April 28, 2025 – Are you worried about market swings and rising inflation eating away at your retirement income? On today's Lifetime Planning segment of the Financial Sense Newshour, we discuss how ongoing volatility, recession fears, and inflation are creating major uncertainty for retirees and investors. Jim Puplava explains why building a portfolio of individual dividend-paying stocks—especially dividend aristocrats—short-term bonds, and select hard assets can offer more predictable and growing income—even during turbulent times. Listen in as we explore the details of how inflation impacts returns and ways that investors can maintain greater peace of mind in volatile markets.
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Key topics discussed:
- Market Volatility and Tariffs: The markets are experiencing significant volatility due to ongoing tariff battles, contributing to economic uncertainty.
- Recession Concerns: Growing talk of a potential recession, with some analysts predicting it by the end of Q2, and probabilities rising from 40% to 60-90%.
- Inflation Trends: Inflation is rising, expected to remain in the 3-4% range this decade, driven by economic policies and market dynamics.
- Dividend-Paying Stocks: Emphasis on investing in individual dividend-paying stocks, particularly dividend aristocrats, for predictable income in retirement.
- Individual Bonds: Preference for individual bonds with short maturities (2-3 years) to ensure predictable income and adapt to rising interest rates.
- Gold and Silver Investments: Gold and silver, including mining stocks and bullion, are potential inflation hedges.
- Retirement Phases and Inflation: Inflation impacts retirees most in the "go-go" (65-75) and "no-go" (85+) phases, requiring strategies to maintain purchasing power.
- Portfolio Allocation: Our current portfolio mix is around 50-60% stocks (with around 20 stocks), 30% bonds, 10% cash, with gold/silver in the stock or cash category.
- Consumer Spending and Debt: Upper-income consumers are reducing spending due to market drops, with rising credit card defaults signaling economic strain.
- Predictable Income Strategies: Focus on stable, income-generating assets to provide certainty amidst economic and policy uncertainties.
Transcript
Cris Sheridan:
Well, folks, the markets have been on a wild ride this year with volatility surging since the tariff battles kicked into high gear. Now there's growing talk of a potential recession looming. So what does this mean for retirees and income investors? That's what we are going to discuss today. Joined as always for today's Lifetime Planning segment is Jim Puplava, our president here at Financial Sense Wealth Management. So Jim, what is the macro background first, as you see it?
Jim Puplava:
Well, there's a lot of uncertainty in terms of how these tariffs are going to play out. One day they're on, one day they're off, one day they're reduced, one day they're going up. And what has happened is businesses can't predict in terms of planning what they need to do. So businesses are pulling back on capital expenditures. The same thing is happening with consumers because they've been holding back on spending because of not only the uncertainty over the economy and tariffs, but also the market uncertainty. I mean, we had a tremendous drop, almost a 20% drop in the NASDAQ. We got down, I think, about 12% on the S&P. And then all of a sudden, we've regained half of that back. But you know, that's this week. It could change next week, or it could change tomorrow. So consumers are holding back, and more importantly, a lot of the spending that occurs in this country takes place with upper-income middle-class consumers. And so when they see their stock or their 401(k) plan drop down, they are getting more circumspect on their spending. And we're seeing this reflected in a lot of the retail numbers. And then you're also starting to see a lot of defaults and delinquencies on credit cards that are starting to rise. So there's a lot of strain in the system. And another factor that we're seeing at the same time, and usually you don't see this, but inflation is starting to rise. And I would not doubt, Chris, that at some point you're going to see the Fed come in and change their inflation targets or they're trying to get down to 2%. I don't think they're going to get down there this decade, and it's probable inflation, as we measure it on the official basis, is probably going to be in the 3 to 4% range, rather than in the 1 to 2% range. So you also, at the same time with this uncertainty, have inflation that's starting to rise, and this is going to be, in my opinion, as many of our guests have talked about on the program, an inflationary decade. And one of the differences, and I want to contrast this with inflation: we had inflation in the last decade, but it manifested itself in the stock market. It wasn't going into the economy because there wasn't a lot of lending, especially after the Great Financial Crisis. So we saw the inflation take place in the financial markets because money has three outlets. It can go into the economy, which is inflationary—think COVID checks and the inflation that followed—or it can go into financial assets, inflating the value of assets. And that's certainly what we've seen with P/E multiples that we haven't probably seen since the tech bubble days. So we are dealing with, mainly, if you look at all of this from a consumer point of view, we're dealing with three uncertainties: the economy and a recession. Because now, depending on who you're looking at, they're predicting a recession probably by the end of the second quarter. Some believe we're already in one. But the predictability of a recession has gone from 40 to 60%. You have people like Bank Credit Analysts that believe that by the end of the second quarter, we will be in one. So they have an 80 to 90% confidence level that we'll be in a recession. The second thing is Fed rate cuts. Will the Fed cut rates if we're going into a recession and unemployment starts to rise, or will they raise rates if inflation starts to go up? So that's an unpredictability. And then, of course, as you know, many of our experts, and especially last week, Tom McClellan on the show was talking about how we are in a bear market, and we're likely to remain in a bear market. He doesn't think we're over it yet until at least the end of the fourth quarter of this year or the beginning of next year when another new bull market would begin. And that could be the response coming from the government, both on the fiscal and monetary side. If indeed we do go into a recession or, on a best-case basis, the economy slows down.
Cris Sheridan:
So when it comes down to it, I mean, when you're talking about this high level of uncertainty that we see for people that are either near or in retirement, having income certainty is what you want. You don't want to be tossed around by all the headlines and any types of policy moves that we're seeing or battles between us and China, things of which none of us really have any control over. There are things that we do have control over, of course, and that's what we try to exercise here at Financial Sense Wealth Management with the way we're invested. And you have been a big proponent for dividend-paying stocks for that reason, also emphasizing the importance of investing in individual stocks and bonds versus just bond ETFs or bond mutual funds, given the extra level of control that that gives you. So if you wouldn't mind, fill in our listeners a little bit with some of your big-picture perspective on how you manage high-net-worth clients' wealth along these lines.
Jim Puplava:
Well, a lot of this, Chris, comes from misconceptions that people have about the stock market. Investors mistakenly assume when the stock market goes down, their income goes down. Now that may be the case if they're invested in an ETF or a mutual fund because the portfolio manager is always making changes to the portfolio, and this reflects the money that flows in and the money that flows out. If I'm managing a mutual fund and I'm managing 100 million, and the accounting department says, "Hey, investors are bearish, we just got liquidation notices for $10 million in the fund," well then I, as a portfolio manager, have to choose and decide I'm going to have to go out and sell stocks in that fund, which may impact the income. Then what happens in six months, and all of a sudden the market's going up and money comes in? Then I'm going to go and invest that money. So the income that comes from the fund isn't as predictable versus if I own an individual stock. So that's one of the first misconceptions that investors have. If you own a mutual fund or an ETF, your income can fluctuate. It can go down in a market downturn. However, on the other hand, if you own a stock, the dividend does not change when the market goes down or the market corrects. Now the price of your stock may go down, and assuming it's a blue-chip stock, the dividend stays the same and it does not change and can even actually go up, as many dividend aristocrats did in 2022, which was a big bear market where we saw the S&P down 25%. The NASDAQ was down over 33%. But a lot of these dividend blue-chip stocks, whether it was Coca-Cola, Procter & Gamble, Johnson & Johnson, Exxon, they were actually raising their dividends during that period of time. So once again, you know, if you own an individual stock, nothing is going to change if the market drops 10% next week or it drops, let's say we're in a bear market, as Tom McClellan thinks we'll be in and remain there until the end of the year. Those dividends are still going to come out. And that's the reason I prefer individual stocks and bonds for income investors is that the income, more importantly, is predictable. For example, if you own Coca-Cola, you own Exxon, Procter & Gamble, Johnson & Johnson, I'm 99% confident that the dividend will be there this year based on a long track record of maintaining that dividend and raising it over time. Now it's the same also if you own an individual bond. If I buy an individual bond, usually we're keeping our maturities two to three years in maturity because we think interest rates are going to be rising in the balance of this decade. So let's say I own a 6% bond that matures in three years. I know exactly what the interest payment is going to be for the entire life of that three-year holding of the bond. And more importantly, when the bond matures in three years, I get my money back. I know exactly what I'm going to get when the bond matures. So I have, Chris, a larger degree of confidence in predictability when I'm using individual securities like stocks or bonds. And what that translates into, like when we're doing financial plans for individuals, we always look at the probability of success over the life of your retirement, and we like to see those probability numbers in the upper 80s and the 90% probability that basically says you're going to live comfortably the rest of your life, and you're not going to outlive your assets. And I can get that greater predictability in probability when I use individual stocks and bonds because, quite honestly, they're more predictable.
Cris Sheridan:
Yeah. And we should point out that companies can suspend their dividends. We've seen that, for example, in the 2008 financial crisis. We saw that also in 2020 with the COVID crisis. So in periods of extreme financial strain, companies will sometimes temporarily suspend their dividends. Those are the exception and not the norm, of course, because when you look at market history, overwhelmingly you do see greater stability with dividends and continuous payouts. And of course, as you're just discussing, the focus is to really find and identify and invest in those companies that have a nice moat. They're part of that dividend aristocrat group of stocks, like you mentioned, less likely to suspend their dividends, if not even increase their dividends over time.
Jim Puplava:
Yeah, and this is, we spend a lot of time looking at the company's free cash flow and also looking at the balance sheet and looking at the amount of debt that they carry. Because if you're looking at a company that has a high degree of debt, then you don't have that certainty that they could maintain their dividend if they get in trouble or if we get into a recession. So those—free cash flow and the balance sheet—are two things we look at very strongly. And then we also look at a history of those two things. Have they increased debt? Have they lowered debt? What have they done with how they're managing the business, and also what kind of business they're in? You know, that's why Warren Buffett invests in a lot of consumer staple companies, because they have a predictable business model. If the economy changes, you're not going to stop buying deodorant, shampoo, or food, or putting gas in your car. So that lends a degree of certainty. What we like to do, depending on the portfolio, is if we're going to own stocks, we're probably going to own about 20 stocks, and that will be either 50 to 60% of the portfolio, depending on the macro background. Bonds make up roughly about 30%, and then cash roughly about 10%. Now, in the stock range, we're finding dividends of 3.5 to 8% with a blended rate between 4 and 4.5%. On the bond side, right now we're finding 5 and 6% returns. So the overall blended rate on the portfolio is between 4 and 5%. But more importantly, Chris, it's not just 4 or 5% today. That income is going up every single year as those dividend increases come in. And the other thing that we see in the balance of this decade, we also see increased interest income coming in because we think that we're in an inflationary environment, which is one reason we're keeping our bond maturities to two to three years. So when a bond rolls over, like the bonds that we had that rolled over this year in the first part of the year, we are getting almost 1% more in interest this year than where we were almost a year ago. So these are the kind of things that we like to see because they're more predictable. But more importantly, we also have to take a look at inflation. And maybe that's what we should talk about next.
Cris Sheridan:
Well, definitely. And before we get to that, I do want to point out that for any of our newer listeners, in 2020, you were predicting a big inflationary wave and that the smart money was already positioning for that inflationary wave through things like gold, silver, commodities, and hard assets more broadly. That obviously was a very timely call, especially if we think about what we've seen with gold and silver ever since, outperforming stocks and bonds and doing very well, particularly this year. So as you said, you have about 20 stocks in the portfolio that you manage, 50 to 60% of that in equities, bonds 30%, cash 10%. Where do gold and silver fit into that?
Jim Puplava:
They fit in in the stock category. The nice thing about the dividend stocks that we own, and even the gold and silver stocks we own, is they all pay dividends. And what resource companies tend to do, and I'm talking about mining companies in particular, is as the price of what they sell goes up and down. So we're in an uptrend right now. So we have gold prices up about $800 this year. You will have these companies pay special dividends. I can remember, I think it was in 2022, we had a large oil company that paid out special dividends that added up to almost 10% because they had their regular dividend, but they were making so much money on the price of natural gas and oil, they were paying out special dividends. Well, you're seeing the same thing with gold and silver producers. So imagine if you are a gold producer, and you are producing an ounce of gold somewhere between 1200 and 1500 dollars an ounce. Imagine what your earnings and your cash flow look like when gold is at 3300. And last week, we almost hit 3500 briefly. I mean, these companies are literally printing money at this point. Same thing with silver. When you have silver go from 22 to 33, silver companies are also making a lot of money. So that's why you see the leverage of mining companies to the price of the metal; they usually go up three times that because of the leverage that is created when they can sell the product that they're selling at a higher price. I mean, mining costs are going up, but they're not going up like the price of gold and silver have been going up—28 and 30%. We're back-to-back 30% increases two years in a row.
Cris Sheridan:
Yeah, it's been amazing. So, yeah, I mean, you were recently talking with a guest on how a number of people are now going to Costco and buying gold bars, buying gold bullion. Of course, many of our clients do hold bullion. So what is your general advice for people when you look holistically at their portfolio and, like you said, the breakup of assets between stocks, bonds, and cash? Where does bullion fit into that category specifically?
Jim Puplava:
Individual bullion would fit in. It would probably come out of cash, maybe cash 5%, bullion 5%. If you're really aggressive, you know, 10% in bullion. You know, even some of the people that are in the gold business don't recommend more than 20% if you're really super aggressive. I mean, we've had everybody from Marc Faber on the program to others, and they usually don't recommend that you go beyond 10% would be the max for most people. And if you're in retirement, I would say between 5 and 10%.
Cris Sheridan:
Yeah. And because there's a liquidity issue there that you have to keep in mind, right? It's just not very easy to buy and sell bullion. Let's say you were one of those investors that got into gold and silver early on five years ago, or if you got into gold and silver even at the bottom of the last cycle, and you're still holding, well, how are you going to sell that? That's the thing. You can't just easily sell it online. You have to actually go to a bullion dealer. You know, are you going to be taking cases of gold? So these are some of the considerations, I guess, that investors should probably have in mind, right, when it comes to how they're allocating their wealth.
Jim Puplava:
And especially too for security reasons, you know, I keep my bullion in a vault at a bank. It's just safer there. And, especially, you know, it's hard to believe, you look at a 1-ounce gold eagle, and it's worth over 3300 bucks on that little 1-ounce coin, or even if you're looking at silver eagles, they're worth over 33 bucks. So if you start buying bullion eagles or bars, whatever you're buying, I mean, that's a lot of money tied up in a small amount of metal. So you want to be safe about that too.
Cris Sheridan:
So as you mentioned earlier, you know, we should talk about inflation again. You were making the big call, telling investors to prepare for a large wave of inflation after we saw the mother of all stimulus bombs launched on the economy after the 2020 COVID crisis. We did see a first primary large inflationary wave. It has subsided somewhat, but again, the rate of inflation is still remaining at a higher-than-average level from what we're normally accustomed to, you know, going in that post-2009 period. What is your view on inflation currently, and how does this relate to those that are near or in retirement?
Jim Puplava:
Well, let's take a look at retirement. We call it, there are three phases to retirement, and many of you have heard me talk about this in the past. Ages 65 to 75 are the go-go years. You just retired, you're in good shape health-wise, and you're doing the things that you couldn't do all the time when you were working. Then you enter 75 to 85; we call that the slow-go years. And then finally, 85 and on are the no-go years. So if you look at the inflationary impact of your budget, your biggest inflationary concerns are usually in phase one, when you first retire, you're taking those trips. Maybe you got a hobby, you buy a motorhome, a boat, or whatever it is that you do, or you join a country club. Then phase two, you start to slow down, maybe fewer trips, maybe less spending. And then phase three, your spending starts to go up because that's when you're running into more health issues. You might need assisted care; you might need to go into a retirement home. So inflation impacts you in phase one and phase three the most. And I want to give you an example of what this might mean and why you need to deal with this if you want to be successful in your retirement. Let's just take somebody that spends $75,000 a year. If we're looking in 10 years at a 4% inflation rate, you're going to need a hundred and eleven thousand dollars to buy the same goods and services that you're buying today with 75. If you go out 20 years, you're going to need 164,000. And it gets even worse. I could give you all kinds of numbers; I don't want to bore you with that. But if inflation runs into the 5 to 8% range, which a lot of retirees wind up in that range simply because of healthcare costs and healthcare needs, which go up and start escalating, or you're going into a retirement home or assisted living. So inflation, you have to have some kind of inflation hedge because if you don't, you're going to find yourself getting in trouble, scraping, downsizing, or doing a number of things. I mean, just take a look at, Chris. I mean, look at what we're paying in California for gasoline now. We're paying $5.50. Five years ago, we were paying $2.50. If you take a look at what a car costs today, take a look at your Medicare premiums. I can remember it wasn't too long ago, I think it was about five years ago, they were 119. Now they're 180. So think of, and also think of the deductibles and the things they don't cover. It's not just your Medicare premiums; it's also your Medigap insurance that is going up each year. So all these little things start to add up little by little. It's kind of like a death by a thousand cuts. And that's what inflation does. It's kind of like an invisible tax that kind of creeps up on you. Next thing you know, you go, and you see it in the last couple of years when you go to the supermarket. I can't believe the cost of beef.
Cris Sheridan:
Yeah, prices are not coming down, that's for sure. They're not going up as fast as they were two to three years back, but they're still climbing, just at a slower rate. So again, we do believe that we are going to see higher-than-average inflation for most of this decade, accompanied very likely by higher amounts of market volatility. This is where dividend-paying stocks, as you've been discussing, Jim, and individual bonds can help investors achieve a predictable income stream each month and a bit more peace of mind. But even more importantly, you want to invest in those companies increasing their dividends each quarter or year to stay ahead of inflation as well. And that's another important part of all this.
Jim Puplava:
Yeah, the nice thing about dividend aristocrats, which is what we invest in, is they increase their dividends every year. To be in the dividend aristocrat group, you have to raise your dividend every single year for 25 years. After 25 years, you become an aristocrat. I look for, Chris, a 10% total dividend return, and that 10% is made up of either dividend yield or dividend increases. So let's say if I buy a dividend stock that's paying 4%, then I would look for dividend increases of 6% to give me my 10% total return. Now, one of the things I want to point out is as we head into this inflationary decade and also some of the policies coming out of the Trump administration, we're heading more and more towards hard assets and industrials. Where those dividend aristocrats are going to come from are going to be a little different going forward in the next five years. In terms of where we're finding that 10% total dividend return, it's not going to be the same as it was in the last, let's say, 10 years. The good news is we're finding many companies. We're looking at one; this is a kind of bellwether tech stock. It's paying roughly right now, after the big sell-off in the price of the stock, the dividend yield is about three and a half percent. And Chris, this is a company that's been increasing their dividends at 20% a year. We've got a utility that pays about three and a half, and they've been increasing their dividend 9% a year, and they've been doing that consistently. So we're finding the 10% dividend returns. They're just moving into different sectors because we're seeing a complete transformation of the market. What led the market over the last 10 years, let's say over the last five years, especially with the Mag 7 stocks, that is fading in an inflationary period. What does well is hard assets and value stocks in an inflationary period of time; it's growth stocks in a disinflationary period. And so you're already starting to see that as the Mag 7 stocks and a lot of these high-tech growth stocks are starting to fade, and they've been hit the hardest in this market downturn where many of them are down 20, 30, and 40% already, kind of what happened in 2022 when rates were going up. And I don't think the worst is over yet for a lot of these stocks.
Cris Sheridan:
So as you laid out today, still lots of uncertainties moving forward, whether or not that is on the degree and scale of tariffs on which countries, particularly between us and China, the ongoing big-picture themes that we've discussed on our show many times when it comes to reshoring, moving away from a lot of the cheap goods that are produced from China and elsewhere, trying to move some of that production back to the US or other countries. This is all lining up for higher-than-average inflation rates. And within this environment, it is important to have predictable income that can be achieved. You do have control over some of these things. We don't have control over U.S. and China negotiations or the rate of U.S. re-industrialization, for example, but we can control how stable our portfolio is. You do that with the portfolio you manage here at Financial Sense Wealth Management, like you said, with the use of stable dividend aristocrats, also individual bonds, and then managing cash balances appropriately. So if any of you listening want to learn more about building a predictable investment plan and portfolio with our company here at Financial Sense Wealth Management, you can give us a call. Our number is 888-486-3939, or you can also go to our website, which is financialsensewealth.com. And once again, that number is 888-486-3939.
Jim Puplava:
In the meantime, on behalf of Cris Sheridan and myself, we'd like to thank you for joining us here on Lifetime Planning. Until you and I talk again, we hope you have a pleasant week.
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