January 25, 2023 | Podcast
In this episode of The Art of Dental Finance and Management podcast, Art meets with Daren Pladson, Principal and Senior Wealth Advisor at Eide Bailly. Art and Daren discuss how dentists can continue to build wealth by investing in the financial market, despite economic uncertainty. The key to healthy confidence in your financial future is to develop a plan and work with your financial advisor in order to withstand the volatility.
Reach out to Art if you have any questions regarding dental finance and management for your dental practice. More information about the Eide Bailly dental team can be found at www.eidebailly.com/dentist.
Being more strategic in all aspects of your dental practice will lead to increased profitability.
Art Wiederman, CPA: Hello everyone and welcome to another edition of The Art of Dental Finance and Management with Art Wiederman, CPA. My name is Art Wiederman and I am a dental division director at the CPA firm of Eide Bailly. I've been a dental CPA for 38 years and a dental practice broker here in Southern California for 17 years. And one of my passions in doing this podcast and doing the work that I've done is helping dentists meet their personal and business financial goals. And part of that is in the world of investing in the financial markets and being that we are now in, believe it or not, folks, you are listening to this podcast in January of 2023 or a little later, if you listen to it later. And it is impossible for me to believe that we are three, almost three years since the beginning of the COVID 19 pandemic, and our world has just been turned upside down and changed. And the investment markets have been kind of like a Coney Island roller coaster. If you don't know where Coney Island is. I grew up in Brooklyn and it's right by the water, and that was the first roller coaster I ever rode as a little kid. And that's what these financial markets have been like.
But my guest today, Daren Pladson is from Eide Bailly Financial Services is a very, very experienced wealth manager and knows the financial markets as well as anybody that I know. And we're going to talk about what is what is inflation doing, what's happening in China, what does the Ukraine war mean, what sectors are good, what are bad and all that kind of stuff. So we'll get to Daren in a moment.
I do want to remind you to please go on to the website of our wonderful marketing partner Decisions in Dentistry magazine www.DecisionsinDentistry.com. 140 incredible continuing education courses available to you at a very, very low price to get your CEUs done if you go on to their website again www.DecisionsinDentistry.com. You will find the best clinical articles on dentistry from clinicians all over the world, the best of the best. So please go and visit our Decisions in Dentistry partners.
If you are, it's the beginning of the year folks, it's time for you to think about your financial plan. I'll probably be doing a podcast, one of my fireside chats with you in the next month or two about what you should be doing today. He's going to be covering the investment and wealth side of it. It's a great time for you to revisit your financial plan, plan your taxes out for 2023. If you don't have the best relationship with your CPA firm, please give us a call. My number is 657.279.3243 and my office email is awiederman@EideBailly.com. And I before we get, well I'll read that when I introduce.
Daren. So we have a disclaimer that we have to read which may take the most of the time in the podcast, but we have to do that. And I again want to remind you, if you have not looked at the employee retention tax credit and you're eligible for 2020, your time is running out. We got about five or six months before that window is going to close. We've done that for over 125 dental practices in all across the country. We've gotten well over $5 million back in government money and it's all legal. And again, please be careful if you get people soliciting you, trying to get you, tell you that because your goldfish has periodontal disease, you qualify for the ERTC or because you had a social distance or because you had trouble getting dental supplies that you qualify. The federal government is coming after you. And in fact, they are they are already identifying promoters who they are going to start looking at their customer list. So be very careful about that.
All right. Let me get to my guest. Daren Pladson has been on our podcast once before. He's my go to guy when it comes to this information. Daren is located out of our home office in Fargo, North Dakota. Go Bison. I guess that's North Dakota State right there. Is that right? Go, Bison. I did that well. Yep. One day I'll get to the Thunderdome for a football game. Daren is a principal and senior wealth advisor for Eide Bailly Financial Services. Daren, welcome to the podcast.
Daren Pladson: Thanks, Art. Thanks for having me.
Art Wiederman, CPA: All right, so before we do this, let's get the business side of this out of the way and I will read. That. So, folks, give me a minute and, you know, just not going to get to the investment advice for another second. But I do need to read this disclaimer. The information in this presentation is not intended to provide tax, legal, insurance or investment advice. The information, opinions or recommendations are solely for informational purposes, constitute the guest's best judgment and are only valid as of the date of this presentation and are subject to change without notice. Investment information in this presentation is not an investment recommendation or solicitation. The Speaker is not advising you personally and this presentation is not tailored to any specific person. You should consult a qualified investment advisor regarding your specific personal, financial and investment decisions and consult an attorney or tax professional regarding your specific tax or legal situation. And I just got to go to this next thing to read. EB Financial Services offers investment advisory services through Eide Bailly Advisors LLC. An SEC Registered Investment Advisor Securities are offered through United Planners, Financial Services, Member of FINRA and SIPC. Eide Bailly Financial Services LLC is the holding company of Eide Bailly Advisors LLC and EB Agency LLC is a wholly owned and operated under Eide Bailly LLP. Eide Bailly EB Financial Services and its subsidiaries are not affiliated with United Planners, and again the presentation is provided for informational purposes, shouldn't be construed as investment advice, legal or accounting advice, and no representation is made today concerning the actual future performance of markets or economies. I'm exhausted. Daren, how about you?
Daren Pladson: Oh, that's a mouthful, isn't it?
Art Wiederman, CPA: It is.
Daren Pladson: But compliance is happy.
Art Wiederman, CPA: Well yeah. What we want. Yeah. Because if compliance is not happy, then bad things happen to all of us. So anyway, let's get going and talk about what's going on in these markets. I mean, it was a tough year. The S&P and again, folks were recording this podcast the last day in November. It's going to come out middle of January. So if something catastrophic happens between now and then, I can't be responsible for that. But as of right now, the S&P is down there in about 17%. Nasdaq's about 30% down. The Dow is down about seven. I mean, let's talk about why the markets did poorly. I mean, there's the inflation and supply chain, Ukraine, China, the fact that my Los Angeles Rams are not having a good year, I mean, there's all this kind of stuff. So maybe get into what happened in the markets just kind of as an overview to start the conversation.
Daren Pladson: Well, you know, you talked football twice now, so maybe we should just switch this and talk football for the next hour. I think everybody would be happier, you know, with all the markets have performed or despite how the markets have performed. So, you know, and I think what's interesting are you touched on, you know, really why this market's pulled back this year. And I'll start kind of at the beginning of the year. And, you know, right after the Olympics, you know, Russia went into Ukraine. And even prior to that, we had supply chain issues coming out of COVID. And now you throw in a country like Ukraine, which is a very large ag type country and a producer of food products. And it naturally turns into and then, you know, that along with other issues turn into an inflation problem. You know, China's lingering out there. They've had on and off COVID, it seems like for the last you know, really like you said, two and a half years, which obviously they're a big supplier of goods and products to us and the world. But inflation, I think, you know, you look at the why has this market done what it's done? And it's the uncertainty about inflation.
And that is kind of the nuts and bolts of what I think is happening right now. The market hates uncertainty. And that's what I feel is really driving, you know, and you think about it in your practice and in any type of business, if you're running at an inflation rate of 8%, I think a lot of people are scratching their heads because we're used to two and a half to 3% inflation. They're scratching their heads and saying, how long will this last and whether it's Apple or John's Dentistry, everybody is wondering, you know, when it's going to end. And that gets into the Fed and we'll talk about them here in a little bit. But yeah, you know, officially we are in a bear market. I mean, a bear market by definition is when you have a pullback of 20%. We've seen that in the S&P 500. It was down north of 20. We've seen that in the Nasdaq. Haven't necessarily seen it in the Dow. But yes, we are in a bear market right now.
So, you know, I think that's interesting. One other point that I'm going to probably talk way too much about, you know, as we're talking about rates of return this year and you hit it, you know, we're down 17 and the S&P 500 north of 30 are right around 30. And the Nasdaq, well, a lot of people don't understand is the ten year Treasury. And that's just if you went out and bought a ten year Treasury bond, let's say January 1st, and you held that today, what's interesting is you're going to be down about 12 or 13%. So there hasn't really been a safe haven. There are some that have actually worked this year. But, you know, a lot of times you put bonds or fixed income in your portfolio to help diversify the risk in your portfolio. And, you know, when that's down 12, 13% in a portfolio, that really hurts. And I think that's the hardest part about this market right now.
Art Wiederman, CPA: And talking about bonds there, I mean, just a basic concept for those of you who might be just getting started learning about how investing works. And hopefully this podcast will give you some good information. You know, if I buy a bond in January and it's yielding me 1% and now I can go out and buy a bond that's yielding me 4% ten months later because interest rates have gone up. The value of that bond and that bond is priced every single day is going to be lower because why would someone want to buy my 1% bond when they can go buy somebody else's for 4%? So it's you know, and you're right, it's a safe haven. I heard a statistic this morning. I was listening to another financial lecture at a group I'm involved with it said that if China were to open up completely right now and just get rid of all the shutdowns, they projected, there would be, this is horrible, one and a half million people would lose their lives because of COVID. It's that bad and they can't open up which hurts all kinds of things.
And so let's start with the Fed Daren. Okay. So the only thing the federal government has in their tool belt to control anything regarding inflation is interest rates. They've raised interest rates was it four or five times, many of them three quarter basis points. So we're now at what, four and a half on the Fed funds rate.
Daren Pladson: Actually just the four.
Art Wiederman, CPA: Yeah, right, right. Sorry. The next one. Yeah, that's right. The next one they're talking about is going to take us potentially to four and a half. And then so talk about what the Fed is doing, maybe how you mentioned a little earlier they might have missed the boat, which a lot of people are saying and maybe what you think it's going to be 2023 and how does this affect the markets?
Daren Pladson: Yeah. So one thing I you know, I mentioned inflation previously and one thing I want to note is right now, according to October reading, we're actually at about 7.7, 7.8% inflation. And that's a look back of 12 months. Okay. So they're always looking back 12 months on a monthly basis and that has come down from about well, I think one of our readings was north of 9%. So getting back to your question and your point, so the Fed has increased rates now four times. They do a range now. So 3.7, 5 to 4%. It used to be just three. It was right on the numbers. So we'll call it 3.88%. December, it looks like another 50 basis point raise. Then after that, I'm looking at a chart right now which they actually poll the Fed governors and where they think the top will be. And they're saying, you know, this is them actually the people that are voting on this, they're saying their high should be right around 4.5, 4.6%. In their long term range will be at 2.5%.
Now, think logically of what and why the Fed is doing this first. First, the why the Fed is looking at and they're really mandated by two parts. One is inflation, curb inflation and the other is employment and curb employment. Right. Well, we know employment is south of 4% or lower than 4% right now, 3.8, 3.9%. They've got that covered. It's the inflation part that is worrying. Like I said, everybody, including the Fed, the Fed will only increase rates if they feel the economy is solid. And that's what I think is so interesting, the Fed's increasing rate and they're saying that, hey, business generally speaking and the consumer generally speaking is pretty well off. So we feel we can raise rates up to a certain level to try to curb inflation.
Now, what could happen is they could put us into a recession, right, just by doing this. But they also understand that if they put us into a recession, they can then cut rates relatively quick. You can't cut rates if you're at zero rate. And that's where we started. And so that's where I think it's interesting kind of long winded answer to your question, but I do believe we're going to see a 50 basis point increase December. Not a lot after that. I could see them doing a couple 25 basis point increases sometime throughout the year. I could see them pausing at their next meeting. I believe it's I'm pretty sure it's December and then January maybe not doing anything. So and a lot of it too is the stock market and how and if we see any type of recovery and if we're starting to continue to get good readings where inflation is continuing to come down a little bit.
Art Wiederman, CPA: And, you know, I go back and you and I have talked about this. We talked about this the last time I had you on the show is the bottom line, folks, is that stocks are priced based on earnings. If a company is doing well its stock should go up. And if a company is not doing well, stocks should go down. And right now the S&P is right around about 17, I think. Is that about right?
Daren Pladson: Right on. Yep.
Art Wiederman, CPA: And how is that fit with a good economy or a weak economy for stocks? I mean, obviously, you know, pe ratios, the higher they are, maybe the better that is for stocks.
Daren Pladson: Um. Yeah. You know, just the factor. It's p divided by price of the stock, divided by earnings of the stock. And then you can look at the pe of the whole S&P 500 as well. So and you hit it, you know, right now we're at 17. The historical average is about 16.5 as an average. As years go up, that'll tell you maybe stocks are overpriced. And when PEs come down there, they're underpriced. And usually, you know, if you ever listen to Warren Buffett, you know, the greatest investor of all time, he looks for things on sale and you go to Walmart versus shopping somewhere else. Everything's on sale. So that's what's interesting.
Now we've seen PEs a little bit lower recently over the last month, month and a half, they've, they've jumped up a little bit. But again, I look at this and say, you know, companies I think are still doing okay. You know, we're getting beat up in the tech world and we're seeing some layoffs there and some other stuff. But generally speaking, yeah, we're at a normalized rate and we'll talk about international markets because that's interesting. The pe of let's say, developed international is really low right now. So again, probably the best value, however, we have home field bias here, too, where people tend to invest in the U.S. more than internationally.
Art Wiederman, CPA: Right. But there's lots of opportunity there. We'll get to that. I remember the one thing I remember about Warren Buffett that he said someone asked him, so, you know, what stocks do you buy? And his comment was, what I do is I look at a company, I go to their corporate office, I close my eyes, I stand in front of their corporate office and I think, is this a product that everybody wants to buy? And if the answer is yes, I buy the stock. Pretty simple, huh?
Daren Pladson: Yeah, very simple.
Art Wiederman, CPA: I mean, he talks about that and stuff. So there's this other thing that I've been looking at and I know you look at it on a regular basis, as do the people at Eide Bailly Financial Services is a yield curve. And so, folks, just to tee up, Daren, to talk about this is, you know, theoretically, if you borrow I mean, if you go out and buy a bond, all right. Whatever bond that's going to be, theoretically, the shorter the term of the bond, the less the return you're going to get. In other words, if you're going to lend either a government entity or a company money and you lend them that money for a year, they theoretically are going to pay you less interest than if you lend it to them for ten years or 30 years. Well, Daren, it's not working that way, is it? I mean, so talk about what is a yield curve, why is it important. And, you know, we have some inverted yield curve. I think there's like 90 different ways to look at a yield curve, if you really. Yeah, we're not going to do that today, I promise. We're not going to look at 90 ways to look at the yield curve. But what's a yield curve and what does it mean to these markets?
Daren Pladson: Yeah, so all yield curve is if you think of just graphing something out on the x axis or the horizontal axis, you just have years and you go from three months, one year to year, all the way out to 30 years, okay, from left to right. And then you, you put the yield what's the going yield on the left hand or the vertical column in a like Art said the normal yield curve. It's just going to it's going to have a nice slope to it. Lower on the left, higher on the right. What's interesting is right now is the Fed and this is what a lot of people don't understand, but is the Fed is increasing rates there's a direct because really what that rate is it's overnight lending from bank to bank. So if bank X, Y, Z needs funds, they can go to a bank, ABC down the block, say, Hey, I need a $100 million, that's the going rate. Or they can go to the Federal Reserve as well and borrow at that rate.
So what happens is they're pushing up short term, especially, you know, anything from three months to two year rates right now. And that is high correlation to what the Fed is doing. When you get out on the yield curve, it becomes more supply demand driven. So what you are doing or the consumer is doing, are we buying more or less of that yield? And that will direct from, say, five year all the way up to 30 year when you have an inverted yield curve? There's a lot of data that shows a recession is coming. And we can blame the Fed for this. Right. Just from what I just explained, the Fed is pushing up short term rates. The long terms, long term rates aren't following it, pointing to a recession. Now, there have been false signals in the past, but people that do read yield curves every day and I look at yield curves frequently, it really everybody's kind of come to the same conclusion that, yes, we're probably going into recession. I think it's and we'll talk about this at another question but I think the recession is going to be kind of a movable recession. I don't see any one sector that's going to necessarily pull the whole market down. And by the way, we can be in a recession and the market can actually still go up. And a lot of times it will do that by the time we tell people we're in a recession, which is delayed data. We might be coming out of it, right? From a stock market standpoint.
Art Wiederman, CPA: Yeah.
Daren Pladson: No, I was just going to say what's important about a yield curve, though, is right now and you touched on this, if you're buying bonds, right. Specifically bonds, you want to stay short. You know, that's where the best yield is right now. And I'm looking at one right now on the one year yield, you know, at 4.46 versus the 20 year at 3.97. Obviously, you want to stay short.
Art Wiederman, CPA: Right. And, you know, when it comes to bond, somebody also explained to me, so and tell me if I'm right or wrong on this. If I look at my bond portfolio and maybe I have a bunch of bonds that are down, I mean, you said 12, 13% down because obviously interest rates have gone up and the pricing of the bond goes down. But at the end of the day, when those bonds cash in, they're all going to cash in at par, right?
Daren Pladson: Correct.
Art Wiederman, CPA: Yeah. So. So if I have a portfolio of bonds and again, we're not getting specific, you're a portfolio of bonds. And, you know, I started out with $100,000 in January and now I have 88,000. I mean, is it right to think as an investor that I have $100,000 in my portfolio?
Daren Pladson: Yeah. As long as you don't have default risk.
Art Wiederman, CPA: Well, right.
Daren Pladson: You know, I mean, that's yeah. I mean, it will naturally come back to par because that's the deal you have with the U.S. government or Coca-Cola or whoever, whatever bond, whatever name you've got. That's the deal. They owe you that money, unless, of course, they default. So. Yep. Right.
Art Wiederman, CPA: So you talked about you mentioned sectors. And again, everybody we've got there's, I think, what, 12 or 13 different sectors of the economy that financial advisers look at. The only one that went up in 2020, to G-Shock surprise, is energy. I love how they say on the national news the average price of gas is $3.60. They should come to California. It is come down. We're down under $6 a gallon right now. But energy obviously did very, very well. So all the other sectors and especially tech and also down in 2021, a lot when the market did well, a lot of what carried these markets were the big five or six or seven tech companies that did really well. And they're getting hammered. Right. That tech is getting hammered this year, right?
Daren Pladson: Yep. Yeah. And you know, I just looked the other day, actually. And, you know, some people call them the FAANG stocks. Right. Facebook now they're Meta, Apple, Amazon, Netflix, Google, the big five. And you think of, you know, the market makeup of those five and the percent their market cap weighting in just the S&P 500 they make up north of like 25 or almost I think it's 28%. I should have looked that up, but it's a big percent. So when those five don't do well and to give you an example, Meta, Facebook is down, I think somewhere around 50, 60% year to date. And then you have Amazon down 30. I think these are off the top of my head. I just looked yesterday and again and same with Google down 25, 30%. Those are the big drivers of you know, we just look at the S&P 500. Well, they're making up 25% of it. So anyway, that yes you're right tech you know I'm looking at right now through this is actually through yesterday so the end of November down 24%. You're right. Energy is a sector up 67%.
Art Wiederman, CPA: Yeah, I saw that this morning. Yeah.
Daren Pladson: Yeah. So you have three main sectors that are really bad and the other one's actually not that bad, you know, I mean, and there are 11 sectors, by the way, Art, so 11.
Art Wiederman, CPA: Listen, I get a 10% one way or another. Yeah. Standard. Exactly. Yeah, that's right. So what sectors, Daren? I mean, again, we're not giving specific investment advice here, but are there some sectors that you're for 2023, you know, maybe this is a better thought or this one might have some issues. Yeah, thoughts on that.
Daren Pladson: Yeah. You know, so, um, you know, if you think about it, if we go into a recession and if it is a soft recession, let's say for second quarter of next year, you want to be in what are called kind of defensive sectors. So you look at utilities, you look at health care, consumer staples, kind of the stuff that, you know, and I'm looking at those year to date returns right now and actually consumer staples up 0.7%, utilities up 0.3 year to date. Health care is down 2%. These are kind of the safety sectors. So and I can't give advice obviously here, but, you know, if I were a betting person, you stay kind of defensive for the first part of the year. At some point you'll we'll see tech back, you know, and we'll see consumer discretionary back in communication services. The, you know, everything rotates and, but what is interesting, those three that I just mentioned have driven the market kind of single handedly over the last eight, nine years, ten years. And so, you know, again, everything will rotate here.
Art Wiederman, CPA: Which is why diversification is so important, which we'll chat about in a moment. Let's take a quick break. I want to let everybody know Daren maybe tell us a little bit about what you guys do at Eide Bailly Financial Services. And folks, I'm going to tell you the foundation of any good investment wealth financial advisor always starts with a financial plan and I've been harping on this. We are now, by the way, four years into this podcast and the thousands of people that download our podcast every month, thank you so much for the honor and privilege of your time. I can't even tell you how much I appreciate and how much I love doing this and sharing information and hopefully helping to change some lives because that's my legacy, folks.
And the number one thing is a financial plan. And Daren talked a little bit about why just let's get briefly on this. You guys always start with a financial plan. You don't start with, okay, send me your portfolio and we'll rebalance it for you. It always starts with what's the plan? And then, you know, just a little bit about the process of what you guys do in managing money.
Daren Pladson: Yeah. So you hit the nail on the head, Art. You know, I can't give anybody any advice unless I know a lot about my client and that, you know, that comes down to the financial plan where their net worth is what they want, what are their goals? What are their dreams? And that's where everything starts from that point. And once we get a good handle on that and we've presented the kind of the final product, then we can make recommendations and how we're going to build a portfolio. We do manage assets. We are financial advisors. We manage, we are factor investors, which a lot of people have never heard of that word. All a factor is, our definition is it's a source of premium. And so we look at academics that have won Nobel Prizes and we buy into their research and their data. So as one factor, I'll give you one example, because there's numerous examples of factors, but typically value type of stocks outperform growth stocks. And this goes back to the fifties and all the data and it ends up where it will typically outperform about 60% of the time. That's just one factor. But that's what we do. We tilt portfolios. It doesn't mean we're all value. We do have growth type of names in our portfolios as well. So that's really what we do Art.
Art Wiederman, CPA: Okay and give out your well we know your name your name is Daren. So Daren Pladson give out your phone number and email. How can people get a hold of you? And then we'll go back to talking about the markets.
Daren Pladson: Sure. I'm at 701.476.8767 is my direct line and then my email is dpladson@EideBailly.com.
Art Wiederman, CPA: And folks if you have just a question, you know, you're not sure what you're doing with your money. You don't have a financial advisor. You get 12 envelopes every year with your, you know, with your month end balances, you never open them. And now you're saying, well, geez, I'm getting towards retirement maybe I should think about this. Daren, you'd be happy to answer questions for any of our listeners, right?
Daren Pladson: Yeah, absolutely.
Art Wiederman, CPA: Sounds good. I see you mentioned growth and value and that's a big deal. And people you and I both know in the conversations we've had and just the education that we have is that, you know, when times get tough and markets are rough, I guess that rhymes. People tend to go to value. They go to the utilities, they go to the staples of the world. I don't mean Staples the company. I mean the consumables things that we know that people are going to go out and buy soap and they're going to go out and buy milk and they're going to go out and buy toilet paper and things like that. So talk about what is the difference between a growth stock and a value stock and how does that work in a recession?
Daren Pladson: Yeah. And so, um, I'll throw out a couple definitions. And the historical definition of value versus growth, is we would categorize value as say a 3M. Something that's paying a good high dividend. However, the way we look at value is something that's just undervalued. Right. So I touched on PEs being 16 in the S&P 500 or excuse me, 17 and the average of the 25 year average of being 16. Well, what if there's a company out there that has a PE of 12 that's an undervalued stock and that name could be Tesla. Right. In theory. And so therefore, that would qualify as a value type of name the way we look at it. So and that's how Warren Buffett looks at value as well. What's on sale, what's cheap?
You know, what's interesting, too, is I'm looking at year to date returns. I've got this pretty neat I'll call it a 1 sided Rubik's Cube or a three by three bar and it goes from value blended to growth across again the top or the x axis. And the y axis is small, mid and large. And when I look at the value boxes relative to growth this year, grossly outperformed, you know, and so we're receiving that or the reciprocal of our portfolios doing very well this year because we do have that tilt right now. It's not perfect because growth, quite frankly, over the last ten years and not every month over the last ten years, but on a ten year average, growth has really outperformed value, basically. You know, go back to those FAANG names, right. Because they've been so strong and performed so well. But again, right now in our world today and especially year to date, value has outperformed pretty substantially relative to growth. And that's we've actually seen that you go back to, oh, about August of 2021 and we started seeing things start to kind of turn ahead of time.
Art Wiederman, CPA: So and most of these value stocks are there are more value stocks that pay dividends and less growth stocks that pay dividends, because I know that high dividend paying stocks are very popular right now and that's where a lot of people are putting their money is the safety part right now.
Daren Pladson: Yeah, that's a great point. Yes. To answer your question, that is typically true not all the time, but typically, you know, you think of a high dividend payer versus a low dividend payer. Actually, that's a factor where typically high dividend payers will outperform low dividend payers, again, roughly 60% of the time. And again, that's just another factor. It's a source of premium. But yeah, people, you know, and, and there are people that that's all they look at is are dividend payers and that can be good. Sometimes that can be bad like say the last ten years when where the low dividend payers have actually performed very well again like a Tesla or like an Apple or an Apple's dividends. Not terrible, but it's you're kind of getting my point here, right?
Art Wiederman, CPA: Of course. But the important thing, folks, is that you need to be and I have harped on this for years, okay. Nobody is going to watch your money as well as you or a good, competent financial advisor. So if you are just saying, well, I really don't know what's going on and I don't really understand it, folks, you need to be reading. You need to be working with someone who does understand it and can help you with your goals and stuff like that. And because, you know, if you don't, your money is just going to flounder.
And I mean, we had one client we found that had they didn't even realize they had $2 million in a money market fund for ten years. And then I looked at this thing, I said, Really? Yeah, well, I just didn't do anything, you know? So you need to be looking at this stuff.
Let's hit a bunch of other stuff. How about the housing market? How does that affect the markets? I know housing is crazy. Now interest rates are at 7% to buy a house. When I bought my first house, my wife and I in 1986, our interest rate was 16%. So it's all crazy. But how does the housing market affect the markets?
Daren Pladson: Yeah. And you know, I'll go back to the Fed. Right and Jay Powell, you know, they're increasing rates, which there's a high correlation to mortgage rates and what they're doing here. Right? So as they're increasing rates, they're trying to calm the housing market down. I mean, we've seen and 2021 and 2020, just such a crazy housing market all throughout the country, whether you're in California or New York or Florida or North Dakota, it's just been kind of out of control. And a lot of this stems from COVID. You know, I remember going into 2020, there was, we were, we had a housing shortage of about a million units that the builders just weren't building. A little uncertainty. Then COVID hits and it's a pile on effect, right?
So we go from 1,000,000 to 1,000,000 five of houses being short and then all of a sudden we'll call it some normalcy and then rates are extremely low and prices will go up right when you have a shortage like that. And that's what we saw now. And, you know, we're starting to see little bits and pieces where housing prices are starting to come down because the consumer or interest rates have taken a lot of consumers out of the market, just kind of pricing out of the market. So now we haven't seen big movements yet and I do think we're going to see some settling down of this housing market to a point where, you know, houses will be longer on the market or take more time to sell and things like that, especially if rates stay in the 7%. And again, kind of your point is, you know, you started at 6%, 7%, I believe. I thought I saw something the other day. It's been about the 40 year average, you know, so we've been so fortunate over the last eight, ten years of extremely low rates and now we're at seven and people think the world is coming to an end and that's not the case.
Art Wiederman, CPA: Oh, no. And it's actually Daren, it's actually healthy, isn't it, talk about this. You know, we've had a bull market for the last decade. For the most part. We had one or two years that were down. But for the most part, these markets have gone up for the last ten years. And I mean. But yeah. And people oh, my God. Oh, my investments are down. Oh, I'm going to fire my investment advisor who's doing terrible job. No, folks, here's the deal. It's unhealthy if markets go up and up and up because when they come crashing down, they come crashing down. Is that right Daren?
Daren Pladson: Yeah, you're spot on, you know, and we could go back to 2009, even. So now we're talking 13, 14 years of a pretty solid 12 years of a solid bull market. Right. And markets have to correct themselves. And it kind of goes back to the sector discussion we were having where one sector or three sectors will take over the market and it'll dominate and then every single ebb and flow rate and it's kind of the equalization process. So when, when we do have a pullback and this, by the way, 17% down is nowhere near what we saw 2020 when COVID hit. We saw a 35 38% pullback in six weeks. And then 2008, we saw, you know, a 45% pullback.
Art Wiederman, CPA: 45%.
Daren Pladson: Over a year. You know, so you know, this is normal and natural. You know, I'll throw another stat out at you. I think over the last 45 years, the intra year pullback from like peak to trough is on average about 14%. But yet the market still goes up about 70% of the time. So pullbacks are very common and they're natural and they do happen within years, you know, from again with intra year and, you know, the real basic concept of why you should invest. It's really if you skin this out, it's to beat the bank. And so but you got to have time. You got to have patience. You can't make rash decisions, you know, over 11 month or 12 month time period.
Art Wiederman, CPA: No, absolutely not. All right. Let's talk about the international markets. Those are really interesting right now. And it's funny from what I'm seeing, there are some real opportunities in some of these international markets, aren't they? Talk about what's happening in the international markets and stuff like that.
Daren Pladson: Yeah. You know, and I've touched on PE ratios to give you an example, a look at developed international. Okay. So I'm not talking emerging markets. Emerging markets are the BRIC countries. So Brazil, Russia, India, China, but developed would be England and France and Germany and Canada and those types. So international to give you an example, the 13 year average or excuse me, the 20 year average PE ratios right around 13. Currently we're at about a 12. Okay. So it's telling us it's undervalued. There are a lot of people, including Charles Schwab, who we do a lot of our custodial work with, that they say right now the best buy and it's pretty obvious is in the international world.
Now you've got to be a little careful. I mentioned you have home state bias, right? Which living in the U.S., we typically tilt their portfolios to U.S. domiciled companies, but it doesn't mean you shouldn't have some international. And this gets back into like a talk of diversification, too. But yeah, from a valuation standpoint, international looks very interesting right now. Even emerging markets as well, they're been really beat up. And again, the valuations are cheap. Now, again, some of those names, Russia, China, that I mentioned, you know, maybe a little scary for some, but we put them in our portfolio. We always have international and emerging markets when we're building portfolios, just because we believe you got to hold them just in case.
Art Wiederman, CPA: And you know what's interesting, I was listening again to another presentation and they were talking about the fact that and again, folks, you know, I'm as much of an environmentalist as anybody, but because of this war in Ukraine and coal has become king again in foreign countries, I mean, they said that they're reopening or opening 250 new coal plants in India and China. So, you know, that's an opportunity. I mean, as horrible as that is for our environment. And that's not what this podcast is about, but it is horrible for our environment. Is that not an opportunity?
Daren Pladson: Yeah. You know, I think so. And that's where, you know, and we can even go back and you look historically when there's a war, what happens in that part of the region, typically, once it's over the market rallies and that's where, you know, there's all of a sudden an excess of jobs or a need for jobs, for rebuilding and for, you know, making clothes and making, you know, obviously, Ukraine's a big like I said, a country, you know, putting food and all this other stuff. So, you know, usually that that does happen at the end of a war usually markets will rally especially in those regions.
And yeah, so I think there's always opportunity. I'm looking at another chart right now and I'm looking at this and all it's showing is basically when the U.S. outperforms and then when the international developed outperforms and the US has outperformed now for 15 years and usually on average these outperformance last about six or seven years. And then, you know, you go back to 01 to about 2007 or eight and international performed. So again, it goes from U.S. to international, the U.S. to international to U.S. to international. I think one of these years it'll be international's time to really outperform or developed international anyway.
Art Wiederman, CPA: And that brings me to maybe the most important point that I want to make in this podcast, which is diversification. I mean, I get people, Daren, that say to me, you know, I'm just going to put everything in an S&P 500 index fund. And if you do that, all you have to do every day is turn on your stocks app of your phone and look at what the S&P did and that's how your portfolio did. But you know that does give you diversification, but that's large cap stocks only or I'm going to invest in the Dow or I'm going to invest in the Russell 2000 mean whatever it is. But talk about and this is so important folks is the markets in general have yielded if you read literature from all over the place over the last hundred years, the average yield on investing in the markets if you are diversified is somewhere between seven and 9%. That's what I've read. Daren, feel free to disagree with me. You get one disagreement in every podcast that's in our contract. So just so you know. And talk about diversification. Why is that important? How do you guys diversify in your portfolios?
Daren Pladson: Yeah. Okay. So I'll go back to financial planning. And you know, one of the things, the first question we have to figure out is what's our mix of stocks to bonds, right? Are you a 60 40 investor or are you an 80 20 or a 40 60? So that's the biggest question. And then from that point, that's when you start building out the portfolio. And to give you an example, usually our portfolios, once we build them, we use a lot of exchange traded funds within our portfolio, with anybody's portfolio. And usually if we cut out all the ETFs or mutual funds that we're holding, you're going to have around 20,000, 25,000 different securities within it.
Now that's great. And it's extremely diversified. And I think the important part is you're going to own international emerging markets, of course, U.S., and then you're going to get into the fixed income world. We actually put alternatives in a portfolio as well. And matter of fact, that's been one of our best performing we call them sleeves or areas of the market this year and of course, mainly because of energy. But so anyway, diversification is key. Everybody preaches that there is a right and a wrong way to diversify. But yes, just buying the S&P 500 is not true diversification. You're getting representation of only the U.S. and the 500 largest companies in the US. And that's, you know, again, I go back to the top five make up 25, 30% of that whole index.
Art Wiederman, CPA: So talking about a portfolio, I mean, a lot of how any financial advisor wealth manager structures a portfolio, Daren really has to do with the client's risk tolerance. If someone is so averse to risk, you know, you're not going to put a lot of their money into stocks that are more volatile. And if they like risk, you might put more stocks in. I mean, you know, folks, if you don't want volatility, I don't know, buy an annuity. I mean, and I'm not recommending annuities and Daren's not recommending annuities, but you know, and that's a whole nother podcast which we're going to probably do here down the road. But, you know, if you are willing to understand the risk of the stock market, the fact that markets go up. And they go down. Okay. And you can handle the day to day up and down. The markets have done people and made people trillions and trillions of dollars over the last hundred years. Is that an accurate statement?
Daren Pladson: Yes, absolutely. And again, I think I've said this before. You invest in the stock market really to beat the bank rate. And that's right. That is, you know, you have money. We have money. And you're willing to take money, put money at risk in order to get a better than the bank type of return. That's simply one of the reasons you do it. And so, yeah, markets go up, markets go down. We understand that. I do anyway. And, you know, one of our jobs as financial advisers is really to keep our clients in the seat, you know, don't make any bad mistakes at the wrong time, which can really hurt people.
Art Wiederman, CPA: Yeah. And you know, people I've talked to many people that they can time the market and they're watching and they're you know, if Jim Cramer says to buy that, I'm going to buy it. I mean, they're trying to time the market. Right. And nothing against Jim Cramer. He's very entertaining to listen to and he's a very smart guy. But, you know, people are thinking a recession, recession, recession, and they sell because they sell out of fear. I mean, talk about people timing the markets and why maybe that's not such a good thing.
Daren Pladson: Well, there's two parts of timing, right? It's time it to get out and you time to buy, you know. And so that's you got to hit it right twice. And so and you know, there's all kinds of studies and anybody can Google, you know, the percentage of active managers that actually time the market. And it's a very, very low percentage that can consistently do it. You can do it in one year, right? You can't consistently you can't repeat it over a five or ten year time period with great consistency. And that's where you know what diversify hang on in markets like this. And that's not great advice but I mean, it is the best advice where you just got to kind of stick it out. And I you know, I tell my clients this quite a bit. The time we need to have a serious discussion about adjusting your portfolio from a stock to bond mix is when is the day you stop sleeping at night. And that's a like I say that with all seriousness, I can't, your health is more important than your money, right? Yes. If you're not here obviously, your money doesn't mean anything. But if you're not sleeping because you're worried, then we've got to make changes in your portfolio.
Otherwise, kind of leave it up to me or your financial advisor to just, you know, muddle through this right now. And so I think that's important. You know again, the timing issue, yeah, you're going to lose a lot more than you're going to win when you try to time the market. It just, it's proven, it just doesn't work.
Art Wiederman, CPA: And again, thousands and thousands of financial advisors, including Daren, are all about, you know, long term investing and folks if you do not have any type of retirement plan in your dental practice and you have disposable income folks, you're missing the boat every single year that you don't invest in a tax deductible retirement plan, contribution and money growing on a tax deferred basis. I mean, the amount of wealth that you build by trying to do it on your own after paying taxes in a personal stock or bond portfolio versus doing it inside of a qualified retirement plan which is protected from creditors, I mean, the numbers are mind boggling how much more wealth you can you can grow. So if you don't have it, if you're not maximizing your retirement plan contributions every year, I mean, I will continue to harp on this until they kick me off of this microphone, which might be any day now. Who knows? I hope not.
But anyway, and then the other thing doctors I want to make a point about, and Daren's information is just so invaluable. And I love every time I talk to him, I learn something new is we are in an inflationary time. Okay. And what that means is that I talked to a doctor the other day who said for 25 years, Art, I could like clockwork find employees, that I could pay between 20 and $25 an hour. And now I can't find anybody by who will accept less than $35 an hour. And I hear lots of doctors saying to me, my team is all they're all coming to me. They need raises, their rents are going up, their food is going up.
But if your practice has 70% of your patients contracted with insurance plans, you cannot raise your fees on 70% of your business. So think about it. All your costs go up. When the supermarket's costs go up, what do they do? They raise the price of a loaf of bread. They raise the price of a dozen eggs. They raise the price of a gallon of milk. So every business, when the prices when the costs go up, they raise prices. That's why we have inflation. That's what we have right now. But if 70% of your dental practice is contracted, people, PPOs, you can't do that.
So I would encourage you for lots of reasons, which we've talked about on this podcast, to look at your relationship with insurance company in network plans and think about making some changes. And that has nothing to do with how you invest your money, but that is important. You'll make more money, which will mean you'll have more money to invest and diversify and all that stuff there. And I think we hit most of the high points. Any kind of final comment you want to make and I want to give you an opportunity one more time to give out your contact information and stuff. Anything. I think we hit all the high points. Or did we miss anything?
Daren Pladson: No. Yeah, I think that's great Art. And you know, you've said it a lot. I say it a lot. You know, I think the key to a good, healthy financial, I think confidence is get a financial plan, talk to your financial advisor. That's first and foremost get your house in order. I think that's really the key here. And again, my number is 701.476.8767 and it's dpladson@EideBailly.com is where I'm at if anybody has any questions.
Art Wiederman, CPA: Yeah. And it's January so a great time to come to Fargo?
Daren Pladson: I would stay away. January could be the worst month ever.
Art Wiederman, CPA: Oh, my goodness. I. I was in we're recording this on November 30th. So I'm a football. I love sports. And I flew 2000 miles the day after Thanksgiving to go see the Ohio State Michigan football game. And it got down to 28 degrees and I thought I was going to explode. But that's why you bring layers so Fargo you know, when I say 28 degrees, that's a heat wave to you and Fargo in November, right?
Daren Pladson: Oh, yeah.
Art Wiederman, CPA: There you go. Daren Pladson from Eide Bailly Financial Services, thank you so much for your time and your expertise. And hang on with me as I take the podcast out. And folks, again, thank you for the honor and privilege of your time. It's the beginning of 2023. Start making a financial plan.
I mean, financial planning involves all different aspects of your personal financial situation. It's debt management, it's taxes, it's insurance, investments, investments which we talked about today, retirement, college planning and estate planning. Those are the seven areas of financial planning that we always take a look at. And it's something that you really need to do. It's you know, you go to the doctor once a year for an annual physical, you should be going to your financial planner, oh, probably more than once a year to kind of see how you're doing.
I want to thank again my wonderful partner Decisions in Dentistry magazine www.DecisionsinDentistry.com. 140 amazing continuing education classes at a very, very reasonable price. Go to www.DecisionsinDentistry.com my mothership and my of all my friends at the Academy of Dental CPAs www.ADCPA.org. We are the I was one of the founding members of this group 22 years ago. They got me through a lot of good and bad times in this economy.
We at Eide Bailly work with about I think we're at about a thousand dentists. We work with about 300 of them in our office in Orange County, my partners, Don Watson and Pam Chamberlain. I'm actually not a partner. I'm kind of on the non partner. I do consulting and podcasts and webinars and all the stuff that I really like doing, but our team in Tustin is second to none and we have great, great folks across the country to help you. And again, if you want to get a hold of me, I'm at 657.279.3243 or shoot me an email at awiederman@EideBailly.com.
Well, folks, that is it for this episode of The Art of Dental Finance and Management with Art Wiederman. Again, I want to thank you from the bottom of my heart for all of you who listen, all of you who email me and call in and who definitely, we hope you have benefited from this podcast over the last four years. We've got a lot of great guests coming up, a lot of my insight, and we're excited about 2023. It's going to be a challenging year. It's going to be a challenging year with our economy. It's going to be a challenging year in our markets.But promise me, doctors, that you will continue to work not only just in your business, but on your business. Look at your metrics, work with a coach, look at your numbers. We can help you with all of that. And with that, I hope everybody has a wonderful, wonderful 2023. I am Art Wiederman on behalf of the Art of Dental Finance and Management with Art Wiederman, CPA. And we'll see you next time, everyone.
Daren Pladson, CIMA
Show Notes and Resources:
Disclaimer: Financial Advisor offers Investment Advisory Services through Eide Bailly Advisors, LLC, a Registered Investment Advisor. Securities offered through United Planners Financial Services, Member of FINRA and SIPC. Eide Bailly Financial Services, LLC is the holding company for Eide Bailly Advisors, LLC. and Eide Bailly Agency, LLC, which is wholly owned and operated under Eide Bailly LLP. Insurance products are offered or issued under Eide Bailly Agency, LLC. Eide Bailly Advisors, LLC employees can also be licensed as insurance agents/producers of Eide Bailly Agency, LLC. Eide Bailly Financial Services and its subsidiaries are not affiliated with United Planners. Not all products and services are available in all states.
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