"Matter of Time" Before AI Rug Pull? Patrick Mueller on Concentration, ROI Concerns

Marlee (0:00)

Our next guest is standing by, though, so I do want to welcome in Patrick Mueller, RFC and president at Bella Advisors. Patrick, great to see you. Now, you called last week a warning shot, and you're recommending to your clients that they might be taking some profits here. So I'm curious, what specifically changed in the market for you that has changed the risk reward, showing you it's shifted in some way?

Patrick Mueller (0:23)

Oh, great to be with you again, Marlee. And one of the stuff that's been happening is everything has been so tech focused.

Last year, you had pretty much half of the market growth came from about 10 companies. And we've seen a lot of that same trajectory this year. And so even when you own the S&P, it's so heavily weighted towards those companies. It's really like owning a tech index right now.

So much money has been going into AI and been funneling into that. And at a certain point in time, that money's got to start coming back in the form of profits and revenue. And that's what we're starting to see is missed expectations. Now, you had that happen to IBM back in August, where they're missing, lowered their expectations and their stock price dropped 25% in a day. So we saw that with OpenAI last week, and you're starting to see a lot of these companies starting to get beat up. And it's only a matter of time before you have a big company, a big player in an industry that's not meeting expectations or earnings. And that's going to pull the rug out from everybody. So there's people say this when the markets are down, that it's only a paper loss, but nobody ever says it's only a paper gain. And now that we're all time highs in the markets, it's a great time to take some of those profits off of the table because it's not a gain until you realize it and get some of that money in your pocket.

Marlee (1:38)

How much money are you recommending investors hold in cash right now?

And whatever that number is, is this defensive to protect against a correction that you may see coming? Or are you just holding that for an opportunity to redeploy?

Patrick Mueller (1:52)

I would say both. I would say both. I mainly work with people who are retired or nearing retirement, so I tend to be much more cautious from that front. But just as a general rule of thumb, you take your age and that should be the percentage of money that you've got safe and protected from market losses. So if somebody is 50 years old, then 50 percent should be safe. Fifty percent is okay to be investing in the markets.

So as the older you're getting, somebody is 60 years old, then 60 percent should be protected. And 40 percent we can have at risk in the market. So everybody should always have some type of percentage that they've got. So now that we're getting higher interest rates on our treasuries and on CDs, with the recent rates moving up, it's nice to be able to get a decent rate of return. But we also like fixed rates of investments like we use ACYN a lot, which gives us about a 10, 11 percent yield that is pretty darn stable. So we like that position a lot. But that's generally our rule of thumb, Marley, is we want to take your age and that should be the percentage of money that you've got safe and protected that is not going to get beat up by the markets.

Marlee (2:58)

So Patrick, if you're working primarily with retirees or those close to retirement age, then how are you looking at yields right now and fixed income? I mean, it's changing the equation for equities here. I mean, when we saw a level, we were at north of 5.3 percent. I mean, how much are you reallocating with rates where they are?

Patrick Mueller (3:18)

Yeah, that's a great question. And we've definitely been allocating more towards whether people are in CDs or in money markets for just that safe money, that emergency fund, anything over and above that. We want to try to get a little better rate of return on it. So we like to look at, we do a lot of structured notes. So things that might be tied to an underlying market index, but we're not really taking direct market risk. And it's going to be giving us that cash flow that we want at 8, 10, 12 percent that we can get annually in cash flow.

So because bonds have been getting beat up for the last 6, 7 years now, if people own their bonds directly, then that can work out great. But the problem is most people don't hold their bonds directly anymore. Most people hold them inside of an exchange traded fund or a mutual fund. And the problem with that is that there's no maturity dates on those holdings. So if we can own it and we can hold on to it until the end of maturity, then that's great. But otherwise, it gets heavily influenced by interest rates. We saw interest rates going up recently. That hits bonds that you own. And so if you've got that inside of an ETF, you got to be very cautious of that because you've got to wait for those rates to go back down to get some positive cash flow.