The X’s & O’s

On today’s show, Brent, Matthew and Joshua will review highlights from the second quarter, some factors that might affect the market down the road, and how these numbers correlate to the current health of the U.S. economy.

The Hosts:

Brent Pasqua, Matthew Theal and Joshua Winterswyk


Brent: Welcome back. We’re the Retirement Plan Playbook. I’m excited for the show today and excited to kick this off. I’m your host, Brent Pasqua, host and founder of RPA Wealth Management. I’m here with Matthew Theal, certified financial planner, and Joshua Winterswyk, certified financial planner. Today we’re going to do a show on the 2021 second quarter market review. I think it’s a good time for us to go through and update everyone on really what happened last quarter and give them some insight of the strong market gains that we’ve seen over the last several months.

Brent: But before I jump into that, I do have a question. June, last month, was really the hottest month of any June recorded through the western hemisphere, and it seems like July is even warmer. What’s been contributing sort of to this heat and how have you two have been dealing with it?

Matthew: Yeah, the heat’s been pretty unbearable. It just seems like every day I go outside my house, it feels hotter than it’s been, it was yesterday, and I’m just like melting outside. Outside of running a very high air conditioner bill, I’ve just been trying to stay cool, go in the pool when I can or when I have access to, but yeah, unbearably hot summer, and it’s not just here in California.

Joshua: How am I dealing with it? I’m staying inside. It’s hot.

Brent: With people working at home, I can’t imagine the electricity bills. That’s probably not something people have factor. I mean, I know some people are saving on gas by not driving to the office, but electricity has to be sucking up some of that savings.

Joshua: Yeah. This last month was my biggest increase. It just really had a significant, probably like 35% increase in my electricity bill because we’ve just been nonstop running the air morning, noon and night.

Brent: It seems like it’s not just where we are. It seems everywhere it’s having these record breaking heats.

Matthew: Yeah, the northeast, Europe, I mean everywhere, it’s just blazing hot this summer. I mean, it’s a trend that we’ve been seeing going on for the last couple of years. I know actually this record that was broken in June, the previous record was actually last June, so this is a trend that’s continuing, and it kind of seems like the world might be starting to warm.

Brent: We had those massive droughts that happened. I don’t know, what was it, four or five years ago? It seems like we’re starting to hit another drought already.

Matthew: Yeah, it does. Thankfully we got what, 20 minutes of rain a couple days ago, but yeah, we need some rain here.

Brent: It doesn’t seem like 20 minutes of rain is going to solve that problem.

Matthew: No, it’s not. No, it’s definitely not.

Brent: All right. Well, let’s get into the hot take headlines. Life expectancy in the US fell by one and a half years in 2020, really the biggest decline since World War II. The decline was led by COVID 19, heart disease and drug overdose. What’s your thoughts on this pretty massive decline? I mean, one and a half years off the average life expectancy is pretty tremendous.

Matthew: Yeah, it’s pretty big. Then when they actually break it down by male/female and then the race, it could be a little bit more dramatic as well. Pretty crazy, though. I mean, this could have some financial planning implications, right, if life expectancy keeps declining. I know some of the numbers were COVID, but actually a lot of it was drug overdoses, man. These people on the fentanyl and the heroin are just shooting themselves to death, and it’s really unfortunate, and it’s very, very sad.

Joshua: After reading this headline too, what I thought was, yes, COVID was a factor to this but also just in that whole mental health space, we’ve seen this kind of over the last few years, where life expectancy hasn’t increased, even though we’ve seen it increase in other areas because of medical advancements and stuff like that, but because of the mental health issue that we’re dealing with also in America, it’s held back that life expectancy from increasing significantly. So I think that that’s a big topic and a big issue even from this headline.

Brent: Why isn’t the fentanyl issue brought to the forefront of mainstream information in news?

Matthew: That’s a great question. I’m not sure. What the little research I’ve done on fentanyl and from what I’ve heard is it comes from China, so there’s probably some sensitivity there, but I’m not sure why this isn’t a mainstream story. There was a certain point last year during the pandemic where more people died of overdoses in San Francisco than COVID. I don’t know what the number is today, but that’s pretty sad.

Brent: It is sad, and it seems like the fentanyl issue is hitting a lot of people, not just young people, but it seems like of all ages.

Joshua: Yeah. And the opioid addiction and that space has also been increasing in America and, again, not really talked about. Sad.

Brent: All right, let’s get into the next headline. The National Football League sent a warning to teams that COVID outbreaks among unvaccinated players could lead to forfeited games. This is a tremendous possible turning point in this fight against COVID, one that can have impacts on businesses and so forth. What’s your thoughts?

Matthew: I thought this was interesting. It kind of seems like the NFL is helping to, in a way you could say potentially lead, not only in our country, but potentially the world. Since this story on the NFL came out a couple of weeks ago, there’s been some updates to the story where the State of California is mandating that workers get vaccinated or they have to be subject to testing. I think New York City had the same. In France, they have similar rules against going out to eat in restaurants, cafes, bars. You have to be vaccinated to do that. So, yeah, it seems like we’re starting to finally get some hard rules on people who aren’t getting vaccines.

Joshua: And a little bit of just following the money too. NFL’s protecting their product, looking at it from that sense. They have so many players, coaches, staff, an outbreak can definitely affect revenue. So I think they’re looking at it probably from, yes, player safety, but also from a revenue standpoint and making sure that their product’s protected.

Brent: If this continues to trickle down from such a conglomerate like the NFL down to big businesses, small businesses, private, public, state, federal, does this then potentially impact the market?

Matthew: The stock market? I don’t think so. I think the only thing that could really impact the market at this point is another variant that is, what would be really bad and starts killing essentially vaccinated people. I mean, that could be seen as a pretty big negative, but outside of that, probably not.

Brent: All right, let’s get into the retirement planning corner. So we’re going to do a little bit new topic today. We’re going to talk about really what happened last quarter, because I thought it was such an impactful quarter, and we’ll dive into some of what the market returns have been and how we think things are going to possibly go. Let’s start with the market check. Joshua, how did the global markets fair in the second quarter?

Joshua: Great question. So we had U.S. stocks up 8.24%, international stocks, 5.65%, emerging markets, 5.05%, global real estate, 10.17%, US bonds, 1.83% and global bonds, 35 basis points or 0.35%.

Brent: So what does this mean? I mean, when you look at these allocations and these percentages, where do you think and how do you think they fared at this point?

Matthew: I mean, we’re in a bull market, and these are the type of returns you see in a bull market, where pretty much everything across the board is going up. It’s the sign of a healthy market and economy as essentially stock markets around the world are moving higher.

Brent: Is there anything that stands out in the second quarter based on those returns that makes you think that the market could be leaning one way or the other, one allocation’s favoring the other?

Matthew: No, not at all.

Brent: Okay. So how are markets doing over the last year?

Matthew: Yeah, so over the last year we’ve had some really bonkers returns. US stocks are up 44%, international stocks up 33%, emerging market stocks up 40%, real estate up almost 35%. Then here’s the only negative is the US bond market down 0.33% or 33 basis points, and then global bonds up 0.05%, which is basically unchanged. So what you’re seeing here is the equity markets are extremely strong just across the board, but the bond markets are lagging a little bit. So from an allocation standpoint, I know I’m kind of ranting here, but if you were heavily invested in bonds over the last year, you haven’t performed as well as someone who is more heavily invested in stocks.

Brent: Right, so the higher allocation into stocks, the better your rate of return has possibly been versus having a more bond led portfolio?

Matthew: Exactly, but you are accepting a lot less risk by having that bond led portfolio, so that’s important to weigh that into your decision making as well.

Brent: Now, if somebody did have a heavy bond portfolio over the last year, it’s probably safe to say that they didn’t make much, but with inflation potentially really impacting others, they could potentially be at a loss even though they’re trying to be conservative?

Matthew: That’s possible, but hopefully they set up some common stock in the portfolio. We always recommend our clients keep at least 20% in stock markets, and that’ll help overcome that inflation, and you see that in the one-year numbers with the global stock markets up over 30%.

Brent: How long will markets keep booming like this?

Joshua: That’s a good question. I don’t have the crystal ball. I think there’s just way too many variables that affect the market for us to know that answer, but I think, like Matt said, it’s a really good time to be holding equities in every asset class too. I mean, you look at just this last quarter, year to date, we’re both seeing US stocks, international stocks, emerging stocks. So these diversified portfolios are really doing well, and it’s really rewarding investors that are staying invested and accepting those market returns. Then also, not being so afraid of holding equities even through this turmoil time that we’re going in. So I think that, don’t know how long it’s going to last, but we can look back and show that probably a little even better than expected so far this year.

Matthew: Great points by Joshua. I would go on and say that for me personally, it wouldn’t even impact my financial plan. If the markets drop, great, I’m going to keep saving in my retirement account and potentially look to pick up some more stocks in my brokerage account, so it would be welcoming.

Joshua: That is another question. Even when we ask ourselves, is like, what’s another good stock pick, right? If we’re just asking ourselves and collectively nothing’s been on sale for a while, so is it even a right time to be even buying more assets or equities? If it does, good point, Matt, maybe there’s another buying opportunity if you’ve been sitting on the sidelines.

Matthew: Yeah, absolutely.

Brent: It’s hard because I feel like a lot of people were saying the same thing at the end of 2019, and then you sit here and two years later we’ve had massive runs in the market in 2020 and already halfway through 2021, and a lot of people might still be sitting on cash waiting for the opportunity, but is that opportunity ever going to come? I guess that’s one of the crystal ball questions.

Joshua: It is, and I think we always lead in the dollar-cost averaging. I think we talked about it on every show. We make a great point, just looking at returns over the last quarter but just ’19 with good returns over the course of that year, 2020, great returns from equities, and then so far this year, so as an investor in equities, you’ve got to be pretty happy.

Matthew: I’ve been following the stock market for almost 20 years now, investing my own savings, and every year there’s some pundit saying the market’s going to crash and that stocks are too high. Then when it crashes, they don’t say it’s time to buy them. They say it’s time to keep selling them because it’s crashing. There is always wrong.

Brent: Yeah, I feel like there’s never any consistency on what people are saying on TV. It’s like they’ll have one saying one thing and one saying the opposite.

Matthew: It’s just for ratings.

Brent: What I would want from all that is just somebody held accountable. Like, hey, let’s go back and review what everybody’s takes were and let’s see who was right and wrong.

Joshua: That’s not going to happen. That’s wishful thinking. It’s kind of like the sports commentators. It’s the financial ESPN or the financial sports center.

Brent: Yeah, so one of the things that we’re getting a lot of is obviously people, when we’re meeting with clients, they have a lot of questions about stories we’re following or topics that we want that we’re researching and trying to get an indication of where this market is heading. What are some of those long-term news stories that you guys are both following?

Matthew: I think you brought up one of them, and that it’s inflation, right? So prices are rising pretty fast. We see the inflation data. It’s coming out monthly, and you go to the store just looking for eggs or something. Maybe they’re 20 cents higher. Gasoline’s a little bit higher. Now it’s creeping up towards $5 a gallon here in some spots of California. Prices are rising. That will eventually start to hit consumers a little bit in the pocketbooks if they’re not getting raises.

Brent: Are you noticing people are needing more money because of inflation?

Matthew: I’m not, no.

Joshua: It’s kind of segmented. We know certain industries are inflated, like even just that car market, right? Even in the housing market. We’ve seen a lot of these headlines, but not everything’s going up. So unless you’re in the market in these specific sectors, you might not be affected. I personally, just with my clients, haven’t seen too much of an increase either. I think a lot of that has to do with people also not going out as much, but you’re already starting to see some of these inflation numbers ease a little bit. I think one good thing about this inflation period that we’re going through is we kind of knew this was going to happen, right? We had manufacturing slow down. We had a lot of indications of this would potentially happen even with capital influx from our government. So just a lot of these variables, we kind of had predicted that, and what’s a great hedge against inflation? Well, we just talked about investing in equities.

Matthew: The stock market.

Brent: What’s happening with interest rates right now?

Matthew: Nothing’s actually happening with interest rates, but as we kind of move on to the second half of the year and into early next year, interest rates have still been moving down, but we could be entering a period where the Federal Reserve starts to talk about potentially not only just raising interest rates to combat a little bit of inflation if it keeps running so hot but also tapering off those bond purchases that they started in the spring of 2019. If that happens, it could be a rough patch for the stock market. It was like that in 2014. Twenty fourteen wasn’t that great of a year, and I believe it was 2018 also, the Fed kind of pulled back monetary policy a little bit, and things were a little bit rough.

Joshua: From the headlines, though, we’ve seen, they’re very much in this forecasting a little bit of what’s potentially to come, but they’re not taking these stances on increasing interest rates or even slowing down those bond purchases very quickly. They’re letting us know that, yes, that’s what they’d be doing going forward, but it doesn’t seem like anything’s very drastic with the Feds recently.

Matthew: Yeah, they’re letting the economy run hot, so that’s why prices are moving higher.

Brent: One big story I think everybody has a question about, and I don’t think we need to make predictions on here because I think it’s just too complicated. Nobody knows what’s going to happen, but what do we think is going to happen with the Biden administration passing some of these potential new tax bills?

Matthew: You know, it’s complex, like you said. I just don’t see it coming this year. If there are midterm elections next year, nobody really wants to raise taxes when they’re up for election, and then we’re getting into the next presidential cycle. Biden’s almost out of office. His time’s almost up, so yeah, I just don’t see it. Like we’ve said on previous pods, no one wants to be that sitting president who’s out there raising taxes.

Joshua: We’ve just talked about so many variables with inflation, COVID still going on. Again, I just don’t see it either, and you’re seeing now he’s running into a lot of obstacles already with this proposed tax bill. We’re seeing more info on that. We’re seeing less Democrats being completely supportive and Republicans taking a really hard stance on, like, we don’t want tax increases, so it’s going to be a hard-fought battle to get any tax increases passed.

Brent: Because there was a lot of increases in capital gains tax, no step ups, estate tax thresholds dropping down. There were a lot of things that could actually impact a lot of everyday people.

Joshua: One hundred percent, yeah.

Matthew: There was a laundry list of things at first, and now that list is down to maybe one or two, and it’s probably going to end up at zero.

Joshua: I feel like we know it’s kind of slowing down and the momentum’s losing, because it’s just not in the news as much. You’re just not seeing a lot of information from the press about how things are going because momentum’s slowing down.

Matthew: Yeah, I agree.

Brent: How do you see inflation, the rise of interest rates, COVID-19 possibly getting a little bit worse, and then this tax bill impacting the stock market over the next six months to a year?

Matthew: That’s a great question. It’s one of those ones where I go back, and I don’t have a crystal ball, but I would call that these stories or potential wall of worries things that could make the market fall five to 10%. We saw it a couple of weeks ago when the Delta variant really got going in the US and the market fell only two or 3% but it’s down for three days, and a lot of people were freaking out. These are potentially stories that could knock the market off a little bit.

Joshua: We deal with these stories, whether if it’s now or throughout history, these headlines are always going to be in the news. We’re always going to have variables that could potentially be pressing on our upward trend in the market, so I think that it’s again making sure you have a good plan.

Brent: It’s pretty interesting, because in most typical years you have world affairs or world events or other things going on, but since COVID hit, it seems all the interaction between other countries and potential wars and all that, all that has completely stopped, and everyone’s just really focused on trying to get out of these lockdowns.

Joshua: The war on COVID.

Brent: Over the next three months, what are some of the financial actions items for our listeners to really do?

Matthew: I’ll take the first one. If you have any kids paying student loans, you’re paying student loans yourself, you know anyone paying student loans, quite a few of them were put into deferment during COVID-19, and I believe that’s coming out this fall, so get ready to start making those student loan payments again.

Joshua: One I’ll talk about is just monitoring home prices and car prices. We know that there’s extremely low supply, so if you were putting off purchasing a home, moving or even purchasing a car, watching over the next three months and even throughout the rest of the year, how prices are adjusting and making sure you have a plan for those purchases, because it could potentially save you a lot of money as those markets, especially home and car purchases, change.

Brent: Based on where the market’s at right now, what are you going to do differently in your financial plan this quarter?

Matthew: So for me personally, I’m going to increase my 401k contributions. That’s one change to my financial plan that I’m going to be making. My wife and I bought a new car. I guess we can maybe count this as my share. It was a very painful experience. I don’t wish this on anybody, but buying a car right now in this country is awful unless you’re probably buying from Tesla. That said, I was feeling a little lifestyle creep, so I decided that it was time to start maxing the 401k, so I’m increasing my 401k contributions to offset the car payment.

Joshua: Love that you used lifestyle creep on the podcast. For myself, this quarter just what I’m doing differently in my financial planning, me and my wife are closing on a new home that we had put a deposit down in the earlier of the year. It’s finally being built in a new community, and so now is going to be the time where we definitely review cash flow and review our budget, right? We’re going to have a lot of different expenses. Going to be a little bit more expensive as far as housing goes too, so what I’m going to be doing this quarter is definitely analyzing my own cash flow and making sure that I’m well aware of my new budget.

Brent: That’s a good one. I think for me, nobody wants to overpay for anything, right? No matter if you’re going to the store or anywhere you go, who wants to overpay for something? I think that’s how everybody feels about the stock market right now. Everyone’s kind of concerned, like, hey, I’m sitting on some cash, I don’t want to get in too high. I think what I’m going to continue to do is just have reoccurring deposits into my investments ongoing every single month, because if it’s like what we’ve talked about before where 2019, 2020, we continue on another two, three-year stretch, you’re not getting in and diving in with reoccurring deposits in trades and buying in the market at different points, you’re going to regret it. The market goes down. So what? You’re going to keep buying anyway. You’re taking advantage of the down prices. I know the market’s high. You got to have a really good schedule of how to invest.

Brent: I think that’s one thing we’ve talked about with all of our clients, and it’s something which to me it seems like schools and the education system really doesn’t teach people to do, because if it’s automated and it’s reoccurring and it’s constant and you don’t have to think about it, then you’re not having to make the decision, oh, should I transfer money from checking to savings or from a savings to investment. If all of it’s actually automated and you’re not having to think about it, that’s how you build wealth.

Matthew: That’s why we have people with five, six, seven million dollars in 401(k) plans, because it’s been automated since their twenties. They were maxing it out. The stock market’s done great, so their account’s done great.

Brent: Yeah, and you don’t have to have a 401K plan to do it. You could be doing it with a monthly savings, a little extra money that you have. It should be mindless is what it should be.

Joshua: Yeah, it’s paying yourself mentality, and it’s taking the emotion out of it. A lot of times it can be emotional for people to take a big lump sum of money and invest it or transfer it in… Even just transferring it to an online savings account that we talked about can be emotional, because it’s not like right there next to your checking account where you can see it, so I think that automated savings, you make a great point. We talk about it in this office all the time of how simple of an idea it can be but how impactful it can be. It can just provide such great wealth generation for you and your family, and it’s just a great recommendation.

Brent: I think one of the other things too about that, though, is that I think it’s important for the listeners to know, even as advisors, and we sit here and stare at the market all day long, even if you asked us to put monthly money in and have to execute those trades and think about them every month, first of all, you’re never going to do it on the day that you say you’re going to do it regardless of this is what you do, because it’s hard to stay that consistent. Number two, you are going to get emotional, because the market’s going to be high or too low, and you’re going to start feeling some sort of way, and you’re probably going to wait a day or two to place those trades, and you’re never going to time it perfect. Having it automatic and having it done, that takes that already out of it. I think that is one big value add and it’s something that should be taught.

Joshua: Yep, I agree.

Brent: All right, let’s get into the RPA recommends. I’ll start off. The first recommend I have today, and I brought two, one I’ll piggyback on the one that I did last time. Wait, do I get two? Is that okay?

Matthew: You can have two because I don’t really have one today.

Brent: Okay. So the last time I recommended Ted Lasso, and we got a great response off of the people that actually tuned in and watched Ted Lasso, but the second season actually got released, and what, there’s one episode, right?

Joshua: I think it’s every Friday another one gets released, but yes, one episode so far.

Brent: So one of the big questions where everyone thought that the whole season I think was going to get released on Friday, but that didn’t happen. It’s one episode. Go check it out. If you watched the first season, you can watch the first episode of season two. The second one is, I’m into obviously healthy foods. I tried out this product called Coconut Bliss, and it’s ice cream that doesn’t have the level of sugar that normal ice creams has. It actually tastes really good. I went on their website. I put in a coupon code. It’s not too expensive. A great late-night snack or if you’re watching Ted Lasso, a great date night snack. Not bringing the sugar to it.

Joshua: Have you tried Halo Top? That’s another low-sugar one.

Brent: I would have to see it.

Joshua: It’s the only one I’ve ever tried. The only reason why I ask is how that kind of compares, because I have tried those, a few.

Matthew: I can tell you. So the Halo Top tastes a little bit lighter. You can eat the whole thing for 120 calories or something.

Joshua: Yeah.

Matthew: In a way it’s kind of like you’re eating frozen air, right?

Joshua: Yeah.

Matthew: With flavor. The one he has is more like an ice cream.

Brent: Okay, so like texturally it’s a little bit more like-

Matthew: Yeah, it’s coconut milk ice cream, whereas the Halo Top isn’t-

Joshua: I think it’s more artificial.

Matthew: Yeah, more artificial… It uses erythritol or something like that, however you say that word.

Brent: Got it, yeah. Okay. Awesome. I’ll have to check that out. I haven’t tried that brand.

Joshua: I’ll go next with my recommends. So if you’re like me, I lose my sunglasses, I break my sunglasses, and then I get upset because I’ve spent a lot of money on sunglasses whether they’re Ray-Bans or whatever brand you like, so I just wanted to recommend a company called Knock Arounds. They’re based out of San Diego. You can go online. Pretty cheap sunglasses. Really great for the summer. They’re like $25 for a polarized pair. They usually have a discount code. Then I don’t feel as bad if I break them, lose them, wear them in the pool. Just a really good throw-around glasses. But they really cool styles, modern styles. They’re polarized but a really good option instead of me losing $150 sunglasses.

Matthew: Yeah. Then I’ll take the last one. I’ll try and get some of those sunglasses for the pool. That sounds good. If you liked Brent’s Ted Lasso, Never Have I Ever on Netflix, kind of similar, feel-good show about this Indian teenage girl. It’s kind of like her coming of age show. I highly recommend it.

Brent: That’s great. I’ll have to check that. I’m always interested in a good show recommended, because you know I won’t be able to find it. I think today these are some of the topics that we go through with clients when we do our reviews, and I think they’re extremely helpful to get a better perspective of where the market is at. As advisors, we truly do love helping people, and that’s why we do it. The hope is that it provides some clarity on what’s going on right now. If you’d like to schedule an appointment with any of us, please go to and schedule a complimentary consultation. You can also download our eBook on our website. If you’d like our show notes you can go to, but always enjoy having listeners, and thank you for listening.

Joshua: Thank you.

Matthew: Thank you.

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