Critical Thinking Required

In this episode, we talked about the real estate market in the Midwest, specifically the Dane County area.  Lindsay and Leslie both talked about how the low inventory and low-interest rates are going to keep the market active and crazy for a while.  Lindsay further explained what causes the low inventory in this area: a combination of baby boomers downsizing and buying smaller homes, and millennials are ready to enter the market for their first purchase.  We talked about EPIC's effect on the real estate market here, more so on the rental sector.  Leslie discussed with Dan about the current trend of people buying a second house or land up in northern Wisconsin to get a piece of quiet and escape, and how that seems especially appetizing during COVID.  Lindsay and Leslie shared some of their tips for buyers and sellers to gain some advantage points, and can't stress enough the importance to have a professional alongside you during this process.  Yes, you should shop around for the right realtor for you, but do get one, and trust their professional opinions. 

In this episode, we discussed one of people's all-time favorite topics: real estate.  Growing up in a family of realtors in the Bay Area, it was only natural Tiffany developed an early and intense interest in homes and got her license in 2007.  Tim started the conversation with a question everyone wanted to know: will the real estate market hold?  And Tiffany's answer is yes, at least for the short and midterm.  The current low interest rates and historically low inventory in LA create a very active and competitive market.  Dan wanted to know if COVID-19 has changed people's searching criteria?  Not surprisingly, single-family homes and condos with outdoor space is on top of everyone's wish list.  Nathaniel asked about the biggest opportunity and threat to the LA market.  In Tiffany's opinion, the biggest opportunity is to re-purpose the utilization of commercial space and maybe convert them into multi-units residential housing to help with the home shortage issue.  As for the threat, Tiffany is worried about foreign investors pulling their money out due to COVID-19.  We also discussed what mistakes people make as a buyer or a seller, and Tiffany shared some of her tips to gain advantages in this market.  In the end, we all agreed that buying and selling real estate is a big stressful project, and one needs to plan it out with the proper experts and NOT rush the process.

The Federal Reserve recently announced that it will allow inflation above the 2% cap for the time being without increasing the federal funds rate.  What does that mean to us?  Tim first explained a couple of concepts: first, the Fed's dual mandate policy, which is price stability and maximum sustainable employment; second, the federal funds rate doesn't equal interest rates you get from the bank or mortgage.  Nathaniel added that please do not assume that just because the Fed said they won't increase the federal funds rate that interest rates are for sure going to stay low.  The Fed doesn't have complete control over this matter; after all, it is Mr. Market that has the ultimate say.  Tim agreed and introduced a couple of tools the Fed has in its pocket.  We further discussed the impact on the stock markets.  Nathaniel emphasized the importance of having a margin of safety when you invest.  To sum it up, try to understand the fundamentals, and see both sides of the story and potential impact before you jump on any new financial opportunities.

In this episode, we talked about Employee Stock Options.  On one hand, they incentivize the employee to work harder since now their interests are tied with the company; on the other hand, they help the company to hire faster and better without hurting its cash flow.  Tim introduced the different types of stock options, their associated terms, and how their different structures result in different income and tax consequences.  Dan and Nathaniel talked about the value stock options bring both quantity and quality-wise.  Dan said it very well: understand that stock options are real money, real assets, and they are best utilized when you put a purpose behind it and give it a great value.  Treat them just like real dollars.  And as Nathaniel always says, be rational!

In this episode, we talked about long term care insurance with Fred Thorban.  Fred started his career in the insurance industry in 1990 and has been working with MVP Financial Services since 2007.  We started the conversation by asking: what is long term care insurance?  Fred gave a brief history lesson and told us that when it all started back in the '70s, because it was so new, insurance companies didn't know how to price it correctly.  They used life insurance for reference as for the data and model.  As a result, clients who bought back in the '70s and '80s had a 40-50% premium increase later in life.  However, right now, according to Fred, is the golden age of long term care insurance.  It’s priced fairly well, and all benefits you will receive later are tax-free.  He talked about the traditional long term care policy and the new combo version and the benefits of it.  Dan and Fred discussed how to use your policy when you need to.  Tim mentioned the ever-increasing health cost, and Fred gave us some numbers to think about.  To summarize it all, Fred said, you need to start the conversation and planning now, no matter how difficult and scary it is.

This is our mini-series "Ready... Go!" where we talk about the top financial topics of 2020 so far.  In this episode, Tim talked a little bit about the FED's interest rate cut and why this was a high-impact move.  Nathaniel discussed the PPP/EDML loans and how they are supposed to help employers retain their employees and businesses during the pandemic.  He also mentioned the challenges the banks and applicants were facing due to the government constantly revising the details.  Tim briefly talked about the home mortgage and student loan deferments, and stressed the importance of doing your own homework as all institutions have different rules on deferring payment.  Dan talked about how the stock market is not matching the economy and how stock prices are not matching the actual values (we had two episodes dedicated to this topic "Price Vs. Value FIGHT!" & "Am I Really Underperforming VS the S&P 500?".)  Lastly, we put our two cents into the hot topic of anti-trust cases for the tech giants.

In this episode, we discussed the effective use of leverage AKA debt.  We started the conversation with the recent "hot" topic: home refinancing and interest rates.  We also discussed whether potential inflation is on the horizon due to the stimulus package.  Nathaniel explained how he played the credit card game.  Dan asked: is there such thing as good debt?  Tim said debt is neither good nor bad, it's about your utilization of it.  Before you use any leverage and take advantage of debt, you have to make sure that you have steady, consistent income streams, and have savings in the bank first.  A complete financial plan and understanding of your cash flow is the foundation of using debt properly.  Nathaniel talked about how to utilize leverage in the investing world.  He mentioned that the key to analyzing a company's debt on its balance sheet is to understand how the debt’s due dates are staggered and whether the company’s FCF can support the future debt payments or not, and how the company plans to use that debt.  Dan summarized it very well: use leverage in a moderate amount, understand it, and remain disciplined.

In this episode, we had a chat with Ryan Grant.  Ryan has been working in the mortgage industry for 15 years and has been ranked among the top 50 Mortgage Consultants in America each year since 2013.  Dan and Ryan discussed how they love their industries, but also find it distasteful that the industries are being marketed as commodities.  Tim asked about mortgage refinancing and whether the interest rate will continue to drop - Ryan's answer is: possibly yes.  With the high demand for refinancing and high risk for more job losses and overall economic decline, the interest rate may not be at its lowest point.  Nathaniel asked Ryan's opinion on the landlords for commercial real estate not being able to collect rent due to COVID-19.  Tim mentioned people's concerns about home value dropping, and Ryan explained why that's not likely.  Unlike post-2008, millennials are now at the right age to buy real estate,  and baby boomers are ready to downsize which creates insanely high demand.  Dan and Ryan introduced the app "Art of Home Ownership", which "provides a suite of valuable services, at no cost, designed to help current and prospective homeowners take more control of their real estate."

In this episode, we had a chat with Mike Gibbons about our healthcare system.  Mike has been in the Healthcare field for 33 years and has an extensive background in healthcare administration.  Tim and Dan started the conversation by asking: what's wrong with our current healthcare system, and what can we do as a consumer?  Mike told us, first of all,  it's important for us to take care of ourselves better as a nation.  The U.S. is the biggest consumer of healthcare, and we need a healthier lifestyle and habits; second, educate yourself so that you can have better communication with your health provider; lastly, price transparency is a must, and we must understand the charges vs cost vs what you actually end up paying.  Dan asked an interesting question: with our baby Boomers getting older, is our healthcare system ready to take on the population?  The answer is “no."  Mike explained that with COVID-19, it's a good indicator of what are we looking at in the near future.  Our healthcare is running at 3-6% profit margins using its 95-98% capacity.  There's very little wiggle room for more demands.  Tim was interested in Mike's take on what changes have been made due to COVID-19.  Mike said there's a rapidly escalating speed of growth in the telehealth area, although people have raised concerns over privacy and payment methods.  Nathaniel asked what would Mike do if he's in charge of rebuilding our healthcare system.  Mike said that insurance reform is on the top of the list, and it's crucial to truly understand the cost of our healthcare.  Without that, we have nothing to base it on.  Overall, for us, as consumers: be educated and be reasonable.

In this episode, we discussed the benchmarks, especially the S&P 500.  Dan was blunt about his feeling about it: it makes people think off the mark, and not consider the greater risks of chasing the market.  Tim gave some interesting data: YTD, the top 6 stocks of S&P 500 have +16.61% return (as of 5/31/2020), but excluding these top 6 stocks, S&P 500 as a whole is down, with a -9.20% return.  So, when you compare your portfolio with the benchmark, and thinking that you are underperforming, no, you are not really behind the "market", you are just behind the top 6.  Dan asked: well, why don’t we invest in the top 6 stocks then?  Nathaniel gave the example of Microsoft.  It took almost 17 years for it to get back to where it peaked last time (1999).  So if one of your top 6 stocks' price drop due to another market downturn, do you have the discipline to hold it for 17 years and wait for it to bounce back without panicking?  Nathaniel went into details about Amazon.  Overall, Nathaniel doesn't invest in it because its stock is overpriced, and there's no way of knowing where it's going as a company in the next 10 years.  In the end, we gave advice on how to not get sidetracked by comparing yourself to benchmark: be rational, and understand what you are investing in.