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Brian Kruger
And welcome to The Common Bridge. This is the second part of the two part series with Rich's special guest, Beata Kirr, the co-head of investment strategies and national managing director in the Chicago office of Bernstein. They left off in the first part of this discussion talking about the economic division in our country and current financial inequities that are causing unease across the board. If you'd like to hear part one, it's episode 155 on Apple podcast, just search for The Common Bridge.
Richard Helppie
There are two things that struck me in listening; one, in the Trump tax reforms, while they lowered marginal rates, they also took out a number of deductions, and chief among them the limitation on state and local taxes, where they've capped it at $10,000. So it affects very, very few people, mostly in high tech states like California, Illinois, New York, New Jersey. But very, very wealthy people who could deduct the property taxes on their very expensive homes, and their income taxes on their high incomes. To me, that was equality, it's like you shouldn't have wealthy Californians, New Yorkers, Chicagoans - you shouldn't have somebody in the Midwest subsidizing your federal tax bill, yet, the opposition party has tried, like eight times, to reverse that. It's patently beneficial to just the upper one percent of the one percent. Then I also look at California, where I just read it can take a new homeowner 100 years to save the downpayment for a home; it's untenable. So my conclusion is, the object of the game for an economy is not to drive higher stock prices and to get people uber wealthy, particularly people that just inherited it. The object of the game for an economy is to distribute and allow more opportunity, more growth, so that people can have a better standard of living. I think your point on unions, there was an era where if you were working for one of the big three automotive - blue collar job, UAW - you had a great standard of living. Where is that for Amazon, Google, Apple, and today's big companies? You don't have that and that, to me, is the seismic shift we need to get after.
Beata Kirr
I really try to avoid politicizing policy conversation; as you can imagine, we work with clients on all sides of the policy spectrum and political parties. I think, unfortunately, the world has become so polarized that no matter what you say, it can be interpreted differently. So we really just try to stick to the facts and the facts are as we previously discussed, there is inequity in terms of ownership of financial assets in America. There's no debating those facts; that the concentration of wealth is just about the highest it's been in history. I don't know why anybody would be surprised that you can't really argue against the facts. You look at the innovation that's occurred in America and that's what gives me hope; that with whatever policy decisions have been made, and whatever it is that we're dealing with today that are these systemic challenges of the future, one thing that we can continue to say is that, yes, there might have been some excess in some growth stocks, in some technology stocks. But look at the innovation that has occurred, it hasn't all occurred abroad. Democracy and entrepreneurialism is really alive and well in America in terms of how do we form companies, where do we get the talent to grow companies? Those companies make a difference. Not always for the best, I'm not saying, again, does social media add value to the economy, did it reduce productivity, did it decrease value? But did we innovate? I mean, Uber is an enormous innovation. That was an enormous disruption to the way we thought about our lives. You look at Meta today; I was actually just watching a documentary on Netscape this week and I was reminded - when they talk about the world wide web as this concept that nobody understood back in that time - it's a little bit like Meta, talking about Meta today. People are trying to get their arms around what is this, how's this going to work? Remember when Facebook bought Instagram, nobody knew what Instagram was. Nobody could imagine a day of just sharing pictures all day. And now if you have a teenage daughter, like me, you can see how much it's influenced people's lives. So again, we can debate - social media, for example - innovation that drove outcomes that were positive. There are challenges with it but company growth and idea creation and new company formation; we still have the edge there. I want to have some hope and positivity in the conversation, because that wealth creation really did come from so much innovation. So much wealth creation was really driven by these new entities being formed.
Richard Helppie
But at risk of going down a fairly lengthy tangent in history, when there's been a technological breakthrough, that wealth has accrued to fewer people - you can see it with the Carnegie's, the Mellons, the Rockefellers - as those technological changes came in, when the automotive entrepreneurs succeeded, and now we see it with the technology innovators. But my sense, and having had a career in technology, I think there are two elements to the technology wealth creation that weren't present before. And the first of those is that those companies can block out innovation way more effectively than you could have done it with the railroads or the oil exploration or with automobile manufacturing; so their ability to influence the economy. And then the second thing, the lifecycle of products is astonishingly fast. We still basically have the same transportation model that we had when Henry Ford was in his heyday. And today you think about, in our adult lifetime, products that were innovative, everybody had it, that are gone and sun-setted. People joke about them and your kids have never heard about it.
Richard Helppie
The Palm Pilot. I was so excited about (Rich Helppie: Yes!) my Palm Pilot when I had it back in business. That was really cool. My Blackberry, they had to wrestle away from me as well. [Laughter.]
Richard Helppie
Exactly, the laser disc, the CD ROM, the Betamax, right down to the fax machine, alright.
Beata Kirr
How about a wired phone? My kids do not know what a wired phone looks like. They saw a phone booth when we were in London and asked what it was, so yeah.
Richard Helppie
Well, let's try to bring this into the households right now. So advice. For those people that are younger, let's say 40 or less, again, dating myself. So presuming they don't have a major inheritance or they haven't won the lottery or something else, how should they be thinking about their financial security and perhaps creating their financial security?
Beata Kirr
Well, I'm going to come back to one of the key definitions that we talked about at the outset, this idea of strategic asset allocation. You're under 40, you're saving for your first home, perhaps maybe you have children, you're saving for college, you're saving for your own retirement, you're in accumulation mode, you are increasing your own human capital, what you will make in your cash flow, whether you're an entrepreneur or on a regular two income, you should be thinking about your investing in terms of tiers of time. When do you need the money, what is it that you're saving for and then adjusting your strategic asset allocation based on that time; that bogey. So your bogey is retirement, let's say maybe you're 15 years away, the retirement age may not be 65 anymore. And by the way, retirement doesn't look like what it used to, people are working longer. They're working in, quote/unquote, retirement. I've talked a lot about that on my podcast, actually. But you should continue to believe that the stock market will be the largest driver of your returns in order to facilitate that saving and investing for those longer periods of time. Today, we're recording this at a point in time where the market's down pretty notably, year to date. So I look at that and I say, did biotech companies lose all their patents? Are robotics and automation companies going away? Are companies that are facilitating a distributed ledger in the blockchain, or again, other innovation technology companies...[they] have really taken it on the chin. I mean, Netflix may not have as many streamers as they did. Peloton, you can only have so many bikes and treads in your house, but you take these extreme examples away and you look at companies that are going to continue to innovate. They are on sale. You don't give up on the stock market just because the Warren Buffett quote "daily price" changed; the value of the company didn't. So if you're not investing today, you should be. You should turn off CNBC, probably Bloomberg as well - apologies, I know, I'm on TV. But the point is that it is not helpful to think intra-day; it's helpful to think, what's that time frame. You're saving for retirement, what happens tomorrow in the stock market is not relevant. Put your money in a mix of a strategic allocation that works for you. Work with an advisor to figure out that number that you need to save, and just go about your day. Continuously invest, take that money out of your monthly paycheck, and make sure you're allocating a portion to, not just savings; savings makes it sound like you're not doing anything with the money because the rates are low in the bank. Allocate it to investing. I mean, that's the best advice I could give. Don't shy away from the concept of investing because you grew up in an era of global financial crisis or COVID; the markets will recover.
Richard Helppie
I think that the point you landed on is absolutely the right one; live below your income. I have a very good friend of mine who's worked in retail most of his career; we're the same age. He's just recently retired and he's got a really nice portfolio doing a lot of the things that you've advised. I said, well, Marcus, what's your key to success? And he said, peanut butter and jelly. I'm like, what? He says, [when] I go to work, I make myself a sandwich. I packed myself a lunch. He goes, I see these guys going out to lunch and they're spending, seven, eight, ten dollars. That can be 60 bucks a week, and he does the math on that, what does that work out to? Three thousand dollars?
Beata Kirr
Well, the lattes at Starbucks. I mean, that's...the DoorDash, the convenience economy; you've got to be honest about what's really discretionary spend versus what's mandatory spend in your budget and be able to flex the discretionary. If you've got enough, go for it, if the convenience of the latte delivery by DoorDash adds up to be $15 for a coffee, just think about that for a minute. How often are you doing that? It's pretty easy to cut the discretionary out with the convenience economy.
Richard Helppie
Would you rather have that hypothetical $3,000 spent at Panera Bread or would you rather have $3,000 worth of stocks? Those are the real kinds of decisions that people need to make. I don't know if you saw the recent quote, I think he was talking about DoorDash, but the CEO of Domino's just said, we've never figured out a way to make money on delivery. I don't know how we make money on making pizzas. I don't know how you can make money on delivery. And I'm thinking, okay, who's the mark at the table; it's the guy that is paying for that delivery, for that convenience.
Beata Kirr
Live below your means, summing up, Rich, to your point, best advice, whether you're under 40, or over 40. Know what your core capital is; this idea of what's that money that you need to finance your retirement, to finance that college, education, or whatever it is you're saving for, that first house, second house. Think about those discretionary spend items, using a budget aggregation app like Mint, I really do recommend, so you can see the categories that you're spending in. I talk a lot about making sure that they're tied to your values and your happiness because I think personally experienced spending...I think Mint is terrific, it's owned by Intuit, they do a nice job of just summarizing your spending. You can see your net worth, your spending really, at a glance, you have to spend time...I am not sponsored by them, I get no credit for saying this. I've just used it personally for years, instead of a spreadsheet or handwritten. You don't have to go through that really, you can aggregate it pretty readily. Many banking apps now are doing that as well with your credit card. I like to actually put almost everything on a credit card, pay it off every month. But that way you can see the spending. It's just easier when it's digital and available versus a cash economy. Venmo is a new problem because you've got the digital wallets that don't always get covered in these apps.
Richard Helppie
A hearty endorsement on putting things you can on a card because you get your one percent back or something. The proviso that you have it on auto pay because the payment billing cycles are so fast, getting hit with late fees, which was actually a strategy of some of the credit card companies.
Beata Kirr
Totally, and those were astonishing. I looked at my card this morning. I think it's 20%, the APR. Again, back to your earlier point, Rich, people growing up in a world where they're not used to that percentage being charged; the late fees will kill you, never pay those, auto pay. Use your card, but don't use it for borrowing, use it to monthly pay down.
Richard Helppie
Your point about Venmo, Zelle, et cetera, that is spending, as well. I will personally confess that I don't have a debit card, because when they first came out - I was a person that liked to have a good time - I often got to the end of the month, a lot of receipts in my glove box and not enough cash in my account, but it's another story. Beata, are there any current economic policies that you think makes sense in today's climate? Imagine that Jerome Powell called you this afternoon, or Joe Biden called you this afternoon, and they said, Beata, give it to me straight, what do you think I ought to do? What might you tell them?
Beata Kirr
Well, perhaps I'm going to be biased by my own experience on this front. But I'm going to say that for an economy of our size, the leading economy in the world, one of the biggest misses that we have is the recognition of a social safety net that is required for childcare. For parents, the fact that we do not have universal childcare policies, that we're not really thinking about national policies to boost early education and childcare, universal pre-K. This pandemic and the recession that we lived through was the worst ever for women and women have still not recovered to their pre- pandemic levels in terms of employment. Why? Childcare wasn't available to them; they had to make tough choices, many exited the traditional W-2 income job, whether it was hourly and on the lower end of the pay scale, or on the high end of the pay scale, and said they simply can't do it - overseeing children's remote school or overseeing the household. These are jobs that are not paid in our economy. In other societies and other economies there's a bigger recognition of that. This is one of those societal challenges, Rich, that is not easy to tackle. Look, it was 1974, I think, the year that I was born, women in America still couldn't have a credit card without their husband's name on it. I think mortgage lending was similarly on equal. So it's not been that long, that we've had women in the workforce, at the highest echelons of the workforce, and still incredibly under-represented. But wow, do we have a challenge today in terms of policy on childcare leave; there's a lot of things that could change for the better here. It's unfortunate that 50% of the population are women bearing the brunt of both parental care, and childcare. Oftentimes that happens in those crunch years of middle age and there really isn't a social safety net there through government policy. So I don't have the ultimate solution but I think this is the conversation we need to be having if we want people on an equal playing field over time.
Richard Helppie
I want to express my strong agreement with you. One of the things I've talked about on my program is the Child Tax Credit; childcare tax credit for people that are raising minor children in their home. It is wildly popular on all sides of the political spectrum but we can't get it through because it gets tied up in bills that have a lot of things that are objectionable, one side or the other. I know that Senator Bernie Sanders has proposed let's put it through - a child care tax credit - as a single item bill. I think it would pass with overwhelming support, it would prevent the tax code from penalizing young families and instead incent people to do that very important job of taking care of that child. And just to pile on to your point about the burden on women in the pandemic, I know women of childbearing age that working - and this is sounds like an exaggeration, but it's not - women working remote jobs, working at home and planning to increase their family can't even get pregnant - again, leery about the vaccine, fired for not taking the vaccine when they might be the chief breadwinner or a equal partner in earnings for that family, without any kind of recourse. So on top of everything you've mentioned, women did bear the burden of the pandemic. Beata, this has been a really intriguing conversation. We could probably go on for several days - I'd like that, I'm not sure you would - but you [crosstalk]
Beata Kirr
I don't know about your listeners, they might be tuning out or finishing their runs by now, so...
Richard Helppie
I think a lot of people do listen to the podcast while they're walking, while they're running. It's interesting that we have a lot of folks that listen while commuting, and then the pandemic came and it turned to - I hear from people - I listen while I am on my walk.
Beata Kirr
Walking my dog. (Rich Helppie: Yes indeed.) The pandemic puppy.
Richard Helppie
[Laughter.] Precisely. What didn't we cover today that we perhaps should have discussed?
Beata Kirr
Oh, let me think about that. Well, we covered really far reaching ground. I think maybe it's helpful to summarize about the basics. Don't get overcomplicated in terms of absorbing the economic news and what to do about it in terms of your own investments. The economy goes through cycles, the market goes through cycles, you're going to live through down cycles on both in your experience as an investor. Trying to time it, to get in and out, is really tough to do even for professional investors. Be thoughtful about your spending, be thoughtful about your risk tolerance, turn off the news sometimes, go enjoy life, go for a walk, listen to podcasts, cuddle with your pandemic puppy and your kids and family. Put your investing, in many ways, on autopilot; really set those targets for the long term and review it semi-annually or annually. Think about adding in innovation to your portfolios. It's not saying that you have a static investment pool for 20 years, but the risk profile should be pretty static. The ways you access that risk over time can change. If you get excited about innovation, sure, add some exposure to innovation to your portfolio. But most of the time, unless it's your job, or a real hobby that you're fascinated in, think about your other life priorities; make investing work for you. I think that's the best take-away that we could offer.
Beata Kirr
Well, that is a great closing thought and the sage advice coming from someone who has invested their entire adult life in the economy, in the financial markets, who's got an incredibly responsible job, saying, it's not the end all, be all; it's a thing that can be managed within the risks and the objectives of your life. Any last closing thoughts or policy matters you want to make mention of?
Beata Kirr
I'm just honored to be on the show and really grateful to have spent the time. Obviously, good luck to Chair Powell; he's in a tough spot this year. We wish him well. We think he can get a handle on inflation over time. The only last thought I leave you with is when you see the inflation numbers, your own personal inflation may be very different than what you see the print as. It depends on how many cars you buy, if you're sending kids to college, what your food purchases look like. So again, personalizing your experience, always thinking about how the big picture story relates to your individual story is more relevant advice to you if you're not buying a car. You have less sensitivity to inflation than you'd imagine today.
Richard Helppie
Yes, indeed. We've been talking to Beata Kirr, Alliance Bernstein, about the economy, about investing, about being at peace, frankly, during these turbulent economic times. The Common Bridge is available substack.com. That's our richest source of columns, newsletters, video, and archive material, as well as these podcasts. Podcasts are available free on your favorite podcast outlet, including Apple, Amazon, Spotify, Buzzsprout, and others. Of course, you can find us on YouTube TV. And so with our guest today, Beata Kirr, this is Rich Helppie, signing off on The Common Bridge.
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Transcribed by Cynthia Silveri
The Economy - How it Affects Everyone