Are You on Track For Retirement? (EP.323)

Episode Summary

Executive Summary: The episode mixes market commentary with personal anecdotes and media recommendations. Michael and Ben argue that seasonal weakness and higher rates do not spell doom for stocks or the 60/40 portfolio, while emphasizing that dollar-cost averaging, higher bond yields, and rising Fed balance-sheet runoff still matter. They also dig into housing affordability, mortgage spreads, insurance costs, retirement sentiment, and the way everyday consumer behavior is shifting under higher rates and inflation.

Main Topics: Seasonality, market resilience, and the September correction narrative (Priority: 5/5): They open by noting September is historically the weakest month for stocks, then frame the current pullback as a garden-variety correction rather than a structural market break. Despite rate hikes and Fed balance-sheet reduction, equities remain positive on the year, which they use to push back against doomier narratives. The 60/40 portfolio and bond-market misunderstandings (Priority: 5/5): A major segment argues that bonds are not broken just because rates are higher or correlations rose in 2022. They contend that higher starting yields improve bond math, and that 2022 was an unusual one-off from near-zero to 5% rates rather than a permanent regime change. Dollar-cost averaging and how most investors actually experience markets (Priority: 4/5): Using Nick Maggiulli’s calculator, they show that regular investing since the 2022 peak produced positive nominal and real returns despite the bear market. Their broader point is that most people invest over time, not with a single lump sum, so point-to-point market returns are often misleading. Retirement preparedness, sentiment, and the evolution of work (Priority: 4/5): They discuss survey data showing low confidence about retirement readiness and argue that sentiment surveys are often poor decision tools. They also note retirement is historically recent and that modern life, media, and constant connectivity may keep people more pessimistic. Housing market stress: mortgage rates, supply, and affordability (Priority: 5/5): The hosts highlight record-high effective mortgage rates relative to existing mortgage costs, the collapse in mortgage activity, the rise of 4-bedroom homes, and Zillow’s 1% down-payment product. They argue the Fed can’t fix housing without more supply and that high rates are freezing both demand and supply. Consumer behavior: insurance, subscriptions, delivery apps, and media bundles (Priority: 3/5): They move into practical household economics: homeowners dropping insurance in some states, cable-cutting slowing, sports streaming becoming expensive, and DoorDash/other convenience services feeling overpriced. These examples illustrate how higher costs are changing consumer choices.

Key Arguments: Seasonal weakness exists, but it does not by itself imply a major market downturn; the current environment looks more like a normal correction than a crisis. The 60/40 portfolio is not structurally dead: higher yields give bonds a better starting point, and 2022’s stock-bond selloff was unusually extreme. Stock and bond returns are not always negatively correlated; historically they often rise together in the same year. Dollar-cost averaging reduces timing risk because investors are continuously buying with new savings, so bear markets can actually help accumulation. Retirement sentiment surveys are weak signals; feeling “off track” during a bear market does not mean the retirement plan is broken. The housing market is constrained by supply and affordability, not just demand; the Fed can slow activity, but it cannot create more homes. Rising mortgage rates have created an unprecedented gap between new mortgage rates and the effective rate on outstanding mortgages, which explains homeowners’ reluctance to move or refinance. Many high-flying pandemic-era stocks may never revisit their 2021 peaks, but some can still be tradable opportunities from lower levels. Consumer behavior is adjusting to higher prices everywhere: delivery, cable, sports streaming, and insurance all feel more expensive and therefore more discretionary. People are likely to sound more pessimistic in surveys because constant access to bad news and more leisure time makes negative sentiment easier to express.

Data Points: S&P 500 September average return: -1.1% - Presented as the weakest average month for stocks historically. Second weakest month for S&P 500: February, -0.13% - Used to show seasonality is real but modest on average. S&P 500 year-to-date performance: +16% - Mentioned to show markets remain strong despite a correction. Nasdaq year-to-date performance: +36% to +37% - Used to support the view that the market is still up significantly. DCA starting point: $500 per month starting January 2022 - Example used to test dollar-cost averaging through the bear market. DCA contributions: $9,000 - Total invested in the Nick Maggiulli calculator example through July. DCA ending value: Almost $10,000 - Illustrates that regular investing was profitable despite market weakness. DCA nominal IRR: Over 13% - Shows the timing-adjusted return of the monthly investing example. DCA real return: Almost 9% - Inflation-adjusted return for the same example. Fed balance sheet: Continues to fall after a brief banking-crisis bump - Used to counter claims that the Fed is still massively easing. Non-retired Americans feeling retirement savings are on track: About 31% - Survey result cited as sentiment weakened after 2022 market declines. People saying retirement savings were on track in 2021: About 40% - Peak optimism before stocks and bonds fell. Gainfully employed at age 55-64 in 1850: 95% - From a historical chart showing retirement is a modern concept. Gainfully employed age 65+ in 1850: Almost 80% - Shows very few people had leisure-based retirement in the 19th century. Optimal age for best financial decisions: About 53 or 54 - From a Wall Street Journal discussion about when decision-making peaks. AMC from highs: Down 98% - Example of meme-era stocks unlikely to revisit 2021 peaks. Peloton from highs: Down 97% - Another example of a pandemic winner that remains deeply underwater. Teladoc from highs: Down 93% - Used in the discussion of permanently impaired stocks. Zoom from highs: Down 88% - Shows that many pandemic-era stocks remain far below peak levels. Robinhood from highs: Down 85% - Part of the list of stocks with lasting drawdowns. GameStop from highs: Down 80% - Included in the same set of high-flying names that collapsed. Money market funds: $5.5 trillion - Held as cash-like assets amid higher short-term rates. Money market funds as % of S&P 500 market cap: About 14.5% - Used to show the magnitude of cash relative to equities. Average effective mortgage rate on outstanding U.S. mortgages: 3.6% - Shows the low-cost legacy mortgage base still sitting on homeowners’ balance sheets. Zillow homebuyer program down payment: 1% - Discussed as a new first-time buyer assistance program. Zillow program additional contribution at closing: 2% - Zillow’s added contribution in the homebuyer assistance structure. U.S. home prices (Zillow Home Value Index): New all-time high in July - Shows national prices have recovered despite rate pressure. San Francisco upper-tier home prices: Down 13.5% - Illustrates correction concentrated at the high end. Seattle upper-tier home prices: Down 10.5% - Another example of upper-tier weakness. Austin upper-tier home prices: Down 11% - Shows market bifurcation by price tier. Homeowners without homeowners insurance: 12% - Reported as a surprising share in the U.S. Cable cord cancellations: About 25,000 per day - Used to show cord-cutting continues, though slower than before. Apple TV+ U.S. subscribers: About 15 million - Mentioned during discussion of streaming economics. DoorDash ramen example: $17 meal became $28 after fees and tip - Illustrates how delivery convenience can be expensive. Homeownership trend: Four-bedroom houses rose from about 20% in 1973 to 48% now - Shows new homes are larger and more expensive. Three-bedroom houses: Fell from 65% in 1973 to 43% now - Part of the same housing-size trend.

Pivotal Quotes: "The average monthly performance for the S&P 500 in September is negative 1.1%." — Michael Batnick: Opening market-seasonality discussion. "I don't think the idea that the 60-40 is screwed makes any sense." — Ben Carlson: Their core rebuttal to bearish 60/40 arguments. "You don't need the yields to fall." — Ben Carlson: Explaining why bonds can still be attractive with higher starting yields.

Implications: Listeners should expect more volatility, but not automatically a broken market or dead portfolio strategy. Higher rates are hurting housing and some consumer behaviors, yet they also improve bond yields and may create selective opportunities rather than broad collapse.