Speaker 1: So yeah, the institutions and Dowmans foundations have been in
this space of alternative investments for the last thirty forty
in some cases fifty years. Some of those positions are
now becoming available to retail investors. In fact, let's talk
about one for a minute. One that I like a lot,
and that would be one that holds both student housing. Right,
you are.
Speaker 2: Listening to Carrie Letz's Financial Survival Network, where you get
valuable information you just can't find anywhere else to thrive
in today's trying times. You need the Financial Survival Network
now more than ever. Go to Financial Survivalnetwork dot com
and get your free newsletter and gift. Financial Survival Network
now more than.
Speaker 3: Ever, and welcome. You are listening to and watching the
Financial Survival Network. I'm your host, Carrie Letz. Well Wall
Street is crumbling before your very Is is it time
to take the quick exit out. I'm talking about jumping
out the window and letting the rest work itself out?
Or is there hope do we hold on? Is it
going to be just a dip and a brief crash,
which is what we've experienced so many times in the past,
For the last forty years, just about since nineteen eighty seven,
so I take it back thirty seven years. John Brace
is with us now. John, always great to have you
on your take on the current crash. Is it tran
I'll use fed speak. Is it transitive or is it
is it a trend?
Speaker 1: Well, I mean, no one can see the future, right,
and I think the best way to put it is
preparation trump prediction, all right, So let go of trying
to predict what's going to happen when and see what
you can to be ready. And you know what, Carrie,
we should really learn from the animals. Notice what the
animals don't do when there's a flood or a hurricane.
They don't say, hey, Carrie, I'm going to ride this
one out. They go and they don't look at the
prettiest or the best dress or the one with the
biggest house. They look to the smartest animals and they
go to higher ground. So my point is, don't drown,
turn around, turn your assets around, and figure out what
your exit strategy is, because who knows that this is
just the beginning, If it's just going to blow over.
Everybody wants to be optimistic and say, well, we just
know this will blow over, keep buying the dips. But
you know sometimes things turn awry very quickly, and now
it's how low can we go? So to our way
of thinking, rather than try and predict what might happen,
because you could just be right or wrong either way
you cut it, how do you prepare so that you
can survive and thrive no matter what happens, whether it's
in Washington, DC or the economy around the world. And
the one two punch that we advocate Carrie is active
management number one and diversification number two. So active management
simply looks like most by comparison, Most investment accounts, mutual funds,
exchange traded funds keep the portfolio five percent cash, ninety
five percent invested. So in a two thousand and nine
or twenty twenty three that was terrific, but twenty eight
into twenty two, twenty twenty two not so much. Hid
In two thousand and eight markets off thirty seven many
of the passive all stock portfolios were all over forty
percent in that calendar year, and then here comes twenty
twenty two mark is off twenty to thirty percent. So
that's what the that's what the indexes did for those
who had their portfolios strategically set up so that we
limit the losses, as opposed to insult you by saying, Jerry,
you have to live with the losses. No, let's not
stay static. Five percent cash, ninety five percent invested. In fact,
let's see what we need to do on a daily
basis to answer this question, is a risk on or
risk off?
Speaker 3: In eight?
Speaker 1: Systematically throughout two thousand and eight, you wanted to take
shares off the table off the Titanic. And what I
mean is you didn't move from this stock to that stock,
or this bond to that bought. That's kind of like
rearranging the deck chairs on the Titanic the state ship
sank or we don't want that to happen. So let's
move out of risk assets and into cash risk off.
And in some cases clients started eight five percent cash,
but into the end of two thousand and eight fifty percent,
seventy percent, sometimes one hundred percent cash. That by that
way of working, we can see the evidence that these
folks who went that route were off no more than
actually less than twenty percent. In two thousand and eight, again,
the market thirty seven, the index funds over forty, so
you know, and it took a year or two to
get back to even, whereas the passive accounts took four
to five years to get back to eat it. So
we're going to suggest that we do what we can
to live at the losses again through active management. And
number two is greater diversification. And let me ask you this, Kerrie,
in terms of greater diversification, to kind of get some
sense of what that looks like. If you're looking at
the Yale endowment forty point seven billion dollars, if I'm
not mistaken, what do you imagine? You don't need to know,
because again it's I think it's a good conversation. Hat
Yale might have as a percentage in US stocks, I
would say two thirds two thirds? Okay, yeah, I think
see the securities industry has encouraged all of this, no
matter what we're trying to do. To think in terms
of making big bets forty percent bonds, sixty percent stocks
to hear it stocks, those are big bets. What blows
my mind every time I look and they Yale does
a report ball once a year. They're and they're pretty uh.
They describe a lot about what they used to do
in the eighties and how they're not doing that anymore.
In the eighties, it was a portfolio that was there
like seventy five percent US stocks, bawns and cash. Today
it's less than ten percent US stocks here.
Speaker 3: A year ago.
Speaker 1: Yeah, what I was looking for the details, all I
could find was three percent of forty point seven billion
dollars in US stocks. I mean that's like nothing, right,
I mean forty billion, that's a whole lot, but it's
not thirty percent. It's not forty percent. Okay, So we
can't do what the major endowments do, but we can
learn from the best in the brightest, and I think
one of the things we can learn is that we
have more legs under our portfolio stool. That makes for
a firmer sit for your life savings. As opposed to
being on two legs, which can wobble and break. You
got four or five legs under that portfolio, and now
you're probably in a position where you might yield a bit,
but you won't break. And that's what we want, right,
We want to bounce, not break. So again, yeah, it's
active management and greater diversification outside of traditional asset classes
that we think are the answered no matter how this
market turns.
Speaker 3: Okay, So where is Yale putting their money if it's
not in the stock market. Well, let's see. It's like LASSI.
Speaker 1: Look, it's about four percent to bonds, about ten percent
to cash. They like alternative investments like credit programs and
real estate investment trust. They are pretty well diversified. So
it's and I'm not saying this is not a template.
You see what I'm saying. I mean, in other words,
we're not Some people say, oh, is this what you
do with their clients. No, we can't. We're retail investors.
We don't have the kind of capability that they have,
and they think of their funds as perpetual. We don't, right,
So they they're they're doing a lot with the money.
We can't do exactly what they can do. What I'm
saying is the majority of us get overly comfortable. We
become smugly complacent. Really in this favorite stock that you like,
the bond that you like, too much cash. You're sixty
percent of your portfolios in real estate. So what I'm
saying is there's no there's no bible, there's no right way,
there's no wrong way. The question is what's your way
and figure out how to know what you own and
also make sure that you have some defensive strategies in
your portfolio. Every team has offense and defense. The Olympics
are going on, they've got to have both, whatever the
game they're playing. So as investors, most of us are
very authensive looking for all those gains. What do we
have in our bag of tricks, if you will, that
will keep our losses limited so that we don't need
a hell Mary pass just to get back in the game.
Speaker 3: Yeah, well, at times like these, you got to be
more concerned about return of capital or return of investment
than rather than turn on investment. Right.
Speaker 1: I couldn't agree more. And you know, if we can
learn from some history, Carrie, we can look at two examples,
one being the US after the Great Depression and the
other one being Japan. Right, many of us know with
the Great Depression, Well, first we started the twenties right
as the rowing twenties and then ended with a Great Depression.
That's quite a decade, right, Many people do know that
stocks were off about eighty eighty five percent of the
Great Depression. What many people don't know is that it
took twenty twenty five years to get back to even
assuming this is foy it in. Yeah, you stayed in
one hundred percent. You did not sell a share, You
didn't need any money for twenty twenty five years. Now,
what do you even know if doesn't need any money
for twenty twenty five years. And then New York real
estate about a year later, the capital of capitalism, right,
New York City dropped seventy percent, and the realtors, oh,
it always comes back, Yes, it did. That only took
forty years, that's right, four decades. So stocks took twenty
twenty five, New York real estate took forty and the
average age of death at the time, if we were adults,
was fifty seven. Yeah, you see what's happening here. Neither
the stocks nor you're a real estate in New York
got back to EVA while you were still here, So
that means you died with regret. And guess what the
same thing is happening with Japan. There's the NIK two
two five twelve, twenty ninety nine. PETE dropped eighty percent
in about twenty two months or so.
Speaker 3: A year later.
Speaker 1: Japanese real estate sound familiar. Yeah, dropped seventy percent, okay,
and I love to ask which one's back to even
for a long time the question. The answer was neither.
From what I can tell, it looks like both the
nie K in Japan and the residential real estate market
has finally recovered. But let's see, you placed that bet
thirty five years ago. Are those bets right? And you
took it for five years? Yeah, just to get back
to where you were. So you were thirty five, then forty, right,
and now you're seventy seventy five. I mean really, I
And that's my point. You know it may not come
back fast enough, so let's take the time to figure
out how to limit our losses.
Speaker 3: Yeah. Hey, well you know, risk management as an individual
investor is really your most important job, and it's something
that most of you out there know the least about. Right,
this is true.
Speaker 1: Yeah, we get I like to say, Carrie, we get
high on the hopium right wherever I throw the darts,
as long as it goes up in value, then see
how smart I was?
Speaker 3: Any questions might have been better with the darts this
time around. Uh So, non traditional investments you think are
going to be the place to be for the foreseeable future.
I do.
Speaker 1: I actually believe that's investors salvation. And the interesting thing
is for retail investors that sounds new. You might be
kind of like, you have a thirty year old car.
It doesn't have electric windows. Now you can't buy a
car without electric windows, right, automatic soap wipers, right, just
work for you? Like sure?
Speaker 3: So yeah.
Speaker 1: The institutions and Dowmus foundations have been in this space
of alternative investments for the last thirty forty in some
cases fifty years. Some of those positions are now becoming
available to retail investors. In fact, let's talk about one
for a minute. One that I like a lot, and
that would be one that holds both student housing right
with clients. He's a rocket scientist, she's a broker. They
own property near USC. They tell me that USC has
eight thousand rental units with a waiting list of forty
thousand people.
Speaker 3: Wow.
Speaker 1: Yeah, so many people were paying money every month to
keep their kids room during COVID when the kid was
at home. So I liken this kind of investment as
a cash cow. And a lot of the schools are
moving out of the owning and the management of residential properties.
Transferring that responsibility to companies. So now you have the
company that does the work as opposed to the school
that gets to blame. So yeah, I do like that space.
The other piece of the puzzle I like a lot
is data center infrastructure. That's the three hundred thousand square
foot buildings, and I'm not even sure they have the
bathroom because you know, everything's electronic and you have all
of this technology has to work twenty four seven, three
sixty five with three or four systems back up without water,
by the way, outside of California, that are just going
to keep chugging a log. So again, to me, this
looks like something that will hold up no matter what
happens in DC, what happens with the economy both here
and around the world.
Speaker 3: I like it. I like it. Hey, so what about AI?
Now we talked about data centers. Is there another way
to play AI? It might be even more advantageous.
Speaker 1: Well, you know, the only way you're going to know
it was more advantageous is when after the fact, right,
So I can't I don't foresee that. I don't foresee
what might be more advantageous. I would say, if you're
you know, in a stock for example, that's probably more exciting.
And if you like assitement, then any one of your
stocks that feature work and intelligences is going to be
you know, well, we watch. We watched those stocks, just
like we watched the tech stocks back in two thousand,
all right, they were the ones that ran off to
the moon and had separation. In other words, it was
you know ten that time, is about seven stocks this time.
But what you're looking for, or what we should be seeing,
is breadth. That's with a D right where you've got
whatever the index is five hundred stocks with S and
P the dolls thirty. But the top seven you don't
like the top seven separating from the rest of the
of the of the prop We want tom We want
all the stocks to go up at the same time.
That's a lot of volume, that's a lot of breadth.
But when we see this separation happening, it's not uncommon
for those those stocks that ran off to the moon
turn around and now all of a sudden it looks
like widely eat coyote and the road rudder. How low
can we go? So that's why, you know, we're always
anxious for people to see what kind of volatility can
you accept because sometimes people love all of the upside volatility,
but they don't like it when it moves against them.
And I think we can agree savvy investors hate losses
more than they love gains, so they're more interested in
limiting their losses and that's what vote.
Speaker 3: So what kind of time frame should you be looking
at investing now? You know, because long term, you know,
sounds dangerous, right, well.
Speaker 1: I mean, you know, some of these things are always
what's the definition of long term? And the way we
look at it is long term is lifetime. And if
you're sixty five, we believe we plan as though we
expect to live through age one hundred. So we want
to see what needs to happen so that you know,
there's a significant other both a couple that both parties
can get to one hundred, and both of them can
see the kind of income that they need. That's the question.
How can we make sure this income is very consistent
and with traditional retirement accounts, we have to recognize that
the withdrawals must be taken and the withdrawals must increase
thanks to the infrom of revenue service every year for
the rest of your life, So you know, it might
be three four percent when you're in your seventies. Stick
around to your nineties, it might be north of eight percent.
And every year that withdrawal rate just creeps up a
little bit and there's no way you can you can
stop it from a traditional retirement account. So it makes
sense to look at how can I build a portfolio
differently than when I was younger. You know there were
two fifty percent losses on the same decade. Well, if
you were making contributions, that was a wonderful thing, but
if you were taking withdrawals, that was a terrible thing.
Speaker 3: So it all depends on where you are.
Speaker 1: What you're trying to get accomplished, really irrespective of age.
But we want to make sure people figure out what
it is they're trying to do and maybe design their
portfolios so that the portfolio actually performs within their limitations.
You know, if the market's off twenty or thirty in
twenty twenty two, and you said you could live with
a twelve percent loss, but your account was down ten percent, Okay,
what do they say, right?
Speaker 3: If you buy you some of the ditch, stop digging? Yeah?
Speaker 1: Ten you didn't go to your limited twelve I would
say that's good. And you didn't get to twenty or
thirty on a million bucks, that's what two three hundred
thousand dollars just like that. You didn't want to go there,
and you didn't, And if the money had been where
it was before, you would have gone to being off
twenty or thirty percent.
Speaker 3: All right, Well, it sounds like interesting times are ahead. John, Hey,
tell us how do we find you? How do we
connect with you on the web?
Speaker 1: Yes, well we're at Westlake Financial Advisors or YB poor
either way, we'll connect to our site. Our phone numbers
eight oh five, four ninety five, two zero seven seven.
And love talking with folks about what it is they're
afraid of and what they'd like to prepare so that,
as I say, we can, we can avoid running out
of money before we run out of time.
Speaker 3: Yeah, that's the important thing. Everyone's a great fear. Hey,
got a question for John and myself? Shoot me an
email kl at Kerrie LEDs dot com. We'll get you
an answer quick. You'll find a link to john site
in the show notes of this interview on Financial Survival
Network dot com. We just asked when you're there, please
sign up for a free newsletter John always a pleasure.
Thanks for coming by my pleasure carry see you next time.
Speaker 2: Thanks for listening. Carry Lets this financial survival Network your
solution to today's trying times. For the latest, go to
Financial Survivalnetwork dot com. Financial Survival Network now more than ever,