Is it more difficult to live on retirement income than ever? How does starting your own business compare to planning for retirement? Ross Anderson, a certified financial planner and cofounder of Craft Work Capital answers these questions and shares his reasons for selling his car last January.You can find full episodes of all The Motley Fool podcasts in our podcast center. Check out our quick-start guide for investing in stocks to get you started. The video has a full transcript.This video was captured on June 23, 2021.Chris Hill: This Wednesday, June 23, is Chris Hill's birthday. MarketFoolery is pleased to welcome you. Chris Hill is my name. Ross Anderson, certified financial advisor and co-founder of Craft Work Capital, completes the week. He is also co-host of Check Your Balances weekly podcast and joins me from his Northern Virginia home. It's good to see you, friend.Ross Anderson: It's great to see you Chris. It's great to be back on the program. It's been awhile.Hill: It's been a while. We should start at the beginning, as this was something that you mentioned to me. Hill: It has been a while. You worked for The Motley Fool about six years and then left to start your own company. Let me help you to understand that.Anderson: Yes. It was, especially in the one we did. A few things happened. You can move from one job to the next, but it does not mean that you will leave your old community. However, you do swap your old community with a new one. Your income may not change as you move from the people you used to share every day with to new people you work with. Our income was likely to be negative for quite some time due to what we did. We were trying to set up a business, and would need to invest capital. In order to be prepared for this, I had to have enough cash to cover a short-term need. It was a lot of things, that I have been discussing for years, that it meant having enough cash to cover these short-term expenses. I finally got to experience that firsthand. My partner Dan and I are now the only ones who have social interaction. We no longer operate in the same bubble of chaos that we did within this large company. Now, we just stare at each other every morning, asking, "Hey! What's happened since yesterday?"Hill: I'd like to talk about income in retirement. This is a topic we don't often discuss on the show. Yesterday, Malcolm Etherege was with me. We talked about the many ways that financial planning and investing have been turned on their heads over the past year. There was also a long period of time when the plan for your retirement years with stocks was quite clear. So you can have steady income, you move your growth stocks to blue-chip dividend payers. How is retirement income currently?Anderson: I find it a bit frightening right now. Although I am not a doomsday skeptic, it is clear that there are many challenges in the landscape. No. 1. This shift in dividend payers doesn’t work as it used to. Dividend yields are much lower. Even if your portfolio yields higher dividends, it's still likely that you are only getting two-and-a-half to 3.5% if there's no leverage. That's the high end right now. Your bond yields are super compressed. After you add inflation, your cash and bonds are likely to provide you an effective earnings rate. There are many people out there looking for this income, and it's not easy to find. As planners, I believe we must be more diligent and creative about where we go in order to generate retirement income that is either sustainable or comfortable enough for people to manage. Because the old formula doesn't work as well as it used to.Hill: Do think we will get to the point, maybe six months or next year, when companies that have been paying dividends for some time start to increase their payouts in a significant manner? It was clear that a year ago, companies from all ends of the stock market were releasing statements saying, "We're hitting the Pause button, we're cutting, we are eliminating it all together, and we'll let it come back." They were all trying to increase cash. Do we see an increase six months later, if the situation is normal?Anderson: I believe that there could be some increases. For what it's value, I believe that many people responded in the same way as individuals. Many households began to hoard cash and take money from the table just to be safe. They didn't know whether there would be long-term unemployment, or how severe it would be. It was not a reason for these businesses to worry about this and worry about what their future plans are. We could see dividend increases. There will be some pressures on this. Because of labor shortages, wages will rise and they may need to spend more cash on their employees. There may be some pressure depending on the companies, but there could be dividend increases. However, I believe that the prices will rise along with it. This situation continues to be one where it's difficult to pick a 4.5% or 5% yield and still get an appreciation-oriented company. The high yield could be an indication of other problems, or perhaps slowing growth elsewhere.Hill: What about the clients Dan and you are working with? Again, please don't reveal anything.Anderson: We won’t name names. Don't worry.Hill: I am curious. Is there a theme to the questions you are getting? Are there any common themes to the concerns? Or is it more like "No, this was about what we heard from people who were doing financial planning three years ago"?Anderson: Some of the buzz questions have changed, I believe. Inflation is being mentioned more often, which I believe is a real issue. People are simply saying "Yeah. This is in the news." If you look at lumber prices, you can see the chart that is absolutely insane and wonder, "Wow, what's going to happen in other markets?" Are there any concerns? These are the things planners think about all the while. Since many years, we have been discussing inflation with clients. Okay, that's what I get. It felt real, but I'm not sure. It's possible to see a slight shift in the terminology. The core principles haven't changed. So how can you ensure that the money you rely on is safe? How can you ensure that your cash flow is stable and that your purchasing power continues to grow with the remaining money?Hill: I was speaking with Malcolm yesterday about something that was a bit surprising to me. He said that meme stocks had taken over conversation from people of an age that you wouldn’t think are spending much time on Reddit. People in their 70s and 60s. Is that something you are hearing? What is your thought process when you watch CNBC or Bloomberg, and see day-after, coverage of these companies that is completely disconnected from stock prices?Anderson: This is the first thing that comes to my mind, and I do see it quite often. CNBC is something I like to watch from time to time. It's always amusing. This is my first reaction. It's not that I'm being flippant, but it's obvious the anchors are frustrated when they have to talk about AMC once again. While I am a mere spectator, and not a fan of any core meme stocks, I find it very entertaining. It's great to see people who aren't part of the mainstream Wall Street crowd getting involved and having a voice. I don't know if they're using their voice for good or bad, but the debate is still open. It's my first place for it. However, I am not getting as many questions about it as I do about crypto or Cathie Wood stocks. These tend to be more of the "hey, this stuff should we be in" type of questions. However, that is a bigger concern.Hill: Is this a sign that the meme stocks are beginning to calm down? When this all started with GameStop I can recall thinking, "OK, I think that I understand GameStop's specific events, but this doesn't seem to be repeatable on an ongoing basis." This was in the beginning of the year. We're now in June, and we're still talking about it. It's obvious that I was wrong. However, I'm not sure where this leads.Anderson: It looks to me like this from a cheap seat perspective. I'm not someone who really digs into Reddit threads. It seems to me that they are looking for high concentration positions for hedge fund and then very high short interest. This screen is useful for screening for this. You can find companies that might be able find that type of play if you keep looking. Is that possible? As long as the story is interesting, probably. You could probably repeat the pattern but the important thing is that I don’t believe most people in this trade make money. It's the early adopters who are likely to make some money, and some people that have fun along for the ride. But I don't believe this is a profitable trade that can be sustained for large numbers of people. Perhaps I am wrong, but I don't see how this can be. People will eventually get tired of following the story, even if it does not make them money. This is definitely a bigger risk than it seems. Are they able to come up with more ideas?Hill: Home purchases are an obvious story because of all the obvious reasons. This is a much more affordable option than buying a home but still a major purchase for many people. The automotive market is beginning to attract more attention in recent weeks. This combination of supply chain problems and a shortage in semiconductor chips is what you have. All the major automakers have said that they are working as fast as possible, but not as many as everyone is expecting. How does that impact your life and the lives of your customers?Anderson: Yes. Anderson: Yeah. It's still a funny story about the auto industry. May last year, May 2020. I started to feel that the pandemic, the stay-at-home, work from home situation was going to last longer than people expected. The first sign that everyone was going home for two weeks was when we left the office. We will wait and see what happens. It was then like, wait, this will take months. I owned a car with a balance on it. I thought, "Why am I paying this much to get a suntan?" It was ridiculous and I sold it in one day. I sold my car at 10 a.m. I thought I was going to sell it, but by 2 o'clock, it was on someone else's lot. It was amazing and I felt so proud of myself for this decision. Now I feel like I need a car again. I am now looking at the market and realizing that used cars are becoming more expensive than ever. Perhaps I was wrong. It's clear that I feel a bit of this pinch. I don't feel like I have to be in a hurry so I don't need to rush out and get something. But, yes, that was definitely what I did. The chip shortage is evident in many things. It's impossible to give an Xbox these day, as there are many products that affect it.Homeside, I believe most people who don't want to move are not obligated. This is contributing to the extremely low supply. Unsolicited phone call from a realty broker. He asked me "Have your considered selling your home?" I replied, "Yes, I have thought about it, but I would need to move somewhere else, which would be my problem, so I'm not going that route." [laughs] I realized that I needed a home. I won't sell the one I live in until I find another place. The same problem will affect all buyers. However, you can see a lot of discomfort in the market, especially for first-time buyers who are trying to build their future. It's very difficult. I feel most for those people. I am okay with the fact that some people are receiving a little appreciation at this time that may feel undeserved.Hill: I will let you go. We are now at the halfway point of 2021. What are you most curious about in the second half? You could be interested in housing, stocks, or a specific industry. What are you going to watch over the next six-months?Anderson: I think about a few things and trying to tie together some of the things we've already discussed. I would like to know if inflation fears are short-term pressures. People are often too optimistic about what might happen. There is some short-term tightening in many markets, including labor, lumber, and all other stuff. As we bring the remaining processing back online, I hope you will see some of this normalization and that we aren't as concerned about the hyperinflationary environment that is sweeping the country. This would make it more difficult for the Fed to take further action. Another thing is to continue to watch the market. You've certainly seen a huge rebound in value stocks. These have been around for about ten years. Now it's time to see if those companies that are growth-oriented can keep that trend going. Yes, it's great to run our practice and work with such wonderful people. It's been amazing. My main focus is on getting the business started.Hill: Check Your Balances Podcast is available to listen to, new episodes are released every Wednesday. It's a great podcast, Ross and Dan. Ross Anderson, thank you so much for coming.Anderson: Thank you so much. Chris, it's great to be with you.Hill: The Motley Fool might have formal recommendations. As such, listeners may be interested in stocks that they discuss. Don't make decisions based on what you hear. This is MarketFoolery's latest edition. Dan Boyd mixes the show. Chris Hill is my name, we are off tomorrow, and we will be back Monday.
