Is it Time to Rethink Bonds? These Two ETFs Offer an Answer

Plus, how the Museum of American Finance bridges history and your financial future

Ric Edelman: It's Friday, December 13th. On today's show, some ETFs you should get excited about. Plus, my conversation with David Cowen, the president of the Museum of American Finance about what the museum has to offer.

Yes, it's Friday the 13th. I don't know why we freak out about Friday the 13th. Did you know that the 13th of the month falls on a Friday more often than any other day of the week? We're setting ourselves up for getting freaked out. But I digress.

Is it time now to rethink bonds? Rates are dropping again for the first time in years. That's creating new opportunities for the bond market. I want to mention two for you. They come from one of my sponsors, Invesco. The Invesco Total Return Bond ETF. The ticker is GTO. And the Invesco MSCI EAFE Income Advantage ETF. That ticker is EFAA. Let me talk about them one at a time.

First, the Invesco Total Return Bond ETF (GTO). This is an actively managed intermediate term bond fund. It's got global exposure, not just the U. S., although 85% percent of the fund is U.S.-based these days. There's $1.8 billion in this fund. It's one of the largest ETFs in the country.

GTO seeks maximum total return from both income and capital gains. The fund is based on risk exposure, asset allocation, and other themes to help the fund managers make sure that the macro views are reflected. They use a bottom-up security selection process. There are more than 60 sector specific research analysts at Invesco who analyze and tactically adjust the beta positioning. They use a thematic approach to identify opportunities driven by market volatility, technical indicators, valuations, and economic cycles.

They also produce idiosyncratic alpha that's reinforced by a comprehensive risk management framework. The whole intended outcome of all this? Strong performance when the markets are going up and risk modulation when the markets are going down. The result is consistent portfolio management that's aimed at delivering repeatable outcomes. And this is why this fund has such a large amount of money in it.

Then there's the Invesco MSCI EAFE Income Advantage ETF. That's the Europe, Australia, Far East Income Advantage ETF and that ticker symbol is (EFAA). This provides international diversification and the goal of generating income. You get the combination of a passively-developed market equities approach with an options overlay.

So even though this is for income, this is really rethinking bonds, right? You’re using an equity fund to generate income because they do it with investing in equities, but with an options overlay. You diversify internationally in a fund that's designed to provide income with less volatility and downside risk protection.

And that means it's designed for investors who want consistent income without the duration risk you get from bonds. The fund right now is about 75% passive equity portfolio, the EFAE index. And the other 25% has a cash cushion for puts. It does covered calls and cash-secured puts. Bottom line is they apply the option income strategy to about half of the portfolio to provide growth from the equity market participation, monthly income with downside risk protection and a diversified international exposure.

You get 21 developed markets from Europe, Australasia and the Far East. The U. S. and Canada are not in the equities in this fund. It's a true foreign fund. Their largest holdings at the moment, Switzerland, Germany, France, the UK and Japan.

The whole point of this is that selling covered calls generates income. The cash-secured puts generate more income and create downside buffer. And it's not the kind of a combination I think that ordinary investors are going to be able to do on their own. It's something you need Wall Street professionals to handle.

And that's why people turn to Invesco for that. Invesco's, been one of the leaders in the ETF business for more than 20 years. They launched the first smart beta ETF way back in 2003, they've got more than 200 ETF strategies and they've been managing systematic equity option strategies since 2018. So, if this is something that appeals to you, I think Invesco is one of the firms that ought to be on your short list for figuring all this out. You can learn more at Invesco. com. The link is in the show notes.

I've told you for the past couple of months that the end of this month is my final podcast, December 27th. My long 35-year run is coming to an end. Bittersweet for sure. 1,500 radio broadcasts since the early 1990s. That was followed by this podcast series, 500 of them in the past three years, as I went from a weekly radio show to a daily podcast, and it's coming to be the end of an era. It's been an awful lot of fun to do this, and I've made a bit of a mark. I was named among the Talkers Heavy Hundred, I don't know, six, seven years in a row. One of the Top 100 most important radio talk show hosts in the nation, according to Talkers magazine.

That was really, very humbling to be included in that list for so many years. But it's time to go off and do some other things. The podcast, as you can imagine, takes an awful lot of time to produce on a daily basis. And the amount of time I devote to that precludes me from devoting a lot of time and attention to some other things that, frankly, I'd really, I don't know if I'd say rather go do, but I certainly want to go do.

And among them are a couple of philanthropic activities that Jean and I are engaged in already in which we are going to ramp up. One of them pertains to a nonprofit that we are very, very excited about that we've been involved with for some time, which is a very influential organization, not only on Wall Street, but more broadly in the area of financial literacy.

It is the Museum of American Finance. And to give you a sense of what the museum does and who they serve and how we're connecting history with the present and our future, I'm very happy to bring on to the podcast today, David Cowen, who is the president of the Museum of American Finance. David, great to have you here on the podcast.

David Cowen: Ric, a pleasure. And I think we should do full disclosure that you are a trustee, in fact, at the museum and you help us on several of our initiatives, which we're going to get into.

Ric Edelman: It's my pleasure to be a member of the board of the museum. The work that the Museum of American Finance does is, is important, both for historical reasons and also for today's pressing needs of financial literacy, which we might as well, I think, really start there, David. Talk about what the museum does and with a particular focus to its financial literacy initiatives.

David Cowen: So, our core mission boils down to preserving, exhibiting, and teaching about our nation's finances and financial history. Preservation is the museum's incredible archive, and we have some 14, 000 record locators. Some have one object, like a stock ticker. Some of those would have 100 objects, different securities, let's say, from an individual firm. Very exciting, and in particular, really strong at the inception of our nation. How did these capital markets start? Got a strong collection of material related to Alexander Hamilton.

We have exhibits that travel. And then teach financial literacy, which really means financial education initiatives that you, Ric, as a pioneer, started some 35 years ago. For instance, we are aligned with the New York Public Library for two eight-part sessions.

One of them is on retirement and Ric Edelman kicks it off every year. This program reaches thousands of people. And there's a second program on the basics of investing. There are many other programs we're doing. We're doing a museum finance academy for high schoolers. We've also had in person events with, just in the past year of people like Fareed Zakaria. So very busy.

I must mention that we have no barriers to entry. Everything is free.

Ric Edelman: David, it's really fascinating work that the museum does. One of the things, though, that I think most people would think, When first hearing that there is a museum of American finance, they would say to themselves, how geeky can you possibly get? I mean, who would care about American finance? This is obviously an insider's club for Wall Streeters. What kind of artifacts might you have that anybody would have any interest in seeing?

David Cowen: I love that question, because we always meet or beat expectations, given exactly what you said, a lot of people come in with very low expectations, and we've kind of blown away.

Some of our prize positions, including things like Alexander Hamilton's report on public credit, which is the economic equivalent of the U. S. Constitution. We've got George Washington's bonds. (image)  We've got a plethora of 200 odd years of memorabilia. We have the stamp from the original Stamp Act. That was the match that lit the American Revolution and so many objects, lots of good things in there.

Ric Edelman: Let me highlight two, and I'd like you to elaborate on both of these. The stamp you mentioned. Most Americans are not terribly familiar with the details of American history. We all, of course, know about the American Revolution. We know that the founders were fed up with taxation without representation, that it was the wealthiest of the founders who led the revolution, and we know about the Boston Tea Party.

But what we don't know, most of us, is the Stamp Act, which is, as you called it, the match that lit the fire. So elaborate on what the Stamp Act was and the fact that you actually have the stamp.

David Cowen: So, in the wake of the Seven Years War, once again, the British and the French are at it with each other, 1756 to 1763. There was a high cost to the British to defending the colonies. And as a result, they were like, ‘Well, we're not going to pay for it. We're going to put that tax onto the colonists. And how are we going to do that? We're going to make them buy a stamp to put on all printed material from newspapers, all the way through to playing cards.”                                                                       

Boy, did that not sit well. There was a huge pushback. Many things that are going to happen. That Tea Party and eventual shots fired on April 19th, 1775.

Ric Edelman: And the fact that you actually have that.

David Cowen: It's a real gift to our nation. We have documents from that period and Hamilton's creation of the economic system that we live under.

Ric Edelman: And in fact the bank he founded, the Bank of New York, still exists today.

David Cowen: It does. That bank in North America is a great story. Our nation during the Revolutionary War, we are effectively bankrupt. And we have Ben Franklin and others over in France, negotiating loans. They negotiated to get some money to open a bank and 35 crates of silver that came over, couldn't be landed in Philadelphia. It was blockaded by the British. Couldn't be landed in New York, which is occupied.  

It landed up in Boston. We have the document that John Hancock signed for the silver. It makes its way down to Philadelphia, guarded by the Marine Corps. The bank opens. The bank lends to the government, takes all the money, and finally pays the troops as a great morale boost on the way to Yorktown for that decisive battle.

Ric Edelman: And this is the thing that folks never really ask about when we do learn about the early American history, we learn about the revolution and, and we know about the founders, et cetera. Nobody ever really talks about how did we pay for all this? How much did things cost? How did business get transacted?

When we learn about American history, to the small extent that we learn it, money is never really talked about. And yet, without it, none of this would have happened.

David Cowen: Agreed. Free enterprise is the key to it all. And the Hamiltonian policies that were put in place. Well, guess what? Hyperinflation takes place right here in America during the Revolutionary War.

There's a great letter from George Washington in the middle of the war saying, “a wagon-full worth of money will not buy a wagon-full worth of provisions”. How do you protect yourself from inflation? Well, today it's called TIPS, Treasury Inflation Protected Securities. A bond that will appreciate in relationship to what the current inflation rate is.

Well, back then, how did you protect yourself? You issued commodity bonds. And so we've got a bond in our collection that will either pay a standard 6 percent interest or a whole basket worth of sheep's wool. And that's how you protected yourself back then. There's really nothing new under the sun, Ric, as you know, it's often just something repackaged.

Ric Edelman: I'd mentioned that there are two of my favorites in your collection. The stamp from the Stamp Act is one. The other one, we're going to fast forward a couple of hundred years. Talk about JFK's check.

David Cowen: Sure. So when John F. Kennedy was president and he traveled to various places with the Secret Service, he would give the Secret Service a blank signed check in case he wanted to buy something for Jackie or for the kids.

And when you are president, what account number do you get? Of course you get account Number One. And this check is drawn on the bank, National City Bank, which is of course now Citibank. But the backstory on this check is it actually was in possession of an agent in Dallas when Kennedy, unfortunately, was assassinated.

Fast forward 35 years. He kept it. He sold it at auction and then someone bought it and donated it to our museum. So, a pretty incredible piece of history.

Ric Edelman:: So, the fact that you have these kinds of unusual pieces that have incredible ties to our history, I think helps bring the topic of money alive. Because most are intimidated by the subject of money or they're bored by it or just flat out mystified and this helps make it very human, very real.

David Cowen: Can we just talk about the Hamiltonian programs? I've been at the museum 15 years. Nobody cared about Hamilton. It wasn't until Lin-Manuel Miranda came along, and the show, Hamilton, and everything lifted off. And as I like to say, now I have eight year-olds that finish my sentences about Alexander Hamilton.

We were very fortunate. Lin-Manuel Miranda actually came to the museum several times before the show happened, rapped for my staff in my office, which is really cool. There was always a painting of Hamilton behind me, and he conducted research, and he rapped it in one of our galas, which is our main fundraiser. And I'm actually in the making of the show, Hamilton.

One of the things we showed Lyn-Miranda is the report on public credit.  So, Hamilton comes into office in September of 1789 and our finances are a mess.    

And the first thing he's got to figure out is how to untangle all this leftover debt from the revolution.  And we, Ric, as a nation, we are a junk nation. Our debt is trading at 10 or 20 cents on the dollar. No interest payments have been made. People don't think we're going to honor it. Some of the states also had issued debt, and we're also at junk bond prices. Hamilton comes in with a strong vision of what to do about this, and he says we should honor this debt.

This is known as assumption, and this is a radical idea in history. If you look at the Communists, when they come to power in Russia, they repudiate the czar's debt. The Communists, when they come to power in China, renege on Chiang Kai-Shek’s debt. Hamilton says we should assume it. A really powerful idea.

But the Virginians don't want to do this. This is being stymied in Congress. And they're like, why should we pay for these other states? And in the first Great bailout in American history, we are going to assume all of this debt as well as the state debt and put it on the books of the United States and reissue new us treasury bonds that actually have a direct line to today's $36 trillion worth of debt.

Now, this is an incredible document, the report of public credit, and I'm going to boil 16,000-ish words, because Hamilton could not hold his ink as we all know, down to six words why we should do it. “It is the price of liberty”. And I think those are really cool words.

This goes to the show Hamilton, the room where it happened. This is what they're talking about. In the room is Thomas Jefferson, Secretary of State, and James Madison, influential member of Congress, both of course, future presidents. He's going to trade them this assumption of debt in exchange for the capital to be moved from New York to Philadelphia.

Money, as you mentioned earlier, does intimidate people. And one of the jobs of our museum is to make it understandable, fun, easy, and a lesson at the same time.

Ric Edelman: So, these stories are so much fun, they're so insightful, they're enthralling, but it's all historical. Talk about the bridge from understanding our economic past to the relevancy of our own individual personal finance present. And our goals individually of achieving financial security, with obviously the emphasis on your financial literacy efforts.

David Cowen: Sure. I call it the three P's: public finance, private finance, and personal finance. Public finance obviously is the governments, the states, et cetera. Private finances is companies, personal finance is us. The things you've taught for decades, right? Budgeting, risk, investing credit. It's the same whether theUnited States wants to buy or you want to buy a car. You need good credit. You need to budget whether you're a company or whether you're an individual. You need to read Ric Edelman's books and listen to his podcast and you'll find out how to do that.

And then we come down to how does it impact you as a person. But given the intimidation factor that goes on, we want to set it in this context so people understand it. If you are more financially literate, you will have a better financial well-being with knowledge on financial literacy. About half the states now require in high school some sort of financial literacy. So we have a huge challenge in our nation to rectify this. That's why I'm really excited about spending more and more time with you in 2025. You did it once before, Ric, at the inception. And I really look forward to working with you as we move forward to crack it in 2025 in the next five years or so.

Ric Edelman: That's David Cowen, the President of the Museum of American Finance and no surprise to anybody, a PhD in American history. And I’m very excited to be a member of the board of trustees of the museum and it gives you one little insight into some of the activities that Jean and I will be engaged in, in 2025 and beyond, and why I want you to join our distribution list so that you and I can stay connected.

I'm going to be doing lots of webinars in 2025 of an educational nature on all sorts of financial topics. So be sure to click that link that allows you to join my distribution list, so we can keep you posted on all the events that we're going to be doing.

And I also invite you to go check out what the museum is doing and offering Two websites. The first is moaf.org. The link is in the show notes that takes you directly to the museum's website. And another favorite of David's, here’s the link to USdebtclock.org, which tracks that $36 trillion debt that we have amassed ever since Alexander Hamilton.  

David Cowen: Hamilton, when he created the debt, he also created a way to pay off the debt. I think he'd be very upset with what's going on now.

Ric Edelman:  That's David Cowan of the museum of American finance here on the Truth About Your Future. Thank you, David.

David Cowen: My pleasure.

Ric Edelman: I you missed out on our two webinars this week, on Monday, I did the webinar on crypto, “What the Election Results Mean for Crypto”. And Wednesday, we did a webinar on retirement: “The Retirement Revolution: ETF Solutions for Modern Retirement Planning”. If you missed either or both of them, the replays are now available. Click the links in the show notes. You can watch both of those webinars for free.

I'll see you Monday.

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Links from today’s show:  

Invesco Total Return Bond ETF (GTO) https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=GTO

Invesco MSCI EAFE Income Advantage ETF (EFAA)  https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Advisor&ticker=EFAA

Invesco Website:  https://www.invesco.com

The Museum of American Finance Website: https://www.moaf.org/

The Museum of American Finance Historic Image Gallery: https://www.flickr.com/photos/financemuseum/sets/72157624172313095/

The U.S. Debt Clock Website: https://www.usdebtclock.org/

David Cowen's Book: Alexander Hamilton on Finance, Credit, and Debt

1/15 Webinar - Your Crypto Questions Answered: https://dacfp.com/events/your-crypto-questions-answered

12/10 Webinar Replay - The Retirement Revolution: ETF Solutions for Modern Retirement Planning: https://www.thetayf.com/pages/the-retirement-revolution-etf-solutions-for-modern-retirement-planning

12/9 Webinar Replay - What the Election Results Mean for Crypto:  https://dacfp.com/events/what-the-election-results-mean-for-crypto

2/24-2/26 Wealth Management Convergence-2025: https://www.thetayf.com/pages/convergence

11/13 Webinar Replay - An Innovative Way to Generate Income in a World of Declining Rates: https://www.thetayf.com/pages/november-13-2024-an-innovative-way-to-generate-income

10/9 Webinar Replay - Crypto for RIAs: Yield, Staking, Lending and Custody. What’s beyond the ETFs? https://dacfp.com/events/crypto-for-rias-yield-staking-lending-and-custody-whats-beyond-the-etfs/

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Brought to you by:  

Invesco QQQ: https://www.invesco.com/qqq-etf/en/home.html

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