Economic Cycles & Avoiding Emotional Investing

January 27, 2020

Economic Cycles & Avoiding Emotional Investing with David Mitchell

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Economic Cycles & Avoiding Emotional Investing Show Notes

There’s nothing easy about building a portfolio designed to get you through retirement, and this is especially true in the event of an economic downturn. Emotional investing and aggressive reactions to bad news can make matters even worse, and these factors all have the power to turn your retirement from the greatest vacation of your life into something less fulfilling.

To build a truly effective retirement plan, you need to be able to truly look at the economy and deeply understand how to choose investments over a long period of time. You need to know when to buy and when to sell, as well as how to take a big-picture, multi-year view of the economy. At AllianceBernstein, a global money management firm managing over $580 billion in assets worldwide for a massive range of clients, David Mitchell does exactly that.

Today, David joins the podcast to share how to understand economic cycles, the history, and patterns behind them. You’ll discover how to stop making irrational comparisons that don’t make sense and create a meaningful, valuable personal retirement index to ensure that your portfolio isn’t just in great shape, but is able to help you live the life you want, no matter what might happen a month, a year, or a decade from now.

In this podcast interview, you’ll learn:

  • Why economic news fails to talk about the broader trends that shape investment decisions over 15-20 year periods – and how this preys on amateur investors.
  • What a supercycle is, why David believes we’re in the late stages of one, and how to stress test your portfolio to prepare for a significant market downturn.
  • How significant economic downturns like the Great Recession of 2008 can have devastating long-term effects on your retirement, even after markets recover.
  • Why different mutual funds and ETFs rarely perform the same in either market advances or declines.
  • How to do away with bad benchmarks and create your own personal retirement index to measure portfolio performance.
Economic Cycles and Avoiding Emotional Investing - Looking at Financial Issues

Inspiring Quote

  • In the absence of knowing what’s enough, the alternative is always wanting more.” – David Mitchell
  • For a lot of people, the biggest mistake they make is they don’t know what’s enough.” – David Mitchell

Interview Resources

Interview Transcript

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[00:00:10] Dean Barber: Welcome to The Guided Retirement Show. I’m your host, Dean Barber, Managing Director at Modern Wealth Management. Have you ever thought how great it would be to be able to get into the brain of money managers, managers managing hundreds of billions of dollars of how they look at the economy, how they choose good companies over bad companies, how they make their decisions on what to buy, and what to sell and when to own and what, and how they look at the overall economic activity?

Well, today, we’re going to hear from David Mitchell with AllianceBernstein, and they do manage over $500 billion worldwide for thousands of individuals, corporations, endowment funds, etcetera. We’re going to get into the details of how they look at the economy as a whole, how they make decisions on what they buy and sell. The idea here is for you to hear from people who do what a lot of us rely on and that is managing money. I hope you enjoy today’s program with David Mitchell here on The Guided Retirement Show.


[00:01:09] Dean Barber: So, we’ve got David Mitchell with us today on The Guided Retirement Show. David is 14 years with AllianceBernstein and I’m not going to butcher the whole introduction here, David. So, tell us a little bit about AllianceBernstein, what you do for AllianceBernstein, and then we’ll kind of set the stage for what you and I want to talk about today.

[00:01:27] David Mitchell: Thanks, Dean. So, AllianceBernstein is a global money manager based in the US in both New York City and Nashville. We currently manage just around $580 billion worldwide and our clients run the gamut. So, we have individual families here in the US. We have intermediaries like yourself or financial advisors that entrust their client’s assets with us. We also have a large institutional presence so endowments, foundations, global sovereign wealth funds, I mean, you name it, corporate retirement plans. So, really every single type of entity you could imagine entrust assets with us and we’re not known for any one specific type of asset class or security. We have bonds, stocks, alternative assets, real estates, you name it. So, we really have a very diversified offering as far as our products.

[00:02:21] Dean Barber: Well, with 567 billion in assets under management, I would assume that you all have tons of research analysts, economic experts and the like that are driving information to the portfolio managers. But then you also take that information and pass that information to people like me that I can pass it out to the general public. And so, the Guided Retirement Show here is a great format for you and I to be able to talk about economic cycles and the psychology of investing and what people need to know. And so, I’d like to get into a discussion with you about let’s just talk about economic cycles. As we record this episode of the Guided Retirement Show we’re here August 6, 2019. 2019 so far has been a pretty good year. The last week or so has brought a lot of volatility.

But I think that what happens, David, is that people get so caught up in the moment of the latest soundbite or the tweet or whatever it is of the day or the minute and they start making financial decisions based on news. And the reality is that our economic cycles are much broader than that. And they’re almost immune over a longer period from the day-to-day news but yet people make decisions and most the time the wrong decisions based on immediate news. So, give us a basic overview of economic cycles. What should people understand about economic cycles?

[00:03:57] David Mitchell: So, I’ll say a couple things about that. When we talk about economic cycles in AllianceBernstein, we think about it in two different ways. A majority of our industry thinks about the typical they might see the business cycle, they might think of an economic cycle as a bull market in stocks or financial assets. You typically see that cycle if you go back and study financial history over the past 100 years, 5 to 10 years.

And so, stop me if you’ve heard this before but most pundits out there and talking heads, us included, think that we’re later cycle or later innings in the current economic cycle or bull market. But anyone who’s been to a Royal’s game will tell you if you’re late innings, you can always go to extra innings as well. And I’m sure we’ll talk about maybe some reasons for that. But we also think about it in terms of longer economic super-cycles. And often we, in just my conversations with clients here across the upper Midwest, I find that a lot of people missed the forest through the trees.

But they want to talk about to your point, today’s news, today’s tweet, today’s controversy or sensational journalism, when they also aren’t thinking about broader trends that are structural, like population growth and demographics, like automation or globalization. Those are the things that really matter if you’re investing for 10 or 15 or 20 years, which most of your clients are.

[00:05:24] Dean Barber: So, a good example of that might be the invention of the internal combustion engine. And so, that created a long-term growth cycle in what was referred to as the Industrial Revolution. And then we got to the advent of the internet and the technology and the cell phones and we’ve been living through a technological revolution. Those kinds of economic super-cycles like you’re talking about, those things by themselves can drive economies and markets for decades. Not that it’s straight-up because you’re going to have short periods of time when things don’t look so good. You kind of went too far one direction. Market’s got to come back. Economy’s got to come back to slow things down a little bit, but then it continues on. So, are you saying right now that AllianceBernstein believes that we’re in the late stages of a supercycle?

[00:06:22] David Mitchell: We are. So, both types of economic cycles. We think that we’re later stages in this current traditional business cycle. And there’s various indicators, mainly around labor that we’re looking at in the workforce that are kind of starting to indicate, I mean, labor growth is slowing because we’re almost at maximum employment.

[00:06:43] Dean Barber: Well, there’s more job openings today than there are people that are looking.

[00:06:46] David Mitchell: That’s absolutely true. The underemployment rate has come down to I think 7%, which is the lowest again it’s been in a generation. So, a lot of this, like you said, is natural.

[00:06:56] Dean Barber: But I think people think that if we’re at a very low unemployment rate, that that’s a good thing and while it feels good, it is good. But the reality is, all right, how are we going to get additional consumer spending? We can’t do it just because we’ve got full employment because we’re not getting more people to work. They’re going to have more money to spend and we virtually had no inflation to speak of over the last couple of decades. And so, we haven’t seen much wage inflation. And so, is that what you’re saying is that we’re at a point where if unemployment starts to go the other direction, the consumer who’s 70% of our gross domestic product, they’re not going to be able to bail us out.

[00:07:37] David Mitchell: So, the consumer’s a great point. And let me take a step back here and think about because we throw out these numbers in these acronyms in our business, Dean, like GDP assuming that everyone knows what makes up GDP. And when I explain this to people that don’t do this for a living, I say think about GDP and it’s reported on every day as people in productivity. So, Bob has his hammer and how well does Bob swing his hammer, right?

And to your point earlier about these economic super-cycles and about the current cycle, one thing that’s different now and it just gets into your conversation about the consumer, in 1981, which we’ve done a lot of research around these huge events, really this cocktail of events, but five to 10 things that happened right around 1981, one was the oldest baby boomer turned 35 in 1981. And they didn’t know it, but they were about to enter a 20-year cycle where you had really the birth of globalization.

Deng Xiaoping, the premier of China 40 years ago gives his four pillars a modernization speech, effectively making China the world’s factory floor. You have you said the digital age, right? You have 1983, the birth of the internet with Microsoft Office. Really, again, that really was the catalyst for this new informational age that we now currently you sit in. So, all these things kind of happened together in 1981. Now fast forward 40 years there that boomer that turned 35 in 1981, the oldest ones now is 75. A majority are 65 to 70 are staring at are in retirement. So, once you get into retirement, your consumption patterns change.

[00:09:15] Dean Barber: Dramatically.

[00:09:16] David Mitchell: So, demographics that we do so much study. It was a huge tailwind for 20 years. That’s why, by the way, a lot of people forget this. From 1981 to 2000, you had a 20-year period where the SMP on average for 20 years did 17.2% a year for 20 years.

[00:09:35] Dean Barber: Well, and I think everybody thought as you entered into the year 2000, that that was just the new normal. That’s just what it’s going to be.

[00:09:42] David Mitchell: Absolutely.

[00:09:43] Dean Barber: Okay. Let me back up because you missed one huge, huge piece that drove the economy from the early 80s. All right, it was the advent of revolving credit.

[00:09:53] David Mitchell: That too.

[00:09:54] Dean Barber: All right. And the baby boomers were the first generation where you had two people working in the same household.

[00:10:03] David Mitchell: Increasingly.

[00:10:04] Dean Barber: And so, you had both husband and wife working. People were borrowing money like crazy.

[00:10:10] David Mitchell: And think of why real quick. This is the last part of the cocktail I missed. You had what we call the Paul Volcker mountain tops and rates. That baby boomer didn’t know it. They were about to enter a 20-year period where inflation and interest rates. I mean, think about…

[00:10:22] Dean Barber: You’re going to decline.

[00:10:23] David Mitchell: Think about the first mortgage that you took out 1979 or 1980. What, 15%?

[00:10:27] Dean Barber: Right.

[00:10:28] David Mitchell: So, they didn’t know it. So, not only did they had this massive tailwind at their back of real wage gains, productivity enhancements, all these good things happening around globalization automation, but they also had now cheaper financing and cheaper interest rates. So, to your point about the access to credit and cheap credit, ultimate we saw excesses do built up.

[00:10:51] Dean Barber: Right. They did. And then everything came crashing down then.

[00:10:54] David Mitchell: Twice in a decade.

[00:10:55] Dean Barber: Yeah, absolutely.

[00:10:55] David Mitchell: And the dot-com bubble in the early 2000s and then again in a housing crisis and housing bubble in the mid-2000s.

[00:11:02] Dean Barber: Yeah. So, there were a lot of things, but most of these economic super-cycles that you reference last on average about 40 years.

[00:11:11] David Mitchell: Yes. That’s about right.

[00:11:13] Dean Barber: So that’s why you’re saying we’re probably in the late stages of the supercycle because it really began in earnest in the early 1980s. So, we go back and look at economies and markets. I mean, you could have gone from the mid-60s to 1981, a 15-year period, and you had effectively zero return in the broad markets over that period of time.

[00:11:37] David Mitchell: It wasn’t very good. And then you also had what we call the lost decade between 2000-2010 which is part of this four-year cycle, but the average return of the S&P for that 10 years was negative 5%.

[00:11:48] Dean Barber: Right. So, you went from a 20-year period with average over 17 to the next 10 years was minus five.

[00:11:54] David Mitchell: And by the way, to tie back to where we are today, I don’t think coincidentally, but since the market bottomed in March 2009, to really until 2018 last year and another 10 years 17% a year again. So, you went 17% for 20. You did negative five or 10. And then you’ve had the last proceeded 17% again.

[00:12:16] Dean Barber: Yeah. So, what’s that mean? Where does that put us today?

[00:12:19] David Mitchell: So, that puts us in a world that we look at today with all these different macro trends, these thematic, these structural trends that AllianceBernstein’s view is if you think about investing for the next five or 10 years which, again, we try to get people to do it and your seat, Dean, it’s easier for me to think about because I deal with professionals mostly day-to-day, but you deal with the public every day.

And now trying to get people to have a time horizon more than a month or two or three can be challenging because again to the 24-hour news cycle and all these things, but to tie it back to AllianceBernstein, we think all of these events, and all of these fundamentals put us in a world where the next five years, we get about 5% to 6% growth, average return in the stock market. And how we get that is just math. You get about your dividends of 2%. You get inflation of about 2% and you get real GDP growth of about 2%. Give or take 6%. Yeah, five to six. And so, but with the caveat, as you were alluding to earlier that as we transition into economic cycles, there’s going to be a lot of volatility, and most likely some severe drawdowns defined as peak-to-trough losses.

[00:13:27] Dean Barber: Which is what people are terrified of. And if that happens in the early stages of someone’s retirement, it’s a game-changer.

[00:13:35] David Mitchell: I got the numbers here.

[00:13:37] Dean Barber: All right. Yeah. Go for it.

[00:13:38] David Mitchell: So, if you want to ask the thought leaders because I am the lowly consultant in the Midwest, right? But if we have analysts and portfolio managers and 40 cities across the world, 19 countries, we get a lot of our intellectual thought leaders are based in New York. If you ask the smartest people in the world any of these people that know Fed policy, economic history like the back of their hand, but you know what keeps them up at night? Is that the average person that if you’re 65 today, and you just recently retired, if you have a 20% loss in your portfolio in the first three years of retirement, on average, it takes off nine years of spending power of your plan. So, if you’re planning for a 30-year retirement, you just ran out of money and you’re 21. That is the mathematical…

[00:14:25] Dean Barber: Well, I would challenge that thought though.

[00:14:29] David Mitchell: Please.

[00:14:29] Dean Barber: I mean, I’ve worked in this industry helping people get to and through retirement for over three decades. Those people won’t run out of money, David, and you know why they won’t? Because they’ll live like they’re broke. They will reduce their lifestyle and spend less. They will do less and forego things that they really wanted in an effort to make sure that they hold on to that money because the last thing they want to do is be reliant upon either their children or the government, right?

[00:15:00] David Mitchell: And this just the math that if you kept the same spending.

[00:15:03] Dean Barber: Right.

[00:15:05] David Mitchell: And that’s about 4%.

[00:15:06] Dean Barber: I know what you’re saying.

[00:15:07] David Mitchell: You’re right.

[00:15:08] Dean Barber: But people that are frugal with their money and are able to accumulate and save, they don’t go broke, but they’ll live like they’re broke. And that’s not the ideal retirement. That’s not what somebody wants. And that’s why we’re doing The Guided Retirement show is because you’re talking about here is the longest vacation that people are ever going to take and that’s the retirement. Well, you don’t go on an amazing vacation and not hire a guide to show you all the things that you want to see especially if you’re going someplace you’ve never been before. In retirement, you’ve never been there before.

You need some expertise and some help of doing that. Alright. So, back up here and let’s talk about how people can prepare themselves for the end of this super cycle. What should they be thinking of? What should they be doing? How should they be stress testing what they’ve got? And is it okay just to stress test the investment or do you have to understand how that investment fits into your overall retirement plan?

[00:16:05] David Mitchell: Yes, to all the above. So, what we would say is we do stress test portfolios. And a lot of times, it’s people in your seat that generously share with us what they’re doing in your chair and say, “Do I have any blind spots I’m missing here?” But the thing is that, yes, if you do have it, and it’s very feasible. We can have a 20% loss in the markets over the next three, five, ten years. Well, I don’t know when and I don’t know what the catalyst will be, but it’s very possible.

[00:16:35] Dean Barber: Or more.

[00:16:35] David Mitchell: Or more. Absolutely, or more. 20%, I’m talking about people that have maybe 30%, 40% in bonds, so 20% in that personal portfolio, which would mean the stock market’s down even more to your point.

[00:16:45] Dean Barber: Well, a 60/40 portfolio in the ‘08 financial crisis would have had a drawdown of 32% from peak to trough. Right?

[00:16:53] David Mitchell: That’s right.

[00:16:54] Dean Barber: So, that’s somebody that only had 60% of money in the stock market and 40% in bonds. So, I think this idea that diversification is your only protection mechanism is crazy and that active management of your money is no longer needed that you should just own an index or something like that and I think that notion is crazy. Now, there are times when the passive style of investing works well especially in bull markets. I mean, it’s kind of the old saying the rising tide lifts all boats, right, but it’s not until the tide goes out that you see who’s swimming naked. Well, you don’t want to get caught in a tide that’s going out and go, “Okay. Well, I didn’t think of these things.”

[00:17:38] David Mitchell: Right. And let me back into what you just said and tie it into this today because this is what I think as you’re doing stress test, people really have to account for and that’s the reason you had balanced portfolios and balanced mutual funds or balanced ETFs. In a way that we’re down 25, 30, 35 for almost in line with the market is because the most powerful tool that we can build in the asset management business is what I call a barbell, which what our balanced fund is supposed to do. So, think about this way, stocks and bonds. The problem comes in when people start to get too cute with one or the other.

And where they try to get too cute was on the bond side. So, because you could buy higher-yielding bonds in certain asset classes or certain types of bonds, whether we’re housing-related bonds, mortgage-backed bonds, other types of corporate bonds. Now you have emerging market debt, and all these sorts of esoteric sectors, people forget that there’s…

[00:18:36] Dean Barber: There’s risk in those things.

[00:18:36] David Mitchell: There’s risk in those, right? And I often say they’re not a first cousin to a US Treasury. They’re more a proxy for stocks. And so even today, with the 10-year treasury yielding 1.75.

[00:18:49] Dean Barber: Well, now no. 1.6. The day we’re recording this, it dropped by 15 basis points in the last 24 hours.

[00:18:56] David Mitchell: There you go. How much the daily news cycle can drive day-to-day performance. So, yeah, so that doesn’t feel great but here’s what we know. You have to still have a portion of your assets and truly reliable risk-mitigating assets. And even though to today those assets don’t pay you a lot. What we found out is that whether it was the fourth quarter in 2018, when the market went down 13%, treasury’s AAA muni bonds, certain safe-haven currencies like the dollar, they rise in value.

When people collectively say, “Oh, no,” and start indiscriminately selling their ETFs or their funds or the individual stocks they just say, “I don’t want to be in the game like this. I think this is going to be a bad event.” The last 10 years that event has been very short-lived because we’ve had these drawdowns and then these V-shaped recoveries. But you have to have at least some of your – and so, when you do these stress tests, usually we find that problems exist on the bond side of the equation, not the stock side. It’s people taking too much risk and their bonds that too often correlate to stocks, especially when you have severe risk in the markets that is driving down stocks.

[00:20:05] Dean Barber: Okay. I would buy that. But don’t you think there’s also too much of a concentration risk on the types of stocks that people will own because they’re buying these ETFs that are designed to mirror the index and they don’t really understand what’s back.

[00:20:20] David Mitchell: Maybe I could come back for a whole half hour, we could discuss that. But you’re exactly right. So, people had asked me what’s different today. Even from 2008, what’s different today. You have on average, if you stick a daily volume of the New York Stock Exchange in most major indices in the world, a vast majority of it is not individual mom and pop and even Dean Barbers of the world out there picking stocks for their clients.

It is quantitative, high-frequency trading, algorithmic, very sort of there are tools that are in place that really aren’t designed to manage money for the long term that are strictly out there trying to make money day-to-day that forced these markets to have these wild gyrations. So, ETFs I think have served a lot of good purpose as far as lowering costs and transparency. But the derivative of now you have so much money piling into ETFs, if you’re tracking an index, right now the SMP there’s like six stocks that make up a quarter of the S&P.

So, if you’re buying an index that tracks the S&P, you don’t know it, but your concentration in those six stocks, and you might also have a tech ETF in your portfolio. Now all of a sudden, a 30-year portfolio is in six stocks that tend to actually all correlate with one another, don’t have a lot of really nuanced differences about them. There is a lot of concepts. It’s unintended. It’s not like someone saying, “I just want to go out and own… I worked at IBM for 40 years. I want to own IBM stock like it used to be.”

[00:21:46] Dean Barber: Right. So, we talked about this in season one of The Guided Retirement Show. It’s Episode 12 and Episode 13, where we go into the difference between mutual funds and ETFs and so I encourage you go back. If you haven’t listened to those two episodes of The Guided Retirement show, go back and listen to those. Because when you talk about these ETFs, you’ve got the ones that are equal weight ETFs and then you got the ones that are weighted based on market capitalization, right? And so, what you’re talking about is the ones that are based on market capital.

[00:22:21] David Mitchell: Which represent a lion’s share of the assets.

[00:22:23] Dean Barber: I understand that but what my point is that people don’t understand the difference between those different types of ETFs and they just think, “Well, Vanguard’s got one or iShares has one or whatever it is so I’m just going to buy that.”

[00:22:36] David Mitchell: This one’s cheaper than that one so this is better.

[00:22:39] Dean Barber: Yeah. And they don’t understand that they’re not the same. And they’ll suffer different in market declines. They’ll perform different in market advances. And you know, it’s not like you can say this one’s going to do better over the next five years, the next 10 years, but you need to understand the difference. Because if you don’t, what happens is you get this huge concentration. Let’s go back to the dot-com bubble. So, the S&P 500 was over 30% weighted technology. And when the tech bubble burst, people weren’t thinking well these big, bellwether, 500 largest companies should really suffer. Sorry, but a third of the S&P 500 was made up of technology companies at that point in time. That’s why the Dow, the top 30, the biggest 30 companies didn’t suffer nearly like that because the Dow Jones Industrial Average wasn’t laden with technology companies.

And so again, I think my point was, what I wanted to take people too is that when you build that portfolio, it’s not okay to just say, “Well, I’ve got a 60/40 blend or I’ve got a 50/50 blend or I’ve got a balanced fund.” What the heck is in it? And that’s where the psyche of the individual investor gets messed up because they don’t understand what’s in it. They don’t understand why it’s doing what it’s doing.

They don’t understand the economic issues that are going on. And they make bad decisions because they make those decisions based on emotion and the news of the day. So, the big question is, how do you get people to avoid that? To me, that’s my challenge every single day and I think that what we’re trying to do here on The Guided Retirement Show is to provide some education so that people are more informed of what’s really going on out there so that they can take that longer-term view. I’m not just saying buy and hold and hope either but understand what you own and understand how these different asset classes will perform in poor economic cycles or poor market cycles.

[00:24:36] David Mitchell: That’s exactly right and listening to you, you talk about the value that you provide to clients. I’m reminded of a quote and I hope I don’t butcher it as it’s been a while but I think it’s as relevant today as it’s ever been because you correct me if I’m wrong, but I still think we’re 10 years away from ‘08. I think a lot of the scar tissue started to heal and I sense some greed coming back. I mean, I know people that have…

[00:25:02] Dean Barber: Sure.

[00:25:3] David Mitchell: I have heard from folks like you that clients that have been up. You know, clients in retirement that have had 10% returns aren’t happy because the market, which according is the new arbitrary benchmark…

[00:25:15] Dean Barber: Which should never be.

[00:00:00] David Mitchell: It should never be, right? Did 20. And so, I don’t think we’re at the euphoria stage yet, but there’s definitely some greed seeping back into the psyche of the typical investor. The quote I’m going to come back into, it was something that was taught to me 14 years ago, when I first started in AllianceBernstein. I never forgot it. In the absence of knowing what’s enough, the alternative is always wanting more. And I feel like a lot of people the biggest mistake they make is they don’t know what’s enough.

[00:25:46] Dean Barber: Okay. All right. So, I’m glad you brought that up because here’s how you identify that. Our guided retirement system is designed to identify what’s enough, especially when it comes to asset allocation. So, we go through the whole guided retirement system, we build out what people want their ideal retirement to look like, and then we say based on the resources you to have us helping to minimize taxes, maximize Social Security, all the things that go into a great retirement plan a 30% equity, 70% fixed income is your best option.

That’s the one that gets you safely through retirement with the least amount of volatility or it might turn around and say, “You know what, you don’t quite have enough and in order to make it work, you need 80% equities and only 20% fixed income.” And what have you done? You’ve greatly increased the risk of a drawdown.

You’ve greatly increased the risk of that early stage retirement drawdown, and so you might want to step back and say, “Gosh, okay, I maybe want to work a few more years so that when I walk into retirement, I’m not doing it forced to have 80% of my money in stocks in order to make it work.” But, yes, being able to actually see that, I always ask it this way. What’s the least amount of risk that I can take and still achieve my objectives?

And if you can’t quantify it, you’re right, people are just going to go out and want more and they’re going to want to compare what’s going on to their neighbors or the stock market or whatever. And really, I think you should have what’s called your own retirement index, your PRI, your personal retirement index. That’s the return that you need to focus on but in order to identify what that return is, it takes a lot of financial planning and it takes a lot of counsel work with a good financial planner to be able to identify that personal retirement index. That’s all you should benchmark against. You shouldn’t benchmark against some arbitrary index and you shouldn’t, for sure, don’t benchmark against your neighbor or coworker or relative, right?

[00:27:46] David Mitchell: You really never know their true circumstance.

[00:27:48] Dean Barber: They’re never going to tell you about their losers.

[00:27:50] David Mitchell: That’s right.

[00:27:51] Dean Barber: Yeah. Okay. Let’s take a quick break. This is The Guided Retirement Show. I’m Dean Barber. We’ll be right back.


[00:27:58] Female: Is thinking about your retirement intimidating? Okay. Let’s get real. The thought of not having to go to work five days a week, traveling, spending time with your grandchildren, basically, doing what you want to do on a daily basis. Well, that’s not scary. However, paying for that retirement lifestyle, well, that can be a little more daunting. The reality is retirement doesn’t have to be scary. And a good place to start is by listening to America’s Wealth Management show hosted by Dean Barber, that’s the guy you’re listening to on this podcast, and Bud Kasper. With over 65 years in the financial industry, Dean and Bud discuss how to live your one best financial life. And unlike some other radio shows, they don’t talk about investments or the latest get rich financial products. It’s strictly retirement education.

Now, there’s a couple of ways to listen. You can download America’s Wealth Management show on your favorite podcast app or if you like to listen or stream your radio shows in real-time, simply go to and find out where and when you can listen to this week’s show. That’s

[00:29:15] David Mitchell: The quote I’m going to come back into, it was something that was taught to me 14 years ago when I first started at Alliance Bern. I never forgot it. In the absence of knowing what’s enough, the alternative is always wanting more. And I feel like a lot of people the biggest mistake they make is they don’t know what’s enough.


[00:29:48] Dean Barber: Welcome back. I’m Dean Barber, Managing Director at Modern Wealth Management and this is The Guided Retirement Show. So, let’s change gears here just a little bit. I think what we just did was pretty enlightening for our listeners. Let’s talk about the economic cycles of expansion and contraction. And I want to challenge your notion that we’re at the end of the 40-year supercycle. I think this one’s going to be a 50-year supercycle. And here’s why.

[00:30:18] David Mitchell: Like I said, we can always go extra innings.

[00:30:20] Dean Barber: I understand. But here’s why I think it is. You mentioned the baby boomer generation. All right. Well, we now have the millennial generation and many people don’t give the millennials credit for anything. But the millennial generation is actually 2 million people larger than the baby boomer generation.

[00:30:40] David Mitchell: I’m the oldest one, by the way.

[00:30:41] Dean Barber: Right, you are. And so, what’s happening is think about this and think about the people that are 10 to 15 years younger than you, David. They don’t start family formations in their 20s. By and large, they’re living in apartments. They’re living with mom and dad. An they’re living it up. They’re having fun, but they’re not interested yet in starting a family and so the baby boomer generation started their families in their 20s. The millennial generation isn’t starting their families until they get into their 30s. And sometimes it’s into their mid-30s. Right? Well, so let’s say now we got 2 million more millennials than we had baby boomers that are just now in the last few years starting in their family formation years. Okay. You have young kids?

[00:31:27] David Mitchell: Yes.

[00:31:28] Dean Barber: All right. So, you’re spending more money today than you were 10 years ago, and it’s not on you because kids are expensive. When the 78 million millennials start having babies and buying houses and furnishing the houses and all the things that are going, I think we’re going to have a 10-year tailwind of that millennial generation moving into their family formation here. So, that’s my argument for a demographic tailwind with the millennials.

[00:31:57] David Mitchell: I always say that there is some merit to that and that the millennials have delayed a lot of traditional consumption patterns relative to older generations. We talked about demographics. So, we’re simply talking about birth replacement rates. And one thing we know, so I have one daughter, my mother comes from a family of five. So, the other thing too millennials are having fewer kids. Granted, there’s more of them.

And so, could there be some delayed spending there? Absolutely. But I think we also are missing another point that is another structural issue. And I sometimes hesitate even going there because often I think there’s a politicization to this comment that’s just a fact that we have to deal with. But now 1% of the population controls 31% of US household net worth. 1% controls 31%. 50% control 1%. And so, in some ways you don’t want to tie this back into your – because you and I, I think day-to-day we meet with a lot of people that are the millionaire next door types.

We meet with people that worked for a company for 20 or 30 years, a great local company, had a good retirement program, had some deferred compensation and did it the right way. But half of the country, again, has basically been living paycheck-to-paycheck and can’t afford a $400 car payment. So, that’s another issue and we’re just looking at kind of some of these structural issues that tells us that if we’re relying on just the consumer, we better hope that that 1% and what we know that 1% are more vulnerable because now in 10% own 83% of outstanding stocks, stock value, 10% of the population. So, we are much more of a top-heavy society, then we might have been in the 50s, 60s or 70s.

[00:33:36] Dean Barber: I would agree with that.

[00:33:37] David Mitchell: That’s kind of sort of the other sort of counterweight to that. And I am not a politician. I’m not a policy person. I have some ideas as far as the prescriptions but it’s not my day job. But those are problems that we’re going to have to be forced to deal with at some point in time and ensure more people are able to spend by not borrowing to tie it back because I mean what led to the housing crisis? Well, people using their homes as piggy banks. And so, the question is for half the country how are they going to afford what we might see as necessities, other people might define as luxuries, those vacations, what have you, but a lot of people simply can’t afford them paycheck-to-paycheck.

[00:34:20] Dean Barber: I would agree with that but I also think we’ve always had that divide and think about this. Okay, so wealthy people naturally want to accumulate money, right? The people that don’t have a lot of money, they want to accumulate stuff. So, I think there’s choices that people make, that might put them in that same situation. You know, I’ve met a lot of people that have saved a lot of money and never really made a whole lot but they were frugal because they understood.

They created very early on a long-term plan. And I hope that what we do here with The Guided Retirement Show is we impress upon people the need for them to do some things on their own. Because when you say that somebody can’t afford a $400 car payment, yet they have two cell phones and four big-screen TVs and are paying $2,000 a month to rent a nice apartment in the popular place in town, what are the priorities? Where are the choices, right?

Are they saving first? Are they paying themselves? And I think that our society has become I call it a drive-thru mentality, society where I want what I want. I want it now. I want it cheap. And I want it easy. And I definitely don’t want to wait on it. The whole thought of delayed gratification is something that doesn’t exist in the vast majority of our country today. But people need to understand that you know what, the government’s not there to support you. You’ve got to do something for yourself and in order to make sure that you can have that good retirement that you want to and not always have to work for somebody, you got to start saving. And then there’s tradeoffs, man. You and I both made tradeoffs our entire lives. We can’t have everything we want all the time.

[00:36:13] David Mitchell: Yeah. I mean, like I said in some ways, we’re seeing that millennials value and spend more of their money like experiences versus things.

[00:36:22] Dean Barber: Absolutely.

[00:36:23] David Mitchell: Right? But tie all this kind of back into where we’re coming from is that what are the tailwinds that get – so I’ll put it this way to you, Dean. Like I said earlier, our five-year forecast for this is called the S&P 500 of the broad market is called 5% to 6% a year for the next. Again, not great, not terrible, but kind of mediocre at best.

[00:36:44] Dean Barber: Again, that doesn’t come in a straight line.

[00:36:46] David Mitchell: That does not come in a straight. That’s not 5% a year. That could be all over the place.

[00:36:49] Dean Barber: You could have a 30% or 40% decline and then come back out of that trough and still average that 4% or 5%.

[00:36:54] David Mitchell: That’s right. What we’re trying to figure out as a firm and I think this is where you’re healthily pushing maybe challenging us a bit is that what would change to get us to a 9% to 10% return a year? I go back to what drives and I don’t want to walk out here with you but what drives earnings historically? What drives GDP? People’s productivity earnings are typically driven by top-line growth. It’s been all margin expansion and share count reduction. I don’t want to get too technical here but it hasn’t been fundamentals that have really driven the market over the last ten years.

[00:37:28] Dean Barber: Oh, in the last few years, I’ve said just take the fundamentals and throw them out the door. And if you’re going to invest based on fundamentals that you…

[00:37:34] David Mitchell: You better have a longer time horizon than you’re used to.

[00:37:35] Dean Barber: You just look dumb when you’re not because at the end of the day, fundamentals 100% of the time will come back and drive the market.

[00:37:42] David Mitchell: It’s just a matter of when and what the reason is for that. And tie this into the DALBAR study because DALBAR is a third-party research firm, that really came to prominence several years ago when they did a study this maybe 10, 12 years ago that said there was a certain time frame I think the preceding 20 years the S&P had done 10% or 12% a year for 20 years from the early 90s or maybe from ‘88 to 2008, 2007. And the average invest store…

[00:38:12] Dean Barber: 2.9.

[00:38:13] David Mitchell: 2.9.

[00:38:13] Dean Barber: Yeah.

[00:38:14] David Mitchell: 2.9. All because of what you’re talking about of the short-termism that we deal with, of letting the daily news cycle drive. I mean, how many times does someone called you and you’ve got – you’ve even done the work with them perhaps, right? I’m sure more people…

[00:38:29] Dean Barber: But they still get emotional.

[00:38:29] David Mitchell: But they still get emotional. And we can again table this conversation for the whole of how social media has changed things, how 24-hour cable news has changed from 20, 30 years ago, but that’s a difference here of all we’re talking about is that how do we get people to at least participate in an okay market, but also defend against a lot of potential downside risks out there.

[00:38:52] Dean Barber: So, here’s what happens. And I’m going to relate this back to our Guided Retirement System. You and your wife you hop in a car and you plug into your GPS, the location that you’re going, and you know what happens? The minute you back out of your driveway, what that GPS told you is wrong because things are going to happen. There’s going to be a traffic jam, there’s going to be a detour, something’s going to come up.

You’re going to have to stop and go to the restroom. Maybe you’re going to stop and get a bite to eat. But you have comfort in knowing that when you get back into the car or when you look at that GPS, it tells you, you know what, yeah, you’re going to be 10 minutes later than what you thought you were going to be, but everything’s still okay. And because you know, you don’t panic, okay? Now, imagine that the GPS didn’t exist and your wife getting the car, and there’s a detour in a major city that you’ve never been in before.

And now you’re in a part of town that you don’t recognize, you don’t have GPS, you don’t have a smartphone that you can reroute yourself to. You’re going to rely on one of those old Rand McNally atlases, right? And David Mitchell is not going to stop and ask for directions but your wife’s going to be hounding you, “Just pull over and I’ll ask for directions.” No, I’m not going to ask for direction.

[00:40:15] David Mitchell: I got this. Yeah.

[00:40:17] Dean Barber: And so, there’s going to be conflicts going to set in, panic’s going to set in. Why? Because you don’t know. A good guided retirement system lets you know every day where you are on your path to what is important to you. If you have that in place, you can ignore all the noise of the in-your-face 24-hour media and just say, “You know what? I’m still on the right track. Yeah, okay. The market was down a few hundred points. I’m still on track. Look, here’s my score. Okay, maybe I have to work one year long. You know what, maybe I have to spend $5,000 a year or less, but I’m still going to retire at that date.” But you know that, right?

[00:41:01] David Mitchell: You’re in control.

[00:41:02] Dean Barber: You are in control. You have clarity.

[00:41:05] David Mitchell: Yep. You’re not just putting your hands up and say, “I have no clue what to do next.”

[00:41:10] Dean Barber: So, you have three things. Clarity delivers confidence because you know you’re in control. That’s what GPS does. That’s what our Guided Retirement System does.

[00:41:21] David Mitchell: So, a way to avoid your clients or any clients out there becoming one of those statistics in the DALBAR study, the people that get 3% return when the markets probably if you stayed invested give you 10 or 12. Once you have these conversations with folks, and a term I’ve always used is they’re able to pre-experience what some of these detours might look like, what that stress test or downturn might look like. All of a sudden that performance conversation if I only did 10% last year, Dean, and the market did 15, what gives? That all goes away because the performance is beholden to the portfolio construction which is beholden to the plan which is beholden to them knowing what’s enough.

[00:42:00] Dean Barber: Bingo. And then you bring that back to the fact that we have economic expansions. We have economic contractions. It’s very normal, right? This just economic cycles. We have market economic cycles, expansions and contractions. And then we have the economic super-cycles that you talked about. So, I want to wrap this up, but before we do, I want you to go and you may have this statistic and if you don’t, that’s fine.

[00:42:27] David Mitchell: I promise I won’t make it up.

[00:42:28] Dean Barber: Okay. So, the last supercycle that was a super cycle that was negative. So, you’re going to say we’re going to go into a 40 or so year super cycle of great things and then a 40-year supercycle of, “Eh, it’s okay, but it’s not great.” Is that what you’re saying? Those economic super-cycles go both ways?

[00:42:48] David Mitchell: Well, if you look in modern financial history, really have you had a 40-year supercycle of things being below subpar.

[00:42:56] Dean Barber: So, those are 10 to 15.

[00:43:00] David Mitchell: Like you said, you have these periods within economic cycles that you may go on pause for a long time or have to reset values because of a bubble bursting in the financial economy, which caused a recession and values to reset. And in this kind of flushing out of the market. That’s what you tend to happen.

[00:43:18] Dean Barber: You know, it’s interesting, though is I love what our industry does. And I actually said that tongue-in-cheek. I hate it. What people will point out is if you invested all your money in the stock market on March 9, 2009, you would have made this. Well, I’m going to tell you that there is not one person that I know that would have had the nerve to put 100% of their money in the stock market on March 9, 2009 after they just witnessed a falling over 50% in the prior 15 months. Nobody would have done it.

[00:43:49] David Mitchell: Show me that person.

[00:43:50] Dean Barber: Nobody wanted anything to do.

[00:43:51] David Mitchell: I want to shake their hands.

[00:43:54] Dean Barber: Right? And then you come in a couple of years later, and you get the shut down on the quantitative easing and then they start buying the bonds back. And so, all the quantitative tightening and all these things freak the markets out in short periods of time but if you understand what you own, why you own it, and how it fits into your overall financial plan and you’ve got that GPS in place that tells you know what, you’re still on track. You’re still in good shape. Don’t worry about it. Just keep doing what you’re doing. It’s okay. It gets you that confidence and that clarity and that control that we talked about.

[00:44:29] David Mitchell: That’s right. And it comes down to that. That’s all we pre-experience by being able to know that we’re in control. And like I said, there’s going to be a lot of noise. There’s going to be a lot of volatility, fancy word for uncertainty and market gyrations but if you have that plan, and you’ve had these tough conversations, these conversations aren’t easy. I mean, it’s like kind of going to the doctor in some ways and getting a, you know, you don’t want to know that your cholesterol is high or you might have a little high blood pressure, but you need to know.

[00:45:03] Dean Barber: Absolutely. And you know you can actually do something about it. You make a conscious choice that I’m not going to do anything. I’m okay with what I see or I better make some changes.

[00:45:13] David Mitchell: Yeah. And how many clients you know that just simply haven’t had a physical in five years or 10 years? And all of a sudden, they don’t start feeling very well like, well, I better go and then it’s hopefully not too late but it’s like, “Well, I should have been doing this five years ago. I should have been on Lipitor or something five years ago.”

[00:45:27] Dean Barber: Right. Well, listen, this was interesting. I hope everybody that’s listened to this episode of The Guided Retirement Show has learned something here. David Mitchell, AllianceBernstein. We’ll have you back on again, David, in the future but this was super enlightening. We’ll add some collateral material, some great things for people to browse over, read, and things like that to get more education on portfolio construction. And maybe in our next episode, let’s talk about whether a person should look at individual securities or whether they should look at mutual funds or managed accounts and those types of things.

[00:46:03] David Mitchell: My pleasure, Dean. I’d love to.

[00:46:05] Dean Barber: All right. Thanks for being here.

[00:46:06] David Mitchell: Thank you.


[00:46:07] Dean Barber: So, that was David Mitchell with AllianceBernstein. And as I said a moment ago, get to the show notes, check out the collateral material on how to construct a portfolio, find the show notes, links to resources, and show transcription at That’s

There are also other programs that we’ve done, other episodes here on The Guided Retirement Show that I encourage you to check out, whether it’s the one where we talk about investing in ETFs versus mutual funds, how do you put proper portfolio construction into context for your own personal financial plan. A lot of great information on all the different episodes of The Guided Retirement Show. Make sure you share this episode with your friends. Make sure you check us out on YouTube, subscribe to our YouTube channel, and you can watch us as opposed to just listening to us. And as always, thank you so much for being a part of The Guided Retirement Show.


Investment advisory service is offered through Modern Wealth Management, an SEC-registered investment advisor.

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.