In this episode of Cut Through The Noise, Anthony Saffer, CFP®,CKA® and Alex Okugawa, CFP®, CEPA®, CKA® tackle the hottest topics in financial markets, financial planning, and life, including:

► 2022 recession? Are stocks headed lower?

► Has inflation peaked?

► Should I buy my company’s stock through ESPP plan?

► Is crypto done for good?

Show Notes:

• Market Returns through recessions
• Stock Market vs Economy – Josh Brown CNBC 

Full transcript:

SPEAKERS

Anthony Saffer & Alex Okugawa

Full Transcript:

Alex Okugawa 0:00
Welcome to our segment cut through the noise where today we answer your questions that we’ve been hearing throughout the month. Today we’re talking about further stock declines, has inflation peaked, buying company stock, and is crypto done for good? Stay tuned.

Hey, there, it’s Alex and Anthony from One Degree Advisors. Anthony, let’s get into it. I mean, the stock market has taken a pretty good beating so far this year. And I think the question on a lot of people’s minds is, is it headed lower from here? I’ve already taken a beating. Is it gonna get worse?

Anthony Saffer 0:37
Yeah, I can’t answer that exactly. But what I can give you are two points that I’m gonna bring up a chart here from dimensional fund advisors. The red dot that you’ll see is the largest drawdown of the year. Sometimes they’re shallow, sometimes they’re far deeper. But then the bar will show where the year ends up the calendar year. And you’ll see that out of the last 20 years, 17 of them were positive, even with a drawdown, yes, sometimes there are years where it doesn’t go down. It’s still negative for the year. But that’s not all the time. And so we don’t know that. The other thing is people are asking, Are we headed for a recession? Okay, and how does that affect the stock market? Well, the stock market generally precedes the economy, it generally anticipates. And so we’ll see from this chart, as an example, during the Gulf War in the 90s recession, is that the stock market went down about halfway into the recession, and then it started recovering while we were still in recession.

Alex Okugawa 1:29
Yeah. And I think it’s from CNBC, Josh Brown did a nice video kind of comparing, like the stock market versus the economy, right? If I gave you next year’s economic data, what would you do with it? Do you know where the stock market’s headed? And it’s cool, just breaking down the analogy of a dog or a man walking a dog. So we’ll post that that’s a nice video for folks to watch.

Anthony Saffer 1:48
All right. Next question for you. Alex has inflation peaked?

Alex Okugawa 1:52
I hope so. Right? Inflation is hot. The thing is, is it’s like, how much does inflation need to come down for people to feel good, though, right? Because right now we’re over 8%, inflation can come down. But if we go to 6%, I don’t think people are going to be over-enthusiastic. Right. So we’ve been in a period where inflation has been so low, we’re anchoring to that. And what I mean by that is, you know, you look over the past, like a decade or so, inflation is hovering around that 2% range. So that’s what people are used to. And that’s what people are expecting, it’s just going to be hard to get from eight down to two very quickly. So I think people are in for quite a surprise of how long it could take. What do you do about this? I don’t know, there are not a lot of great answers. Because I think people overreact one way or the other, that’s where they’re going to get themselves into trouble. For example, like buying, buying all the commodities out there and just saying, I’m going all-in to commodities, because inflation is just going to keep ripping, well, maybe it does. But if it doesn’t, then you might be in for a world of hurt.

Anthony Saffer 2:50
Yeah, inflation could be nasty, because it does affect all people. And then depending on if it does come down or stay high in certain areas like at the gas pump, or the grocery store, you’re still gonna feel it. Yeah, even if it comes down to five or six.

Alex Okugawa 3:01
That’s why taking a balanced approach is usually the best way through this. Okay, next question here, should I buy my company stock through an ESP P plan? So for those that don’t know, what is an ESPP plan?

Anthony Saffer 3:13
Employee stock purchase plan definitely should be considered because most of the time with those plans, you’re able to buy at a significant discount, like 15%. And sometimes you’ll get a break on whatever the lowest stock price is over, say six months. So it needs to be considered in alignment with your financial plan your investment plan so that you have diversification, you don’t want to Overstock, and that, you know, company stock plan.

Alex Okugawa 3:38
Well, that’s what I was just going to ask is, is it a risk to own a bunch of company stock? Because when times are good, right, no one thinks twice about owning a bunch of company stock. But when times get bad, like we’re seeing now where a lot of these big tech companies are getting hit right, you know, 20%, 30%, 40%, 50%, 60% that can harm people’s financial future if they hold too much of it.

Anthony Saffer 3:58
And that drawdown can happen quickly. Right. So when you’re considering an ESPP plan, participating and even selling stock right away, and then further diversifying can be a good strategy. Now there are some tax considerations with that. Yeah, but that’s one strategy to take. All right, last question for you. Alex. Is crypto done for good?

Alex Okugawa 4:17
Yeah, I mean, crypto has seen quite a bit of a drawdown but we’ve also seen that with stocks, right, so we’ve seen almost like crypto like a decline in single stock stocks. Like if you look at Netflix, the snap was down like 40% in a single day. That is not to me, how a public you know, a publicly traded US company should have behaved that’s more like crypto yet. We’re seeing it so there are risks involved in crypto, but there are risks involved with investing in single company stock. Is it here to stay? I think it is. But you got to be prepared to take your lumps and you got to be prepared to take your losers with your winners. I mean, we just saw this with Luna one of the biggest cryptocurrencies went to zero overnight.

Anthony Saffer 5:03
Well, and if we see it as an emerging asset class, then we have to understand that there’s going to be there are going to be the winners and the losers. There are going to be huge drawdowns. And we’ve seen that before, even with like Bitcoin, which tends to be the more stable of the cryptos.

Alex Okugawa 5:14
We’ll end on this. I mean, we’ll pull up the chart of Bitcoin we’ve shown this before, but when you look at the history of it, I mean, it’s seen multiple drawdowns, I mean, 80% 60% 50%, and it keeps coming back. So really, what I look at is the resiliency of it, and that it keeps coming back. That’s why I stay optimistic that crypto is here to stay. I mean, here’s the thing. A lot of what we’re talking about today is stuff you can’t control the direction of the stock market, is inflation going to continue to go up, you can’t control it, but what you can control is maybe stuff like taxes, right? Can I lower my taxes? And so he recently made a video on how to create tax-free income in retirement because as we talked about before, taxes is likely or diary’s biggest lifetime bill. And now let us know what you think. Do you feel like we’re headed for a recession here in 2022? Or, if not why? Leave your thoughts in the comments below. And if you enjoyed today’s video, please like and subscribe for more. Thanks for watching.

 

Want tax, investment, and planning strategies like this right to your inbox? Subscribe below!

This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures