The Fed’s Aiming for a “Soft Landing”

Our 2 Cents – Episode #103

The Fed’s Aiming for a “Soft Landing”

Storms were brewing here in Chicagoland and on Wall Street this week, and we’re back to discuss it all on a new episode of Our 2 Cents!

From the Fed’s rate hike decision, to the current Bear Market, we’re covering all the major events that took place this week. Plus, we’re sharing some local “quick hits” and answering listener questions. Join us now!

1. The Fed’s Aiming for a “Soft Landing”:
   • The Fed raised interest rates again in hopes to cool inflation, what does this mean for investors?
   • Are we going into a recession? If we do, what could happen to the market?
   • We’ve officially entered Bear Market territory – we’ll explain what that means.
2. Local Quick Hits:
   • To infinity… and beyond! The new “Lightyear” movie premiered June 16.
   • Caterpillar joins Boeing by making a major move.
   • From an EF-0 tornado to a heatwave, Chicago weather continues to keep us on our toes.
3. Listener Questions:
   • “I’m interviewing and comparing a couple of different financial advisors. What metrics are most important to compare them on?” – Randall
   • “I am not going to spend through my savings during my life and I’m going to end up leaving a lot to my kids. They’ll probably be in their 40’s or 50’s and I feel like they could use the money more now. Should I start gifting them money now versus leaving them a big chunk for later?” – Ruth

Tune in now to join us for this discussion!

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847.499.3330

Podcast Transcript

Announcer: You’re listening to Our 2 Cents with a team from SGL Financial, building well for life. Steve Lewit is the president of SGL Financial, and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news trends, strategies, and more.

Gabriel Lewit:  Good morning, everybody. Welcome to Our 2 Cents. It’s a fantastic, excellently sunny hot day here in the swamp of Chicago.

Steve Lewit: Yeah, the humidity is what, 110%?

Gabriel Lewit: I think it’s 220 degrees outside today.

Steve Lewit: That what it feels like. I thought we were going to get a cool night or something like that, it didn’t happen.

Gabriel Lewit: Well, they say it’s going to snow tomorrow. No, I’m just kidding. They don’t, folks, but it is hot in here. It’s hot.

Steve Lewit: So be careful out there.

Gabriel Lewit: The podcast room we’re sitting in has the sun. You can’t see it naturally, because you’re listening to us, but it’s streaming through the windows and steaming up the place here. So, we got our waters and our ice coffees in hand. Well, Steve’s got a hot coffee.

Steve Lewit: I do.

Gabriel Lewit: That’s probably why you’re feeling extra toasty.

Steve Lewit: Yeah, it might be some other stuff going on, but yeah, that’s for sure.

Gabriel Lewit: Yes, exactly. Well, folks, hopefully you’re staying cool out there. Grab your ice mocha joe, have a sip, or a lemonade or something, but we’ve got a good show lined up for you here today.

Steve Lewit: Mocha joe sounds really good just now.

Gabriel Lewit: It does. I think there’s some TV show where a guy calls his coffee shop Mocha Joe’s. But good coffee name. Yeah.

Steve Lewit: So, what are we talking about?

Gabriel Lewit: Well, you know already, and so that was a good rhetoric question, but we are talking about, naturally, how can we not talk about what the market has done this last week? I think we would be abdicating our podcast duties here to not at least touch upon that.

Steve Lewit: Everybody’s talking about it.

Gabriel Lewit: They are. So, we’ll touch upon that. We’re not going to harp too much, but we’ll talk a little bit about the market and that slide into bear market territory just a bit. And we’ll talk a little bit about the other big announcement which we would have to mention, of course, is the Fed raising interest rates yesterday, what does that mean? And if you heard me say yesterday, you guessed it correctly, we’re recording this on a Thursday here today, you might be listening on Sunday when you get the email. But then we’re going to talk a little bit about some quick hits in the listener question or two if we’ve got time. So that’s on our radar and our agenda so let’s go ahead and dig on in.

Steve Lewit: I’m excited.

Gabriel Lewit: Now, dad, I’ll let you take the steering wheel here, which would you like to talk about first, the inflation rate being hiked… Not the inflation rate. Well, that’s being hiked too.

Steve Lewit: It’s going up.

Gabriel Lewit: The hiking interest rates or the bear market, the stock market.

Steve Lewit: Well, they’re connected.

Gabriel Lewit: They are.

Steve Lewit: They are connected. The market does not like rising interest rates, it’s that simple. Rising interest rates make everything expensive, rising interest rates kind of controls, like the thermometer for everything. So once the market got a sniff that interest rates were rising, guess what it did? It said, “I’m going down.” Now, why did the Fed raise interest rates? Because inflation that was supposed to go away and be temporary a year ago has doubled, this time last year inflation was 4.4%.

Gabriel Lewit: Well, I don’t know if it was exactly this time a year ago when the Fed was saying, “Hey guys, don’t worry. This is transitory inflation.”

Steve Lewit: Right, exactly.

Gabriel Lewit: Just going to be a little blip on the radar.

Steve Lewit: Yeah, so that little blip doubled in size and now it’s 8.6.

Gabriel Lewit: It’s no longer a blip, it’s a speed bump or more.

Steve Lewit: And inflation is bad for everything and everybody and especially if it gets out of hand, like it is, I believe, in Iran where inflation is run away, and they have big, big problems there. So, here’s the deal. So, the Fed says, “I want inflation to be at 2%. That’s where we want it to be.”

Gabriel Lewit: And folks, right now it increased 8.6% year over year for the data that came in for May, which was, it doesn’t say here the largest increase year over year in a very long time.

Steve Lewit: Well, it’s 8.6 for this year today, isn’t it?

Gabriel Lewit: Well, that’s the increase from this from May, from one year ago in May.

Steve Lewit: Oh, you mean year to this year from the last year?

Gabriel Lewit: Yeah, year over year.

Steve Lewit: Okay. Yeah, so these are big numbers, and you see the Fed is has got its hand on this little faucet and it controls money. And for there to be inflation, guess what people have to have?

Gabriel Lewit: They have to have money.

Steve Lewit: You got that right. So, I’m so proud of you.

Gabriel Lewit: Is that what you wanted me to say?

Steve Lewit: I’m so proud of you. I did a good job in training you Yeah, so think of it in terms of-

Gabriel Lewit: Because if you don’t have money, you can’t pay more for goods and services.

Steve Lewit: So, think of it as supply and demand. When there’s too much supply, like when there are too many houses on the market, what happens to the price of houses? It goes down. I’m not going to ask you that.

Gabriel Lewit: I thought I had another easy winner.

Steve Lewit: What’s that?

Gabriel Lewit: I thought you were lobbing me up an easy winner.

Steve Lewit: I’ll do another one. And when there’s not enough money, the price of houses goes…

Gabriel Lewit: When there’s not enough money?

Steve Lewit: I mean, when there’s too much money.

Gabriel Lewit: Oh, the prices of houses go. Yeah, you’re tripping me up here. It goes up.

Steve Lewit: That’s correct.

Gabriel Lewit: Because people are willing to shell out more if money is flowing freely.

Steve Lewit: That’s right. So, what the Fed does in controlling the money supply is they reduce the money supply. There’s less money going around, the Federal Reserve rate, which is what banks borrow money out for themselves, they raised that, it was zero, now it’s over 3%. So, when banks borrow money to manage their own input and output of money, that goes up, that becomes more expensive. So, they’re reticent to do that, businesses are reticent to invest because they… Thank you. Gabriel just told me I wasn’t talking into the microphone.

Gabriel Lewit: Well, I didn’t say it. I just pushed the microphone closer to your face because you were speaking.

Steve Lewit: Right into my nose folks. Yeah. So, the Fed says, “We’re going to reduce the money supply.” Now the problem they have is that a lot of people have accumulated a lot of wealth from pandemic times because they didn’t spend money and they got a lot of money that was given out so there’s still a lot of spending power here and the basics or the essentials of the economy are still very strong.

So, where that brings us to folks, if you’re following all of this, is do we go into a recession? Now, what’s a recession? A recession is where the gross domestic product, which is the GDP is negative for two quarters in a row. And we haven’t seen that yet, but that’s the question now is, do we go into recession? And what happens to the stock market if we go into recession? And history says the market could go up or down in a recession. Yeah.

Gabriel Lewit: Let’s take a breather and recap on that one. So, folks, as you can tell, Mr. Lewit over here was an economist because that was a great economical analysis. So let me, if I can, pops because that was a lot to digest, we’ve got a few moving parts. We’ve got inflation, that’s spiking. Fed trying to control inflation, thus raising rates, which is going to lower the amount of money that companies have access to. Or even that individuals, for example, mortgage rates are almost 6% now.

Steve Lewit: Yeah. It’s great. It went up so fast.

Gabriel Lewit: Okay? So, imagine this, you’re looking now at the mortgage payment that’s a thousand dollars more a month than it was a year ago. And you say, “Well, I cannot afford that.” And so, what do you do? You don’t take out the mortgage and thus there’s less money supply in the economy. And what this can start to trigger if you’re not careful is then housing builders don’t have as many sales, real estate agents don’t make as much commissions. There’s this trickle-down effect that can flow into a reduction in GDP, which if you’re not careful, this is what’s called the soft landing the Feds are aiming for, they’re trying not to create a recession and they’re trying to combat inflation, but also avoid a recession.

Steve Lewit: Yeah. And well said, Gabriel. So that’s really hard to do, like housing starts have already gone down because of the rising mortgage interest rates. Now, housing is a huge component of the GDP. So, if housing goes down, the Fed has to say, “Okay, how far do we push this without pushing everybody over the cliff into a recession where then you get unemployment and you get all kinds of other problems?”

Gabriel Lewit: Right. So folks, there’s a lot going on here, but we wanted you to at least be empowered with a little bit of know-how in case you hear someone saying, “Yeah, Fed raised rates and what does that mean?” And are they going to raise more rates? Chances are over the course of the year, yes, they are going to raise rates more because inflation is still not yet under control and that’s what the Fed is aiming for. We cannot have runaway inflation.

Steve Lewit: No, the question everybody asks us Gabriel, “Well, is the market going to keep going down?” Fact is-

Gabriel Lewit: Well, that’s our second part here. What happened on, I think it was Monday of this week?

Steve Lewit: The market went down.

Gabriel Lewit: Yes. Well, it officially hit to bear market, the S&P officially hit bear market territory.

Steve Lewit: NASDAQ was already in bear market.

Gabriel Lewit: Yeah, NASDAQ was already in bear market territory. And so this has created a lot of questions from people out there, “Where is it going next”?” And so we had a webinar this week actually, if you didn’t get a chance to watch it, we talked a little bit about a lot of these topics here, inflation the market forecast, but also strategies of what you can do when the market is down as you’re thinking about retiring. And so, some of the things we talked about there is historically there are bear markets that have been down 20% and then recovered relatively quickly, like 2020, just a couple years ago. That was-

Steve Lewit: 31%.

Gabriel Lewit: Yeah, 31% came back very quick. But then you’ve got 2007, or 2008 as most people think of it, that it went down over 50% and generally was around about the year mark so a fairly quick bear market actually, historically. And then you’ve got the 2000 to 2002, which was almost a two year plus decline from peak to bottom.

Steve Lewit: And both of those took three to five years to recover back, to break even.

Gabriel Lewit: Yes, to break even folks. So here are the challenges that we’re facing with these bear markets is they’re unpredictable in how severe they will be. And so, the question I think that you may be thinking is, “Are we at the bottom now of the bear market? Or is there still room to go?” That’s the question that people are looking for the answer for.

Steve Lewit: Let me take out my crystal ball here and see, it says, it says…

Gabriel Lewit: “I don’t know.”

Steve Lewit: I don’t know, it got all fogged up.

Gabriel Lewit: It got foggy, yes. So yeah, that’s the truth guys, nobody knows. And anybody tells you that does, doesn’t really, they’re making a guess. And so, we are just going to come out and tell you that we don’t know and nobody knows because that’s the truth. And so, what do you do with that? Well, you have to plan for the potential that it’s going to continue to go down and have a game plan in case it starts to go up. So basically, you’re preparing for both options in your plan. And as we talked about on our webinar, the number one goal to do that is have a plan in the first place.

Steve Lewit: But not an illusion plan that’s like, “Oh, every-”

Gabriel Lewit: Like a real, genuine, actual, physically detailed out imprinted financial and investment.

Steve Lewit: For the most part, Gabriel, I think I can say this across the board, our plans always look at probably, what is the worst-case scenario for a client? What we want to know folks is what’s the worst thing that could happen to you and will your plan work in the worst-case environment? And that’s how we sleep at night by knowing we’ve given you a plan that at least tries to take into consideration all the crazy things that could happen because something could happen that’s even crazier, but we don’t know that.

Gabriel Lewit: And I can’t guarantee it, but if it helps us sleep at night, then chances are it means it’s helping you sleep better at night to see those same things. And so, I think in a nutshell, we don’t want to get too deep down though, ‘you got to have a plan’ rabbit hole that we always go down. But with things like the Fed raising rates, the market declining, inflation being high, what we really emphasize on the webinar that I’ll emphasize again here is just it’s that much more important if you don’t have a plan yet and especially if you’re nearing retirement but either way, to get that plan in place today.

Steve Lewit: Yeah. I was on WGN when was it? Monday?

Gabriel Lewit: Oh yeah, you’re a rockstar. Folks, if you didn’t see it, they invited Steve back to talk about-

Steve Lewit: Just about this.

Gabriel Lewit: The bear market being hit, yeah.

Steve Lewit: So, my autograph prices folks just went up another penny or up to 26 cents.

Gabriel Lewit: So, this is Our 27 Cents so you had one for me in there.

Steve Lewit: I forgot what I was going to say. What was I going to say?

Gabriel Lewit: You were on WGN.

Steve Lewit: Yeah, but it was something that I was talking about on WGN because they asked me a really interesting… Oh, they asked me about diversification of a portfolio. And the thing is that the sector that is suffering the most is the tech sector and that’s why the NASDAQ is down because typically NASDAQ is tech driven over 30%. And a lot of folks who enjoyed the tech growth and were heavy in tech stocks that came into us Gabriel and said, “Well, I’m beating your portfolio,” and they were because we have a diversified portfolio, they’re getting hit the hardest now. So that portfolio is very volatile and then you’re counting on tech coming back and nothing else if you’re in a highly tech portfolio. So, the other lesson there is diversification.

Gabriel Lewit: Yep, yep. And so, I think it’s a very uncertain time and the goal is to try to create certainty and a plan. And we’re here for you if you need help with that. And so, we don’t want to spend too much more time on this. If you’ve got questions on the market, on the interest rates, on your planning, how this all impacts you, give us a call.

Steve Lewit: Yeah. I would say if something is worrying you, like I had a client in yesterday, Gabriel, and I said, “What’s your goal for this meeting?” He says, “Just to talk to you, I’m just worried and I don’t want to worry.” And we went through his plan, and he saw we had all these losses already in his plan and he walked out of here happy.

Gabriel Lewit: Yeah, same thing. I had a client two days ago gave me a call and just for a 10-minute chat. And she said, “Do I need to worry?” I said, “Nope, your plan actually in fact looks great. We’re doing better than many, many, many benchmarks. Your plan looks terrific still, this is not going to impact you whatsoever.” And she said, “Oh, great. I feel better now.” And then we chatted for a few more minutes and off we went.

Steve Lewit: Yeah. Not to beat a dead horse, but that’s the value of a plan.

Gabriel Lewit: Yeah, absolutely. Well, yeah. Give us a call folks. (847) 499-3330, we’re here for you or go to sglfinancial.com and click contact us to schedule a time to chat. Before we cover some listener questions last on our agenda here for today, I want to cover a couple quick hits, just little interesting tidbits that you may or may not be aware of that are in the news.

Steve Lewit: Can I interrupt though?

Gabriel Lewit: You may.

Steve Lewit: Because I don’t know, I’m thinking this, where did that saying come from? Don’t beat a dead horse. I don’t want to beat a dead horse.

Gabriel Lewit: I don’t know. Sounds kind of…

Steve Lewit: Western, like from old west?

Gabriel Lewit: Sounds a little sad for the horse.,

Steve Lewit: Why would anyone want to beat a dead horse?

Gabriel Lewit: I think that’s the point.

Steve Lewit: Yeah, I understand that but who thought of that?

Gabriel Lewit: It’s got to be an older thing.

Steve Lewit: It could have been a dead rabbit.

Gabriel Lewit: Who the heck knows?

Steve Lewit: Or like a dead rooster or something.

Gabriel Lewit: You’re bringing us down, man.

Steve Lewit: Oh, I’m sorry.

Gabriel Lewit: You’re bringing us down.

Steve Lewit: Such violence.

Gabriel Lewit: It’s a sunny, bright day, let’s go back up.

Steve Lewit: Okay. I’m sorry. I do that sometimes.

Gabriel Lewit: Let’s hit the brakes and hit reverse on that one.

Steve Lewit: Okay. I rebooted.

Gabriel Lewit: Okay, well, let’s talk about some tidbits here. So, if you aren’t aware or you don’t have kids or grandkids, maybe you do, “Lightyear” is a movie coming out this weekend in the box office. And this is the prequel, I believe, to the Toy Story franchise series. Okay. So, if you have kids or grandkids, chances are, they have watched many of the Toy Story movies and one of the characters in Toy Story is Mr. Buzz Lightyear.

Steve Lewit: You had it.

Gabriel Lewit: The space ranger.

Steve Lewit: You had, and our other children, your brothers and sisters had rooms full of Lightyear buzzing around.

Gabriel Lewit: Yeah. Well, so yeah, space ranger, Buzz Lightyear he’s an intergalactic protector that was in, again, a character in Toy Story, but you’ve got a brand-new movie for Buzz Lightyear that’s coming out in the theaters this weekend. And if you haven’t been to the theaters in a while, it’s a lot of fun. I took my six-year-old and five-year-old a few weeks ago.

Steve Lewit: Oh, I didn’t know that.

Gabriel Lewit: And they really thought it was a hoot. And so, if you’ve got grandkids or kids that might be interested in seeing Buzz Lightyear in the theater, go on out, have a good time support the GDP of the economy.

Steve Lewit: Help us out of a recession.

Gabriel Lewit: Keep us out of a recession, right? Although with inflation, your popcorn’s probably $92 for a bucket of popcorn at the movies, who knows? So yeah, it looks like it should be a pretty good one. I’m actually thinking of taking my kids to see this one as well. So, okay, that’s number one. Number two quick hit here, we’ve got Caterpillar, the company, not the little animal has decided to move its headquarters from Deerfield, Illinois… Dad. You’re aware of Deerfield.

Steve Lewit: I am.

Gabriel Lewit: Because you live there.

Steve Lewit: Yeah, I’m trying to think of where Caterpillar is.

Gabriel Lewit: But yeah, they have decided they are going to move their headquarters from Deerfield to Texas. And that is not the only company that’s made a move. The airplane maker Boeing actually decided to make a move around six weeks ago that they were moving outside of Illinois as well. And so, what does that mean, you think? Illinois, great place for businesses.

Steve Lewit: My goodness. My God, I don’t even want to talk about

Gabriel Lewit: Filled with high property taxes.

Steve Lewit: See, now you’re bringing me down.

Gabriel Lewit: Gosh. So, it’s interesting, obviously we want to bring big businesses to Illinois that’s good for the state, but we seem to be going in the other direction. So yeah, just that’s another little quick hit for you. The last quick hit that I’ve got here for you is you probably were aware of the crazy weather that we had the last week or so, very high heat.

Steve Lewit: Unless you never went out.

Gabriel Lewit: Unless you never went outside. Actually, Steve and I here were finishing up, I think it was either the webinar night or a client, I don’t know, but we went to leave one day it was two days ago and it was absolutely monsoon-ing.

Steve Lewit: Yeah, we couldn’t get out.

Gabriel Lewit: There were tornado sirens going off and there was lightning and thunder and monsoon and winds. And literally, I mean, I can’t run because my knee is still recovering from surgery and I could walk, but I can’t run. We tried to wait it out, we sat there for about 15 minutes, and it just didn’t let up at all. And then finally, well, you braved. Steve was my hero folks.

Steve Lewit: I wasn’t going to say that.

Gabriel Lewit: My knight in shining armor.

Steve Lewit: Guess who braved the weather?

Gabriel Lewit: He braved the rain to get to his car, which was closer than mine.

Steve Lewit: And the lightning.

Gabriel Lewit: And the lightning and the tornadoes, which were nowhere near his car to get to his car and then come pick me up right by the overhang.

Steve Lewit: Chauffer came.

Gabriel Lewit: And then drop me off by my car. What a guy

Steve Lewit: What a guy?

Gabriel Lewit: What a guy.

Steve Lewit: My autograph just went up another penny.

Gabriel Lewit: But what’s interesting here is there was in fact a EF-0 tornado that was confirmed a touchdown in Roselle.

Steve Lewit: That’s amazing.

Gabriel Lewit: So, you were hearing those tornado sirens because there were in fact tornadoes. Now, an EF-0 is a fairly mild tornado and apparently the worst it typically will do is knock down a bunch of trees and maybe a tiny little bit of property damage, but still kind of crazy. If you think about it, you still wouldn’t want to be in the path of an EF-0 tornado.

Steve Lewit: Yeah, and there was an apartment building roof in Chicago somewhere that was totally ripped off. Those people just got… Imagine sitting and watching TV and the roof disappears of your apartment.

Gabriel Lewit: Well, we were talking, right? Like we’re here in our office building, there’s no basement. And I was saying to my dad while were waiting, like, “What would you do if it’s like the movie Twister, you just saw this massive tornado coming right towards you and there’s no basement to go into?” He’s like, “I would go inside the building.” I’m like, “What’s that going to do?”

Steve Lewit: Yeah, then he says, “Well, what if the building across the street just got torn up by the tornado?” I was like, “What are you asking?”

Gabriel Lewit: We were sitting there for 20 minutes trying to wait out the water, we got to talk about something.

Steve Lewit: Scaring the daylights out of me, we’re going to have a tornado.

Gabriel Lewit: Well, one of my favorite movies as a kid was Twister so I was really into that.

Steve Lewit: Oh, I like that movie too. Then he says to me, “How do people die in a tornado? Is it the debris or is it the wind?” What are we talking about here?

Gabriel Lewit: I don’t know, who knows? Well, anyways, we’re looking at some interesting pictures that were in the article on the Chicago Tribune here and yeah, there is a lot of tree damage, some really big trees and a lot of debris. And so definitely nothing to sneeze at.

Steve Lewit: Yeah, it was something to take seriously whereas most of the time I hear those sirens and I kind of say, “Yeah, okay.”

Gabriel Lewit: Well, most of the housing damage, like this one here, comes from the tree, falling into the houses, for example, from those kind of tornadoes. So pretty crazy weather we’re having. Speaking of that, it is supposed to stay hot for another day or so and then it’s supposed to be a nice, cool weekend.

Steve Lewit: Yeah. It’s going to stay hot. I think California, Katie is that right, California has big heat problems?

Gabriel Lewit: Well, we’ve got lots of weather craziness going on in the country right now. I don’t know if it’s in fact global warming like some people might imply, or it’s just a crazy time right now, but there’s crazy flooding in Yellowstone, they closed down all a Yellowstone. You see some of the pictures, which is interesting, because I looked at some of the pictures and there’s these rivers that completely washed out a bunch of roads and stuff and it reminds me when I was a kid, I lived in Vermont as some of you on the podcast you may know about me, but I lived right next to a river.

And most of the time, this river is like two feet deep and nothing to worry about. There were some flash floods, however, a couple of times where this river’s waters rose about 12 feet up to the banks of the river and the road and one time it was so severe that it did in fact wash out the entire road and I was cut off from town. Well, my mom was cut off, I couldn’t drive yet at the time. And we were cut off from town and literally we had to wait for like two days while the town whatever people came and built the temporary road around the river being washed out. It’s pretty crazy.

Steve Lewit: I don’t remember that, but I do remember the river and the bridge on the road.

Gabriel Lewit: Yeah, no, it was cool because I was able to walk over to the bridge and literally the water that was normally 12 feet below me was one foot away from this bridge that if it had arisen any further, could have washed out the whole bridge. So, when these rivers are roaring, they’re roaring. So, it’s interesting times. So, I felt a connection to that story. Anyways, that’s our tidbits for today.

Steve Lewit: And they are tidbits.

Gabriel Lewit: They are tidbits, that’s right. I just thought that’d be a little bit of fun to add some little updated news and information.

Steve Lewit: I enjoyed them.

Gabriel Lewit: Okay. Well, as I mentioned the last time, we’ve got a few listener questions that we didn’t get to and today I’d like to tackle one or two of those. So first of all, we’ve got Randall who says, “I’m interviewing and comparing a couple of different advisors. What metrics are most important to compare them on?” Randall.

Steve Lewit: Wow, that’s a good question, Randall. So, what would you say, Gabriel?

Gabriel Lewit: What would I say?

Steve Lewit: You’re sitting and interviewing an advisor.

Gabriel Lewit: I’ll give you one easy one, do you like them?

Steve Lewit: Oh, you’re reading my mind.

Gabriel Lewit: That’s question number one.

Steve Lewit: Yeah. I think if you like somebody the second you meet them.

Gabriel Lewit: I do too. I do too. So that’s a first one, right? Do I like this guy?

Steve Lewit: Or gal.

Gabriel Lewit: Or gal, absolutely. I think number two is we talk about this a lot is, what is the range of their services? And what I mean there is some investment advisors focus just on the investment piece and other advisors are more comprehensive planners.

Steve Lewit: Or there are advisors that focus mostly on the investment piece, but say, “Oh yeah, we use insurance products and everything,” but really don’t.

Gabriel Lewit: Right. And so, the first question is, are they just investment folks or do they provide a full range of services such as tax planning, financial retirement, income planning, estate planning-

Steve Lewit: Social Security.

Gabriel Lewit: Social Security, insurance? All these other things are very important to a well-rounded plan, Randall. And then I think the third part is going to be getting a taste of what that planning experience looks like. And so that’s just part of building that trust factor. I mean, A, if you like them and B, they have a very wide range of services. Then the third one is starting to really get a sense of, is there any, as you like to say, meet on the bone to what they say that they’re offering? And the best way you’re going to do that is start to have them give you some examples and/or show and tell of what those various deliverables might look like.

Steve Lewit: Well, I had a client come in, a client was interviewing us and interviewing two other advisors and they all said, “Oh yeah, we do tax planning.” And so I said, “Well get a sample of the tax plan,” and he came back and he said they couldn’t give me a sample. There was no tax plan.

Gabriel Lewit: Was no tax plan, right. Yeah, that’s very common. Someone says I do tax planning, and then you ask them, “Can I see a tax plan?” And they say, “Well, if you have a tax question, I’ll help you with the tax question.”

Steve Lewit: Yeah, I’ll get you an answer.

Gabriel Lewit: Very different.

Steve Lewit: Be careful. Unfortunately, in our business, there’s a lot of smoke and mirrors and whatever they say, get an example, an illustration, show me what you did for another client. Something that you can put in your hands and maybe even show to another advisor and say, “What do you think of this?”

Gabriel Lewit: Yeah. And Randall, I think a fourth one, there could be a lot, and we won’t rattle through the whole list, but the number four item would be what is the advisor’s investment philosophy? And are we in alignment there? So, if you are a heavy individual stock picker and your advisor believes in low cost diversified mutual fund-based portfolios, like we do, maybe they’re not a good fit. And that does happen. I just had someone the other day that said, “I love picking individual oil stocks, and I’m looking for an advisor to help me identify the next hot sector to sell these and buy into the next one.” That’s a very active, tactical timing-based approach that I personally believe, and you believe, doesn’t work in the long run.

Steve Lewit: That’s right.

Gabriel Lewit: And I told him that, and we didn’t work together which can happen. We weren’t a good fit.

Steve Lewit: Wasn’t a good fit.

Gabriel Lewit: Yeah. So, Randall, hopefully that helps. Again, what kind of services do they provide? Do you like them? What’s their investment philosophy? Do they really actually do the things they say they’re going to do? That should give you a good starting point to be able to make a better informed decision.

Steve Lewit: Surely.

Gabriel Lewit: Yeah. Folks, if you have any follow up questions on that, just write in, let us know. Lastly here, we’ve got Ruth that says, “I’m not going to spend through my savings during my life and I’m going to end up leaving a lot to my kids and they’ll probably be in their forties or fifties, I feel like they could use the money more now, should I start gifting them money now versus leaving them a big chunk for later?”

Steve Lewit: Cool. Great question.

Gabriel Lewit: Now, what do you think Mr. Lewit?

Steve Lewit: Yeah, so I’m inclined to gift to children or charities while I’m living rather than when I’m gone, because I want to see them enjoy the money. Now, how you do that, there are a variety of different options to do that. I just got a call yesterday, you could just gift money. So, I got a call yesterday, “Hey, how much can I gift?” And this is from a woman that has about $2 million. She said, “I can only gift 15,000 a year, right?” And I said, “Well, you can gift a lot more than that if you want to, because it will go against your lifetime exception, which is right now 12 and a half million,” and she does not even close to that. So gifting is one way.

There are other strategies in life insurance and buy it on the children, but not for the death benefit, but to build cash value inside. So, you’re basically creating a lifetime Roth for them that they will enjoy when they’re 65 and buy life insurance policy on them, which you own and can control if you happen to need the money, but then they get to use when you pass away. So, a lot of different strategies, but I love the idea of transferring wealth when the kids are alive.

Gabriel Lewit: So, I think a pretty straightforward answer there Ruth is feel and see more of the hard earned money that you accumulated as opposed to, I mean, yeah, if you pass away and they get it, they’ll be very appreciative.

Steve Lewit: Maybe.

Gabriel Lewit: Hopefully, hopefully, but you won’t get to see that. And I said, the philosophy here is it’s not just about the money, it’s about putting it to good use. And you might be able to see it-

Steve Lewit: Sorry to interrupt. For grandchildren, so children are one thing, but you may want to set up funds for grandchildren and there are lots of ways to doing that depending on your wealth and what your inclination is.

Gabriel Lewit: True, true. Very true. All right, folks. Well, that wraps our, any questions, I think quite a few topics. 847-499-3330, visit us at www.sglfinancial.com and click on contact us and that’ll lead you to a form where you can ask us your questions and then we’ll talk about them. Actually, I just got another email from someone yesterday, but I didn’t have a chance to prepare for it for today’s show, so we’ll have a few more listener questions on the next round.

Steve Lewit: Cool.

Gabriel Lewit: All right. Have a wonderful day. Stay cool.

Steve Lewit: Stay cool everyone.

Gabriel Lewit: Have a nice weekend, we’ll talk to you soon. Stay well.

Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at 847-499-3330, or visit us on the web at sglfinancial.com, and be sure to subscribe to join us on next week’s episode.

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