Steering Through Market Uncertainty with Kurt Altrichter's Investment Acumen

Embark with me, Michael Gayed, as we navigate the ever-shifting terrain of financial advising, featuring the remarkable insights of Kurt Altrichter, the mind behind Ivory Hill. As the financial markets oscillate with the uncertainty of our times, Kurt's leap from a conventional wirehouse broker-dealer to the helm of his own firm during a pandemic is nothing short of inspiring. Together, we unravel the tapestry of today's investment challenges, discussing the nuances of asset allocation in an era where the S&P 500's dominance challenges diversification strategies. Our conversation traverses the delicate balance between the stability of dollar-cost averaging and the protective strategies like buffer ETFs that shield against volatility.

The art of investment is a masterpiece of patience and strategy, particularly poignant during bear market cycles that test the resolve of even the most seasoned investors. This episode sheds light on these historic stretches of stagnant markets, such as the years from 1964 to 1982, and the "lost decade" that began the new millennium. Kurt and I reflect on the psychological battles investors face, and how such trying times catalyze a shift towards more proactive asset management. By embracing technical analysis and dividend strategies, we reveal how calculated risks can transform upward trends into opportunities for substantial returns.

As retirement planning looms on the horizon, we dissect the transformation of 401k plans and the increasing popularity of model portfolios. Through client stories and real-world scenarios, we demonstrate how goal-based financial plans can triumph over age-old adages in securing a more comfortable future. Kurt illuminates the battle against inflation's erosive effects on fixed incomes, stressing the necessity to preserve purchasing power for those golden years. Whether you're an investor seeking clarity in a fog of market complexity or a financial advisor hoping to sharpen your edge, this episode is a wellspring of wisdom for the financially curious.

Nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. 

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

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Transcript

Speaker 1: 0:08

My name is Michael Gai, publisher of the Lead Lagerboard. Join me for our current trickter, who's been against real fire on X with his followers. But, kurt, I've known you for a while, but introduce yourself to the audience. Who are you, with your background, how'd you get interested in, involved in markets and what are you doing currently?

Speaker 2: 0:22

Yeah, hey, mike, I know Thanks for having me on. I am a longtime listener of your space so it's an honor to be included on this one and I hope I can meet everyone's expectations on here. But no, I really do appreciate you what you do on here, educating people to get out of their echo chambers and, as you say, look to the left of the equal sign, and I think it really helps investors get out of there on the way and stop watching the CNBC FOMO factory. But yeah, so a little bit about me. I'm a financial advisor. I'm founder of Ivory Hill, which is a registered investment advisory firm in Minneapolis. Minnesota Started out in the business kind of working at a wirehouse Broker dealer.

Speaker 2: 1:02

For those of you who don't know, wirehouses hopped around to a few different firms that were a little too sales focused.

Speaker 2: 1:10

Back then, when I got in the business, it wasn't so much about pushing necessary products but it was as I'm always working at the utility space. But it was very focused on jamming assets into the kind of the firm passive model portfolios which we were never really trained on. We were trained to sell and go pay and handle for new money to grow that AUM fee, and so I jumped around to a few places, decided to start my own firm in 2020, in the middle of the global pandemic, and, for those who are in the business, you already know that if you are working for someone, you typically what you will have is some sort of non-solicitation agreement. So I had to start out with absolutely no clients, no assets, in the middle of a recession, and so, after three years of having said that, it's probably the best decision I ever made, and so I worked with clients all over the country, held businesses, high earners, entrepreneurs, grow and preserve their wealth through financial planning, investment management, and I have a subnich and pension 401ks and I also run a momentum investing strategy.

Speaker 1: 2:12

That's a little bit unique, and so, yeah, that's it a little bit about me Is being an asset allocator, a financial advisor, in a cycle like this, easy or hard and really where I'm going with that is I would go back to this point that the worst environment for anybody that's doing asset allocation is one where it's just about one asset in this case, the S&P 500, while everything else is largely diluting that if you mix it together with different parts of the marketplace. Talk about that, because I think this is where people that are in the industry have a very different outlook than those that are not in it.

Speaker 2: 2:43

Yeah, I mean I think the number one question that most people have right now is what do you do with new money, Like new, fresh cash? Where do you allocate that? With the market screaming to all-time highs and overvalues and understatement at this point, and how narrow this market is is definitely challenging for a lot of people. So you do need to have some sort of process that you can kind of stick to deploy clients you don't want to deploy at the top. You also don't want to wait too long because just kind of onboarding some new clients, hey, I want you to kind of layer me in or do some kind of dollar cost averaging over time. Well, I showed you two collides I onboarded at the same time. One's account looks vastly different and they both came over in about December. Looks vastly different today than the one where I'm dollar cost averaging and kind of just waiting and getting paid to kind of wait right now. So that I would say is a very challenging part of the cycle.

Speaker 1: 3:42

How do you communicate that to that client that's doing the dollar cost averaging? Because they're going to say, or you would say right with your decision, you wanted me to do it. They're going to say well, you're the advisor, you should have advised me not to. And it's like always, day if you do, day if you don't, when you're managing other people's money. But how do you manage expectations for new clients when you're in this environment where things are just kind of running away?

Speaker 2: 4:01

Yeah, I mean I'm glad you brought that up. Expectations, in my opinion, are the most important thing. This business are really getting outside of this business and in life Its relationships are broken or they're made based on our expectations set and that. So communicating that to clients, if they're going to be in our momentum strategy, a market that stays overbought, that continues to stay overbought, it's about as bullish as it gets. So that means let's buy what's, not trying to fight the tape, let's not try to wait for that down day that does happen, because by that time, who knows, markets can stay overbought for years. With that, that client that has maybe a taxable account, they maybe want to be in a more target risk type portfolio because they're worried about tax loss harvesting or someone's in their ear about that.

Speaker 2: 4:48

I do think that in that situation it does make sense to wait. But you could be waiting an awfully lot of time and a way to kind of strategically do that would be to use like a buffer type ETF or an ETF kind of like yours that goes risk on to risk off, so you can kind of protect that downside if it does. But it definitely is challenging what's going on in the market and you definitely don't, especially with buy and hold. If you're going to jump in at the top of the market, that chart of hey, you're going to get 20 year rolling return and average 10% per year. It's not going to be that if you're at the tip of the top of the market and it takes five years to get break back to even. So it is challenging.

Speaker 2: 5:27

Sometimes what we'll do is and then another strategy that I did with a different client was when deployed 25% of that capital right away, wait for a buying opportunity. That never came, deployed another 25% and then finally got a buying opportunity to layer in the rest of their account. So I wouldn't say that any strategies necessarily need perfect to do that. I think everybody has their own at the old. In my old shops, we dump every client into their model portfolio on day one that the assets were received. So coming from my background, I would say that most people don't have a strategy for it.

Speaker 1: 6:03

I'm glad you made that point about buying hold, which I always joke. It's like the problem with buying hold is nobody really holds and it's about the investor experience if they do happen to get in. Yes, sure, markets tend to go up over the very long run, but nobody knows when it's their last day on earth, so how could you rely on that? As far as needing a capital, maybe sooner than later, and that kind of goes to your point about how the industry is largely sales focused. Right, that's the mantra. The industry focuses so much on buying hold and, arguably to your point, it's an industry really of asset gathering, not asset management. And you can make the case. I think that a large part of that really accelerated the last decade. Right as we entered this sort of large cap passive only environment where hedge funds really started generating negative alpha, most things ended up relatively underperforming. Do you suspect that the go forward potential of being a thoughtful advisor will start to fever? Those actually know how to manage cycles as opposed to those that just manage relationships.

Speaker 2: 7:01

Yes, I absolutely do. I agree with that. And the truth about advisors and I may rustle some feathers here, but I'm just going to speak from what my experience is in the term of what a financial advisor just the term financial advisor, I think, really means pretty much nothing these days. It's like an insurance guy with a CFP designation that's trying to sell you whole life insurance you don't need. Or is it an asset allocator using different managers to manage chlorine assets? Or is it someone actually managing their model portfolios? Or are you just using like a turnkey asset management platform to dump your clients in the Vanguard passive? And so when I got in, the business advisors are recruited for their sales skills. You know 20, they're really at least.

Speaker 2: 7:51

When I got in is about 2010,. 2011, when I started intern at UPS and you get the new recruits would kind of come in and then about six months they'd all be gone because they were set up for failure. In my opinion. You're 22 years old and you're mandated to bring in $1 million a month or $12 million a year, and you're on a declining pay scale. So by the time you're years up, you should have made that up with your, with the fees from the assets that you gathered and really the only thing that matters is EUM and so and an example that I think is kind of a good example is I remember one I was kind of buddies with one of the trainee advisors and he was off and running in about two months. He had mentioned me is on the unemployment line, for I want to say, you know, six months to 12 months had no college degree, absolutely no experience in managing assets for other people's retirement, and within about 60 to 90 days he was handling people's you know million dollar portfolio, no capital markets training whatsoever, no oversight, and they were basically just kind of dumping them into the firm model model portfolios, moving on, we weren't really trained on what was in it. Why should they be in it? But the number one thing that they did teach was buy and hold, because buy and hold was the narrative that you could understand and Communicate to clients as, and you can use it for a number of different ways and you would use it to get people into the investment. Over 20 years, I've ever every firm's got this one chart right and everyone's seen this over 20 years. If you're investing in stocks, you're an average, you know, 10% per year and you're always going to be profitable no matter what, because the market always goes up over very long periods of time. And or you can use the buy and hold theory to keep clients invested into the market.

Speaker 2: 9:39

Now I do think that there is I'm speaking from the sales aspect, but there is a definitely an argument for hate. We need to stick to the plan. We agreed on this. We're in the middle of the shitstorm of the downturn. At this point in time, we could be selling at the bottom, but you know, what I was thinking too is keeping clients invested in from to keep your, to get your at you know 12 b1, you know load fees to keep coming in, because at you know firms and I worked at, if you will declare me, to cash, you couldn't charge a fee on that amount of their assets. So you, the goal was to keep clients invested 100% all the time in any market environment and really and I, and at least when I got in advisors they really know what the hell was going on.

Speaker 2: 10:21

And the problem with like going back to that 20 year rolling return chart that is super sexy is that says that you average 10% or 10.1% per year invested in the S&P 500 index, because I had a couple problems with that. One is average is it's using average mutual fund return in General is kind of a scam in my opinion. I remember going to when I started actually kind of grow a small book of clients going to a senior advisor and going hey, you know, I know that markets aren't always up and down and they're not always going to be the same and you know stocks are gonna be up 30% one year, down 5% the next year and but like, overtime should average. But my clients returns on these funds, compared to the fact sheet that we sent them three years ago, aren't even close and the markets, you know pretty, it been pretty boring. It's been pretty up, like why.

Speaker 2: 11:11

And he goes oh, looked at me like I was an 80 and he goes well, the difference is that shows average Return and your clients are getting actual return and like, and so I got whipped out in napkin and and kind of wrote it out. He goes okay, let's just say you put a hundred K Into this mutual fund and in year one it has an absolute banner year it's a hundred percent returns. That hundred thousand dollars turns into two hundred thousand dollars, okay. And then year two it had. You know the market doesn't do very well and you have a 50% drawdown, so the actual return is zero percent, but the average return on those two years is 25% and so and every firm uses this.

Speaker 2: 11:52

I used to do this, I was trained to do this and I kind of realized that. And then that led me to my next question, exactly on the why I'm folks fixating on this chart, kind of narrative right now is why is that number 20? Why is it? Why is 20 years the number that we use to communicate this? Well, what I figured out is because if you use any number less than 20, it wouldn't work. You wouldn't be profitable in interrolling return period in any. You know, 20 year rolling and 19 or 18 year rolling period in the market and the best thing, I think, one of the.

Speaker 2: 12:25

There's a number of examples of this. If you just look at, like the Dow Jones For example, like the bear market between 1964 and 1982, you know that 18 years of Basically declining and sideways markets at the 18 years and, like you said, the joke about buying holds Nobody holds. Well, if you held on to your money for 18 years invested in the market, you made absolutely no money. I think the Dow was at 874 and 17 years later in in at 875 and you broke even. That's assuming that you stayed in the market. I'm assuming that a lot of people put their capital to work in in other avenues. At least I would hope so. But I mean there's like four or five other examples to like February 1906, 1924 18 years of sideways markets yeah, I think you didn't even break even at that point. 1929 to 1954 Another flat market. That was 25 years into what that? Does that kind of make sense?

Speaker 1: 13:21

Yeah, no, 100% actually. I mean, you know you don't have to go that far back for a lost decade, from, yeah, 2000 to 2010s, and then you know yeah, 99 to 2010, 66 to 82.

Speaker 2: 13:32

Yeah, yeah, it's, it's also. I dug into that and I started to really question what I didn't really believe in, what I was doing, and it was hard and as and whether you know you think you're what you do for work is your identity. I kind of believe that me being a financial advisor was my identity started not believe in what I was doing.

Speaker 1: 13:49

Yeah, and I mean you can argue we almost went through a lot of stick ages from this bond market duration, sell-off right and Emerging markets have been you know basically nowhere since 07. Yeah, if you look at the broad base EM average, so it's lost a lot of people because you know, I think we're in an environment where home bias has helped investors make returns, because the home bias means going to US large cap and that's your market proxy. But the reality is there's plenty of junctures like that. Now, of course, there are ways of mitigating the possibility of, with hindsight, something being a large sideways, right? So let's talk about, from an advisor perspective, what are some of the, the tactics or strategies that you've looked at that you consider using to To maybe make that likelihood lower. Right, you can't guarantee that. You're a client portfolio would have a loss. That would avoid a loss decade. But you can mitigate possibly. So what are some of the tactics? Momentum is other things, but go through some of those.

Speaker 2: 15:15

Yeah. So I mean I kind of going back to that point and me not trusting was going on in the industry. They kind of started going down the journey to find what exactly that was. If you don't mind it, I kind of discuss that if there are any advisors on here, I might be able to cut out a lot of work, because that was something that I got sick of saying, hey, this is a long-term portfolio, you need to stay invested, you need to stay the course, and then send an email out and be like a sailboat Floating on the water of staying the course, right, and so kind of.

Speaker 2: 15:45

I Initially started looking at different asset managers and, hey, so if I can't do it in my own firm, because I didn't trust advisors really banning zero money, right, which is a funny thing that most people don't really understand and so what I did find is that the asset managers and I did like that were active, really good at protecting capital on the downside and and had a academic way of using of leverage or it was just more of running away from the market, not necessarily a shorting or longing, doing high-frequency trading, that type of stuff. I started looking at 200-day moving averages, oscillators, technical analysis, individual stocks, trading strategies and whatnot. Not so much on the macro side. I thought that was a pretty interesting macro. It's awesome. I think you can get that good, rockwork-looking macro picture. But, like I say a few times, on Axe my investment, based up just the macro, I'd probably be sitting in cash since 2021, and I'd be a Walmart reader because all my clients were a fire fan. But I ran across a sphere that I didn't really understand that well. That was interesting to me, as well as the intermarket analysis.

Speaker 2: 16:57

And so, instead of looking in at just single asset classes, hey, we need to be in just bonds or just stocks, or me being this kind of boilerplate model portfolio and actually that's when things started to make sense for me is looking at strongly correlated asset classes and markets, starting to understand hey, when commodities are rising, that's going to be an early indicator that inflation is going to be rising, as the price of corn, wheat, soybeans and gasoline and all that type of stuff is going to actually flow back to the end consumer. It's going to go on the asset prices first and out pops inflation, and then BAB is an early indicator that the Fed is going to be likely to raise rates. So, looking at, I believe that the first part that I looked at to answer your question, mike, because I haven't done that yet is looking at certain dividend type strategies, is what I initially went to. Hey, if we can't make money on growth, let's make some money on dividends.

Speaker 2: 17:54

Let's look at some junk bond, junk bond and long-term bond type or long-term treasury type strategies and flip back and forth between those or at least have those included in the portfolio. But I remember very vividly that dividends is where I went first, because most of these model portfolios you don't know what's inside of them A lot of them are very indexed, blend focused with not a very not with zero concentration, and you need concentration in order to get returns. You've got to pick a side and if you don't kind of, if you kind of just take the middle road on investing every time, you're not taking on enough risk, especially when the trend's up.

Speaker 1: 18:34

Yeah, and actually, if you're the end client, why then even bother going with an advisor, right? Because you can just buy one of these prepackaged ETFs that's an automatic C40 or a tear point, a target date funds, right? I mean you ideally.

Speaker 2: 18:48

Oh, target date funds are like yeah, look at that, I think it's.

Speaker 1: 18:57

Look, I'm just kind of riffing with Curd here. So I'll say I find target date funds good if you are I'm not going to use the word lazy, but if you're really not going to stay on top of things and you want to try to avoid the added fees. But there's a lot of interesting implicit assumptions that target date funds which make themselves up.

Speaker 2: 19:14

Yeah. So, like I kind of mentioned, I'm a 401k pension advisor by trade and so when target date funds rolled out the entire reason why they're rolled out is because RISC had to mandate that, hey, if your plan is going to be safe harbor which means you avoid a bunch of compliance issues with the plan that we need a solution for investors that don't pitch an investment, because people would just sit in cash and after 20 years these ambulance chasing 401k chasing attorneys would find a distro employee. Hey, you've been sitting in cash for 10 years. You missed out on a bunch of return. Why aren't you in something? So they needed to provide a solution for it.

Speaker 2: 19:54

So target date funds are very boilerplate. I don't want to get into how they work because I think most people do, but yes, they have a lot of fake assumptions. And you get automatically enrolled in your plan now at 3%, even if you don't sign up. Most clients have an automatic enrollment at 3% and then you get automatically enrolled in the target date fund based on your age and that's truly for like. It's not even for the client that doesn't want her. They participate your employee that doesn't want to manage money. You can fall asleep at the wheel, never even logging in your plan.

Speaker 2: 20:23

You're going to be invested in one of these things and so and they're all very different you got your index, you know. You got your semi active manage. You know like T-Row price is one of the top performing target date funds and you want to know why? It's because they carry more equity than most of the other ones. But all of my biggest problem is that it's the kind of long term capital market assumptions on how they invest. They don't really adjust their weightings, they don't really cut things out. The Fed's raising rates. What's going to happen to long term treasuries? They're going to go down. Well, every single one of these target date funds has a large allocation to core bond, which is 15 to 20 year treasuries those that trades like stocks. In that environment it doesn't trade like safe fixed income, which is how it's sold.

Speaker 1: 21:05

Yeah, and a lot of people posted a realized the feed, you know, because it's effectively a fund of funds. I mean, I think it ended up being better than let's call you typical. Going back to the prior conversation of asset gatherer type of advisors that just don't really care right and are just good salespeople. But if you find something more thoughtful, right, Is this a far better approach to go with an allocator than a vehicle like that?

Speaker 2: 21:27

Yeah, and I'm seeing a trend now, especially in the retirement plan space, where there are plans, are warning a little bit. They want a little bit more than just its sweet target date funds, because what we used to do just got a benchmark out, the target date, but hey, you're a client, we've been kind of lying to everybody. Hey, it's all about beads. It's all about beads. Let's put you in Vanguard or the spider. You know targets or whatever.

Speaker 2: 21:49

I've seen a shift now where I'd say, about 50% of the 401k plans in mind, where they actually have model portfolios, which is a little bit of a step up.

Speaker 2: 21:58

And then it's taken another step further where they're doing actually, you know, advisor managed or asset manager managed model portfolios, which I think are a little bit better because I think that people appreciate, or should appreciate, the static nature of them.

Speaker 2: 22:14

So if you're an aggressive investor when you're 20, you're likely going to be an aggressive investor in your 30s and 40s, especially after you've gone through a few market cycles, where target date funds are going to automatically adjust every couple of years and get more conservative. And then by the time you hit, you know whatever age 65, you know it's sitting at about a 50-50 split or, even worse, it might even be like a 60, 70% in fixed income and 30% in the bonds. Well, what most people most of my clients at least just because they retired or just because they turn age 65, doesn't mean that we need to change their investment allocation. They're not using that money, we're not going to be trying out of that account for probably another 10, 15, maybe 30 years, or maybe not even at all, and we need to be invested in equities in order to reach our investment objective, that their investment objective is to pass that money on to their, into their heirs or to, you know, charity or whatever it may be. We may as well throw that through equities.

Speaker 1: 23:09

Speaking about age, one of the sort of rules you typically hear is you know what is 100 minus your age is how much equity closure you should have or something like that right from an asset allocation.

Speaker 2: 23:20

Yeah, I think that's still Toddman 65's exam.

Speaker 1: 23:23

Yeah, right, right and which is interesting because I mean with what we went through the last three years. You know, bonds are supposed to be what you position a client more into, the older they get under the idea that it's supposed to be safer relative to equities and if you're exact opposite, right certainly on the duration and the last three years. But talk about what you have in terms of your clients that are on the older retirement side, you know. Going back to the discussion on what do you do in this environment, it's more than just what do you do in this environment. What do you do relative to one age, because there is now, I think, a compelling argument for retirees that now is the time to basically almost all in a fixed income, even if you're not close to the 70, 80, 90.

Speaker 2: 24:01

Yeah, and so like being investing based off of age if I was had a problem with in general, because not, that's not like that, but the correct prescription to invest based off of your age. That's like it's a kind of a guide, a general guideline. If you don't have access to the we didn't have access to the internet I think you'd be a good narrative, but yeah, with the clients that are. So there's a couple of ways to look at it. One is a financial plan goals-based approach. So if you go do an in-depth financial plan and we have checked all those boxes to get a what you're usually going to work on, to have some fixed assumptions and so like using kind of a proxy of a client retirement plan, going through this exact situation over the last couple of years, to retire a plan really only required about a 5% net return on capital in order for us to meet so you can live the current lifestyle that he wanted to in retirement, travel every couple of years, etc. When we get that. Well, around this same conversation, he had a pretty good knowledge of where the market was. He was any end from a risk tolerance standpoint, which I'm happy to talk on that as well. He was pretty conservative for the most part. He told me he was conservative. He didn't want to see. I mean he could stomach a 20% drought on it if he had to, but at this point in time didn't, really didn't need to, because it's financial planning. Why don't we just lock up half or most of your money in his CDs or treasuries at 5% for the next couple of years? It's a way we might not ever get this opportunity again in the foreseeable future. I mean we probably will be in the same exact situation every five or six years in order to do that. But is I mean, why take on the risk? Yes, you miss out on the upside, which at that point in time, based on fundamentals when we had this discussion about a year and a half ago, you might miss out on the upside of 20%. Are you okay with missing out on that upside in order to guarantee a certain part of your financial plan? He agreed with that.

Speaker 2: 26:00

There are some grumbles on hand which that money was in equities now, after seeing the market absolutely go on a tear in T4 of last year. So there's a little bit of FOMO there on that side. But going back to you and I've done some decent amount of work on this where, hey, using an example of my own grandma and going back to when I was 10, 12 years old, I remember getting like $100 in the mail on my birthday every year and that was all the money in the world. And then over the years, that $100 got gradually, which from $150, $50, $10, that eventually, and then towards the end of her life, I was just getting like a card in the mail. Well, later found out, grandma had all of her money sitting in CDs and CDs don't have a really return. They haven't returned one of the 1%. They don't keep up with inflation at all. That was the primary reason why her income really was deteriorating and her buying power is deteriorating because inflation is not at 2%. That's what the Federal Reserve says it is.

Speaker 2: 27:04

There's a number of resources out there by specific state and city, like the Chappwood index is one, and I know, like in Minneapolis, minnesota, specifically, where I am, for the goods and services that we pay for over like the last 20 years, inflation on those is actually hovers between about 7% and 9%. So you have to have a portion of your money into equities or you literally can't afford not to invest your money into equities in order to keep up with inflation. Yes, there's certain like junk bond strategy and that type of stuff, but that's probably the easiest way to make sure that your money keeps up with inflation, which requires you to take on a little bit of risk. And that's sometimes a difficult conversation to have with a retiree when most financial planning software says, hey, inflation is at 2.5% per year and you really need to kind of factor that in and actually look at the prices of things that consumers are buying.

Speaker 1: 28:28

Just reset the room for the remaining 20 minutes. Please make sure you follow Kurt Alprichter here on X. If you want to comment on any questions, click that bottom left micro request button and, as always, this will be podcasts under lead lag live on Apple, YouTube and Spotify. Okay, now there's another part to this, which is focusing on the asset allocation, how to think about returns. But sometimes the best thing to do to enhance returns is to mitigate taxes. Okay, and I find that a lot of advisors tend to not really think in those terms, because they don't necessarily have the fees and no sort of some of these ins and outs. Maybe they have accounts that can help them on their team. But you have sent me a note saying that we can touch on how business owners can defer 69 to 76,000 roughly in their 401ks, which sounds like a nice number to defer in taxes. So lay that out for the audience, explain what that is and why. Maybe, just in general, people should be focusing more of their attention on dynamics like that as opposed to a chart.

Speaker 2: 29:28

So yeah, what most people don't know, and really I mean from a small business standpoint, I mean this works. It doesn't work for everybody, it's not going to work for your big monster corporations because it doesn't work in the benefit of the business owners they have on their avenues, but anyways. So you look at your 401k and most people think you know, look at the 2024 limit of your 150 to 23,000 tax deferred, so what that means in layman's terms. So you make, you know 100,000, you contribute 20,000 tax deferred and suddenly getting taxed on that 100, you're actually getting taxed on 80,000 from Uncle Sam. So it actually reduces your taxable income from that standpoint. But you know, over age 50, you can actually do another 7,500. So you can do 30,500, reduce your tax liability there. And that's primarily where you know most people stop. But you get. But that's not actually the entire limit. Your entire limit actually goes up to about 69% or $69,000 that you can actually reduce your taxable income by and that's a decent chunk of change. But you can actually take that even a step further and again, this doesn't work for everybody.

Speaker 2: 30:36

You can stack on a what's called a pension plan or a cash balance plan, which you don't see a lot of pensions that be corporations because they got to keep them funded and they use, you know investing dynamics that be. It's just unreal, unrealistic for them to have to you know, mandatory meet those objectives. But on the small business level, like with companies that have great cash flow, like healthcare type companies, dentist office, attorneys, advisory shops are actually pretty good at this is, you can add what's called a cash balance plan and there's a number of different factors but essentially you can defer, you know like, depending on how old you are and your employee dynamics, you can actually defer up to, you know, $180,000 more on stacked on top of that tax defer and invest that. Now if you just had a banner year, because you're like a mortgage broker and during the last three years now you're not doing very well, it's not a great option for you because you have what is called mandatory funding. So if you decide that the actuary decides that you are going to do whatever or 200 of your income into your cash balance on top of your profit share and contributions, which kind of meet the gap between your employee deferrals and that $69,000 defined contribution limit, and then you stack on the pension plan on top of that to get you up to, let's just say, another 180,000 on top of that and you decide to fund your pension by 180,000 in year one, well, you're going to have to do that for at least three or four years. And oh, by the way, orissa has mandatory return requirements on that as well, and so most mandatory returns on that money, it's 4%. And so, for example, if you fund your pension plan of 100,000 and you require 4% return and that balances that 104%, well then that's good. Now it's kind of a double-edged sword though, because let's just say, your returns even more and that 100 turns into 150, well, now you can only fund your plan by $50,000, which is less of a tax deferral that you were expecting that year too. On the flip side, if that 100,000 turns into 50,000, now you have to fund the mandatory funding of 100,000 plus an additional 54,000 in order to meet that mandatory funding. So they are a little bit complicated, but I did warn and just kind of know out there that a lot of people don't know about that and they're not that expensive to set up these days. They do require a little bit of light work, but if you hire the right professionals to kind of get around you.

Speaker 2: 33:11

I work with some social media influencers, a few women that are in absolutely killing it, making me question why I needed in this business when it comes from an income standpoint.

Speaker 2: 33:22

But like I got a gal who just netted about $5 million in the past year and she's 22 years old and so she has a pension plan and a 401k and profit sharing plan to pony it to it, we hope we got to get that income, we got to get that tax and we'll come down as fast as possible and as much as possible. So we're doing anything that we possibly can to make that work and it's fairly cost-effective for them to do that. And if you're an owner, only you can invest the money however you want to If you don't care about the kind of backspunding or the tax issues that kind of come with it and a lot of people are like, hey, this is my money, I want you to put this in an aggressive fund and I want you to just let it ride. I want to look at all my assets the same way. Or, like in her case, she wanted to just meet the mandatory fund requirements. So it's super easy to throw it into a CD at 5% and we're going to meet that, no problem.

Speaker 1: 34:13

So, like all, this is exactly why you need a good advisor, because everything you've just said most people probably not have any clue about. They would look to an advisor to manage their liquid assets, not look to an advisor to help them figure out what they themselves don't know, and I think that's where some of you has a lot of value. How do you even go about keeping yourself, though, updated on some of these things, some of these? I don't want to call them tricks, but ways of enhancing after-tax potential, because if you're not a CPA, how do you even get into the weed with that?

Speaker 2: 34:45

Well, yeah, and that's another thing is I had a conversation with the CPA earlier this year that thought I was committing tax fraud when I explained this situation. And it's because they weren't completely unaware and that was kind of a typical CPA and that's more like reactive. I was looking behind them. I like to work with the good CPAs that are more forward looking, that do tax planning. That's why I'm glad that our industry has done a really good job of actually kind of filling that gap, of doing the tax planning, looking for certain loopholes not loopholes were to say, but just making sure that, hey, this is our plan for the year after you file your taxes, listen, analyze it, let's look for your pockets of opportunity for that. So, yeah, I would say being a 401k advisor, especially here where I'm from, it's kind of a niche in itself. I'd probably say I'm a one of about 20 or so in the state of Minnesota that really knows this stuff pretty well.

Speaker 2: 35:39

I have a book that's about four inches thick with all the Orissa rules and regulations that I had studied, and I got into pension at 401k primarily because that was the only place I could get business at a younger age. Otherwise, at 22 years old. You meet with an Apple or a business owner or maybe at a liquidity event movies, money and I come in there with a grease here and a sing on and hey, I've never done it before, let me manage your life's work that you took decades to build wealth on. But with the 401k you're kind of talking with the HR. There's not a lot of handholding. It's participant directed. They'll usually give you a shot at that, and so that's why I kind of got into it. Back to your point like why hiring a financial advisor I would say a lot of it has to do with kind of managing emotions and slo-mo, because most people are making financial decisions based on dairy motions, most people make decisions in general based on their emotions.

Speaker 1: 36:35

So you put a lot of great content. A lot of your stuff has gone viral the last several months, which is why you went from starting off fairly low on followers to where you are now on X and you mentioned earlier this point about macro is interesting. But you'd be working at Walmart, right? If you're sitting in CAD, follow the macro and, by the way, I'm the first one to say that. I mean I talk macro too. Everybody does, because that's kind of what people like to hear. But, as I always say, path matters more than prediction. It's not about the end points, about how you get there. So you put out this content. Some of it is path related to some of it's macro related. But with the way that you look at the entire investment landscape and the observations that you make on X, are they more just sort of exactly that observations? Or when you put something out there, does that make you say you know what? Maybe I should rebalance, maybe I should tilt based on what I'm putting out there, because it looks like something is changing.

Speaker 2: 37:27

Yeah, I, you know some primarily a lot of my tweets are coming out likely in a warning. I started my day about 4am and so it's usually like a different. I'm trying to like relay what I'm looking at when I think is interesting or important and so like different relationships, like Bitcoin, kind of leading, you know, stocks by about four weeks up and down is an interesting. It's not gospel, but it's something that I pay attention to and I'm not necessarily, you know, as the compliance works, there are business trying to say, hey, buy this or sell this. I might say this is what we are doing. We've been fully invested, you know, since December 5th of last year and so when I'm trying to relays, kind of justify, when I'm looking at what we're doing, I like to look at a number of different things.

Speaker 2: 38:10

You know, I have this big macro picture right now, which is it is bearish. But maybe look at it and I kind of giggle at the comments that I get sometimes of you're why aren't you short? Or why aren't you doing this? Or you missed out on this whole rally, as like we've been in the market almost over 150% since since December we're not bearish but my, my, the endpoint of where this is going. I think the writing is on the wall, but in the short term and the way that fundamentals look at it, I still think fundamentals do matter to justify you know where we are right now. And the fundamentals are saying we're super, we're very overbought, we're very overvalued.

Speaker 2: 38:46

And then I like to look at the intermarket dynamics as well as the technical aspect of things. I try to kind of rope that all into one picture to justify our positioning. And it's not me out there saying everybody needs to do this and everybody should be doing this. Our strategy there isn't for everybody, it's not a perfect system, but it's rules based. And what I like to do is be able to kind of, if I'm in a court of law, be able to justify exactly what I'm doing using a number of different avenues, but also kind of say hey, by the way, you know, yes, small camps have been down. We do need small camps to start breaking out. If I'm a contrarian, right now I'm buying small camps, but they haven't broken out yet. How do you?

Speaker 1: 39:27

scale then if that's the case, okay, so I, like you mentioned that point about in a court of law, because I would argue we're getting to a point now where a court of law would not think of the S&P 500 as a diversified index.

Speaker 1: 39:39

I mean, just because of the amount of concentration that's gone on right and that, seemingly, is only getting worse, as most thoughts are underneath they're not really kind of participating to the same extent, which means you almost have to give up being a fiduciary if you're going to try to beat the S&P by being in the S&P. But okay, so on this small-cap example. So it's a careful balance, right? Because I always go back to this point that the biggest returns come at the turn of the trend, not in the middle, which means there's a leap of faith that maybe comes in, maybe going into small-casts, but you don't want to go to your point all in if you're an advisor with an asset allocation approach. So if you're noticing something is looking like it might be on the verge of a longer term cycle shift, what do you do about it? Are you very slow and steady? Are you looking for very certain things to happen to get you to really rebalance aggressively? Because that's the challenge right of identifying opportunities to figure out well how much you want to weight that.

Speaker 2: 40:33

Yeah, and it really depends on what most people don't do is define an objective of what you're trying to do. So if you're putting together a model portfolio and you're calling it moderately aggressive, like, what is the objective of that model? First of all, having like a mission statement, whatever you want to call it. So, like with our momentum strategies, so when our signals are red, we're raising cash levels between 15% and 100%, depending on what that model is, and normally I like to move into treasuries. Right now is a good time to do that. You know, I think that's one of the biggest buying opportunities right now. But you always want to be on the other side of that other side of the knife, the falling knife, right now too, because if small camps are breaking out, you also want to get a catch of that. And then, if small camps are to break out, we're in a broad and a bull market and that actually makes sense. And then I am wrong on my thesis, and so that's where diversification comes through, and I don't I'm not a big asset allocation guy. I you know if I'm doing a retirement plan and I compete against these buy and hold strategies and the objective of those models is pretty much to you know, beat the Morningstar target risk index, then you're pretty much just putting funds into those categories because that's what the investment committee wants. You can't get super concentrated, especially when you're doing it with Orissa, With our MOMO or momentum strategies. We are very concentrated right now because those objective the objectives, at least on the aggressive and ultra aggressive models. The benchmark for those is the S&P 500. So we are concentrated on that, but we have. But it's diversification through strategies is what I like to call it, Cause I'm not again asset allocation and the way that it's defined and mixed and sold to people that I don't think anybody really knows what's actually inside these portfolios. That's why an aggressive portfolio, you know, might be up you know, 8%, you know, from 2021.

Speaker 2: 42:22

So when we're in like we're basically all constant, we're very highly concentrated. We've been very highly concentrated in bubble cab tech and I call it bubble cab tech for a reason. The set expectations for people that, hey, this thing's flying right now. The trend is up, we're going to be in this until the trend breaks and then we have a risk off aspect when we start raising cash and we're going to cut those visits. Those are the first positions that we're going to cut, but then we manage risk through, you know, being in more value oriented companies, dividend type companies, and those are the positions that we're going to let kind of ride the storm, because I don't believe getting out 100% out of the market and sitting in cash, because what if we do have one of these debt cycles where we are sitting in cash for 18 years or something like that?

Speaker 2: 43:08

No, you need to have, you need to be able to make money while you're not invested in equities.

Speaker 2: 43:13

I think having a portion of your portfolio that remains invested that's going to go down less than the overall market, like you know, an RSP or an SPLV ETF makes sense right now.

Speaker 2: 43:25

You're going to have that drawdown, but the idea is to remain investing, catch a little bit of that turn on the way back up until our signal turns green and we get the go ahead and you go right in, because I like to play the odds in that situation. But from a fiduciary standpoint, you know, I think what at least the laws and the compliance around it is. You have an objective and you have a document or reason why you're doing something and the client is in agreement and understands why you're doing it, then you are in compliance with that, and so that's really what I do, especially with a weird I would call it an abnormal strategy. To come from a wealth advisor shop which we run and again, it's not for everybody and not every single one of my clients are using it, because they are. You know, it's hard to switch or bring around to the other side when it comes to momentum investing, because everyone's so trained to be contrarians.

Speaker 1: 44:17

What keeps you up at night, meaning what worries you, right? I mean, if you're an advisor and you're following a rules-based mindset, you can make an RUR and argument that nothing should really worry you because you believe your rules. You know the market history, but you know we're always human right and always concerned about something. So yeah, when you think about market and you think about clients and managing money, what makes you nervous?

Speaker 2: 44:37

So like very early on over, like probably the first decade or so being in this business, he was obviously the drawdowns and I realized, like that's why I could never outsource my investment management to like a turn sheet as a management platform or even like that, because I spent more time betting those bottles and I was like, screw it, I'm going to put together my own so I can actually have control, because what SMAs and those types of strategies that are, you know, might be rules-based on your own, they don't ever really sell when you need them to.

Speaker 2: 45:06

They don't reallocate. Some don't ever touch anything outside of US markets and it used to be what kept me up at night was follow myself. Why aren't? We should be in commodity. We don't have enough dividend exposure, that type of stuff. But you know, and that's kind of the reason why developed rules being strategy at the first place was with the first investment objective is to protect our clients harder and capital on the downside, where, if there's ever an investment decision that I need to make and the differences between missing out on possibly a massive upside return or if it's downside risk and protecting capital, I'll miss out on that return nine times out of 10 and I will sleep like a baby at night because, at the end of the day, protecting our clients capital is rule number one in our investment strategy.

Speaker 1: 45:55

That's very well said, Kurt. For those who want to track more your thoughts and maybe even reach out to you, ask you what kind of services you offer, word point that you're so you reach out to me on X.

Speaker 2: 46:03

I have a calendar writing my profile for a reason actually connected with a few people in the last couple of weeks, which is, you know, some interest in our service, some just want to. You know BS about markets, and both are. I'm very open to that and even with people there's, you know, instead of just kind of seeing the cartoon photos, some of them make me nervous, but then they're actually real people, which is kind of nice to be able to do that. I also have a newsletter that you can subscribe to on our website, ivoryhillcom, and it's on sub stack as well and I kind of invest the way that I distribute that. The phone also works still as well. And connect with me on LinkedIn and X.

Speaker 1: 46:38

Everybody. Please give Kurt a follow, check out his content, his work, support him. Thank you, kurt, appreciate it. Thank you and turn me on. Thank you.