BONUS: Stagflation, Stocks & Social Security - What’s Next for Your Money? with Rob Berger

0:28We've got a special bonus episode for you today. So that's number one. Number two, I'm going to tell you Rob Berger's bio, all of his accomplishments and accolades, all of that. I'm going to tell you all of that in just a moment. But before I do, we posted this interview on YouTube on Friday. And I want to share some of the comments that we've received because this is the reason that I think you're going to enjoy it. Chris M9037 says, quote, I like Rob. Sticks to the facts and has a nice way about him. seems like a good dude, end quote. At KW7292 says, quote, Rob is the best and has taught me so much for free, end quote.

1:11At Radiohead Canadian says, Rob is such a wise man, end quote. What we're hearing from person after person after person is that he's good, he's kind, He's wise. He speaks plainly and he has the heart of a teacher. That's why his YouTube channel is so popular. He's smart. He's reasonable. He's humble and he just wants to help. And so I'm excited to be able to bring him to you. That's why I'm putting out a bonus episode. We met face to face at FinCon in Portland, Oregon at a conference and we didn't have enough time to record a full length episode, but I still wanted to bring him to you. So we had 20 minutes to record and that's what I'm bringing you.

1:54Oh, and by the way, before I introduce him, one more quote that I want to share and it's from at DNO-Z7B1Y who says, quote, for do-it-yourself investors, I do believe the three best podcasts are Rob Berger, Paula Pant, and Paul Merriman, end quote. First, thank you to the person who wrote that. I'm very humbled to be in that kind of company. And second, knowing how valuable, you know, Paul Merriman has been on this podcast many times. Knowing how valuable our conversations with Paul Merriman have been for this audience, for this community. That's another reason that I want to bring you Rob Berger today.

2:36He is so insightful and such a straight shooter. Okay, so on to his resume. So Rob Berger is a former lawyer. He used to be a litigation attorney and a securities industry regulator. In 2007, he started a website called Doe Roller. It was a personal finance blog. And for the next 11 years, he grew it. It became massively popular. He sold that personal finance blog in 2018 and became the deputy editor for Forbes Money Advisor. Later, he created The Rob Berger Show on YouTube, which today has 276 ,000 subscribers. He is also the author of a book called Retire Before Mom and Dad. a book about how to reach financial freedom, how to retire before your parents do.

3:22In this upcoming conversation, we talk about the CPI numbers. We talk about the stock market, mortgage interest rates, inflation, the jobs report. We discuss what the Fed is going to do. We talk about stagflation, stock market valuations, the MAG-7, the future of Social Security, what to do about retirement planning if you're between the ages of 55 to 60, and also what to do about retirement planning if you're between the ages of 25 to 30. We talk about Gen Z and baby boomers. We cover a lot in a relatively condensed amount of time. Before we dive into the conversation, let's take a moment to thank the sponsors who make this show possible.

4:03Thanks to them for supporting the whole team behind this. We'll hear from them, and after that, we'll jump right into our conversation with Rob Berger. The kids are back in school now, and I finally have some extra time to plan a weekend getaway for just us. We've been wanting to visit Lancaster County, Pennsylvania for a while now, because I've heard so many people rave about it. We love exploring new places, finding the cutest shops, and eating at restaurants that the locals love. DiscoverLancaster.com is the best place to learn about the unique things to do and upcoming events. Plan your trip alongside us at DiscoverLancaster.com slash Amplified.

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6:56Rob, welcome. Thank you. The CPI numbers came out by the time it airs. It'll be a few days ago. This week, the Fed is going to have their meeting at which they're widely expected to lower interest rates by probably a quarter of a percentage point. Mortgage rates just made, and they're still high, but they just made their biggest one-week drop of the past X amount of time, the past long amount of time. I forget the duration, but a significantly bigger drop in one week than it has in recent history. With all of this going on in the markets right now, where do you think, where would you describe we are and where are we headed?

7:33Yeah, so it reminds me of the curse, may you live in interesting times. We kind of live in interesting times. So, yeah, the inflation ticked up. It was a bit higher than the economists in the market was expecting. It wasn't, you know, a huge jump. But the problem with that is we're also seeing soft employment numbers. And they released unemployment claims today as well. And they went up. And so the Fed has a difficult situation because their dual mandate is to keep prices in check, right, inflation, but also to keep people employed. And oftentimes, those two things are working at odds with one another.

8:08And of course, now people have started to use the scary word from the 1970s, which I'm old enough to remember, and that's stagflation, right? Oh. Growth is stagnating. Yeah. But normally, when that happens, prices come down, right? But sometimes they don't. Now, it's probably too early to say that's where we are. But we can at least kind of it's hinting at that. And so that gives the Fed a very difficult decision to make. If I were guessing, I would still say that they're going to lower the rate by a quarter percent, 25 basis points. But it's not a sure thing. And what I think others are looking at now is what happens next.

8:49Because some were pricing in two or three rate cuts this year. and then it's more early next year. Honestly, I don't think anyone knows. I mean, everyone's out there predicting. I think there's just too much uncertainty. You know, sometimes there's uncertainty and we don't see it. We don't know it. But we're seeing the uncertainty now. I think predictions, they're probably not worth a whole lot. But my prediction would be they'll still lower by 25 basis points. But who knows? And what happens after that, there's no way to know because we just don't know the data. We're going to get more data before that happens.

9:22Right. So I should say, as of the time that we're recording, of course, the Fed has not met yet. They'll be meeting next week. But the futures markets are pricing in an over 90 percent probability of that quarter point cut. But you are right to, you know, the Fed is meeting two more times this year. September is the first of the three additional meetings that they're going to have over the span of this year. I think it's September. I forget. One is either October or November. I forget which one. and then the other is December. So it is a little early to predict what's going to happen then. How do we square all of this with the fact that valuations in the stock market are still really high?

10:00Yeah, well, I think there's a couple of things about valuation. So when you look at the US market as a whole and the stocks have been going up, however, a lot of that is driven by just a handful of companies, you know, and, you know, the Magnificent Seven or whatever number it happens to be today. And the reality is they're doing extremely well. Their profits are just remarkable and their margins are just incredible. And so they're driving a large part of the market. When you look at segments of the market, think smaller companies, value, they're not priced as nearly as richly as those big companies.

10:33But because those large companies have such large market caps and you're usually looking at a cap weighted index like the S &P 500, that's why you're seeing all of that huge valuations. And at the same time, interest rates are still on the low side historically. I know they're not low like they were a few years ago, but asset prices often move inversely to interest rates. So you can almost think of interest as gravity keeping down asset value. So if interest rates and inflation are high, asset values come down. When they're low, they go up. And so we still have that, I think, at play. And so, yeah, amidst all this uncertainty, there's still a very highly valued market.

11:17But that's not going to last forever. I'm not here to predict when the next market crash will happen. No one knows. But trees don't grow to the sky. The stock market just doesn't keep going up and up and up with these kinds of valuations. History tells us eventually you see some form of correction, and that will happen. We just don't know when. What would you say to people who argue that given the fact that the MAG-7, or some might say it's now the MAG-6, is such a runaway outperformer, that that means that the diversification that some will argue, quote unquote, used to exist in broad index funds no longer exists because of the fact that that index fund is so heavily weighted towards just a small handful of companies?

12:01So it's a couple of things here. It's true that if you look at the S &P 500, a handful of large companies make up, we'll say, 30%. And it's also true, though, that those large companies always make up a good amount of it. It's not always this much. But if you look back in time, there are various periods where, say, the top 10 companies made up a really large percentage of the index. But that shouldn't shock people. Historically, it happens. and yet we still see the long-term returns of the S &P 500. It's still a fairly diverse index. But yeah, true enough, it is weighted that way right now. But it's also one of the reasons I don't think folks should put all of their stock investments in the S &P 500.

12:44It's why I think you should have international exposure. Maybe you should have some extra exposure to small companies or maybe a little bit of exposure to value. Some would put some money in REITs, for example, right? So, yeah, it's highly focused on a handful of companies, but that doesn't mean your portfolio has to be. You can use other index funds to get more diversification. Do you have any broad rules of thumb in terms of preferred asset allocation? Well, a couple of things. On stocks versus bonds, if you're a long-term investor, I was always about 90-10. Some will argue 100%. That seemed a little too rich for me.

13:22But others might say, well, 80-20, but it's a very stock-heavy portfolio. As you move towards retirement, I think most people probably want to move to somewhere in the 60-40 range. It depends on your circumstances. Some can tolerate more risk if they have a lot of Social Security and pension income, for example. But somewhere in the 60-40, 70-30 range. Within those types of assets, though, I really think international exposure is important. And at least I don't think there's one answer to it. In my portfolio, I have about 20 % allocated to international. I think some extra exposure to small cap or even mid cap beyond just a total market fund can be useful.

14:01I don't think it's required. People can keep it simple if they want, but I have some exposure to small cap. The thing I would say about bonds is that I do think it's important to have both inflation protected bonds, tips. You could use I-bonds as well, but it's harder to purchase and you're limited. And nominal, traditional treasuries or investment grade corporate bonds. I think a mix of those two, inflation protected and then regular bonds, is important, particularly given all the uncertainty around inflation. Is that because of the higher coupon payout? Well, so the way I think about TIPS is it's like a regular bond, but you're also buying an insurance policy against rising prices, right?

14:42But that insurance policy isn't free. You've got to pay for it. You pay for it through a lower yield. And then the question is, OK, well, is that a policy going to pay off? Well, it depends. If inflation turns out to be higher than the market thought, yeah, you're glad you're in tips. If it turns out to be lower than the market thought and you don't make up that difference in yield, yeah, you kind of wish you weren't in tips. And so then they say, well, OK, Rob, what's it going to be? I don't know. So that's why I just bet on both. Hedge the bet split difference. Right. You mentioned Social Security.

15:14We know that the Social Security, I guess there's two Social Security trust funds. One is on track to run out in the next seven years. The other is on track to run out in the next nine years. Sounds so depressing when you say it like that. I know. And to be clear for the audience, when we say run out, that doesn't mean there will be no payment whatsoever. It just means that the fund will be insolvent and payments, if nothing changes, will be reduced. How worried are you? And you, I know, have an audience that tends to be a bit older. Your audience is typically about 50, 60s and above and better.

15:46Just like me. Yeah. How old are you? 58. 58. I look older, but I'm 58. You don't look a day over? No, please. Over 70? How concerned are you about the future of Social Security? I'm not concerned about the future. There will be money there, because even if the fund runs out, then they'll simply distribute what they get from payroll. And the last number I heard is it would be about 77%. It may have changed a little bit. So that's a concern, though. I mean, particularly given how many retirees live just on Social Security, going from$100 to$77. That's huge. That's a big deal. And I personally believe, maybe I'm too optimistic, that between now and then the government will figure that out.

16:32I just think politically it would be too disastrous for our government to allow that to happen. Now, having said that, I thought they would have fixed it by now. And here we are. And not only have they not fixed it, they're not really talking about it. Yeah. You don't hear about it. Right? Exactly. But I'm still optimistic. I still believe they'll fix it. But I think from a planning perspective, you've got to be prepared and think about what if they don't. Unfortunately, that's the position we're in. And then what would it look like if your benefits were cut by 20 % or 23 % or something like that?

17:08Wow. So then what advice would you give to somebody who is, say, between the ages of 55 to 60 and underfunded for retirement? And they are kind of heavily relying on maybe not entirely Social Security, but they're just underfunded and the clock is ticking. Yeah. So the earlier they make decisions and changes, like, for example, spending less so they can save more, the sooner they do that, the easier it will be. It's kind of like our own government. We keep thinking, when are they going to stop spending all this money and do something about the debt? And the longer the government waits, the harder, as a country, the decisions we're going to have to make, right?

17:48Well, it's the same thing for you and me and individuals. So if you're 55, you know, you've got 5, 10, maybe 15 years, depending on how long you want to work, to start making some adjustments by spending less and saving more. You know, if you wait until you're 60 to make those tough decisions, now you're in even more of a bind. So at no time is it going to be easy, right? You just kind of have to accept that it's going to be a little painful. But if that's the situation you're in, you either have to start saving more, right, or you have to be prepared to work longer. But even that's an unknown.

18:20Some folks are forced to retire for health reasons, or maybe they get let go from their company. So, you know, you can't count on being able to work to your 70, even if that's what you want to do. A lot of people don't want to work that long. So I think the big takeaway for me is figure out now the difficult decisions you can make, again, to save more, possibly work a little longer. I know that's probably not what everyone wants to hear, but if you're in a difficult situation, sometimes you have to make those difficult choices. I've heard some people argue that if you are, let's say you're 60 years old, you're approaching retirement, you're underfunded, that you should invest more aggressively in order to compensate for lost time.

19:04What do you make of that argument? I don't generally like it, but it depends on what folks mean. Because some folks could say that and mean one thing. They might say, well, I think I'll go to 70 % stocks instead of 65%. Others might say, oh, no, I'm going to be 100 % stock. So you have to think about what does it mean to be more aggressive. But the thing that folks have to keep in mind is when you're 60, depending on when you're going to retire, you're going to need to start spending some money at some point in the not-too-distant future, let's say if you retire at 65. And so can you move your portfolio a little bit on the risky side?

19:42Maybe. But you also have to understand what's the potential downside of doing that. So if someone said to me, well, I'm going to go 90-10, even though I want to retire in three years, I would just have a simple question for them. Fine. What will your life be like if your portfolio loses 40 % in that time? What would your life look like? Would you still be able to retire? Would you have to work longer? Some folks may say, yeah, that would be terrible, and I would work longer, and I'm okay with that. Others would say, what? 40 %? No, thank you. So it really depends on the specific individual, what they mean by being more aggressive.

20:18But most importantly, how would they handle the possible downside consequences of that investment decision? Let's take the conversation. We've been talking about people who are in their 50s and 60s. Let's now turn the conversation to the other side of adulthood, people who are in their 20s or early 30s. One of the major complaints that we hear from younger millennials and Gen Z is a sense that the American dream is now out of reach, that they are unable to afford a home in particular. They feel as though, you know, even though unemployment is low, the job market is generally stagnant. Employers are not hiring as much, and we see that in the hiring data.

21:01What is your response to the commonly held assertion that the younger generation, that Gen Z has it harder than boomers? Yeah. So the thing I would focus on is what you can control. I don't know who has it harder than whom. I think depending on the circumstances, folks deal with any number of challenges, personal and economic and everything else. My focus is always what is it that you can control? You can't control the broader economy. I mean, you can't control whether some other generation has it easier than you do. But you can control a lot of things in your life. You can control what kind of education and training you get, at least to some degree, what kind of work you want to do, how you want to spend your money, whether you want to buy a house or not.

21:48I mean, that's not the only way to, I think, live the American dream. That's my own view, although I should say I want to home, so maybe I should shut up about that issue. But you can control a lot. And I think the folks that see their way through are those that focus on what they can control and to actually step by step, day by day, make good decisions about those things rather than focusing on the sort of the more macro issues, this generation versus that generation or the economy, which frankly, they have no control over. What would that mean as an action plan for, let's say, a 25-year-old?

22:22In the next five years, they'd like to buy a home and get married and have their first child. And they're looking at the down payment required, the cost, even if they don't have a lavish wedding, the cost of even just a simple one, the cost of childbirth, the hospital bills associated with that. How does a 25-year-old making$60 ,000 a year start to approach that? So this is going to be easy for me to say sitting here in this nice room talking to you and not out in the real world at the moment dealing with all of the issues you've just described. But they have to make some tough choices. They have to decide what's most important to them.

22:56Because no matter where you are in life, most people can't have it all. That's just a reality. So what's more important to you? The job you have or perhaps a different job that you might not like as much that makes more? Or maybe a job you do love makes a little less. What's more important? Is it more important to start a family or to buy a home? Now, maybe you can do both, but maybe you can't. And what's most important to you? And in terms of just your daily living and the way you spend money, for example, your question about buying a home, if that's your number one priority, you may have to make changes about where you currently live and the rent you're paying and how you're spending the money that you make.

23:35And you may have to make some really serious sacrifices so that you can save up for the down payment. Some folks don't want to do that, and that's okay. But there are folks out there that do. They make a lot of sacrifices with their daily life so that they can have another child, if that's their priority and the money that comes with it, the expenses. We all know it's not cheap. Or to buy a home. I'm certainly not going to sit here and say these things are easy. And we don't always make the right decision. Sometimes, in hindsight, we think, maybe I would have done things a little differently. That's called life.

24:09And you learn from that and you try to make better decisions the next day. You mentioned earlier that you don't like to make predictions, but I'm going to ask you to do so anyway. As we head into 2026, do you have any broad predictions around how you think the economy will unfold in that year? Right now, if you just look at the recent past and you look at the economy, you see a job market that's not bad, but softening. You see inflation that isn't running out of control, but kind of ticking up a little bit. And to me, I think we're going to see it kind of move in that direction generally. Now, what's going to happen, though, is I guarantee you, here's the prediction.

24:50Sometime between now and next year, right, or early next year, maybe mid-next year, something absolutely, totally unexpected is going to happen. And it's going to change all of these predictions. And if you go back a few months, folks were saying tariffs are going to cause a tremendous amount of inflation. I would have been one of them. It kind of makes sense. You raise effectively taxes on goods. Shouldn't that increase the price? It hasn't happened. Now, some say it will happen, that there are reasons it hasn't happened yet, but it's coming. I don't know. But things that happened over the last few months surprised a lot of folks, surprised a lot of economists.

25:29So while I can look at what's happening now and kind of generally feel that that's the trend that we'll see over the next few months, my biggest prediction is something unpredictable is going to happen. It may not be huge, but it'll be enough to change things in a way that you and I probably couldn't have predicted. And I think it's important for folks to appreciate that because I think the big mistake folks make is thinking they can predict these things and then make significant changes, for example, in how they invest their money. Occasionally it pays off, just like occasionally you win the lottery.