In this podcast, Motley Fool host Ricky Mulvey and senior analyst Jason Moser discuss:
- The services that Amazon wants shoppers to notice.
- If Prime Day is an economic bellwether.
- Bank of America's fine from the Consumer Financial Protection Bureau.
Plus, Motley Fool personal finance expert Robert Brokamp interviews Wade Pfau, author of the recently updated Retirement Planning Guidebook, on how to find a retirement spending style.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on July 11, 2023.
Ricky Mulvey: Amazon heads to the doctor and Motley Fool Money starts now. I'm Ricky Mulvey joining us now as Jason Moser. Jason, good to see you on this Prime Day.
Jason Moser: Hey, Ricky, thanks for having me. We can get into the business of it, but we do a lot of research for this show. We're scrolling through Amazon. Are you buying anything for Prime Day?
Ricky Mulvey: I'm not a big stuff guy. I always feel like I should buy something on Prime Day and then I never end up buying anything on Prime Day. But in scrolling through and looking at some of the deals, this is going to sound bad, and this is how boring my life is. But frankly, the one thing that caught my attention was the sale of Dyson vacuums. I don't know, we got three dogs and a cat a house needs multiple vacuums and a Roomba isn't going to cut it.
Jason Moser: Hey, dollars are dollars, doesn't matter how boring they are. I'm keeping an eye on some of the wireless headphones looks like there's some good deals on beats and Samsung headphones. I think the best sellers page has some interesting winners. If you want to do that Peter Lynch style of investing, Crocs are the number one apparel sale with those clogs going for 50% off, the Echo Dot Number 1 in home and kitchen. Then in camera and photo, this is where things get interesting. Compact binoculars by AACR are Number 1, but very closely behind this Jason Moser, quote, "A wireless ear cleaner with camera phone microscopes camera, ear wax removal kit with a seven ear pick and ear cleaner with camera and light ". American's got some dirty ears and they want their clogs.
Ricky Mulvey: Yeah. And you know what? It's sometime this makes me think.
Jason Moser: Some things are just simple and very difficult to disrupt. The light switch, for example, I don't know if you've ever connected your lights to an echo device, and it's clever, it works until it doesn't work, but you know what's undefeated, the light switch. That ear cleaning situation there, it sounds pretty cool but I don't know, man Q-tips are pretty easy and in my mind, still probably undefeated in this case too.
Ricky Mulvey: Good to see their CEO workers getting out there with that one. Let's focus on the business though, according to Bloomberg, Prime Day are expected to do about $13 billion in sales. This sounds like a lot of money. But how significant is this event to a $1.3 trillion company?
Jason Moser: Yeah, it's still significant, of course, when you consider that Amazon brings in what I mean, that Berlin $525 billion in trailing 12 month revenue. Clearly, the Prime Day number is on its own, it's just a drop in the bucket, but I think the other way to view this is that it does stoke Prime memberships too. You go back to 2015 when Prime Day started. Prime Day brought in around $1 billion in sales that year, Amazon had around 55 million US Prime members then. The fast forward to today and like you said, $1,213 billion in sales, and now we've got Amazon with 150 million US Prime members and 200 million in total. It's not just about that top-line revenue, it's about stoking those memberships, building that lifelong relationship because as we've seen throughout history, I mean, the subscription does membership models can be very powerful.
Ricky Mulvey: Many economic commentators like to break out the word bellwether for Amazon Prime Day is a signal of consumer health spending. Do you think this day offers any real signals about the economy?
Jason Moser: It can offer some clues perhaps, but I think a lot of this oftentimes with Prime Day, it's holiday spending that's pulled forward a little bit. You should also never underestimate the American consumers ability to spend irrationally. Put things on sale, people are buying them, whether they need them or not. When we're looking for indicators toward the economy, I look forward to other things like pandemic savings are gone, we've spent that surplus, a pandemic savings that we accumulated over the last three years. Student loan payments are getting ready to start back up here in October. Those types of things to me are a little bit more indicative of where the economy could be headed. I'll say one bellwether for Amazon spending specifically numerator, a consumer insights company found that the average tickets so far, that's if noon Eastern Time was 60 bucks, that's up 15% last year. Amazon seems to be pleasing its members with the deals this year. Also, Amazon likes to signal new products, new services, and this year they seem to really want to point your attention toward their healthcare services. At the top of Amazon's homepage you'll see pitches for Amazon clinic, and one medical clinic is the online-only treatment option. The pitches that the service does not take insurance, but you're going to be able to see upfront costs and one medical is a subscription membership for primary care. This includes physical offices with a deal that closed for $4 billion for this company back in February and your reflections on the launch or push for one medical and clinic
Ricky Mulvey: When you consider the U.S. GDP is around $23 trillion. Healthcare represents about 18% of that. Translation is healthcare is a huge market opportunity for sure. Amazon does have some experience and data with its PillPack business among other things. It makes perfect sense for me to see them trying to offer transparent and consumer-friendly options in the healthcare space, and I think one medical is another positive way for them to try and offer solution. But by the same token, healthcare's related. But I mean that's a really difficult nut to crack. We saw a one-point Buffett diamond and Bezos came together as a triumvirate to try to solve the healthcare problem here in the United States and that disbanded shortly, thereafter. I think that just really speaks to how difficult healthcare really is. It's not just the United States, it is everywhere and I don't think that's something that we should ignore. Health care is just a very difficult market and so when you look at them trying to participate in this massive market opportunity, it makes perfect sense. I worry sometimes at the Amazon brands translating over to healthcare, I'm not sure that consumers will be willing to take that leap necessarily maybe they will, we will find out in time. But Amazon is also a bit of a tricky position right now as they continue to focus on controlling costs, and that's something that Andy Jassy has really had to double down on and that will make investing in this space a little bit more difficult because they'll need to do it with some more certainty.
Jason Moser: It's going to take a lot of infrastructure to build out the locations that you really need. I looked at One Medical in a big city for me, I live in Denver, Colorado. You can only go to the clinic if you're a senior on Medicare. They have some options and other places but this is going to be a talent attraction problem in an infrastructure problems as they move forward. But it also seems that Amazon is pretty good. It's solving those issues when they put their mind to it.
Ricky Mulvey: Yeah. I mean, much like our tax code, the healthcare system is just really difficult to understand and you just said it right there all stipulations and in conditions and it's different for everyone and for some folks that can be fairly easy to navigate and for others that can be extremely difficult. That really is one of the bigger hurdles.There is a bit of a dark cloud on this consumer spending holiday. The US Federal Trade Commission, the FTC, is suing Amazon, alleging that the retailer has, "Tricked and trapped people into recurring subscriptions without their consent. Not only frustrating users, but also costing them significant money." That is from Lina Khan at the FTC chair. Now, over half of US households subscribe to Amazon Prime. Is there any meaningful action that the FTC can take outside of shutting down this service?
Jason Moser: Clearly they're not going to shut down the service. That would be probably a bridge too far, but typically with things like this, they ultimately result in some concession. This is going to be something that I think it's played out in the courts for some time to come. I always find it a little bit odd that they tend to use the premise behind this action and that has cost in consumers money, the raking consumers over the coals. When the fact of the matter is generally speaking, Amazon has been a force for good when it comes to bringing prices down for consumers. I'm not saying that's just a blanket statement and everything Amazon does this great, you do have to shop around. But generally speaking, Amazon has brought convenience and lower prices to the forefront.
On the other side of that coin, one thing that Amazon has done very well, and I mentioned that word convenience, they have almost, convinced consumers to place convenience above pricing. In other words, I think consumers will be willing to pay a little bit of a higher price if it means they're going to be able to get that item a little bit more quickly. Just one of those interesting things that we've seen developed with Amazon and e-commerce in general. You compare that to something like a Costco, which is obviously more focused on the physical retail presence in Costco just time and time again, they always do right by their customers by keeping those prices as low as humanly possible. Amazon maybe not so much because the convenience factor is there but yeah, I imagine this ultimate results in some type of concession, but nothing that meaningfully changes that relationship.
Ricky Mulvey: You may hear Amazon say they are very sorry, pay a few hundred million dollars, maybe even a couple of billion, and then keep on driving. Last story before we get out of here, Jason, stop me if you've heard this one before but Bank of America has been accused by regulators of opening fake accounts, double-dipping on fees for their customers with insufficient funds and withholding credit card rewards. Earlier today, the Consumer Financial Protection Bureau ordered the bank to pay up $100 million in fines. Well, Bank of American investors seem to be shaking this off, but should they?
Jason Moser: Well, I mean, in regard to the numbers, yes when you look at the total numbers here, they have to pay $150 million in fines around $80 million to customers who were unfairly charged fees on top of another $23 million it already paid the customers who were improperly denied card awards. So $150, 200 million, 250 million or whatever it may be in the context of Bank of America's balance sheet, that's nothing. That's just a rounding error. I think the bigger question really does speak to the culture of the company and the incentive structure, and we saw this play out before with Wells Fargo time ago. It does speak to exactly what the company stands for and how they incentivize their employees to help grow the business. I can tell you just having worked at Bank of America lifetime ago, the incentive structure was set up to more or less encourage this type of action at the end of the day, when you're basing people's bonus checks, when you're basing their compensation on hitting certain metrics. Like with anything in life, things are gameable and this is a system that certainly can be gamed. It looks like it was gamed in this case and so I don't know that I would look at Bank of America necessarily as the same as Wells Fargo in this case, but this is certainly a sign that there could be something more to it so definitely something to keep an eye on.
Ricky Mulvey: I wonder if Jerome Powell has learned any lessons from Janet Yellen's enforcement with the Wells Fargo thing where she basically throughout the board on her last day in office and may have questionably maybe changed the company a bit.
Jason Moser: The only way to really change this, the only way to really make sure this type of stuff doesn't happen, you just have to make the fines meaningful. It's social media is the same thing. When you're finding [Meta's] Facebook or Bank of America, a couple of hundred million dollars, that just doesn't mean anything. You make those fines financially meaningful and that will change behavior very quickly. Again, it all goes back to incentives.
Ricky Mulvey: Jason Moser, thank you for your time and your insights.
Jason Moser: Thank you.
Ricky Mulvey: Sometimes it pays to wait for a pullback. Our analysts at Motley Fool Stock Advisor have compiled list of five stocks whose prices have tanked but still have strong fundamentals and potential growth ahead. Just one example is a company that lost more than three-quarters of its value despite showing surging revenue. Revealing this stock along with four more in our new five pullback stocks report available for free only to Stock Advisor members. Simply go to fool.com/pullback to learn about these stock picks, we will also put a link in the show notes. Also, want to note that Robert Brokamp is recording a mailbag on Monday. If you have a question about personal finances, saving, or investing, send that over to [email protected]. That is podcasts with an S at fool.com. Next up is you're spending style oriented toward optionality or commitment. Dr. Wade Pfau is the co-host of the Retire With Style podcast and the author of the recently updated retirement planning guidebook. Bro caught up with Pfau to discuss his method for discovering your retirement spending style and what a financial advisor might not tell you.
Robert Brokamp: What the American spend decades accumulating investments, benefits, other assets, things like home equity. And then we reach our 60s and you have to figure out how to turn all that into retirement income that'll last as long as we do. And there are many ways to do it and you have created something that could help retirees choose the right strategies for them. So tell us about the retirement income style awareness profile.
Wade Pfau: Absolutely and it's great to be back on the show and yes, the retirement income style awareness. It's really an evolution of what I've been working on for years at this point. It's work that I did with Alex Murguia where we created an assessment tool around this idea that there are different viable ways to build a retirement income plan. You've got the just purely investment-based approaches. You've got the bucketing or time segmentation approaches and then you have approaches where you look to first build reliable lifetime income and then on invest on top of that. And there's really never been a framework for how people can determine which is the appropriate strategy that resonates with them or that they're going to feel comfortable with for their retirement. So much of it is advocates have a particular strategy in mind that they try to explain that everyone should use my particular strategy. But at the end of the day, they're viable options and it really depends on someone's personality and characteristics, what resonates, and that's what the retirement income style awareness is designed to provide. It's a assessment tool, a questionnaire that gives you a report that tells you based on your characteristics, this is a type of retirement strategy that you might feel most comfortable using for your own retirement.
Robert Brokamp: As you pointed out, it's a questionnaire, a lot of questions, so it'll take a while to fill it out. A lot of them are based on financial planning, some of them are based on behavioral stuff and your co-creator, Alex Murguia, actually his PhD is in clinical psychology. You come up with all these things and you've found out that really there are a couple of main factors that will determine the best strategy for you so let's talk about the main couple, probability based versus safety first.
Wade Pfau: Yeah, that's the first of the two primary factors. There is no right answer about it but if you're more probability-based oriented you're comfortable relying on the idea that over the long run, stocks should outperform bonds and so you'll get a higher investment return when you have a diversified, fairly aggressive investment portfolio. Though, there's risk with that, you're comfortable with the idea that you can rely on that market growth to fund your retirement. If you're on the other hand, more safety first oriented, you may still believe in the idea of stocks for the long run, but you just don't want to make your retirement completely dependent on the idea that I need the stock market to outperform during the pivotal years that will determine the success of my retirement plan. So when it comes to covering your basic retirement expense, you're really looking for more of a contractual protection that will ensure that you can meet those core essential expenses and retirement without necessarily taking market risks to be able to fund those expenses.
Robert Brokamp: When you say contractual things, you're talking mostly about things like bonds, treasuries, but also annuities.
Wade Pfau: With bonds it's not so much the bond fund that is exposed to the interest rate risk and losses, but holding individual bonds to maturity so that you get the face value at the maturity day and there's an implied contractual protection there. Then yes, annuities which add the lifetime income protections on top of that and the risk pooling the idea that the insurance company gets this collection of individuals, some people don't live as long, other people live longer. Insurance company generally invests in a bond portfolio, but is able to support a higher level of spending through the risk pooling, that's part of that contract and it's another source of contractual protections.
Robert Brokamp: I just said that whatever you write about that, at least in your books, you pointed out that you're talking about fairly priced annuities and fairly priced insurance products in general because there are a lot of bad ones out there and those don't necessarily provide the benefits that you want and frankly, they've given annuities a bad reputation, but there are fairly priced annuities that people can be onboard with.
Wade Pfau: Absolutely. Yeah, there's a lot of options out there and you have to look carefully, just like with mutual funds or anything else. You've got to look for competitively priced options.
Robert Brokamp: A couple of other factors that you found are important are optionality versus commitment oriented. What does that mean?
Wade Pfau: That's the other primary factor. It's not one I would have really predicted in advance to the research, but it's again, no right answer if you're more optionality oriented, you really value flexibility. You want to be able to make changes or at least have the option to make changes, respond to new situations. You really want to maintain as much flexibility for your assets as possible. If you're commitment oriented. There's this sense that if you can find somethings that will solve for your lifetime need, you'd actually like to commit to that and to take it off your to-do list and to not have to be as worried about it to help manage cognitive decline potentially to help protect other family members. So commitment orientation is saying, I'd like to commit, maybe I don't have as much flexibility then, but I'd like to commit to something that will solve for my lifetime need versus the optionality orientation. Now I really want to maintain as much flexibility as possible at all times in the future.
Robert Brokamp: Part of what you've demonstrated in your book and your articles is that, at least there are other factors but just looking at these four, you can almost create these quadrants of where you fall along these and that would inform the retirement strategy that you should pursue. For example, one is just total return. You're just investing in a diversified portfolio and you're taking a certain amount out every year and then the complete opposite one is like the safety first, where you really relying on individual bonds, annuities, those types of things. One thing I like about your work, both in the book and your podcast, as well as that you are making people aware of these other options. Because a lot of people choose their retirement choices based on basically what other people are telling you and you've made the point that frankly, the financial media is very biased toward more of a total return type of strategy. We're guilty of it here at the Motley Fool, because we talk about stocks 90% of the time so we draw an audience that wants to rely on a total return type of solution but that doesn't mean annuities don't have their benefits, especially if it's replacing a portion of the bond portfolio. People should be aware of these things.
Wade Pfau: The total returns idea, that's really the pre-retirement wealth accumulation. It's all about building a diversified portfolio to focus on growth. No matter what somebody's style is post-retirement, they really behave like a total return person pre-retirement. Then retirement income planning is really just about, how do you want to manage these new risks in retirement. You no longer have a paycheck, you don't know how long you're going to live. Market volatility has a bigger impact if you're spending from a declining portfolio that can be really disruptive. That's the sequence of returns risk. If your total returns, you're fine with all that, you prefer to maintain that same investment-based approach post-retirement as well. But if you're one of the other retirement styles, there's really the sense of, now that I'm in retirement, I may be looking for some contractual protection or commitment to a strategy that a total return investing strategy doesn't provide.
Robert Brokamp: Another way people decide on their retirement strategy is going to a financial professional. You also right about how financial professionals have their own biases. Partially it's their own philosophical thinking, but it's also how they're paid. If you go to a registered investment advisor who gets paid 1% a year to manage a portfolio, guess what? The solution is going to be pretty portfolio-based. On the other hand, if you go to an insurance agent who makes money by getting commissions, by selling insurance products. That strategy is going to lean heavily on annuities and life insurance, maybe something like that. Part of this is also finding a financial professional that links up with your retirement preferences.
Wade Pfau: Then I think we're seeing an evolution now where there are, like historically, many financial professionals really just provided one retirement income style, whether they were an investment manager, whether they weren't insurance agent. But more and more what you're seeing or in a number of financial advisors who are really becoming open to the idea that there is more than one way to do this. It's important that people have the ability to get a strategy that they're comfortable with. We've seen the growth of annuities that are fee-only. They fit into that investment fee structure mindset of managing assets and charging a fee on those assets that don't pay commissions and so forth. It is possible now to find financial advisors who are comfortable navigating both the investments and the insurance side to provide solutions that individuals ultimately can feel comfortable with and that will, they'll stick to no matter what the financial markets are doing, which is incredibly important to ensuring the long-term success of a financial plan.
Robert Brokamp: I'm just going to touch on two other factors that you've discussed because I've seen it mentioned more from our readers who've been reading books like Die with Zero by Bill Perkins. The whole point of that book is, you don't know how long you're going to live. If you don't know what health condition you're going to have begun to be in your '70s, '80s, '90s. Don't save all your money to the end of your life, you should enjoy some of your money now sooner while you can. The way you express this in your recent profile is basically front-loaded or back-loaded. Explain that to us.
Wade Pfau: We talked about the two primary factors that was safety-first, probability-based optionality commitment. There's four secondary factors which are less important, but they do help to tell the story and you're pointing out one of those for secondary factors, front-loading versus back-loading. Again, no right answers. But if you have a front-loading preference, it is more of this idea that I know today I'm alive, I'm as healthy as I'm ever going to be. I really don't want to miss out. I want to fully enjoy my retirement today as much as possible. If that means that I do live into my '90s and I have to make cuts at that point because I was enjoying those earlier years more. That's OK. Whereas the back-loading preference, and you see that sometimes there's surveys, often from insurance companies that will say individuals are more worried about running out of money than they are about dying. That could be an extreme form of it, but it's this idea that if you have a back-loading preference, you're more worried about what if I am in my '90s and I don't have any money left and I have to dramatically reduce my lifestyle, maybe live only on social security. I really don't want to ever be put into that position. I'm willing to spend less today to have a better opportunity, to be able to have a better lifestyle in the event that I do live to a very advanced age. If you put more weight on that future scenario, that's the back-loading preference. If you put more emphasis on maximizing your lifestyle today, that's the front-loading preference.
Robert Brokamp: One final topic of conversation here in the book you illustrate, that the impact of a single years portfolio return and how much that impacts a sustainable withdrawal rate and retirement. By far the most important year is that first-year retirement. It's a timely topic because we heard about the great resignation. Many people have retired over the last year or two and then came 2022. Which was a horrible year for stocks and bonds that classics 60, 40 portfolio down anywhere between 15 to 20-25%. What did those retirees do now and how can somewhat mitigate the impact of a single year, a bad single year having such a big impact on their retirement?
Wade Pfau: Then this idea of sequence of returns, risks and it's bad years early in retirement where there's not necessarily a quick recovery in the US historical data. We've gotten lucky. We've seen some big downturns, but markets recover quickly in 2023. As of the time of recording, not all those losses have been regained, but we are moving in that direction it seems. But at the end of the day, there's a few different strategies to manage that sequence of a trans risks you can simply just spending. If there's a market downturn, I may spend a little bit less than the following year to try to get my portfolio more chance to recover. I could look for different approaches to help manage the volatility for my portfolio so that I'm not as exposed to those types of big market losses, especially in the early years of retirement or I can look to what I call buffer assets, which is something outside the portfolio not correlated with the portfolio, which specifically just means that doesn't lose value when the stock market and, or bond market or going down. That can provide a temporary resource to spend from so that you're not having to sell from a losing, a declining portfolio and try to give your portfolio more opportunity to recover.
Robert Brokamp: Those buffer assets can be things like home equity, borrowing from life insurance, those types of things.
Wade Pfau: That's mainly two of the three. The other is just a big pile of cash. Those are the only three that I really I'm comfortable calling buffer assets.
Robert Brokamp: Well, thanks for joining us again. Weighed where can people go to learn more about your work and the recent profile.
Wade Pfau: My book Retirement Planning Guidebook is available at most leading book retailers. Amazon would be the easiest way to find it. Retirement planning guidebook, Chapter 1 talks about the retirement income style awareness and provides a link for anyone to take it as well. My home on the internet is retirement researcher.com and we run frequent quarterly type retirement income challenges where people have the opportunity to take the Risa and also use our funded ratio tool to build a simple financial plan and start thinking about how they might want to structure their own retirement income plants. That's on free services that we provide through retirement researcher.com.
Ricky Mulvey: As always, people on the program may own stocks mentioned in the Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.
