Housing Market Bubble?

This is Doug Hastings, Vice President of Moody Radio, and we're thankful for support from our listeners and businesses like United Faith Mortgage.

Let's call it the couch cushion dash. This is the moment when you need a tip for the pizza man, a few bucks for your kid's lunch, or you can't say no to the sweet eight-year-old and her Thin Mints. But you've got no cash and no other options but to tear apart the house searching for hidden money. It's Ryan from United Faith Mortgage, and it's funny how we can usually find a way to scrounge together a few bucks hidden around our house. Shame on you if it's from your kid's piggy banks.

For many listeners though, there's enough money sitting inside your home to buy a swimming pool full of Thin Mints. Home values have gone up across the country the last few years, leaving many of us with a good chunk of equity tucked inside our homes that we could cash out to use for life. If you'd like us to help, we are United Faith Mortgage. Most investors have heard of the tulip bubble that burst in 1637. Then there was the stock bubble of 1929 that launched the Great Depression, and of course the housing bubble of 2008.

Are we headed there again? Hi, I'm Rob West. Housing prices have risen dramatically in the last five years, leading many to believe it's actually another bubble about to burst. I'll talk about that today. Then it's on to your calls on any financial topic at 800-525-7000.

800-525-7000. This is MoneyWise Live, where God's principles shape our financial decisions. Okay, so Investopedia defines a bubble as an economic cycle where an asset trades at prices that greatly exceed the asset's intrinsic value. In other words, something is way more expensive than it should be. There's a strong argument to be made that that's where housing prices are today. Average home prices are now 40% above the Great Recession low point in 2012, and even more amazing, 4% above the peak of housing values in 2006. And since the last housing bubble set off a worldwide recession, it's no wonder some folks are worried that today's housing prices are signaling another financial calamity. But many analysts point out that conditions are not the same today, and that all things considered, current values are not that far out of line, maybe only 5.5% overvalued. And although 5.5% might not seem like much, that coupled with still high unemployment levels from COVID means that the upward trend in home prices isn't sustainable.

In other words, things will cool off in the near future. COVID itself might have triggered a housing crash a year ago, and it looked like it might, but the opposite has actually happened. After an initial downturn from COVID shutdowns, real estate transactions were allowed to resume.

By then, people had discovered they could work from home, and schools began teaching virtual classes. Well, that meant people had more choices for where they live, and people started looking for homes in the suburbs and droves. Well, that continued over the last year. Also, the Fed has kept interest rates historically low. Now, why do many experts think we're not facing the same problem we did 15 years ago?

Well, because conditions are very different. For one thing, lenders were far too lenient in 2006, giving loans to people who really lacked the resources to keep up the payments. Foreclosures rose, some investors speculated on that bad paper, and others sought to dump it.

Today, lenders are far more careful about who they're lending to. In fact, many mortgage lenders actually tightened underwriting requirements as a result of the COVID shutdowns, which means today's buyers are more qualified for loans than they've been in years. And that makes a surge in foreclosures that would precipitate a housing bubble bursting far less likely. Another factor leading to high housing demand and high prices is the lack of inventory. There just aren't enough homes on the market these days to meet demand. When the housing bubble burst in 2008, many builders had been engaging in speculative construction and were over-leveraged. Well, when the market crashed, many were wiped out. New home construction has only started to come back in the last few years.

Meanwhile, millions of millennials were growing up, getting married, having kids, and wanting to move out of cramped apartments. In other words, a good part of today's housing demand is real, not speculative. But there is one factor causing some analysts to be concerned, and that's the ongoing level of mortgage forbearance due to COVID. At its peak nearly a year ago, more than 4 million Americans had mortgages in forbearance, with unemployment slowly going down and fairly strong economic growth. One would think that most of those homeowners were now out of forbearance, having caught up on their payments, but that's just not the case. The Mortgage Bankers Association reports that as of mid-April, about 2.3 million homeowners were still not making some or all of their mortgage payments. The federal government has extended forbearance and foreclosure moratoriums several times, but those measures can't go on forever. Experts say if all those homeowners defaulted at once, it would cause another housing crash. But rest assured, the federal government has a lot of arrows in its quiver to deal with that. So what do we do with all of this? Well, we should rest assured that this is not a repeat of 2008. We should keep a watchful eye, given that real estate prices are in fact ahead of themselves, and return to biblical and wise principles about buying a home.

That means buy within your budget, pay a fair market value, put 20% down, and stay put for 5 to 10 years. All right, your calls are next. Here's the number, 800-525-7000.

800-525-7000. This is MoneyWise Live, where God's principles shape our financial decisions. Welcome back to MoneyWise Live, where we recognize God owns everything, therefore we're stewards, and money then is a tool to accomplish God's purposes.

Hi, I'm Rob West. So glad you're along with us today as we mind the Scriptures and apply God's wisdom, the principles we find in Scripture related to financial management, to your financial life. What's on your mind today? Do you want to talk about giving or saving?

Perhaps it's debt repayment, maybe it's long-term savings or lifestyle, whatever it might be. Give us a call. Here's the number, 800-525-7000. We have a few lines open.

800-525-7000. Just before the break, we were talking about this housing market. Boy, is it ever increasing rapidly and has been for quite some time. We talked about the reasons why and how it's different than the housing bubble we saw in 2008. But I finished just a moment ago by reminding you of some basic ideas you need to keep in mind as you head into any home purchase, especially in a market like this one.

Let me revisit those. We're talking about buying a home that fits well within your budget. That means at the minimum, make sure that that principal interest taxes and insurance payment is not more than 25% of your take-home pay.

Do your best to pay a fair market value. Don't get caught up in the emotions of chasing a purchase price that continues to elevate well beyond its appraised value because of the competition out there to buy homes. Put a minimum of 20% down. That's going to make sure that you stay out of paying private mortgage insurance and give you good equity so you don't find yourself in a position where you could be upside down if we were to see a cooling in this housing market, even though, again, I don't expect any kind of bubble bursting. And try to stay put when you buy that home for 5 to 10 years. That's going to make sure that over time, no matter what happens in the next 12 to 24 months, the long-term trend should still be positive. Keep in mind, we have an inventory challenge with regard to the number of homes needed in this country versus the number of people looking for single-family homes.

So there's going to be long-term demand there. I also want to mention, coming up on Friday, mortgage expert Dale Vermillion will join us to talk about financing a home during these conditions. You won't want to miss that. Again, that's Friday with Dale Vermillion. All right, let's head to the phones today.

We're going to start today in West Palm Beach, Florida, just north of where I was born. Conchita, thank you for calling today. How can I assist you? Oh, okay.

How are you today? Very well, thanks. I have a savings at Marcus and I just had an email from them that they have a promotion to help, I guess, to help me save more money in my savings account if I would lock in a nine-month CD at 0.65. I just want to know if I should do that. I don't know anything about CDs.

Yeah. Well, certificate of deposit is essentially a savings vehicle where you give the bank your money, they lock it up for a stated period of time for a 12-month CD, that would be for one year for 12 months, and they're going to give you a stated interest rate if you leave the money there and then redeem it at the end of the period. The challenge is with interest rates so low right now, Conchita, it's just not worth you locking up your money that long.

I like Marcus a lot. It's a great online bank. It's a division of Goldman Sachs.

They have a great app. They offer no fees on their products, at least their savings accounts, and they do pay well above average on their interest rates. But right now, you can get their online savings account at a half a percent, and that's with FDIC insurance, and it's completely liquid.

So for you to get an extra 15 basis points, the difference between a half a percent and 0.65, and lose access to your money for a full year without paying a penalty to get it back, I just don't think that's worth it, not to mention the fact that rates are going to be heading higher, and so you'll be able to lock in a higher rate down the road. So I'd probably just have them put that money in your online savings account there at Marcus. Remember, you can link it up to your checking account if you need to move money. But the real objective here is to just identify the purpose of this money. You know, if this is truly your emergency savings, which we recommend you have three to six months in liquid savings, then I'd leave it right where it is in an FDIC insured account where you're earning a little bit of interest, but I don't see a need to lock it up for a full year.

I hope that helps you. Let's head to Moses Lake, Washington. Keenan, you're next on the broadcast. What's on your mind today? Well, following your guys' advice, I have a little over three months of liquid capital set aside, but I also now have a little over $5,000 in cash that my wife and I have been saving for the last eight years, and so now that it's over $5,000, I wanted to know, should I look at long-term Roth IRA, money market, or some other type of higher interest savings account where those would be located?

So I'm looking for kind of long-term and hopefully minimizing taxes at the end of it. Yeah, very good, Keenan. Well, I like the way you're thinking. I appreciate that you referenced your emergency fund of three months expenses. That's a great foundation under you. I assume that means you have no credit card debt, correct?

Very minimal. I keep it at a certain level because I'm part of a family-owned business where we have to use our personal finances to get loans to cover certain business expenses. So it's an LLC, and our bank doesn't give us corporate loans.

They won't give us corporate loans, but it's very manageable. My score stays around 700 to 720 on my credit, so I keep less than $3,000 in debt. Okay. Are you charging it up and then paying it off at the end of every month, or are you carrying a balance? I'm carrying a small balance, and what I do charge up, I tend to pay most of it off.

Okay. Yeah, I would just encourage you to pay that off in full every month. Go ahead and make sure you're using that only for budgeted items.

Here's the thing. With regard to your credit score, and I can certainly appreciate being in a small business that has minimal business credit, and therefore your personal finances are on the line, but there's no difference between you charging it up for budgeted items and paying it off in full. There's no difference in terms of the impact to your credit score. It doesn't help you to carry a balance. In fact, that's going to push your credit utilization up a bit, and it's going to cost you some money in interest. So I'd challenge you to rethink that and perhaps get that down to zero every month.

Beyond that, as long as you're giving systematically and you've got this emergency fund, I think the next thing is looking toward long-term savings. I assume you don't have, because of what you described, a retirement plan available to you at work. Is that right? Yeah. Like I said, my parents and I started this business, so I'm the minor stakeholder, but I am still a part of that. We don't have enough resources to manage things like 401Ks or anything like that.

Yeah. Well, at some point you may want to look at what's called a simple IRA, which you could do for the business, and it might be an attraction if you need to hire other people down the road, expand your employee base. It would give you an option to offer them a retirement plan with not much administration and cost like you'd have with a 401K. In the meantime, it sounds like a Roth IRA would be ideal.

You're young. You've got money to put away. You could put $6,000 for you, and then you could do another $6,000 for your spouse, so $12,000 could go in this year. If you have the ability to do more than that, you could look to something like a SEP IRA or a solo 401K, but I think a Roth is a great place to start. If you don't already have a relationship with an institution, I'd probably look at either Charles Schwab with their Intelligent Portfolios, Betterment, Wealthfront, one of the robo-advisors where you can open an account with very low fees.

Through a question-and-answer process, they'll build you a very well-diversified portfolio using ETFs, index funds to basically buy a broad section of the market that's appropriately allocated toward your risk tolerance and age. Just systematically put the money into you and your wife's Roth IRA every month, again up to that $12,000. If you get to the place where you're capping that out before you file your taxes for this year, then you could look at opening a SEP or a solo 401K. I think you will appreciate having that. It will certainly begin to get some money going in not a tax-deferred environment, but a tax-free growth environment because you're not going to get the deduction on the money going in.

But you'll get all that tax-free growth between now and retirement. Hey, God bless you. We appreciate you listening and thanks for calling today very, very much. More to come on MoneyWise Live.

Your questions, 800-525. When we come back, we'll talk to both Lorinda in Idaho, Diane in Tampa, and Bill in Fort Lauderdale. This is where God's word intersects with your financial life. Stay with us. Welcome back to MoneyWise Live, where God's word intersects with your financial life.

So glad to have you along with us today. Later in the broadcast, we'll be talking with Bob Dahl. He stops by each Monday with his MoneyWise market commentary. Bob is an industry veteran managing billions of dollars in the markets. He's a market economist as well as a market analyst. Frequently on CNBC and Fox Business. Bob's a believer and shares his insights on the markets and the economy each Monday on the program. You won't want to miss Bob's commentary today. He'll stop by a little later and we'll look forward to that. Phone lines open today, 800-525-7000.

WRMB in Fort Lauderdale, Bill. Thanks for listening. How can we help you, sir? Yes. Hello.

How are you doing? Good. Thanks. Yes. Thanks for taking the call.

Quick question. Recently with my mortgage company, they offered a forbearance, as I heard you talking about earlier. And due to my own failure, I charged up some credit card debt, which is highly unlikely. But I did to the tune of probably around 8000. And my plan was to go ahead and accept the forbearance. I did for six months.

I can stop at any time. But they did not 100 percent guarantee me in writing that it would be placed on the back of the loan. I don't want to end up six months later and they tell me, OK, it was 15 grand or something like that. They said they did tell me that I would have the choice to put it on the back, pay it all at once or stretch it out in payments. And due to the nature of my mortgage. Putting it on the back would be sensible. And I want to use it to pay those credit cards completely off and even possibly build up my emergency fund.

What do you have any insight on the assurance of putting it on the back? And if it's even a good idea to touch the mortgage in order to pay off credit cards? Yeah, Bill, I'm not a big fan of that, just because number of reasons. Number one, and I realize there may be extenuating circumstances here as to why the credit card debt's here in the first place. But, you know, the tendency is to use the home equity, which a lot of folks are sitting on a good bit of home equity right now, just because of the increase in the home values, to see that as easy money to come in and pay off debt.

That's a result. And again, this may not be the case here, but a result of overspending, which doesn't break the cycle because you don't do the hard work of balancing the budget and sacrificing in the long term and the short term. But you come in and wipe it out. And then usually a year later, the credit card debt's back. But now we've got more money against the house. Number two is we're taking what's unsecured and we're securing it to your home, which I don't like that either. And even though we're lowering the interest rate, because we're stringing it out over a much longer period of time, you know, you may end up paying the same amount anyway.

So my preference is to start with the budget, right size the budget, figure out how you can dial back lifestyle and spending so that the budget balances and then take care of the credit cards out of cash flow using either the snowball method, smallest balance to largest, you know, paying it down out of margin, putting every extra dollar beyond all the minimum payments toward the smallest balance until it's gone and then right on down the line or using a credit counseling program where the interest rates are reduced and through a level monthly payment that fits into your budget, you'll typically pay it off 80% faster in credit counseling. You know, with the forbearance, you know, it's not clear necessarily how each lender is handling it. It's up to the lender. There are several ways they do it where they require a lump sum at a stated time, a short-term repayment plan or a loan modification with an additional monthly charge on top of your regular mortgage payment that makes up the difference or, you know, as you said, putting it on the back end, you know, any number of ways they can handle it.

Obviously, putting it on the back end is going to kick the can down the road a little bit longer so you can deal with these other issues. But again, I'm not a big fan of using it to pay off credit card debt only in a dire situation, especially, you know, one like many have gone through with COVID the last year where they just simply couldn't make the payments. The money wasn't there. Hours were cut. They were laid off. And so they found themselves in a situation where they just needed some of that pressure being taken off. And that's where these forbearance options were required and allowed them to weather that storm. But give me your thoughts on what I just shared.

Yeah. Well, first of all, the situation I got into with the credit cards was just poor discipline, no other excuse. And that would end for many, many years. I never carry a balance, not a penny. I'm not going to buy some for one hundred dollars and pay them one hundred and ten.

That doesn't happen. But anyway, if I did pay them off, which is my good concern, because, you know, the interests are kind of high and it was so foolish. I just was hoping to get them paid off, but they would never go back up again.

I know you probably heard that a million times, but it's just not like me anyway. Just to pay them off. If it went on to the back and do the structure of this loan, like I said, it's a 40 year.

I'm already 60. So at ninety one, it gets paid off if I don't sell or anything in the meantime. So putting it on the back would be a real it would be no pressure and pay these cards off, which is really my concern. And I don't have a problem making the payments. I'm just doing it just to pay the cards off.

Yes, they're going to drag out otherwise. You know, I did lose thirty five percent of my income with the COVID. But things are going to start coming back in June. So my income is going to increase potentially. I can't predict the future, but. Yeah, OK. Well, I think I want them to say, hey, you owe us all this money.

If it goes on the back, I'm OK. But yeah. Yeah. Well, I would certainly call them and confirm that. I'd probably just based on what I'm hearing, go ahead and put it on the back end and then focus on those credit cards. Get those paid down as quickly as you can. And then let's make sure moving forward, we have a good budget dialed in where you're living on that every month.

You've got some margin. And then, you know, Bill, you can start prepaying that mortgage and sending extra and reducing that principal balance, which is going to save interest over time there as well. So let's use the forbearance as a good opportunity to get your financial foundation shored up.

And I think you'll feel a lot better once those credit card debts are gone, your income begins to rise and you can get on a much stronger financial footing. We appreciate your call today very much. Hey, do you have a question that you haven't gotten through on the program to ask? Well, you can email us questions at MoneyWise.org or download the MoneyWise app in your app store. Just search for MoneyWise Biblical Finance. Stay with us.

We'll be right back. Welcome back to MoneyWise Live, where we recognize God owns it all and we mind the scriptures each day to apply God's truth to your financial life. Just ahead, we're going to be talking about what to look for in a homeowners insurance policy, whether you should draw for them with an IRA to pay for home repairs. We'll talk about retirement investments. But first, we're going to head to Tampa, Florida. Diane, you're next on the program. How can I help you?

Yes, thank you for taking my call. My husband and I are both retired. We have a home in Florida here that is paid off. And we recently, about six months ago, bought a summer home up in the Northeast area. Plan to use that summers and holidays with family. The house was a total of three hundred and fifty thousand.

The new home. We paid two hundred and fifty thousand cash and took one hundred thousand as a line of credit against our investments. So the investments are there to pay off a line of credit any time we want.

Our investments right now are making almost 10 percent. And the loan is only three percent. So our investment advisor is saying, keep the loan.

You know, you're that's a good thing to do because you're making more on your investments. I don't like having debt. I also worry if the stock market really drops or the housing market really drops and we have less money to pay that hundred thousand dollar loan off. So my question is, should we pay it off now?

Should we just take one hundred thousand out of our investments and pay the loan off and not have any debt or have to worry about stock market going up or down or anything like that? Yes. And what is this? What type of account is this that these stocks are in? Is it a taxable account? It is a taxable account for capital gains.

And we probably we would be somewhere about 10 percent paying capital gains on the money that we made. I see. Yeah. And as you look at this, you know, where does this where do these investments fit into your overall retirement plan? I mean, do you have other assets that you're building for your retirement in tax deferred investment accounts?

Yes. This we have we both have IRAs that this isn't touching those at all. This is additional investments above and beyond the IRAs. And we probably have about four hundred thousand in IRAs.

OK. All right. And you obviously plan to keep this home for the foreseeable future. If you sold one, would you sell the Florida home or do you think you'll end up keeping both? The thought would be to downsize the Florida home. That was the original thought to downsize and have an extra hundred thousand cash out of the Florida home to pay the loan off. But with the housing market, like you were talking about, if we sell this house, we don't know where to go in Florida because things are selling so quickly.

Yeah. Well, the good news is, you know, you'd get top dollar for the sale, arguably, that you could roll into the next one. But yeah, you may have a challenge finding that next one just because of what's going on in the real estate market. You know, I think you could go either way. I'm not a big fan of margin. I'd probably rather you, you know, take a loan out from the against the home for that hundred thousand, you know, secured by the home as opposed to having margin against the stocks. And that way, you know, everything is separated. You've got your home with, you know, two hundred thousand in equity and a hundred thousand dollar mortgage that you can focus on paying back as quickly as you're able to. Or if you had a real conviction that you just wanted to be debt free, Diane, I'm fully supportive of that. You know, I mean, there would be folks that on paper would say this doesn't make sense. Let's look at the difference between what you're making on this money versus, you know, what you're what it's costing you. And therefore, on paper, this, you know, is in your best interest.

But for me, I just think there's a sense of peace of mind that comes with that. We're clearly encouraged in God's word to become debt free over time. Doesn't mean borrowing is a sin, but clearly it changes the relationship.

The borrower's servant to the lender and, you know, debt was used as an example in the negative in more cases than not. So it's not something we want to have hanging around if we don't have a need to. Now, you know, as long as we're using it for appreciating assets and it fits within our plan and husband and wife are in complete agreement, you know, the cost is less than the economic return. You know, then I think those are some rules we can look at to say, OK, this is permissible debt, but I think we should still strive to be debt free over time. And if you can either liquidate some of those earnings, which probably have done very well over the last decade or longer, and use that to, you know, own this home free and clear, which is going to increase your cash flow, which gets you more money to give away or or put it back into long term savings. Then I think that's a good thing and I think you'll end up with some peace of mind to know that you're unencumbered. And, you know, no matter what happens in the stock market, you own this piece of real estate free and clear. You know, that's that's a good thing.

But if you all didn't mind having some debt on it and want to keep some more powder dry, so to speak, in the investments, I think the other way to approach it would be to take out a small mortgage against the property and pay off that that stock margin on the investment portfolio. Does that make sense? It does.

It does. On the mortgage, with the loan against our investments, there was no fees, no closing costs, and we only pay the interest a month. We don't have to pay back the principal. So that's why we went that way instead of a mortgage, because the mortgage with closing and everything was a lot higher.

We also dabbled a little bit for the first time this past winter in Airbnb and actually had the house rented for every weekend for three months and covered all our basic expenses on the house, the north house. Yes. Well, that makes a lot of sense, too. I mean, you all are being very wise about how you're doing this. And clearly, I understand the cost associated with taking on the mortgage and the interest is very low compared to what you would be paying on the investment. So it's not that you're making a bad decision here financially.

I think this just comes down to at the end of the day, do you want to be free and clear? Would you feel better knowing that you have this home completely paid for and you don't have any debt against your investments, even though it is collateralized? We realize it's in the markets and who knows what's going to happen there, although you've got quite a bit more in that portfolio than you borrowed, it sounds like.

So I would just go in with your eyes wide open and don't feel bad if you and your husband have a conviction that you'd like to be debt-free about paying it off and don't let anybody tell you otherwise. But if you're comfortable the way it is, you know, I don't think you're making a bad decision here just hearing the rationale of what you've done and the way you've structured it. Great. Oh, thank you for the insight. I appreciate it. All right. Very good, Diane. We appreciate your call today.

Thanks very much. Let's quickly go to Apple, Idaho. Lorenda, you're next on the program. Go ahead.

That's Apple, A-T-H-O-L. Okay, great. Sorry about that.

I'm glad I got through to you guys. I've been wanting to do this for ages. I am a retired teacher. I'm almost 73 and I don't have any assets at all. I don't own a home and my car is very old. The only thing I have is a small nest egg of about $37,000. I've got 27 invested with American funds and the other 10,000 I just took out to purchase a new car. My car has got over 250,000 miles on it. So what I need to know is, is it wise to use that money to buy a car?

And should I leave the balance 27,000 where it is an investment? Got it. Yeah, let's do this. So I appreciate you unpacking all that.

It makes a lot of sense. We're going to pause, take a quick break, and we come back before we hear from Bob Doll today and his market analysis. We'll answer your questions, see if we can get you some help. We appreciate your call. Just hang in there with us a few more minutes. We'll be right back with you. This is MoneyWise Live.

Stay with us. More to come just around the corner. Welcome back to MoneyWise Live. Just ahead, Bob Doll will stop by with his weekly MoneyWise market commentary.

What's going on in the markets and the economy, and how does that affect your portfolio? We'll talk to Bob just around the corner. First, in Athol, Idaho, Lorenda called just before the break. Lorenda was telling us about her situation. She's living off of Social Security income, plus some part-time work. Her assets consist of $27,000 currently in American funds. She's recently taken $10,000 out of that portfolio.

It was $37,000. That's in cash, which she's going to use to buy a car. And she's just wondering how should she invest that $27,000 given her situation moving forward. Lorenda, the challenge here is, obviously, as long as you continue to work part-time plus the Social Security, it sounds like your expenses are covered. Obviously, you have limited assets available. And so I think buying that car for cash, make sure you get a good, independent, reliable mechanic to help you evaluate that car, make sure it's in good working order.

It doesn't sound like we have a lot of margin here. And normally, what I would say is, let's take six months minimum expenses in your season of life, and let's put it in just a straight savings account. I understand you're wanting to keep it invested so it has the potential to grow, because when you stop working, I think you said you'd be short about $600 a month. No, your housing is $600 a month. What is the gap between your living expenses today and your Social Security?

Do you have a sense of that? Yeah, about $700. About $700 a month.

Okay. Yeah, so that's the challenge, is that with the need to have an additional $700 a month or $8,400 a year, that's going to cause you to run through that $27,000 in a hurry. So I think we're going to need to be looking for other solutions. Lord willing, you'll be able to continue to work a long time. I don't love the idea that you'd be anything but just very conservative with your investments on that $27,000. So, you know, probably largely in bonds with just a small allocation to stocks. The problem is, even though we've had a great run up in the stock market to this point, you're taking more risk than you should with money that really you don't have to invest.

And so, you know, Lord willing, you'll be able to continue to work here part time for quite a while. But at the most, I would be looking to only be investing about 30% of this $27,000 in stocks. And, you know, that's the situation, Lorenda, just given the situation here, because I want you to have something to fall back on. And if a year or two from now, we got into a real recession, and you were 100% stocks, and that $27,000 was, you know, down 30%, you know, you might get a statement, and it's all sudden worth $17,500.

And that's the situation you could put yourself in where you're taking risk that's not appropriate given your financial situation. So I'd stay very conservative, if not all in, you know, savings account, just where you can hopefully add to it each month a little bit through your working at the minimum, you know, a largely bond portfolio with a little bit of stocks. So you could get some growth, let's say, the Lord allows you to work, you know, for a while, then hopefully you're adding something to it that plus, you know, modest gains in the market, you know, let's say you're earning four or 5% a year instead of a half a point to 1% a year in savings. You know, that's going to help every little bit helps. And, you know, at that point, we'll just trust the Lord for your provision. Does that make sense?

Yes, it does. I just never heard of a savings that pays 4% a year. Well, it's not your No, you're talking about investments. And so what you were saying is you're fully invested in stock mutual funds and American funds. And what I'm saying is you need to move at the most aggressive posture I would be as a as a portfolio of bonds, let's say 60% bonds, or 70% bonds with 30% in stocks, where the goal of that portfolio is 4% a year, but you're still taking risk, the bond market can be down. In fact, bonds, you know, prices have been falling as interest rates have been heading up even right now. And even though the stock market is hitting new highs, it could, you know, roll over and will at some point in the future. So by building a portfolio like that, you're on the more conservative end of the investment, you know, risk level, but you're still taking risk. The alternative is you go a straight savings account. And today, you're going to earn a half a percent on that. And that'll increase over time with interest rates, but it's still not going to be a very exciting amount. And so I realize you're looking to make some money. And so what I'm saying is definitely not 100% stocks. At the most, I would go 30% stocks and probably 70% bonds. Do you follow?

Yes, I do. My investment advisor, can he put it in stocks, I mean bonds? Yeah, just say, listen, you know, I want to have a growth component to this.

And so, you know, perhaps the target is maybe 30% stocks, but the rest would be given the amount bond mutual funds, where you're trying to earn a little bit more yield than you'd find in a savings account, but where you're still staying fairly conservative in your overall risk exposure. So we appreciate your call today. I hope that helps. And thank you for tuning into the broadcast. Before we take our next call, excited to have Bob Dahl with us. Bob joins us each Monday with our market analysis and market commentary. Bob, good afternoon to you.

And same to you, sir. Hey, before we get into the look forward, let's talk about last week. The big news was the disappointment on the earnings front, $266,000 in terms of employment versus nearly a million in gain. Was that a surprise?

Yes, it was. I think all the other indicators were pointing for most people to a strong gain in employment and the $266,000 instead of a million was disappointing to a lot of people. And I think it's causing people to say, well, maybe there are labor shortages poking their head. Maybe there are issues related to, gee, I can make more money collecting money from the government than going out to work. And that's starting to be part of the dialogue. And that's that's a bit concerning.

Yes. Well, we obviously still have plenty of reasons that the market is reaching new highs. The rally is continuing, not the least of which is just this large global economic recovery.

But what are the other drivers? That is the main near term tailwind. That is the strong economy and strong earnings. We are almost complete first quarter, Rob.

And it's going to go in the history books is the strongest quarter from a beat standpoint. In other words, doing better than expected by a wider amount than ever before. And that's a lot of tailwinds.

It doesn't mean the headwinds aren't there. In fact, as I complained a little bit last Monday when we talked, some of the averages are not making progress, kind of stuck for the last month. And I think that's indicating that the markets know how good the news is. It's a little worried about higher taxes.

Every time you turn around, prices are higher somewhere. So do we have an inflation issue? I'm not going to be negative, but I do think that a pause and a rest is more in order for the stock market.

Yeah. Well, there's a lot of things to celebrate. But as you said, we do certainly have our headwinds. So what does that mean then as you continue to analyze this going forward 12 months out, what are you looking for? So I think for this calendar year, the easy gains are probably in the rearview mirror. Coming into the year, we thought stocks would be up this year, but less than earnings. And never did we dream on January 1st how strong earnings would be.

So we still think it'll be an up year. But the next three to six months, 12 months, stocks may not make a lot of forward progress, Rob, because it's digested a lot of the good news with this rally we've had literally in the last 12 months off the recession low. So I think that we'll continue to see good earnings, but maybe some pressure on valuations as interest rates continue to creep higher. It's interesting with that disappointing labor report last Friday that you opened up with how interest rates initially went down and back, right back to where they started. And I noticed today they're up a few more ticks. So interest rates are creeping higher.

And that's on the back of there's a little inflation out there too. Yeah, no doubt. Well, if we laid out all the scenarios of what would happen a year ago today with the economy, this would clearly have been the best case, wouldn't it?

No question. It's been amazing how fast the economy has come back. It's amazing how many companies and industries have actually been helped by the pandemic. We know the ones that have been hurt.

A lot of them are still in hurting mode, if you will. But some of these technology segments and parts of health care, housing because of lower interest rates, these have been big beneficiaries and that's what's powered the economy and earnings and jobs. No question about it. Well, Bob, always appreciate you stopping by and telling us what's happening around us, analyzing the trends both on the near term and on the longer term. We'll look forward to having you back next week. Have a great week. All right. God bless you, buddy. Back to the phones.

Tiffany in West Chicago, you're going to be our final caller today. I understand you've got some home repairs, huh? Yes. And major ones. Yeah.

How can I help? I we my husband and I are looking at having to repair or we do our deck and the quotes I have gotten are coming in at twenty five hundred twenty five thousand because it's a larger deck. And then we kind of are in the middle of a master bathroom re refinish or remodel and that's also been quoted at twenty five thousand. So I'm wanting to know I have an inherited IRA that I can be I take money out of, but I'd be paying taxes on it. Or do I want to try to go for a home equity loan or a personal loan?

Yes. You know, I would probably look toward the home equity loan before I would look to the IRA just because of the cost on the taxes. Now, if that's money you're going to have to take out anyway, depending upon how you're handling that from an inheritance standpoint, you'd want to talk to your CPA about that. Then obviously that becomes money that's in play, but I wouldn't be taking it out and paying tax on if you don't have to and you'd have to be you'd have the option to leave it and let it continue to grow.

In that case, I'd be looking to a home equity loan, not a home equity line of credit where you can lock in that fixed interest rate. So that's going to be my best advice today. Good luck with all those repairs.

I know construction is expensive these days. Well, thanks for being along with us today, folks. MoneyWise Live is a partnership between Moody Radio and MoneyWise Media. We'll be back again tomorrow with another edition. I hope you'll meet us here. We look forward to it. God bless you.