Fake News!

Time now for Mr. Stillman's Opus, and of course John pontificates on here on a regular basis.

Glad you've decided to join us today. I'm Ron Stutz, and John of course is the author of a brand new book called The Financial Buffet, and I promise it is a veritable cornucopia of financial advice and fun stuff. I should have put veritable cornucopia on the cover now that you mentioned it. I used smorgasbord instead, smorgasbord of retirement planning lessons, but cornucopia would have gone over better.

Either way, it's a variety of financial advice that you can use and love, and John Stillman of course is the guy who puts it all together. John, I thought maybe on today's edition of Mr. Stillman's Opus we could talk about fake news. We've been hearing a lot about that lately. How have we gone this long and not done a fake news discussion? I don't know.

I've made a couple of little remarks that you just kind of ignored, but you know. There's a lot of fake news that's always been talked about in the political realm. I think basically the definition of fake news is anything that you don't like.

Yeah, exactly. You know, you just call it fake news and you don't have to argue with it or anything. Just call it fake news and that's it.

Walk away. What about fake news in the financial space? Tell us if these headlines are fake news or not. Social security going broke.

Fake news or no? All right, so the misunderstanding that most people have about social security is that there's this pile of money sitting somewhere that is the social security fund for the next however many years. That's not how it works. It's all funded by people paying into the system and then that money gets paid out to people who are retired.

I guess maybe this started with Al Gore and his lockbox concept back in the day where he always talked about putting social security in a lockbox and so maybe that created the perception in people's minds that there's a pile of money sitting out there and that we're stealing from that fund to pay for other stuff. I'll refrain from doing my Al Gore impression. Feel free.

Feel free to. It's in a lockbox. Yeah, exactly. I remember that. The thing you have to understand is that it's basically a Ponzi scheme, right? Where you're always paying people out with money that new investors are putting in, right? That's basically how it works.

All the time. But when you look at it from that standpoint and yeah, it sounds terrifying when you call it a Ponzi scheme, but when you think of it that way, you realize that it's not going to go broke because there's no money in there. It's always just new people paying in and then paying that money right back out to people who are taking their social security benefit. So the way it would quote unquote go broke obviously is if there's more people taking out than there are putting in. Yeah. It's not like a reservoir that we've drained. It's just you have more takers than you have putter inners if you want to use the technical term.

That's a new one, but yeah, that's cool. And when you look at demographics, there's going to be a period of time, we're actually really close to it, where there are more people taking out or at least more dollars coming out than being put in because the baby boomers were a big generation, right? That's why they were called the baby boom. Absolutely. There was a lot of them.

I am one. Yeah. A lot of pent up aggression after the war. Everybody came home and then we have babies. But the generation after the baby boomers was not as big a generation, right? So generation X essentially, not as big as the baby boomers. Well, the millennial generation though is bigger than generation X. So yes, when we have this point where the most baby boomers are taking money out of the system and the generation Xers are absolutely carrying the water for everybody, yeah, we might have more dollars coming out than going in.

That's completely possible. It's not going to be trillions and trillions of dollars difference, but it could be for a few years we see that being the case. But once generation Xers retire and now the millennials are in their prime earning years, the children of the generation Xers, well now suddenly the numbers have evened themselves back out because there are more millennials than there are generation Xers.

So it's not really going broke. It's just that we have a period coming up where it's going to be a little bit challenging from a demographic perspective, but the demographics being what they are, that's eventually going to correct itself. So yes, we might have a period where we have to weather the storm for a little while, but that won't be the quote unquote new normal as far as social security is concerned.

But it's not going away. Look, politicians are terrible at a lot of things. They're, however, really good at staying elected, and they're not going to do anything that messes with that voting block that is people currently receiving social security, okay? Y'all all vote, always.

The most disciplined voting group you'll ever see is senior citizens, and they're not going to do anything that really messes with the economic livelihood of those people. Well, I think it's really interesting to find out that I am the product of a lot of pinup aggression. But I'll just say the most family friendly word I could use.

Maybe we can talk about that in another show. But how about, here's another headline for you. Tell me if it's fake news or not. The crash of the dollar is imminent. Buy gold now. Fake news?

Yeah. I mean, so, the irony with the buy gold marketing is essentially people are saying, look, your dollars are about to be worthless. We're going to have this devaluing of our currency. Therefore, you need gold so that you can trade and barter and buy and sell when your dollar is worthless. Okay, so, what you're telling me, Mr. Man, advertising on cable television at one in the morning, is that dollars are about to be worthless. Therefore, you're going to do me a favor by taking these about to be worthless dollars off my hands and replacing them with gold for me.

You are willing to accept my dollars in exchange for gold. Process the logic of that. Interesting way to look at it. It doesn't make a lot of sense.

No, it doesn't. So, any time you come across something like that, you sort of have to question the motives of the sales tactics going on there. Now, that's not to say that you should never have any gold at all in your portfolio. I think it's absurd for people to have 25% of their portfolio invested in gold.

I've seen that, and I've told people that's absurd. But if some people are going to go that route, that's fine. If it's 5% of your net worth that you have in gold, you know, fine. But let's not approach it from the standpoint of, the dollar is about to be worthless, therefore, I need a safe in my house filled with gold coins and bullion to feed my family for the next generation.

And in exchange, the other person is going to take a bunch of worthless dollars, dollars that are about to become worthless. The reason to have precious metals of any kind in your portfolio would be because they're not correlated to other things in the market. So, it's great to have different assets that grow or lose value in different ways at different times. And if you look at the long-term track record of gold as an investment, it's not very good from a growth perspective. But if you say, well, I like something that moves inversely or just in a way that's not correlated at all for my stocks or my bonds or whatever it is, okay, fine. From that standpoint, it makes sense.

But if you're approaching it with that standpoint, you're not going to go overboard by having too much gold in your life. Here's another headline for you, John. Tell me if this is fake news. Market crash coming soon.

Fake news or not? We don't know until it's in retrospect, right? I've never come across anybody who can really show me any tangible proof that they consistently predict market crashes ahead of time. There are a lot of people who look back, they research old market crashes and they say, oh, well, it was because this was happening. And we can identify these metrics and this was overpriced and that's why the market crashed.

Well, in retrospect, maybe that's true. But usually those same indicators are not indicative of the next market crash. There's a guy named Harry Dent who is a great example of this.

Harry Dent, you'll see him on CNBC or Fox Business or channels like that from time to time. And he is always predicting the next market crash. He's been predicting the next market crash since, I think, 2009.

Right after we started to recover from the last one, he was predicting the next one and it was going to be worse than the one we just had. Well, that may be true eventually, but what I know about people like that is once the next crash finally happens, they're going to say, see, I told you so. Well, no, you can't say I told you so after you said the same thing for seven or eight years and then finally it came true.

That's not how I told you so works. My point is this, are we on the verge of a market correction completely within the realm of possibility? I think you need to be preparing in your portfolio as if that could happen tomorrow afternoon, right? It's completely possible that we could have a downturn in the market very soon. And it could be big, it could be a good-sized correction. But it could be another two or three years before we see a correction like that. So, the point I'm always trying to make in terms of planning for a correction is not trying to time it perfectly and say, okay, well, Tobin's Q ratio indicates that we're about to have a downturn in the market. That's a fine metric to look at. But again, a lot of people have been using Tobin's Q ratio for two years to tell us the crash is imminent.

So we just don't know. The point is, if you're retiring tomorrow afternoon, we need money to create your income that's not at the whim of the market. And if you're not retiring for 20 years, who cares if we have a crash tomorrow? You have recovery time, that'll actually be a buying opportunity for you. If we have a crash, you start putting more money in and you ride it up.

So, that's the two extremes. You're not retiring for a long time or you're retiring very soon. If you're retiring seven years from now, well, it's a little murkier, right?

Because we don't know if we want to be too conservative or more aggressive, or what should we do? Well, that's where a good retirement income plan comes into play. Because you're going to have some dollars that need to be conservative. Because let's say you are retiring in seven years. Well, if we have a crash in two years, those dollars may not recover by year seven when you need them for income. So, we want some money set aside for your income seven years from now. But there's going to be money in your portfolio.

I don't care if you're 72 years old. If you're not planning to die next week, there's almost certainly some of your investment money that you don't need for a decade or more. And that money doesn't just have to be parked in cash because you're afraid of a market crash. You can afford some volatility with some percentage of your wealth in almost all cases. That doesn't mean you enjoy the volatility necessarily, but in almost every case, you have money that you don't need for a while, so a market crash next week doesn't hurt you. That's all I'm saying about a market crash, is that, is it coming? Maybe, maybe not, we don't know. But you do need to be prepared for if it does or if it doesn't. And when it does, whenever that is, you can always look back and say, I told you so. And you know, that's the best explanation of fake news that I've heard from anybody, John. Thank you so much. Always a pleasure. You've been listening to Mr. Stillman's Opus, where everything is always harmonious and the orchestra always hits the right notes.