are. Is it more important to try to protect against the downside? The market is trading at very lofty levels. Eventually, it’s probably going to come down. Is it important to have some downside protection at the cost of not going up as much as the market does in a really good market? Or is it more important to be fully invested and when the market goes down be fully exposed? So go up, but if and when it really goes down, you’ll take that ride down. And it’s not our point to tell you what’s important to you. You’ll get advice from Anna and Lou and the rest of the team as to what we think is prudent for you. In retirement, you don’t want to risk too much, but at the end of the day it’s really your decision and the instructions to us as to how you want to balance these two forces. You really can’t have your cake and eat it too. You can have some of it maybe. But if we’re looking to protect against the downside, the protocols and the indicators that requires really will probably put a cap or truncate some market performance in good markets like we’ve seen since February.

Absolutely right. So if you look at bear market retracements, during a 38% drop in 2008 in the S&P 500—

What does that mean, a clear market retracement, for our audience?

Yeah. So in English a 38% drop would be about a 70% gain to make that up. So most of our clients, you’ve worked hard for your money and generally have very little money coming in and are living on the money that you have. Therefore most of our clients instead of having FOMO, fear of missing out, they have what I call FOLM, fear of losing more.

All right. So I think what he said, and correct me if I’m wrong, is that if you get pounded in a bear market, you have to make a lot more just to break even. And that’s something that’s really important to consider particularly if you’re at, in, or near retirement age as many of you are.

Well, thank you very much for that insight. [Music]

So, this happens to be estate planning quarter Q3. Next quarter is going to be year-end tax planning and asset protection. We have a number of questions that you’ve gotten. Who would like to give us the first question?

Yeah, I’ll go first. Jeff, what is probate and why do I want to avoid that as a client?

So, probate, that’s a great question. Probate basically is the legal process, a court proceeding that determines what happens to your stuff when you’re dead, right? And it can be expensive. It’s very public, which means that your assets are published in a newspaper. It’s public record. The family members, outlaws or even criminals have access to that information. There could be will contests. It can take a long period of time. And your stuff may not go where you want it to. So avoiding probate—it’s also pretty expensive in Florida. Last time I looked, if you have a couple million dollar estate, it’s like 50–60 grand. So it’s completely avoidable. And by the way, if you have a will or if you have a trust that’s in your will, as many folks do, if you have a really thick will, you think you have a trust, but you have a thick will, it’s called a testamentary trust from last will and testament. And that guarantees probate, which I think is really a bad way to go. So if you have a will, that’s basically a letter to the judge and the judge’s job is to read it and determine: is this in fact the last will or was another one issued after? Is it the last will and testament or is it an older one? Have those instructions been superseded? And then their job is to interpret the will and go through the process of allocating the assets accordingly. It’s a pain in the butt. It really is.

So ways to avoid that are having a living trust. If I have a living trust, and a living trust is in place during my life—say if Anna and I are married and we both die, and the assets are in a trust—it completely bypasses probate. You save the expense. It’s private and you’re sure to get what you want based on how we set the trust up while we’re alive. It’s a much better way to go. A living trust just means that it comes into being during your lifetime and that you’ve actually funded it. You have to put stuff in it and beneficiary your IRAs and other things with the proper language in a trust to tie everything together. Did I cover everything?

Yeah. They kind of answered the question that I was going to ask which is: why is a trust more beneficial than having just a simple will?

So I think you got it. And actually there’s a lot of other reasons besides avoiding probate and keeping things private, but our actual situation: Kim and I are married and I’ve got children from a previous marriage. Kim is probably 13 years younger than I am. So, if I go first, which is the way to bet, absent having a trust, most people have what’s called an “I love you will.” Everything goes to the spouse—in this case, Kim. Kim and I have two children together. I’ve got three kids from a previous marriage. And then Kim has all the money, right? And she may decide to give it all to our kids and disinherit my three children. Or worse, after a suitable period of mourning, love may kindle anew in Kim’s life and she may get remarried. And then if she follows a simple “I love you will,” common procedure, then maybe new husband winds up being her heir and then Kim dies and all the kids are unintentionally disinherited, and the poor cool guy gets all the money. So by having a trust that’s set up during the lifetimes, both spouses agree on what they want to happen and then when the first one goes, the rules are clear and there are controls that are put in place to make sure that things flow without moving.

Other questions?

Yeah. In the same vein of probate, why should a client be concerned about guardianship?

All right. So guardianship—that’s really an important consideration. Guardianship is when during my lifetime, if I get to the point where I’ve got Alzheimer’s or I’m disabled for some reason and can’t manage my own affairs, absent the right planning I’ve got to go through court proceedings where the judge will make him judge Lou and judge Anna, judge Lou, and it’s Lou’s job to determine first of all that I’m incompetent, not legally competent to manage my affairs, and he’s got to do that in person. I’ve got to be present. It’s very demeaning, very expensive. And then Lou, as judge, has to determine who’s going to be in charge of my money. Who’s got the checkbook. He’s got to report back to the judge every few months or every year, whatever. And it’s expensive. And by the way, the judge does not have to appoint my smarter brother Jonathan to be my guardian with a checkbook. The judge can make his fishing buddy or anybody he wants, and it happens. So guardianship is really something you want to avoid. It’s expensive, demeaning, really a horror show, and having a living trust is probably the most effective way to do that. Powers of attorney can do it too but there’s a lot more risks.

Did you have any questions?

Yeah. So I guess why is having beneficiaries and updating beneficiaries regularly, making sure that they are accurate—why is that important for a client?

Well, again, that’s a great question. It’s really, really important. And actually, I think we did a video, a webinar on this, so maybe you guys should, for clients that care about it, we can get it out there because it’s a really complicated area. But the short of it is not having the right beneficiary considerations can really screw up taxes. For instance, if I use a trust without the right language and I’ve got $2 million, and if I make my wife the beneficiary, she’s got all the money, but there’s no control on it and she can take the pool boy to Italy or disinherit my kids. Then using a trust can control that, but without the right language in a trust, she loses a lifetime stretch. She’s not going to be able to control the tax and pay a little bit each year. She’ll have to pay them out over 10 years or something like that. There’s a lot of other considerations and it’s also a real pain in the butt. You got some clients, I’m sure, that this account’s got this person as beneficiary, this one’s got another beneficiary, here’s a transfer-on-death account. And having that all coordinated as people are born and people die and the account values change—it’s a real mess. But by having a trust as the primary distribution mechanism, things come out a lot simpler.

So anyway guys, thanks so much for watching. Lou, certified financial planner. Jonathan, certified financial planner. Anna, certified financial planner. And of course, your humble servant, Dr. Jeff Camarda. Let us know if you like this format. We had a lot of fun doing it, and we’re looking forward to producing more content for you. Thank you all. Happy Midsummer to you. Mahalo.