wall street journal at large." thank you for joining me. ♪ >> barron's round table sponsored by: >> this week john stein on how the robo adviser is taking on the banking industry. the world's most profitable company is poised to go public next month. and holly newman cross joins the panel on how you can create an income stream after retirement. the "barron's round table" starts now. ♪ ♪ >> welcome to "barron's round table" where the sharpest minds on wall street prepare you for the week ahead. i'm jack otter. we begin with what we think are the three most important things

investors should be thinking about right now. we're heading into a big week for retail earnings with implications for the housing market, upcoming holiday sales and more. kkr making a play for walgreens in what could be the largest leveraged buyout on record. are similar deals on the horizon? and aramco set to go public next month, what impact will it have on the oil market and stocks? my colleagues, ben leveson, laura ruin lin and jack howe. jack, let's briefly mention at the very end of the day on friday the market nosed above 28,000, the dow above 28,000 for the first time, so traders will head in with a mile as they rerue retail earnings, home depot versus lowe's, the battle that one team always seems to win. >> yeah, it's not much of a battle. home depot's always better. lowe's stock is usually cheap because home deusually does better -- depot usually does

better. this is the era of no excuses in retail. if you own shares of a store chain and they're not doing well, it's not the consumer, people don't like them, people don't need them. consumer spending's probably going to grow 3% this holiday season, maybe 4%. walmart just put up the best numbers it's had in years, target doing very well taking share from some of the chains that are struggling. there's an ugly bunch that's going to be reporting this coming week -- macy's, l brands, i would throw gap in there. if they're not killing it right now, the environment is not going to get better. jack: is there a road back? >> i'm worried that sometimes you hear a myth that retail is struggling right now because the consumer's not strong enough. the consumer is fine, spending is fine. retail is struggling because we have too many stores, and some of these are chains that we don't quite need anymore. i don't want any part of a turn-around story in retail right now.

there's some parts of the market where, you know, turn-arounds look interesting. retail's not one of them. jack: ben, let's go to you on saudi aramco. huge ipo with some interesting stuff going on behind the scenes as to who actually wants to own that. tell us what's happening. >> so saudi arabia has this large oil company which is responsible for handling all the oil that they have -- >> which is a lot of oil. >> a ton of oil. they've been wanting to ipo this for four years now. the country was trying to get a $2 trillion valuation. there have been problems along the way -- falling oil prices, the murder of the journalist, khashoggi, things like that. looks like it's going to happen now. jack: why are they choosing this moment to do it in in they know we're going to hit peak oil atom point, and they also know they can't rely on having an economy that's just reliant on oil. so they need the money to build out other industries. so they're going to sell some of this off to investors both in

saudi arabia and institutional investors around the world. you're not going to get a valuation on in the same as you would on an exxon or a chevron. this is a totalitarian country, and they get lower valuations than other companies. jack: and it's not even going to be available to individual investors, right? an institutional play? >> an institutional play. there are going to be retail investors who can get it in saudi arabia it, i but the for me and you, it'll end up in some of of the mutual funds that we own. jack: and some will probably refuse to own it because of the issues jack a raised. lauren, you are talking about walgreens which is getting the hairy eyeball from one of the original barbarians at the gate. >> the barbarian's back at the gate, jack. kkr is looking at doing a $70 billion leveraged buyout of walgreens. this would be the biggest leveraged buyout ever, but it's really not about drugstores, it's about debt and the fact that debt is very cheap today because we have such low interest rates. so there's a desire to lend at

low rates, and there's a desire to buy. jack: you don't have to have great returns on a company as long as you can get up off that low bar. >> that's exactly right. we've seen the appetite, basically $30 billion in bonds to finish its deal for allergen. >> they make botox. [laughter] >> i look at walgreens, i'm thinking are they eyeing cvs. they're moving to health care. we now think of cvs as a health care company. maybe there's some sort of way to expand or extend this business to address health care and, you know, grab some of that margin instead of trying to show more in the candy kyle. jack: can you explain that dynamic, maybe they could cobble together that sam sort of -- >> there's so much cost bloat at hospitals and other places that if you can offer health care services at a drug chain like this where you face a lot of

consumers, you could do so at a much lower price, and it helps if you want a health ensurer who can steer patients in the door. jack: ben has even had an experience with this, right? >> it's caremark, which is cvss pdm. at some point you're basically told you have to go on caremark otherwise you're going to have to fix the drugs yourself. jack: coming up, you can't just save money for retirement, you also have to plan on how you'll spend it. the panel comes back with how to create an income stream in retirement. but first, barron's exclusive interview with ceo jon stein on the success of row bow advisers and why the investment firm is branching out into banking. that's next. ♪ ♪ ♪

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♪ ♪ >> jon stein launched an insurgency. he created betterment, an online business investment environment that creates portfolios. today his start-up manages $20 billion for nearly half a million customers. newcomers have challenged him, and the biggest names in finance have copy him. jon stein joins us now to explain how he plans the stay ahead. would you just explain the value proposition? why would an investor go to betterment? >> sure. betterment is the first smart money manager. customers come to us, and they want to manage their investments in retirement. and if you use our tools and advice about how to save and all of our tax optimization, we can earn you 38% more cash over 30 years towards retirement than if you were to invest without with piece on your own somewhere else. that's a huge amount of value, and now we're bringing that same value into everyday money.

jack: so i go online, i answer those questions you mention, and then you build a portfolio of etfs for me. what's the basic investing philosophy behind that allocation? >> think of it like a globally diversified portfolio for each one of your goals. so if you're investing for a down payment on a house, we'll have a relatively conservative portfolio, because that's a short time horizon today. and if you're investing for retirement over 30-plus years, that's going to be more aggressive, more heavily stock-based portfolio. and each of those will have a glide path for you to adjust that over time, we'll manage the taxes. so there's a lot of optimization that we're doing every day to improve your returns jack: a former financial adviser once said to me that the best thing she ever did for clients was act as their psychiatrist. so when the market was going crazy and they wanted to put everything in she said, hold on, it's going to fall someday. and when it did fall, she said stick around. for your clients who don't use

financial ad vicars -- advisers, if they're online only, how do they react when, say, back in december the market was down 5, 18%? did they all cut and run? >> fortunately, no. [laughter] we wouldn't have much of a business. we've had a lot of ups and downs over the last ten years. we've had some times when the market was down 15 or 20%. and in those times you've seen customers today the course. we've also a-b tested a lot of different behavioral controls. for instance, we show customers before they make a transaction what's the tax impact of that transaction. because we would rather that you don't trade. and when customers see a taxable event, 75% of them decide not to make that transaction. and that's an incredible result. jack: so speak of humans, you now have humans. how many do you have, and what is their role? is it holistic advice? they'll do your will and everything else too? >> we work with advisers all across the country, and if you have an adviser, you can use that adviser.

we also have our own advisers in-house, and you can call our cfps and talk to them about, yeah, how to plan for college, how to build a retirement plan, should you buy or rent a home, these kinds of common questions that our customers ask. jack: so now you're going into banking. you've got checking accounts and savings accounts. tell us about that. are you just going to charge me fees and give me tiny little interest rates while you make money on the arbitrage? is that how it's going to work for betterment? >> our mission to empower our customers, to do what's best with their money so they can live better. we've been spending ten years building the best investment and retirement solutions on the market, so we realize we couldn't really fulfill that mission of empowering customers to do what's best with their money without managing their everyday cash. if i can help a customer save 5% more per year by taking smart amounts and saving them and banking them boo their iras when i can, if i can help them earn more on that idle cash by

putting it into a high-yield savings account, things like this, i can help that customer much more than if i were to save them a marginal, say, 1% on taxes every year. jack: so i think the interest rate is interesting because you pay 1.6, 1 is.5 on checking, and both banks lend out at high rates what's your path to probability? 25 basis points is what you charge investors, how can you make money eventually at that level? >> so we're not public yet. our aspiration is to ipo in a few years, and yet we have a great business model. we're able to serve these half a million customers with just 300 employees. we're very efficient in how we deliver our solution, and it's scalable, right? adding banking services, for us, creates another way to everybody our customers, to do more for

them, and that just improves the business model further. jack: so doubling isn't going to mean 600 employees. >> that's right. jack: thanks very much, jon. coming up, our ideas on what you can do right now to improve your portfolio. but first, holly newman kroft gets a seat at the round table. that's next. ♪ ♪ as a struggling actor, i need all the breaks that i can get. at liberty butchemel... cut. liberty mu... line? cut. liberty mutual customizes your car insurance so you only pay for what you need. cut. liberty m... am i allowed to riff? what if i come out of the water? liberty biberty... cut. we'll dub it. liberty mutual customizes your car insurance so you only pay for what you need. only pay for what you need. ♪ liberty. liberty. liberty. liberty. ♪

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♪ ♪ >> investors put a lot of effort into saving enough money for retirement, but then comes a different challenge, how to manage that nest egg after you retire to you don't run out of money. in this week's cover story, barron's focuses on what you can do to create ab income stream during -- an income stream during retirement. joining the round table, hol hi are newman kroft. -- holly

newman kroft. lauren, i want to start with you, what are we looking at in this week's baer ron's. >> we have a whole cover package on how to spend what you've managed to save. and we lead off looking at the role of dividends in a retirement portfolio, and we look at ways that companies which have helped employees set up 401(k)s and other ways of saving are now starting to help them withdraw money at the appropriate times whether it's through system mat ific withdrawals or adding anaughty product -- annuity product. jack: holly, you work with clients who face this or will soon. what's the big picture? what is the problem that they're trying to solve? >> i think the problem is how to manage yourself through retirement, have enough money so that you don't have to compromise your lifestyle in an environment where you have to build a portfolio that has some risk. you know, many years ago, 20 years ago you could have a portfolio that returned 7%, 100% in fixed income. you certainly can't do that today. jack: because bonds were

yielding 6, 7%. >> correct, yeah. jack: so, lauren, one way we're attacking now is income stocks at least can send off, what, 2 or 3 or 4% if you want to push it. >> exactly. and part of the idea in our dividend story is do you live off the dividends, or do you live off a combination of the dividends and the principal. how do you address that? >> yeah, i think you have live off a combination. we look at a total portfolio return, because sometimes you have to stretch for yield in order to support your lifestyle, and we think that in doing so you would be taking unintended risks. so if you look at a combination of appreciation and yields, you can manage that in a tax efficient way and maintain your life. >> and do you do it through a combination of funds and individual stocks, or do you stick just with funds? >> well, it depends on the client. it certainly depends on the size of the portfolio, but i think it's a combination of funds and separately managed accounts, but we would call smas, i think it's through a combination of active management and passive

management, i think it's through diversification. >> even people who are on the cusp of retirement, you know they should have a certain percentage in stocks and they're telling you the market's at all-time highs, i'm worried about the crash. what do you do, do you yell at them, scold them this. >> that doesn't usually go over so well. [laughter] i don't think that there is a certain percentage that any one person should have in stocks. we don't believe in model portfolios, so you have to look at every sing client, how much -- single client, how much money they have, how much risk they can stand. we certainly want our clients to be able to sleep at night too. but what we explain is we don't you to have to compromise your lifestyle, so the earlier you start saving, the earlier in your investment lifestyle you take risks, the more you can tilt it safe when you're on the -- >> i should be saving. i knew i was doing something wrong. jack: there's something called

the 4% rule, you can take 4 percent out of your portfolio and supposedly you hope it'll last the rest of your life. do you subscribe to that? >> i think it's a really good starting point. you can spend 4% of your portfolio without dipping dip p, that's the concept. so you would probably target your portfolio to return about 6% so that you can compensate for the spend as well as inflation. and although inflation's been so low for so many years, the expected return -- can or expected inflation is 2%. jack: obviously, it is so hard to get income right now. are there any areas that look juicy to you that maybe the market has missed? good areas for income? and on the other side, any really scary areas you're staying away from? >> nothing so scary. we like preferreds. they have a nice yield -- >> sort of a hybrid kind of stock with a bigger dividend. >> correct. it's about 5-6%, and if it's fixed to float, it doesn't have a big risk of inflation, so we

do like that. we like high yields, but we think you have to be careful. we like active management because i think in the index there's a huge allocation to one sector, is so there's some unintended risks that you may not be aware of. we like emerging market debt, although it's quite volatile and risky, it has a nice yield. but, again, we believe in active management there because within the index you may not know that it's over 50% allocated to china and -- >> sure. >> that's a big risk too. jack: go ahead. >> finding those capital gain stocks to sell when the market is up like this, it's easy. what to you do like at the end of 2018? do you feel you have to change anything at those timeses? >> if you look at the context of the last ten years, we've had almost nothing but gains. so at the end of '08 -- sorry, '18, you could offset with losses, and it was really an opportunistic entry point. if you had some dry powder or

you were holding some cash, if you had taken some gains over the summer, you could go back into the market. jack: people don't understand sometimes losses are a good thing, you can harvest them the, save on taxes finish. >> yeah, they don't understand sometimes taxes is are a good thing. they're sort of a high class problem sometimes. jack: thank you so much. that's a perspective we don't see too often. up next, the round table give their investment ideas for the coming week. stay right there. ♪ ♪ i'm your 70lb st. bernard puppy, and my lack of impulse control, is about to become your problem. ahh no, come on. i saw you eating poop earlier. hey! my focus is on the road, and that's saving me cash with drivewise. who's the dummy now? whoof! whoof! so get allstate where good drivers save 40% for avoiding mayhem, like me. sorry! he's a baby!

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♪ ♪ >> jack, we heard from a entrepreneur doing a start-up trying to disrupt the banking industry, you're writing about the biggest of the big tech companies trying to get into banking. >> yeah, the google check account. all they need to do the work is

a bank to do the actual banking. this is a story -- apple has a credit card, they just need a bank, goldman sachs, you know, to do the banking part, the plumbing part of it. google's relying on citibank. this is an anti-disruption story. jack: exactly. >> the profits have been remarkably steady over the past 130 years, there was a study last year that showed that. we keep hearing about fin-tech disruption, none of these companies want to carry a big book of credit. look how much flak apple caught recently over that card and charges of gender bias. never mind that goldman sachs handing the actual -- handling the actual portion of that. lending and love about do not go hand in hand, big tech wants no part of this. jpmorgan and citigroup, i see those as good buys right here. jack: everyone loves their iphone, right? people, i use google all day long. i don't know that many people who say i love my bank.

[laughter] so why would a google or an apple want to even get into that business? >> i don't think they do. and you hear about all sorts of upstart companies, they've got a great checking account, low fees. look, offering the customers easy checking, that's the easy part of the business. now turn that into a profitable loan book, that's the hard part. jack: in barron's tradition, we want you to go into the week ahead ready to make your next move, so give us one actionable idea. lauren, we've been talking a lot about income. you're on the income cook. >> the vanguard dividend growth fund reopened in august, it's got a stellar record, about 11% total return over five years, yields about 5.5%. and buys defensible dividend growers. jack: and for you, ben, it's chicken. >> pilgrim's pride. the stock has doubled this year, but it can go even further. >> the alternative to alternative meat, i might say. [laughter] jack: thank you, guys. to read more, check out this

week's edition at barron's.com, and don't forget to follow i on twitter. that's all for us, see you next week on "the barron's round table." ♪ ♪ see you monday. ♪ >> from the fox studios in new york city, this is maria bartiromo's "wall street." maria: and happy weekend. welcome to program that analyzes the week that was and helps position you for the week ahead. i'm maria bartiromo. thanks for joining us. it's an all texas show this week. coming up in just a few moments, the head of the dallas federal reserve, robert kaplan, is here. then later, one of the most influential figures in pro sports, mark cuban. he is with us as well. this week the white house signaled that negotiations for an initial u.s./china trade deal are in the final stages, but president trump is not ready to sign anything yet. i spoke with commerce secretary wilbur ross about the u.s./china trade d