Video Posted: Jul 2, 2025
Before I jump into today’s presentation, I want to say thank you. There is an incredible number of subscribers at this point of the recording, and when I do these, I am trying to bring as much relevant value and efficiency to your thinking into the people who are listening to this—current clients, people that don’t know us, future clients. This is the audience that we are really pushing this information out to. We want to give you as much thinking in the way you want to curate your financial plan and that you want to have not just one thing, but you want to have multiple things in a financial strategy. And it’s the organization of those financial products in a unique way that really makes the difference in a plan. It helps reduce taxes, reduce risk, reduce fees, reduce costs, increase savings, increase the protection, increase the retirement income, and pass more money to your family.
So now as we go through periods of economic conditions, changes in tax law, changing policies of every country, our financial plans are subject to the moving and the changing of all of those variables. And that’s one of the things that we’ve been talking about for over 35 years in the financial services industry. The Money Isn’t Podcast is an extension of what it is that I do. Money Isn’t means a lot of different things to different people, right? Money isn’t a boat. Money isn’t a car. Money isn’t a house. Money isn’t Bitcoin. Money isn’t the stock market. Money isn’t cash, right? It’s a derivative of all those things. The way I view it, it’s what does the money allow you to do? Okay, how does it make you live? How do you enjoy your life? And money has energy, just like any other thing in life. If I hoard it, I will most likely lose it or diminish it greatly. If I restrict it, it won’t flow.
In one of the previous podcasts, we were talking about an old audio presentation that we had done, and it brought me back to some of the concepts of my foundation of my career. The part of the economy that makes the economy really, really strong is the idea of the velocity of money and the money multiplier effect. And the purpose of that, or the essence of that conversation or the essence of that equation is that if you have money that is in motion in the economy, meaning people, businesses and consumers, are spending money, that means money is moving from one person to the next in essence, right? One business to the business owner, to the employees, to the suppliers, to the cleaning services—every element of that, right? The more velocity we have in our economy, the more productive the economy is, the more healthy it is.
You can see it referenced in one of our old thinking—or breakthrough thinking as a catalyst for financial freedom, which was an old 1995 podcast. We talk about a river and the flow of a river. If you dam a river or the river gets blocked in any way, it loses that flow and it becomes stagnant and anything in it stop growing and dies off.
When you think about the economy, that makes sense, right? Money in motion makes a tremendous amount of sense. But when you think about your personal financial plan, most people are like, “I don’t get that. I don’t get how economics applies to my personal wealth.” If I put money in one vehicle, one financial product, and I let it sit there and it’s there and I compound it in perpetuity inside that product, it creates a lack because money is not in motion. It requires other things to happen during that time frame, right? It creates additional expenses, additional costs.
Some of the examples of that is if I have all my money in a qualified plan and I don’t have any liquidity on the outside and I happen to have an issue in my financial plan, now I have $15,000 credit card debt at 20%. Your plan may allow for a withdrawal or a loan, but then you’re basically taking money out of the stock market, and then you’ve got to pay it back within a timeframe, and it’s just creating all these ripple effects. It’s like one thing hits something else, right?
So, I wanted to take the concept today and say the essence of what you do in your wealth plan revolves around this idea of the velocity of money and money multiplier effect. The idea that your money is healthier when you have multiple things going on at the same time, that you’re doing different financial products and you’ve coordinated them in a way that one product may produce income. Rather than taking that income and reinvesting it back in its own self, you might take that income and put it into some other tax structure or some other type of strategy. And what that does is actually reduces taxes over time, which is a good thing. And you might be able to pick up more benefits and more protection with the place that you put that money into.
So—and what I think about always is the level of risk, right? As I come back to the velocity of money and the money multiplier effect, I want to ask how does this apply to me and to what I do? Okay. And we’re going to throw up a chart. I pulled down the February 28th, ’25 chart
Everybody talks about the S&P and everybody’s talking about the top 10 stocks that are driving 35% of the market at this point. And what’s really interesting is if you look at this—this chart is broken down into a couple different areas. And what I want to focus on first is the weight of the top 10 stocks in the S&P 500, the percentage of market capitalization of the S&P 500. If you look at any S&P 500 fund, you’re going to find that there are 10 stocks that represent anywhere between 30 to 38% of that fund makeup, depending upon whether it’s a mutual fund, an ETF, etc. It doesn’t really matter what the ticker is—it’s the concept that I want you to get.
Source: J.P. Morgan Asset Management
This chart goes back to 1996 when the top 10 stocks represented about 18% of the S&P 500. As of February 28th, 2025, the top 10 stocks represent about 36.4% of the market capitalization, meaning the value of those stocks compared to the rest of the stocks in the S&P 500. If you’re using the S&P 500, that would be—there would be 500 stocks. Take 10 out, so you’re left with 490 stocks. It represents 36% of the total value of all the stocks. So it’s 10 stocks represent 36% of the market valuation. It bottomed out again in ’14, ’15, ’16 around that point of 17% of the total market capitalization. If you look at 2000, which is a really interesting inflection point, you’re at 27% of the total market capitalization in the top 10 stocks.
I wish this chart actually showed what the top 10 stocks were at that time versus what they are now, because they are different. They are completely different. So as we look at this, do you perceive that the risk of the top 10 stocks would be greater if it represented 15% of the total market capitalization, or it represented 36.4% of the total market capitalization? I think that answer is pretty clear—it would be higher risk.
When you look at 2000, right and it’s topping out at 27%. If you recall, you had the market from ’94 to ’99 on fire, which was led by the dot com bubble or burst. As we got to the top of that, it was actually down over a three-year period approximately 50%. If I had money sitting there in 1999, I’m retiring, and I look back at all the historical market performance, you would see that the S&P for a 20-year period has a really good rate of return, somewhere in the neighborhood of 10% to 12% depending on the timeframe that you look at. There’s no reason I can’t take out a 5% withdrawal so I put a half a million dollars in the S&P 500 in 1999. Assuming that’s all my money, I’m like “Okay I’m going to retire and I’m going to pull out 5% or $25,000 a year, making a slight adjustment for inflation at 3%.” Where would I be today with that strategy? The last 25 years have had a great rate of return looking back to 2000 through now it’s been a great rate of return. But when you look under the hood how did how did that return happen okay so if I put the half a million dollars in and I’m pulling out 25,000 I went through that 50% downturn over a three-year period got into ’07 when market was coming back up and then ’08-’09 the market’s down another 57%. To get to $25,000, I’ve got to sell shares. When the market is down 50% I got to sell twice as many shares
Why is Warren Buffett a multibillionaire? It’s because he never sells shares. As I sell shares in a down market when the market recovers, I don’t have as many shares to recover. This story ends in about 2013 with the that half a million dollar beautiful portfolio with me pulling out the 25,000 is down to 23,000. I’m 14 years into retirement and I’m and I’m broke.
That is risk. Because it’s not about the product and it’s not about the return potential. It’s the sequence in which I receive and as I get that sequence, I can’t predict how it’s going to happen. Looking at this chart on the top right hand side, the risk level of these stocks is pretty high at this point representing 10% of it. I’m not saying you shouldn’t have this or you shouldn’t own this and you should be in some stupid singular product. What I’m saying is understand what the risk is and build structures around it to because everybody needs defense.
If you’re a football fan, Tom Brady’s the GOAT right. In basketball, Michael Jordan LeBron James Steph Curry all play the game differently, but they can’t play the game without a supporting cast. You can’t have a winning football team without a defense. Imagine if every Super Bowl that Tom Brady won he went out there and played a great offensive structure, but the defense never took the field. That’s what we’re doing in our wealth plans. We’re literally not putting our defense on the field.I see people day in and day out who are phenomenally successful, and they have like zero defense. Zero.
Now, when you go over and you look at the left-hand side of this chart, which is a really nice chart, it’s called P/E ratio, which is price to earnings. Take the price of the stock, divide it by the earnings, and you come up with a number of the top 10 stocks and then the remaining 490 stocks for the next 12 months, 1996 through the present. So, you can connect the dots between the two charts.
In 1996, the price-to-earnings ratio on the S&P was about 14, which was historically low at that time. Then, it went all the way up to 24, which is historically high in about 2000. The top 10 stocks went from about 21 in 1996, and extended up to looks like close to 42 at that high. And then they crashed all the way down to around 14. So that means the price of the stock and the earnings both dropped, and the stock dropped along with it. And then we got all the way down in the 2012s, down to like 8 and people didn’t want to buy. People want to buy when the stocks are really high, because it feels good. This happened in the pandemic. This happened in the flash crash. That happened at all these different times right, when you look back. People stop buying when the stock market goes down, and it’s the exact opposite behavior of what we’re supposed to be doing, right?
I use Warren Buffett as an example because he’s the eternal investor. He buys all the way through. Why is he super wealthy? He’s got a lot of shares. He wouldn’t be super wealthy if he didn’t have a lot of shares. Well, how do you get shares? You buy them. And the cheaper you buy them, the better off it’s going to be. Simple math.
But as you go forward in this chart, P/E ratios extended up above 30 again. Then, they dropped down and the stock market dropped down. Now it’s back up, the current is 27.4. and the average for the top 10 stocks is 20.6 over this ’96 through present.The remaining stocks have a price-to-earnings ratio of 19, and the average is 15. So that would mean that both of these are higher than the average. To get an average, you’ve got to have high and you’ve got to have low. The S&P is 21 and its average is about 16 so the S&P looks pretty well-valued at this point, right? It’s not overvalued, but it might be when you look at the chart.
So what my point is, is that an expected pullback that we might be experiencing in the moment is actually normal, and it’s actually part of the process. And it’s going to happen. When you look backin 1969, I think there was like 290 mutual funds, right? We know there’s well over 7,000 of them today, plus the ETF market. But when you look back at these historical market performances, there’s a just an up-down-sideways, up-down-sideways, up-down-sideways. But the longer-term trend is usually up, right?
The way they’re defining this in this chart is the economic concentration in the S&P, percentage of the S&P metric for Q4, fourth quarter 2024. How much R&D are these companies putting in? The top 10 stocks is 37% of the S&P so these guys are investing, which is a really good thing. So you could look at charts and go, “Ooh, ugly, scary, run like hell,” or you can look at charts and go, “Well, research and development, last I checked, usually produces something new.” If I’ve got free cash flow that represents 20% of the overall, they got the freest flow. They have the most opportunity to acquire and invest in their sales, their employees. They only have 12% of the employees, so that means they run lean. It’s good business, good structure.
With anything, you can look at it with rose-colored glasses or really dark sunglasses, where everything’s either really good or bad. Or you can kind of look at the math and go, “Well, there’s elements of good and there’s elements of bad.” And ignoring something, not having exposure to something, is really not smart, right? We’re in a point where the amount of people that are scared that the world is over is increasing at a rapid rate, which is forcing people to say, “Go to cash and go do things.” And we know that that could make sense depending upon where your money is. But if your money’s balanced and you’ve got multiple different tax structures, and different types of asset classes, and different types of vehicles and products designed to play a specific role, the odds of your success go up greatly. And when I have a liquidity need, right, that I can’t predict, if I have access and availability where I don’t have to pay taxes, or I don’t have sell something at a tremendous loss, that provides confidence and clarity.
I wanted to discuss this today because my feeling is that if you’re going to be the long-term successful investor, you’ve got to have the best defense. And how do you know if you have the best defense? When you look at some of the top performing sports teams, they’re successful because they play a really good game of defense. They let up the least amount of points. There’s metrics that are there. And it doesn’t necessarily mean they’re star players. Right? There’s some of the defenses right now in basketball don’t have any star players, and they’re playing some of the best defense—hands down. They have great coaches, and they have a great strategy, and the players are actually applying the principles.
So think of your defense as: What is the ideal defense for the game that I’m playing? What is the ideal structure? Now, you and your brother might be business partners. You and your brother might be in completely different businesses. Most likely, you have very different family structures. So your plan is different depending upon who you are.
Now, in offense—how do you become the most efficient offense? Do you win the game by three points? You’re not going to win the game on free throws, but you are if you’re a 50% shooter versus a 90% shooter, you’re actually going to make a lot more money, okay? But you’re also going to win games that are down to the wire—two, three points, right?
So what my point is, is that you need to look at your plan, and you need to break it down into the elements, and be really critical: Am I playing the best offense? Who’s on my offensive team? Is my offense structured in the best way that it possibly can be? Am I putting money in the right tax structures? Do I have the right elements of growth? Do I have the right investment structure? Do I have the right defense in this plan from an investment perspective? Do I have the right trust work? Do I have the right umbrellas? Do I have the right life insurance, the right disability protection? Am I insuring and protecting myself? Am I being efficient with those dollars? And my belief is that to get the best outcome with a financial plan, it has to have maximum defense and maximum offense at the same time. If you’re just all offense, at some point, you’re going to have a problem. If you’re just defense, you’re never going to build the wealth. It’s a careful structure of balance on this. I really want to reach out to everybody here and say one of the greatest things that you can do in your wealth plan is to have a really good conversation.
And most of you know that we run a company called Smallwood Wealth Investment Management, which is a registered investment advisory firm. And we do a full-blown wealth management plan. We call it the Wealth Curve Blueprint. I’m going to urge you to set up a free, no-obligation conversation with one of our qualified advisers, and have a conversation about your wealth, your goals, your dreams, your vision, your concerns—and see if what we do is a good fit for what you do. And it’s free. There’s no obligation. So I would recommend that you do it, because the first question most people that you’re talking to going to ask you is, “How much money do you have to invest?” That’s not our first question, and it’s long down that list.
We’re really understanding who you are, what your family makeup is, what business are you in, what are your tax burdens, what’s your savings rate, what’s your debt structure, what’s your lifestyle like. Now we’re going to talk about some assets. Got to understand where you are, all these goals and dreams. And then we’re going to be talking about defense, right? It’s a really good conversation, and I recommend that you take advantage of it now by going to smallwoodwealth.com, signing up for the free conversation, calling the office at 800-797-1000, and getting on the call. Thank you. Have a wonderful day.
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