Littlejohn Financial

Why Is It So Hard To Get Ahead These Days?

Financial Podcast by Financial Advisors

With inflation running hot and the middle class getting squeezed, how do we push through difficult times and overcome the financial adversity? Let’s explore the pain points and learn how we can be better investors.

Episode Highlights:

  • The effects of productivity advancements on the job market, including the potential for fewer jobs and increased competition among workers.
  • Insights into the performance of the markets, the validity of the “sell in May and go away” strategy and considerations around the 4% rule for retirement planning.
  • Impact of unexpected financial elements such as surprise inheritances and forgotten assets on personal financial planning. 
  • How the federal minimum wage has not kept pace with inflation since its peak in 1968
  • Disparity between productivity increases and hourly compensation since the 1970s.
  • Importance of investing in assets over liabilities.
  • Influence of inflation and government spending on asset prices.
  • Challenges faced by the younger generation in asset accumulation.

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TRANSCRIPT

00:00:00 When productivity per unit of labor goes up, what does that mean from an employer’s perspective? Right. If I’m hiring people and I can now get double the production out of a worker. 

 

00:00:13 You’re hiring less people. 

 

00:00:14 Right, I can hire half as many people to produce the same amount. 

 

00:00:17 Right. 

 

00:00:18 Okay, so what you see is the number of jobs declines as productivity goes up. Now– 

 

00:00:26 So there’s more competition for those higher paying jobs. 

 

00:00:30 Well, they’re not necessarily higher paying jobs, just the jobs that remain. 

 

00:00:34 True. 

 

00:00:34 Right, you have more people competing for the jobs that are left, which means higher supply of labor and lower number of jobs. 

 

00:00:42 So you don’t have to pay people as much because everyone’s fighting for those jobs. 

 

00:00:47 Correct.

 

00:00:54 All right, as fast as we can get into the music so we don’t have to listen to it. This is the True Wealth Show, the best Tuesday you’ve had all week. It’s Dave Littlejohn today. With me, in studio.

 

00:01:05 Matt Dickson. 

 

00:01:06 It is my favorite Tuesday all week. 

 

00:01:08 Really? 

 

00:01:08 Yes. 

 

00:01:09 Okay. 

 

00:01:09 I love it. Also the last Tuesday of April. So goodbye, April. You’ve been good. Welcome, May. 

 

00:01:15 I feel like 2024 is just ripping by. 

 

00:01:18 It really is. So, you know, we’re in Q2. Like, we’re like a third of the way through Q2 already.

 

00:01:25 Well, the market has been pretty nice to us so far. 

 

00:01:28 It has. 

 

00:01:28 That felt good. 

 

00:01:30 So here’s the real question, right? Do you sell in May and go away? 

 

00:01:34 I mean, I don’t know what the numbers are year to date, but it’s on the run. Yeah.

 

00:01:40 Yeah, and I don’t have the answer either. If you’re looking for the answer, we can check the crystal ball and it says, oh, I didn’t even have one with me. So what it says is go get your own crystal ball. We do not try to play that game on this show as you guys know because somebody will take us seriously and then blame us. So we’re not gonna play the blame game and say we’re gonna play the let’s learn together game. 

 

00:02:01 What are we learning about? 

 

00:02:02 Okay, this is one of these strange ones. Let’s probably start it with an observation and a handful of statements and then it’s blossomed into, we just wanna talk about this, okay? 

 

00:02:12 All right. 

 

00:02:13 The question is, what does it take to get ahead today?

 

00:02:18 Well, I saw something interesting coming into the show. We, I mean, you saw it too. 

 

00:02:23 Yep. 

 

00:02:23 There’s this interesting Google search going around right now. 

 

00:02:26 Okay, talk to me about the Google search. 

 

00:02:28 And people are saying, you know, is $700,000 enough to retire? And apparently that’s one of the most popular, you know, searches right now on Google. 

 

00:02:37 Right, and can you help? So we did a little reverse engineering, like a little snooping around, like, why did you come up with this number? 

 

00:02:46 Yeah, I really wanted to know. So I started prodding around on the internet. And apparently, it’s because people are kind of focused around, well, I think I might be able to live on $40,000 a year. And with trying to live 25 years in retirement and having that kind of safe withdrawal rate around 4%, that works out to be about $700,000 that you could draw on for 25 years to live on about $40,000 a year. 

 

00:03:15 We gotta talk for a minute about the 4% rule. 

 

00:03:18 Do you wanna kinda go into what that means? 

 

00:03:20 Sure, and just so everybody’s aware, 4% rule is kinda like pirate code, it’s guidelines. It’s not a guarantee on this thing here. But–

 

00:03:29 Right, because we don’t know what the markets are gonna do.

 

00:03:31 Yeah, we’re trying to predict the future, but if you’re kinda looking in the rear view mirror, what the 4% rule tells us is that historically speaking, if you were to take 4% of the value of your nest egg out each year and you were to fix it at 4%, so the market goes up, you get a little bit more, the market goes down, you get a little bit less, but that the probability that that money would last 30 years or longer is extremely high. Not quite 100%, but very high. 

 

00:03:59 Right.

 

00:03:59 So that has been traditionally viewed as sort of the safe withdrawal rate. Okay, and I air quotes “safe.” You got an air quote on the radio, right? Super useful. 

 

00:04:08 You don’t want to get sued. 

 

00:04:09 Right, so anyway, that’s been sort of, financial advisor shorthand for a long time. It’s just say, well, 4%, it’s 30 years in retirement. So it kind of does make sense that the 700,000 or I want 40 grand a year, roughly. Now, what can impact that? Sequence of returns, right? You have several bad years right out of the gate. 

 

00:04:28 Well, and we’ve had a wild roller coaster ride. We saw at, 2022 markets were down, or that was, we were up what, 20%? And then 2023 down 20% or so, and then now we were up maybe like eight or 9% this past year. I don’t even know, the numbers fluctuate so fast. 

 

00:04:47 Right. 

 

00:04:48 But it’s big. 

 

00:04:48 And I have to recall too, I think the catch on the 4% rule, I think the reason that math has a catch to it, if you just took 4% out every year, it ought to last in perpetuity, right? Because, right, 4% even if it is, because it might keep shrinking. Right, oh, you can’t win down, I pull 4% out. Now I take 4% of the smaller number out. You just keep taking 4% out, you don’t run out of money because you’ll just take a smaller and smaller amount. 

 

00:05:10 It’s that whole. 

 

00:05:11 But the catch is, you don’t go backwards, right? If the markets go up, you can increase your 4% for inflation adjustment, but if the markets go down, you sustain the original 4%. But that’s where the gotcha is. If you go through a series of negative years, it can sneak up on you. And all of a sudden you discover that you’ve taken so much out that you can’t dig back out of the hole. Like you need, the rate of return is too high to fill the bucket back up after you’ve taken that much of a crawl out. 

 

00:05:36 Right, because, fixed expenses, you gotta have enough money to live on, and that’s where you’re saying it can get dangerous. It’s like–

 

00:05:43 That’s it, that’s why they’re not guarantees, but they are statistically really high probability, high enough that it’s been historically used as like, hey, you know, you’re probably gonna make it 30 years with this strategy, or potentially, if you have a good sequence of returns, indefinite. You end up with more, you die with more than you started because the sequence of returns rewards you and it just keeps going. So it kind of, it’s a very swag estimate, but it’s, so suffice it to say, it’s kind of driving this research online. People are looking at this going, hey, 700 grand, does that get me 40 grand a year? 

 

00:06:17 And if, in the event that you’re looking at your own personal finances and you’re saying, well, I have this amount and my lifestyle looks like this, do I have enough money for me to live comfortably? I think that’s one of the areas that a financial advisor can be really useful is, in helping you because I mean, right, like we as a firm, we pay for software that helps us analyze that and I think a lot of people, that’s kind of what they’re looking for. You know, I want to know that I’m comfortable and I want to know that, you know, things are okay. Now, does the software, is it able to tell you with 100% certainty? No. 

 

00:06:55 Nothing is, but it can, it does probability analysis in addition to math. 

 

00:06:59 Exactly. 

 

00:06:59 That’s the key to it. If you want to go online and figure out, kind of a simple calculator that says, well, if you earn this much per year and you spend this much per year, and that works out long term, this is how long the money lasts. And you kind of see when you run out of money, because it’s pretty straightforward math. The problem is the variability, right? What happens when it’s not a consistent rate of return?

 

00:07:23 Here’s another big variable. What if you have a really large expense you know is coming, and that is gonna change your financial picture too? 

 

00:07:31 Yeah, or here’s an even additional variable. What if we change tax policy, right? So exactly, all right, well that’ll throw it off too. So the idea is that you run a whole battery of different variables, you plot the outcomes, and then you look at the distribution of outcomes with those randomized variables and say, well, here we can kind of develop some statistical samples and give you a sense of whether or not it’s likely, right? If you’re saying, well, 95% of the time it works, I go, that’s pretty high probability. But if it’s like, well, 16% of the time it works, but the other, you know, 84% of the time it doesn’t, you go, that is not probably a plan that you want to really bank on because there’s a lot higher chance of it not working than it actually working, right? Too many things have to go right in order for that to play out versus the conservative approaches. Well, what if a bunch of stuff went wrong because it still worked? 

 

00:08:23 Mm-hmm. I mean, you’ve been doing this a long time. Do you have any stories maybe of, like where you’ve gotten into a financial plan or you’ve started really looking at the numbers and you’ve maybe even been surprised by what you found? Has there ever been an instance where you’re like, I really didn’t expect the numbers to say this, but here’s a story I didn’t really expect to see? 

 

00:08:43 Well, sure. I mean, I think that there’s stories that have been both positive and negative. Positive stories tend to be people forgetting variables. Oh, I assumed it was something like this, and I didn’t know this was going to happen. 

 

00:08:56 Well, I’ve had that happen. I had a meeting where someone kind of diagrammed everything that they had going on. And they’re like, oh, you know, I was really hoping to be able to spend a little bit more in retirement. And then they throw in a curveball, where they’re like, oh, by the way, I’ve got $100,000 of physical gold. And I’m like, well, that changes things, you know? If you want a certain lifestyle and you don’t feel like you can have it now, have you thought about spending some gold? Like, cashing that in and using that asset? 

 

00:09:24 Right, and I’ve had situations where folks forgot about a pension. 

 

00:09:30 Really? 

 

00:09:31 Yeah, you know, it’s like, oh, it’s not there, and then, well, I gotta do this, that, and the other, and I’m gonna run out of money, and they go, well, but there’s also this, and I’m getting Social Security, but I also have my military disability or something. You gotta include that in the data point because that is going into the cost of living kitty right there And so those are happy surprises when it’s like, oh, there was more there than I realized.

 

00:09:53 I wonder how many times errors like, you know, there’s an estate, someone passes away and then there was an asset that was completely forgotten about in the mix of things. And then it’s like, surprise, there was this other thing that even the person who owned it completely forgot about. 

 

00:10:09 Yeah, well, or just inheritance in general. That’s sometimes a surprise too, is that people, well, I never counted on it, and then lo and behold, there was this inheritance, and it kind of changed the game. You know, and I talk all the time to people about, well, I know it’s morbid to count on an inheritance, but it’s relevant. Right? 

 

00:10:25 It is. 

 

00:10:26 So especially if you’re on the bubble, and you’re likely to receive an inheritance, then there may be some planning strategies that you want to deploy to improve the probability. Here’s a real life example. Like this, you’re asking for, here’s a scenario. Had a couple where it was a, his and hers, okay? And she was going to receive an inheritance, but he wasn’t. The inheritance was what made the financial plan go. But if she went before him, the inheritance went with her. So his plan didn’t work without her. So what do you do? You buy insurance on her. And once the inheritance shows up, you can let the insurance go. 

 

00:11:04 You can let the policy lapse. 

 

00:11:05 Yeah, you allow the insurance to lapse, because you’re just renting the insurance to cover that risk.

 

00:11:08 That’s ingenious. 

 

00:11:09 Yeah, so that was a real life financial planning case that I have used before, because the inheritance was relevant, right? And so that’s just kind of an example of how planning is a lot more than investing. 

 

00:11:23 Was this a plan you came up with? 

 

00:11:25 It was. 

 

00:11:25 That’s cool, I like that.

 

00:11:27  Yeah, so there you go. One of those , you know, it’s not even sleight of hand, it’s just in the landscape of financial planning, there’s a lot of tools in the bag. 

 

00:11:38 Well, you just made sure that their plan worked for them based on what they needed. 

 

00:11:42 Well, and it’s scenario based. Exactly. So what did they need? Well, they needed this set of tools. Not everybody does, right? I mean, it kind of bugs me when you get a product salesman, that if you’re a life insurance salesman, there’s an expression, if the only thing you have is a hammer, everything looks like a nail. And so all of a sudden life insurance is the Swiss Army Knife of financial products. It definitely has its use cases, right? And some of them can be very clever, but it’s not the only tool in the bag, right? And I think it’s important that you approach the problem solved that way. So anyway, slightly off the, I guess this is good, it sets the table for the conversation of the day around planning, but I want us to really get an opportunity to speak to everybody out there listening. It’s for all of you, right? But a lot of our listeners are either, you know, you got kids that are almost out of the house or they’re already out of the house, or maybe it’s grandkids at this point. But that may not be you, right? But that’s a lot of folks. And the people I’m talking to are the folks that are concerned about, well, it might be yourself, but maybe it’s those kids or grandkids and going, how are they going to make it work in this world where it seems like the hill’s getting steeper? Or is the hill getting steeper? Right? 

 

00:13:00 Yeah. 

 

00:13:01 I’m going to make a crazy statement out there that I think the hill is getting steeper. I think the data suggests it’s actually more expensive. 

 

00:13:09 Yeah, I think a lot of people are feeling it and they can’t necessarily put their thumb on exactly what it is. I mean, inflation is a broad term, but what’s really more of the underlying issue, I think, is what we want to get into.

 

00:13:21 Why does life feel more expensive? If you’re wondering, Kali, why is it so different than back in my day? Why does it feel so exotic? 

 

00:13:30 You’re saying it can be more than just the cost of gas. 

 

00:13:33 Yeah, it’s not just the cost of gas or the cost of food or the cost of housing. Those are all part of it. Okay. And it’s interesting too, because poverty rates haven’t increased, and yet we’re feeling a different level of strain here. 

 

00:13:44 Yeah. I mean, since the 70s. Poverty rates have floated between 10 and 15%. 

 

00:13:49 So that’s not it. What else is going on? Some of it’s perspective, but then I think there’s something more. 

 

00:13:57 I wanna know what that is, David. 

 

00:13:59 And we’re gonna unpack it after this break. All right, gang, welcome back to the True Wealth Radio Show. I’m your host, Dave Littlejohn. In studio with me today. 

 

00:14:06 Matt Dickson. 

 

00:14:07 And I will remind everybody. We podcast this show. Check it out on our webpage at littlejohnfs.com. And it is now available on YouTube. So if you wanna subscribe to our YouTube channel, you can watch the show and you can see a lot of the footage that happens in between segments, right? So if you ever wonder like, hey, what’s going on? And sometimes it’s just, you know, hey, I’m checking my phone, but. 

 

00:14:30 We should play more fun games on the break. Like some trivia. 

 

00:14:35 Yeah, like–

 

00:14:36 You want the trivia portion of this thing. 

 

00:14:38 Yeah.

 

00:14:38 You gotta tune in after class. 

 

00:14:40 We keep coming up with all kinds. So anyway, let’s get back to, for everybody who’s listening, you’re going, great, are you going to talk about what you left us at the break for or not? 

 

00:14:48 Where do we leave off? 

 

00:14:49 Well, I believe we left off, we’re talking about how it’s getting harder to get ahead. And–

 

00:14:56 Where’s it coming from? Yeah, that’s the big question. 

 

00:14:58 What’s driving this? Because the question is, what does it take to get ahead now? And we thought it was interesting because we’ve got some data, right? Like you were doing data mining and I’ve been doing some reading too. First, let’s talk a little bit about the backdrop here. What were some of the things that you discovered, Matt, in your research for this week? 

 

00:15:16 Yeah, that we are right now experiencing the longest period in history where we haven’t had an increase in… This is looking at the federal minimum wage, right? 

 

00:15:27 Yep. 

 

00:15:28 And it’s inflation adjusting everything. So looking at kind of, your purchasing power of what would minimum wage buy you back then, inflation adjusted to today. 

 

00:15:38 Okay.

 

00:15:38 And so if you were to inflation adjust minimum wage, go back to 1968, so February of 1968. That’s when we hit our peak where the federal minimum wage would be about–

 

00:15:50 Like max purchasing power, relative to minimum wage. 

 

00:15:53 Exactly. 

 

00:15:53 Okay. 

 

00:15:54 That would be a little over $11. 

 

00:15:56 Okay. If it was adjusted to today. 

 

00:15:58 If it was adjusted to today and–

 

00:16:00 And federal minimum wage is lower than that. 

 

00:16:02 Right. Yeah. I think today we’re like $7.25 or something. 

 

00:16:04 Right. Of course, the question is how many jobs are at the federal minimum wage these days. 

 

00:16:10 Very, very few. 

 

00:16:11 Yeah, like does that really exist? Is it a relevant metric anymore? 

 

00:16:15 But it’s a baseline, I think, to look at, where are we at as a percentage on what does today’s dollars mean versus what did it mean prior? And we’ve experienced a really long skid. That’s 34% less than it was in 1968. 

 

00:16:31 Right. Now for everybody listening, there are a couple things that we don’t have the answer for yet too to consider. One is how many states have a state minimum wage that kind of renders federal sort of irrelevant. 

 

00:16:49 Right.

 

00:16:50 Okay. So yeah, I mean in Oregon it’s significantly more, it’s higher in Portland than it is in the rest of the state. And I think there are some other implications to, what is the minimum wage. 

 

00:16:59 Right, because we’re not just talking about, federal minimum wage. Right. We’re looking at wages really on a broader spectrum and saying if the minimum wages, tracking on this scale, what are the other wages tracking? And I think that’s kind of some of the more in-depth statistics I want to look at in saying, how are wages keeping up with different things like productivity and, you know, a lot of– 

 

00:17:24 This one is sticking in Matthew’s craw, by the way. 

 

00:17:26 It is. 

 

00:17:27 This productivity thing. So just lay it out there because I’m going to have fun punching holes in this. 

 

00:17:32 Okay, so since 1973 to 2013. So this is a little older data, right? So we’ve got a 10-year gap here to make this current. But between those years, productivity was up 74%, but the hourly compensation was only up 9%. So you were getting a lot more production from your employees, but the hourly compensation didn’t match that. You go backwards in time to 1948, run that to 1973. It was almost step for step matching each other. Productivity between those years, 1948 to 1973, up 96% on productivity, and hourly compensation up 91%. So what we witnessed was a huge gap after that, you know, the mid-1970s, we watched wages not keep up with productivity. 

 

00:18:30 Okay. 

 

00:18:31 Yeah. It’s interesting when you start to really get into the numbers on this. 

 

00:18:36 Now, here’s a fun fact. 

 

00:18:37 Okay. 

 

00:18:38 When did we go off the gold standard? 

 

00:18:40 Right about that time. 

 

00:18:41 1971. 

 

00:18:42 Yeah. 

 

00:18:43 Right? 

 

00:18:43 I was noticing that and I wondered if there was a correlation. 

 

00:18:46 Well, here’s another fun fact. 

 

00:18:48 Okay. 

 

00:18:49 What have we been doing fairly consistently post-World War II and really specifically from the 70s forward? We’ve been importing a lot more, but we’ve had our manufacturing exported overseas, right? Made in China, made in Taiwan. 

 

00:19:08 The trade balance really changed is what you’re saying.

 

00:19:10 Right, and so if you consider the fact that all of the sudden we globalized to the labor market, it changed the price of labor domestically relative to over the pond, if you will. So you needed productivity to increase per worker because otherwise it became cost competitive to ship the jobs overseas and bring the product back completed. 

 

00:19:37 Right. 

 

00:19:38 Right. This is the Nike phenomenon. It drives everybody nuts that Nike has a bunch of their shoes made in Vietnam. And then, or at least I believe, last time I went to Vietnam. 

 

00:19:45 Right. But would you pay three or well? 

 

00:19:48 Yeah, would you pay five, six, $700 or, you’re still paying a lot and Nike’s making a real premium. They’re paying much less than that to manufacture the shoe. But the argument is, well, why do they do that? Presumably because it’s much cheaper to manufacture the shoes there than here in the United States. 

 

00:20:06 Right.

 

00:20:07 Now, whether that’s right, wrong, or otherwise isn’t the comment of the day. 

 

00:20:10 Nope.

 

00:20:11 It is, what does that do to the cost of labor? 

 

00:20:14 Right.

 

00:20:15 Right. Because you’re now having to compete as a labor force across the pond. 

 

00:20:19 A lot more workers entered the workforce, too. 

 

00:20:22 Yeah, that’s the larger issue here. I think that there’s something else at play that, if we could better understand this, and I say we, meaning if I was trying to teach more people about this, to understand how wealth gets created and how the middle class falls behind, right? I think if we could understand this better, it gives folks more of a fighting chance at keeping up. 

 

00:20:46 Right, and I think that’s really the goal. We’re trying to empower people, how do you get ahead? 

 

00:20:51 Yeah, yeah, so, but first you gotta have an understanding, right, so one of them is when productivity per unit of labor goes up. What does that mean from an employer’s perspective? If I’m hiring people, and I can now get double the production out of a worker.

 

00:21:10 You’re hiring less people. 

 

00:21:11 Right, I can hire half as many people to produce the same amount. 

 

00:21:14 Right. 

 

00:21:15 Okay. What you see is the number of jobs declines as productivity goes up. Now–

 

00:21:23 So there’s more competition for those higher paying jobs. 

 

00:21:27 Well, they’re not necessarily higher paying jobs, just the jobs that remain. 

 

00:21:31 True. 

 

00:21:31 Right, you have more people competing for the jobs that are left, which means higher supply of labor and lower number of jobs. 

 

00:21:39 So you don’t have to pay people as much because everyone’s fighting for those jobs. 

 

00:21:44 Correct, this is why we talk about scarcity being one of the components to driving up value, right? Because when things are really scarce, you end up having to pay a premium to get it. Okay. But when there’s not that many jobs and a lot of people are competing for them, then you can say, well, it’s like a reverse auction. When everybody’s competing for one thing and there’s lots of buyers, the price goes up. But when there’s lots of sellers of their labor and nobody’s buying it, what happens? You have to start lowering to… So this is the idea of somebody bidding a job and the lowest bidder wins. That’s really what’s going on. It’s the employer saying, I have a position and we’re willing to fill it. Well, you do it for this little. 

 

00:22:25 Hmm. 

 

00:22:26 Okay. And most people don’t like to think of it that way. They think, well, that’s wrong of the employer. And that seems like… it just depends on where you land. 

 

00:22:34 That’s reality. 

 

00:22:35 Well, that’s kind of my larger point, right? Is that we could sit here and sort of dehumanize employers as well, that’s dehumanizing and everybody’s, screwing everybody else. Or we could say, well, there are natural forces at play in the market, and this is one of the consequences of globalization. And we do some things to normalize it, like tariffs and so forth. And in certain cases, we flat out sanctions on countries. We’re like, well, we’re not gonna play nice with you anymore. Go ask Russia. 

 

00:23:01 So I think part of this is starting to look at, why did we get here? People really quit caring about quality. 

 

00:23:10 Well, you know.

 

00:23:12 I would argue that because, you know, as–

 

00:23:16 Price is a, there’s price and substitution, right? 

 

00:23:18 Yeah. 

 

00:23:19 There’s, the issue comes down to– 

 

00:23:22 We’re turning to a throwaway generation though. You look at someone like my grandparents’ age, they were the type of people that valued quality and they didn’t throw things away, right? They would repurpose. 

 

00:23:33 Well, did they have the same set of options? That’s the question too. 

 

00:23:36 That’s all, that is the question. 

 

00:23:36 And so, I get your point, right? 

 

00:23:40 Yeah. 

 

00:23:40 I guess I’m, usually I try to be slow to make generalizations about characters. 

 

00:23:48 I ask myself, why has stuff gone overseas? Everyone wants to say, well, we need stuff made in America. It’s like, well, as a culture, we have driven the demand overseas because we want cheaper products. 

 

00:24:00 Well, yeah, I mean, that’s part of what’s snuck in there is the impression of what a middle-class standard of living is, has gone up, right? 

 

00:24:10 It has. 

 

00:24:10 Houses are bigger, people want vacations, they want nicer cars. It is standard that people have a smartphone in their hand and broadband internet, right? These are all things that have become expectations. So there has been an expansion of lifestyle expectation, even if it’s hard to reach. 

 

00:24:26 The American dream has grown to a more expensive level. 

 

00:24:29 Well, we’ve also had policy creep, okay? So policy creep, let me be really clear. I’m not trying to throw anybody under the bus when I talk about this. I’m just going to talk about how policy creep sneaks in. Let’s say that you have employees that form a union. There’s rights to do that, and there’s oftentimes good reasons to do so. But the union then limits the amount of productivity that a person is allowed to produce for the business. And they say, this is the capitation on what we will produce. Like at the docs, this is the throughput. This is the number of units that we allow through. 

 

00:25:06 You’re saying they cap their production now. 

 

00:25:08 They cap the production, which in essence constrains the labor market artificially, right? So this isn’t a capitalist feature, right? This is a… it’s a free-ish market. There’s still components that are free, but then there are components that are not. Layer enough of those-ish components into a marketplace and you start to get sluggish in certain areas and you start to drive costs and imbalances. 

 

00:25:34 Especially when the government starts to meddle in free enterprise. 

 

00:25:39 And that’s a big portion of it is, I think whether it was intentional or not, the government is in a position where it’s oftentimes competing with the private sector and it creates an imbalance that looks less capitalistic, which means you get less ability. So you start price fixing and that breaks things, right? So one of the solutions is, well, if we can’t control the price of labor domestically, send it somewhere else where there’s lower cost of regulation and then bring the product back because it actually is economically viable. 

 

00:26:12 Right. 

 

00:26:12 Right. And I don’t know that that’s a quality statement as much as a, we can’t sell enough items at this labor unit price to make it work. Now certain areas, like let’s use dock working as an example, I don’t know much about it. So I’m kind of just talking generically about this. But you kind of have to go through the port, right? If you’re shipping stuff over, it’s going through. So they can constrain the productivity and that simply becomes a cost of doing business and it drives the price up, right? Because if you reduce productivity artificially, it does drive the price up. Because they have a monopoly on the dock, right? You have to go through them, okay? And so that’s the issue, it’s kind of like power companies. It’s like, well, you can’t go negotiate your power bill. You get what they tell you because it’s a monopoly on who’s providing it or it’s very, very small oligopoly of providers. 

 

00:27:07 Right.

 

00:27:08 And the government’s kind of involved in the price structure too. 

 

00:27:10 Right, because they approve the price increase. 

 

00:27:12 Yeah. So these aren’t really free capital markets. I get that we don’t necessarily want completely free markets. I know that sounds crazy to have a capitalist guy like me on here say that, but unrestrained capitalism moves toward monopolies. Monopolies stop being capitalists.

 

00:27:28 Right, because then they can set the price. Yeah.

 

00:27:30 Yeah, so there’s gotta be some way to prevent monopolies from breaking capitalism, but what we seem to have done is a poor job of keeping the regulatory bloat from also choking capitalism. And now it’s created a whole new set of problems in our economy. 

 

00:27:48 It has. 

 

00:27:49 It has. So do you want to talk about these? 

 

00:27:52 I do. 

 

00:27:53 I knew it, right? And here we are already, long on this segment. Let’s do this. We’ll grab this break. All right, gang. Yes, with awesome music. We are back. Welcome back to the True Wealth Radio Show. I’m your host, Dave Littlejohn. Today in studio. 

 

00:28:08 Matt Dickson. 

 

00:28:11 I’m amazed how fast the show is flying by. The premise started with, hey, how do folks get ahead today? And we’re kind of geared toward the younger generation. I guess you’re going down a rabbit hole. 

 

00:28:20 How we answered that? 

 

00:28:21 Well, we’re explaining a lot of stuff. Let me answer the question as best I can. Or you can take a stab here. 

 

00:28:27 Yeah.

 

00:28:28 It starts with, you really need to try to buy assets more than liabilities, right? And this is the thing, higher net worth folks buy assets and lower net worth folks buy products. 

 

00:28:41 Right. 

 

00:28:42 Right? Now can an asset be a product? Sure, the problem is a lot of people will rationalize that it’s a product to try to go own it, right? Like that stereo is an investment in my entertainment. Right? All right, whatever you say, dude. You’re gonna buy it because you want to. 

 

00:28:57 People struggle to classify the asset versus the liability, and I think a lot of people get that backwards or they get it mixed up. 

 

00:29:03 Well, here’s a simple way to think about it. Can I buy something that will retain value such that I can sell it in the future for more than I paid for it? 

 

00:29:11 Yep. 

 

00:29:12 Okay, it’s a really simple definition. If it doesn’t have value later, it doesn’t mean you don’t need it. Like, you gotta eat, right? It’s an investment in not dying. Right. But the food isn’t going to appreciate with time, it’s probably going to decay to zero. So it’s consumable. And there are things in our lives that are, part of life is consumable, okay? 

 

00:29:31 Right. Like, couch. Your couch is consumable. 

 

00:29:34 Yeah.

 

00:29:34 It’s gonna get worn. 

 

00:29:34 Yeah, your car largely, you know? Those things wear out. Your home, properly maintained, should hold value. They’re not supposed to be big investments. They’re supposed to retain value while you’re using the asset. We’ve had kind of unusual circumstance where things have gone up a great deal. 

 

00:29:53 Right.

 

00:29:54 This, by the way, is the cornerstone of understanding that I think all of our listeners, and especially if you’re trying to teach the next generation, latch onto this, okay? And that is, consider how much assets have increased in price, right? The house that somebody could have built and purchased in the 1940s for $3,500. That’s today worth one and a half million dollars in California. 

 

00:30:22 Mm-hmm. 

 

00:30:23 Okay, what happened? Why is that asset so radically expensive compared to its original build cost? 

 

00:30:31 Well, one thing, they’re not making more land. 

 

00:30:34 Right. There is a scarcity. 

 

00:30:35 Yeah. 

 

00:30:36 Right. We have radically increased the number of dollars in circulation. 

 

00:30:41 That’s a big one. 

 

00:30:42 Radically, okay? 

 

00:30:44 Yeah. 

 

00:30:44 And you can see this with federal debt in particular, right? We have more money in existence than the federal government owns. Oh, it was more money than at any point in history. Here’s a staggering thing. We just, we looked at before the show, we looked at just how much money’s been sent to Ukraine in the last like three years. 

 

00:31:05 Yeah, not one billion dollars, not five billion dollars. 

 

00:31:09 It was close to a hundred and eighty billion dollars-ish that we could calculate and we estimated that based on the US population as a census end of 2022 actually, that that was $546 for every man, woman, and child of any age, working status, or not in the United States. 

 

00:31:28 Just write that check and just send it off. 

 

00:31:31 And by the way, not one of those dollars existed. Every one of them has been printed or conjured by the federal government. 

 

00:31:39 Right. 

 

00:31:40 Okay, so if you continue to increase the money supply like this–

 

00:31:45 You just dilute your own currency. 

 

00:31:46 Yeah. You dilute the currency, and what does that mean? Assets, we’re not creating more. You said it, Matt. 

 

00:31:53 Right, but now they have to reprice. 

 

00:31:55 They have to reprice. 

 

00:31:56 Because there’s more money in circulation. 

 

00:31:59 Correct. More dollars chasing the same amount of goods is inflationary in nature. And so, government is stimulative when it spends, economically, but it also contributes toward inflation in many cases. Now, tack on top of the fact that the government was spending at its all-time highs while interest rates were at all-time lows. What also happens? The consumer can borrow the max amount. What does that mean? Big bad banks make lots of cheap loans, which puts tons of money in circulation, which does what? Drives up the price of assets. 

 

00:32:41 Well, it makes sense. If you can go, get a mortgage at 2%, you can buy a lot of house. 

 

00:32:48 Right, well compared to today, sure. 

 

00:32:50 Yeah. 

 

00:32:50 But here’s the really interesting thing. Prices have not come down appreciably compared to the change in rate. Why is that? 

 

00:32:59 Demand. 

 

00:33:00 And yeah, scarcity, not enough houses. 

 

00:33:03 Right.

 

00:33:04 What is part of why we don’t have enough houses? 

 

00:33:06 Because of all the red tape that it takes to get into a house or to build. 

 

00:33:10 There’s the free-ish capitalist market, the ish of–

 

00:33:14 They want permitting fees. 

 

00:33:16 All the fees, yes, the extraordinary amount. And it’s not just the government saying, here’s the permitting process, right? The building materials that go into it. Think about the additional red tape that’s gone into the harvesting and manufacturing of lumber product, okay? Significant increases in environmental regulation. Again, not a commentary if it’s good, bad, or otherwise. The input costs have all escalated. Also, the labor cost has escalated. The fuel cost. 

 

00:33:43 Fuel. 

 

00:33:44 All of these things get compounded. So every time that you see more administrative layers or more regulatory intervention, it drives the price higher. And what does that mean? Well, the government’s gonna spend whatever it wants to because it can print money, okay? And when the government was in trouble and needed to stimulate the economy, what did it do? It lower rates or it incurs lower rates so that more money was available from banks. 

 

00:34:12 Yeah. I mean, it’s great, right? 

 

00:34:14 And when banks got in trouble, what did the government do? 

 

00:34:16 Bail them out. 

 

00:34:17 They printed money and gave it to the banks to fix it, right? So when the economy was really strong, what did the government do? Oh, it clearly rained in its spending to save for a rainy day. Said nobody ever, right? It spent even more. 

 

00:34:31 Right? 

 

00:34:32 Right. And we can watch since, I mean, we can go back to pre-Clinton administration, say from after Reagan, George H.W. spent more, Bill Clinton spent more than him, and then George W. spent more than Clinton, Obama spent more than George, right? And then we had Trump spent more than Obama, I think in four years, and Obama had eight. Biden said, hold my beer, he spent more than everybody. Right? And there’s no sign of it stopping.

 

00:35:01 No. 

 

00:35:02 Right. So–

 

00:35:03 You can’t buy votes if you’re not–

 

00:35:06 You went there, I did it. It’s not about buying votes, it’s about–

 

00:35:10 Part of it is. 

 

00:35:11 Well, everybody in office, there’s no reason not to. 

 

00:35:14 Exactly. They’re incentivized to do it. 

 

00:35:16 There’s no reason not to. Your constituents expect it. So what do we do? We keep printing money. What does this do though? It has made everything radically unaffordable. So what do you do in this environment? 

 

00:35:28 Buy assets.

 

00:35:30 You have to buy assets. 

 

00:35:32 Because the assets are what is repricing and, you know, we’re seeing that the middle class is owning less and less assets, if you look at the numbers. 

 

00:35:42 Right. Now, here’s the terrifying thing. I’m going to give you advice that is something I don’t actually want you to do. 

 

00:35:52 Whoa. 

 

00:35:53 Yeah. 

 

00:35:53 How can you do that? 

 

00:35:54 Well, I’m going to tell you how the system rewards people, but then I’m going to tell you why I think it’s a bad idea.

 

00:35:59 Okay. 

 

00:36:00 But first, we’re going to take–

 

00:36:02 You can’t do that. 

 

00:36:02 I do. Totally take your last break. 

 

00:36:04 Okay. 

 

00:36:05 All right. We’re back for the home stretch where we are giving. Welcome to the True Wealth Show. If you’re just joining us, we’re about to give really dangerous, not actual advice. I’m not going to tell you to do it, but we’re going to tell you how do people get ahead in an economy where you have high inflation and you have high interest rates? So what do you do, Matt? 

 

00:36:30 Well, we said it earlier, right before we clipped out of here, buying assets. So now the question is, what are those assets that you buy? 

 

00:36:37 Right. 

 

00:36:38 And how do you do it? 

 

00:36:39 So the answer really is, you have to take on a lot of risk, okay? And–

 

00:36:45 This is, is this what you were saying? I’m not really advising this. 

 

00:36:47 I’m really not advising this, right? This is gonna be antithetical to, like what Dave Ramsey would say. He’d say, like, dead is dumb, just pay everything off. And while he’s not wrong, I don’t like unsecured debt, for example. But here’s the thing, if assets, you need assets that are appreciating faster than the cost to carry the asset. So what usually is that? Okay, again, disclosure, disclosure, disclosure. 

 

00:37:15 Not for [unclear]. 

 

00:37:16 I am not offering advice, nor am I making a recommendation you do this. But let me tell you how the ultra wealthy people build tons of wealth. Okay, let’s use, Elon Musk is an example, bunch of Tesla stock, right? So what does Elon do? Shows up at a bank, pledges his Tesla stock as collateral, takes a big loan out, then goes and buys a big piece of real estate somewhere, or another company for that matter, but let’s say he goes and buys a hundred million dollar mansion. It’s not a residence, but he’s able to start depreciating that asset, right? He’s got another asset, his Tesla stock he still owns. It’s appreciating still. And what he has to do is pay the debt service on his loan. 

 

00:38:04 So let’s say he’s getting charged 5%. 

 

00:38:06 So yes, but what happens now? He owns two assets. 

 

00:38:09 And the assets are appreciating at 10%. 

 

00:38:12 Yeah, I mean, maybe, but oftentimes what happens is you will depreciate an asset and you will use the depreciation to cancel other income. So if he’s got depreciation, he can cancel out other paths, like passive losses can cancel out passive income, right? And so he will lower his tax exposure, sell the real estate later and use some kind of what we call 1031 exchange to buy an even bigger place or multiple places. Repeat the process all over again, still owns his Tesla stock and now owns twice as many assets and is still just paying the debt service on the loan to continue to build this thing up. 

 

00:38:51 Instead of like an income. 

 

00:38:53 Instead of, and so he has zero income. 

 

00:38:55 Right.

 

00:38:56 Right, but he owns a whole bunch of assets, all of which he can then, like if he buys an apartment complex, the apartment complex doubles in value, he can do a cash out refi, take all the cash out, not report his income. He’s got that cash available in his pocket to buy more assets or pay for his lifestyle. And the cash flow from the apartments continues to pay off the loan that he has. And he can also write off the capital depreciation against the income. That’s the game that the ultra wealthy plays. They layer into different tax structures. 

 

00:39:30 Hmm. 

 

00:39:31 Okay, so super frustrating when you go, well great, how the heck am I supposed to reach that? Well, what I keep telling people, one of the things that you need to do in order to navigate the changing workplace environment is to become more entrepreneurial. This doesn’t mean that you have to be an entrepreneur and start your own business, right? 

 

00:39:56 Okay. 

 

00:39:57 But it does mean that you need to find businesses that you can operate within that incentivize you to be an entrepreneur within that business, right? 

 

00:40:07 Or like your interests are aligned. 

 

00:40:09 Yes, so Matt, I’m pretty sure you know what I’m talking about on this one.

 

00:40:13 Yeah, I mean, an employer who’s giving you an opportunity to also earn more as the business earns more. And there’s a lot of different ways that that can be done, but you’re basically just trying to say, hey, you can’t have a fixed ceiling. You want that employee to be able to take the next step higher and then the next step higher from there where they’re not just on the treadmill. 

 

00:40:38 Right, so here’s the key for a lot of young folks in particular. I think that the advice that’s been handed down for generations needs to evolve.

 

00:40:49 Right, because the advice was save money, save money, and you’ll be okay and work hard.

 

00:40:54 Save money, work hard, go to college, and all that stuff, it’ll make it work. College is now a barrier to entry for certain professions. 

 

00:41:05 But for the most part, college is just a really large expense. We’re seeing people come out of college with $100,000 of debt, and then a job that pays $80,000 a year, and you’re like, okay, by the time you try and buy a house and pay off your college debt, you’re gonna be 60. 

 

00:41:18 Right. Well, and if you consider that you’re going to go to college and then go into a job that there’s not a lot of scarcity or a lot of demand.

 

00:41:25 Ooh, even worse.

 

00:41:26 Then you’re going to end up not being paid real well. So you end up with lots of debt and a low income to match it. So you need to view education as an investment in yourself and your earning capacity. It needs to open doors, not close them. 

 

00:41:41 Right.

 

00:41:42 And so that’s new for people. That didn’t used to be the case. It used to be, if you went to college, you could count on making more money. 

 

00:41:47 I can sneak another good stat in here for you. 

 

00:41:49 Already. 

 

00:41:50 So since, like 1997, I think, you look at the average hourly wage, growth of college graduates, it’s been falling since 2000 as a percentage, right? And so we’re not seeing more pay. We’re seeing less. 

 

00:42:09 Right. So hence my statement that college is not a guarantee–

 

00:42:14 No.

 

00:42:14 That it will produce superior value. It needs to be viewed as an investment. And so what I encourage people to invest in is the right education and skillset to be marketable in the workforce. And keep in mind that I’m not hating on McDonald’s for this one, but they get picked on a lot, which is that’s a job that’s really, really regimented. So anybody can do it. It’s very entry level. And so they have their processes, you go and you follow the recipe and you do it their way. So because that’s available to virtually anybody, it’s not gonna be highly compensated. Why? Because there’s a huge supply of labor and not that many jobs for it. So you don’t have to pay up. But if you increase your skillset and the things that make you in demand in the marketplace, that’s how you get compensated better. And then if you bring that skillset to the work environment and you add value by increasing revenue or helping other people increase revenue, right? Sometimes the job is supporting the revenue generation, not direct revenue generation, but you do that, then the company recognizes your value and they are able to pay you more, right? So you wanna be in a culture that operates that way. They align incentives so that you working harder means something rather than you working harder means the shareholder’s the only beneficiary.

 

00:43:30 Right.

 

00:43:31 Okay? So anyway, that’s, I think, the fastest summary I can make for, how does one attempt to get a toehold in today, in a world where I will acknowledge, it is much more expensive today than it was in years past? And I think it’s just the slippage that comes with a lot more regulations over a long enough period of time and a bunch of people trying to address a symptom rather than the root cause of the problem. It could be very well intended, but the compounding effect of bad policy over time is the opposite of the compounding effect of money over time. 

 

00:44:05 Right.

 

00:44:06 Right, and so it eats away, it makes it harder. So as we run out of time on the show today, here’s what I would encourage you to do. You wanna invest early and often, increase your skill set, make sure that you become more marketable in the workforce. 

 

00:44:20 Buy assets. 

 

00:44:21 Buy assets. 

 

00:44:22 Yeah.

 

00:44:23 And become more entrepreneurial, to include starting your own business. If you are interested in learning more about this, continue to follow our channel, our podcast, or you can give us a call. How do they reach us, Matt? 

 

00:44:36 541-375-0898, or you can go to our website at littlejohnfs, as in financial services dot com. 

 

00:44:44 All right, well, as you can tell by the music, it’s our time to rock and roll. So thank you, as always, for tuning in. Until next time, I’m Dave Littlejohn. 

 

00:44:52 And Matt Dickson. 

 

00:44:53 And you’ve been listening to True Wealth on News Radio, 93.9 FM at 1240 KQEN.

 

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