1 00:00:01,760 --> 00:00:06,000 Speaker 1: Tonight we tear apart yet another headline that focuses from 2 00:00:06,040 --> 00:00:08,000 Speaker 1: the chance for a recession. 3 00:00:08,640 --> 00:00:10,200 Speaker 2: You're listening to Simply Money. 4 00:00:09,960 --> 00:00:12,720 Speaker 1: Presented by all Worth Financial on Bob's sponseller along with 5 00:00:12,760 --> 00:00:16,200 Speaker 1: Brian James. Well, it's been months now since we've seen 6 00:00:16,560 --> 00:00:21,120 Speaker 1: headlines talking about the possibility of a recession. But leave 7 00:00:21,160 --> 00:00:23,919 Speaker 1: it to our friends at CNBC to get the buzz 8 00:00:24,000 --> 00:00:28,760 Speaker 1: going once again. Their headline quote, recession odds climb on 9 00:00:28,840 --> 00:00:33,199 Speaker 1: Wall Street as the economy shows cracks beneath the surface. 10 00:00:34,000 --> 00:00:37,000 Speaker 1: Now it's time to tear that headline apart, Brian, and 11 00:00:37,080 --> 00:00:38,800 Speaker 1: you're probably the best guy to do it. 12 00:00:39,760 --> 00:00:42,120 Speaker 3: Well, I think we've reached a point where if we're 13 00:00:42,120 --> 00:00:43,760 Speaker 3: not going to read the article, we have to tear 14 00:00:43,840 --> 00:00:46,760 Speaker 3: apart the headline. So let's do that now that we're 15 00:00:47,080 --> 00:00:49,320 Speaker 3: in a headline frame of mind these last few decades. 16 00:00:49,360 --> 00:00:52,720 Speaker 3: So let's start with the part that says recession odds climb. So, 17 00:00:52,760 --> 00:00:55,120 Speaker 3: if you read the article, it states that Moody's Analytics 18 00:00:55,120 --> 00:00:58,280 Speaker 3: model has raised its recession risk outlook for the next 19 00:00:58,280 --> 00:01:00,959 Speaker 3: twelve months to about forty eight point six percent. Heck, 20 00:01:01,040 --> 00:01:02,680 Speaker 3: let's just call that a one out of two chance 21 00:01:03,080 --> 00:01:05,480 Speaker 3: Goldman Sacks, for their part, they've boosted their estimate to 22 00:01:05,520 --> 00:01:08,920 Speaker 3: thirty percent, Wilmington Trust has it at forty five, and 23 00:01:09,280 --> 00:01:12,399 Speaker 3: Ernst Young Parthenon has it at forty percent. That article 24 00:01:12,400 --> 00:01:14,200 Speaker 3: goes on to say, in normal times, the risk for 25 00:01:14,280 --> 00:01:16,800 Speaker 3: recession in any given twelve month span is right around 26 00:01:16,840 --> 00:01:19,920 Speaker 3: twenty percent. So while the current predictions are hardly certainties, 27 00:01:19,920 --> 00:01:23,080 Speaker 3: they're just that they're only predictions. They signify elevated risk. 28 00:01:23,280 --> 00:01:25,039 Speaker 3: The only thing to really note about that is that 29 00:01:25,080 --> 00:01:27,200 Speaker 3: a lot of smart people do think we're looking at 30 00:01:27,240 --> 00:01:31,280 Speaker 3: a recession. However, this has happened before, and just because 31 00:01:31,319 --> 00:01:32,959 Speaker 3: smart people think a thing is going to happen, it 32 00:01:32,959 --> 00:01:35,240 Speaker 3: doesn't necessarily happen, And that also doesn't make them not 33 00:01:35,319 --> 00:01:37,800 Speaker 3: smart people. That's just how hard this stuff is to 34 00:01:37,920 --> 00:01:38,720 Speaker 3: actually predict. 35 00:01:38,720 --> 00:01:41,320 Speaker 1: Bob all right, Hey, Brian, before we get into the 36 00:01:41,319 --> 00:01:44,679 Speaker 1: odds of all this potentially happening, why don't you define 37 00:01:45,200 --> 00:01:48,360 Speaker 1: what the market pundits, you know, how they even define 38 00:01:48,400 --> 00:01:52,040 Speaker 1: what a recession is, because there's varying, you know, definitions 39 00:01:52,040 --> 00:01:55,240 Speaker 1: of what that word even means. But that our word 40 00:01:55,280 --> 00:01:59,320 Speaker 1: is seemingly thrown around all the time in the financial media. 41 00:01:59,400 --> 00:02:03,160 Speaker 3: Well, yeah, the commonly accepted definition for a recession is 42 00:02:03,280 --> 00:02:06,800 Speaker 3: two quarters of economic decline. In other words, two quarters 43 00:02:06,840 --> 00:02:09,680 Speaker 3: in a row where we produced less than the prior quarter. 44 00:02:10,040 --> 00:02:13,160 Speaker 3: So that's why when we declare a recession, we've usually 45 00:02:13,200 --> 00:02:16,160 Speaker 3: already been in it for six months. And the interesting 46 00:02:16,200 --> 00:02:18,040 Speaker 3: thing about that is when people want to panic that 47 00:02:18,160 --> 00:02:20,080 Speaker 3: we finally got the blinking light that says we're in 48 00:02:20,080 --> 00:02:22,280 Speaker 3: a recession, we're usually at our near the bottom of 49 00:02:22,280 --> 00:02:24,240 Speaker 3: it because they don't last that long. It just takes 50 00:02:24,240 --> 00:02:26,320 Speaker 3: a long time for us to determine that, yes, we 51 00:02:26,360 --> 00:02:28,520 Speaker 3: are indeed in a recession. If we could get a 52 00:02:28,560 --> 00:02:30,679 Speaker 3: blinking light that says, hey, our toes are over the 53 00:02:30,760 --> 00:02:32,640 Speaker 3: edge of the cliff, then we would all react to 54 00:02:32,680 --> 00:02:34,880 Speaker 3: that and move on. But again, the good thing is 55 00:02:35,000 --> 00:02:37,560 Speaker 3: there's nothing you can do about a recession. Hopefully you 56 00:02:37,600 --> 00:02:40,119 Speaker 3: have already planned for it by having an emergency fund 57 00:02:40,160 --> 00:02:42,320 Speaker 3: in place, by having you know in these are things 58 00:02:42,320 --> 00:02:45,440 Speaker 3: you should have done during the good times, and then 59 00:02:45,639 --> 00:02:47,560 Speaker 3: you'll be okay, you can ride it out. It's no fun, 60 00:02:47,919 --> 00:02:50,240 Speaker 3: but that would be the objective of how do I 61 00:02:50,360 --> 00:02:52,320 Speaker 3: fight this off? What do I do about it? 62 00:02:53,240 --> 00:02:55,639 Speaker 1: Well, and that leads to a great point. I mean 63 00:02:55,680 --> 00:02:58,880 Speaker 1: the investor behavioral part of all this. And Brian, you 64 00:02:58,960 --> 00:03:01,880 Speaker 1: and I have meetingsaccasionally where we have people come in 65 00:03:01,960 --> 00:03:04,520 Speaker 1: and say, well, I want to move some money out 66 00:03:04,560 --> 00:03:06,799 Speaker 1: of the market and I want to get back in 67 00:03:07,000 --> 00:03:09,600 Speaker 1: or put new money in when it quote when everything 68 00:03:09,720 --> 00:03:13,320 Speaker 1: quote unquote feels better. So I mean, you just made 69 00:03:13,400 --> 00:03:16,680 Speaker 1: the excellent point. Usually by the time the media is 70 00:03:16,720 --> 00:03:20,520 Speaker 1: saying yep, we're in a recession, the market's already dropped, 71 00:03:20,600 --> 00:03:23,480 Speaker 1: and usually at that time it's time to get back in. 72 00:03:24,040 --> 00:03:28,000 Speaker 1: And unfortunately, people let their emotions get tied to what 73 00:03:28,080 --> 00:03:31,119 Speaker 1: they watch on the television, and that's just not how 74 00:03:31,160 --> 00:03:32,520 Speaker 1: the market tends to move. 75 00:03:32,960 --> 00:03:34,240 Speaker 2: Case in point, we. 76 00:03:34,280 --> 00:03:36,280 Speaker 1: Go back to we don't have to go back that far, 77 00:03:36,480 --> 00:03:39,600 Speaker 1: go back to predictions in twenty twenty two that we 78 00:03:39,640 --> 00:03:42,640 Speaker 1: would have a recession in twenty twenty three, or the 79 00:03:42,720 --> 00:03:46,360 Speaker 1: ones back in twenty twenty three that thought we would 80 00:03:46,360 --> 00:03:47,560 Speaker 1: have a recession. 81 00:03:47,120 --> 00:03:48,160 Speaker 2: In twenty twenty four. 82 00:03:48,360 --> 00:03:51,360 Speaker 1: And to borrow a quote from good old Judge Smells 83 00:03:51,480 --> 00:03:56,000 Speaker 1: in that wonderful movie Caddy Shack, well we're still we're 84 00:03:56,000 --> 00:03:56,560 Speaker 1: still waiting. 85 00:03:56,640 --> 00:03:57,520 Speaker 2: We never have to pack. 86 00:03:57,680 --> 00:03:59,200 Speaker 3: No, I'm not letting you get away with that. That 87 00:03:59,280 --> 00:04:01,480 Speaker 3: is not close to Ted Knight said it, I want 88 00:04:01,480 --> 00:04:03,400 Speaker 3: a better Ted Night impression out of you, Bob. 89 00:04:05,200 --> 00:04:08,600 Speaker 2: We're still waiting Spaulding. 90 00:04:08,680 --> 00:04:09,600 Speaker 3: You'll get nothing like it. 91 00:04:10,800 --> 00:04:14,800 Speaker 1: Yeah, all right, anyway, not to not to make light 92 00:04:14,840 --> 00:04:17,520 Speaker 1: of what's going on right now. Obviously we've got a 93 00:04:17,520 --> 00:04:20,839 Speaker 1: lot of uncertainty out there. We have an ongoing war 94 00:04:21,000 --> 00:04:24,800 Speaker 1: in Iran, and this all the game here is when 95 00:04:24,960 --> 00:04:27,440 Speaker 1: is the straight of horror moves gonna get cleared out 96 00:04:27,560 --> 00:04:32,800 Speaker 1: so we can get twenty percent of global oil and natural. 97 00:04:32,480 --> 00:04:33,520 Speaker 2: Gas moving again. 98 00:04:33,680 --> 00:04:37,359 Speaker 1: That's that's the game here, and and there is no 99 00:04:37,520 --> 00:04:41,880 Speaker 1: certainty around any of that as of today, despite what Iran, 100 00:04:42,040 --> 00:04:44,960 Speaker 1: the president anyone is saying this, This thing is not 101 00:04:45,160 --> 00:04:46,839 Speaker 1: finished yet by any stretch. 102 00:04:46,920 --> 00:04:48,680 Speaker 2: And I think, you know. 103 00:04:48,680 --> 00:04:52,120 Speaker 1: Depending on how long this whole conflict drags out, you know, 104 00:04:52,160 --> 00:04:55,200 Speaker 1: we haven't seen crude oil really spike. I mean, we're 105 00:04:55,279 --> 00:04:58,960 Speaker 1: still below one hundred dollars you know a barrel. 106 00:04:59,560 --> 00:05:01,200 Speaker 2: You know, we we were. 107 00:05:00,720 --> 00:05:02,920 Speaker 1: At one hundred and twenty dollars a barrel just a 108 00:05:02,960 --> 00:05:06,400 Speaker 1: few years ago, and no one was really squawking and 109 00:05:06,480 --> 00:05:10,280 Speaker 1: talking about recession risk. But to be fair, if this 110 00:05:10,400 --> 00:05:14,560 Speaker 1: thing extends, you know, three six twelve months down the road, 111 00:05:14,600 --> 00:05:17,120 Speaker 1: you're going to see the price of crude oil, you know, 112 00:05:17,400 --> 00:05:20,440 Speaker 1: continue to go up, and that's what would have more 113 00:05:20,480 --> 00:05:23,240 Speaker 1: of a lasting impact on the global economy. 114 00:05:23,720 --> 00:05:25,880 Speaker 3: Yeah, so we just need to bear in mind, you 115 00:05:25,920 --> 00:05:28,200 Speaker 3: know that there are a lot of different things pushing 116 00:05:28,200 --> 00:05:31,000 Speaker 3: and pulling on the overall economy. Unfortunately, we have a 117 00:05:31,000 --> 00:05:34,120 Speaker 3: big brain in our chief investment officer, Andy Stout, and 118 00:05:34,200 --> 00:05:35,920 Speaker 3: he's got a lot of data that he shares with 119 00:05:36,000 --> 00:05:39,000 Speaker 3: us in the form of his Recession Scorecard, which which 120 00:05:39,080 --> 00:05:42,080 Speaker 3: tracks things that has just brought economic indexes such as 121 00:05:42,120 --> 00:05:46,200 Speaker 3: economic spreads, interest rates, jobs, inflation, interest rates, looking at 122 00:05:46,279 --> 00:05:49,799 Speaker 3: high yield spreads, the yield curve, building permits, housing starts, 123 00:05:49,880 --> 00:05:51,719 Speaker 3: jobless claims, and so on and so forth, the whole 124 00:05:51,720 --> 00:05:54,960 Speaker 3: bunch of different things that normal people really get bored 125 00:05:54,960 --> 00:05:57,279 Speaker 3: by it. But Andy is not normal, and we're fortunate 126 00:05:57,320 --> 00:06:02,120 Speaker 3: to have him so anyway, since nineteen seven eight recessions. 127 00:06:02,000 --> 00:06:04,000 Speaker 1: I'm gonna let I'm gonna let you tell him on 128 00:06:04,120 --> 00:06:06,359 Speaker 1: Monday that he's not normal, and I can't wait for 129 00:06:06,440 --> 00:06:07,080 Speaker 1: his response. 130 00:06:07,400 --> 00:06:09,839 Speaker 3: He'll probably tell me. He'll probably tell me shortly after 131 00:06:09,880 --> 00:06:11,880 Speaker 3: the show that he's listening to. I'm sure I expect 132 00:06:11,920 --> 00:06:14,200 Speaker 3: a text message Andy shot fired across the bow. 133 00:06:15,080 --> 00:06:17,000 Speaker 2: So he doesn't he doesn't listen to you and me. 134 00:06:18,680 --> 00:06:21,279 Speaker 3: His brain is a little bigger. So you know, let's 135 00:06:21,360 --> 00:06:23,440 Speaker 3: just go back through some history. We love going over 136 00:06:23,560 --> 00:06:25,479 Speaker 3: will I do anyway, just just to kind of set 137 00:06:25,520 --> 00:06:27,440 Speaker 3: the stage of how do we think about these things? 138 00:06:27,600 --> 00:06:30,479 Speaker 3: Since nineteen seventy we have had eight recessions. We have 139 00:06:30,560 --> 00:06:33,839 Speaker 3: predicted seventy seven recessions. I'd made that last number up. 140 00:06:33,880 --> 00:06:35,760 Speaker 3: I don't know how many, but we predict them all 141 00:06:35,800 --> 00:06:37,800 Speaker 3: the time. Some talking head will come up and say 142 00:06:37,839 --> 00:06:39,520 Speaker 3: there's gonna be We just cited a bunch of them 143 00:06:39,560 --> 00:06:42,240 Speaker 3: who say there's going to be a recession. But unfortunately 144 00:06:42,480 --> 00:06:45,040 Speaker 3: it doesn't always work out that way. So you know, 145 00:06:45,120 --> 00:06:47,640 Speaker 3: this doesn't happen all the time. The last real recession 146 00:06:47,720 --> 00:06:50,080 Speaker 3: happened during COVID. Of course, that was caused by a 147 00:06:50,120 --> 00:06:52,360 Speaker 3: sudden global shutdown to a pandemic that was kind of 148 00:06:52,400 --> 00:06:55,839 Speaker 3: out of left field, meaning the economy, that the structure 149 00:06:55,880 --> 00:06:57,560 Speaker 3: and the money moving around in a circle. All that 150 00:06:57,680 --> 00:06:59,440 Speaker 3: was fine, and then all of a sudden we had 151 00:06:59,440 --> 00:07:02,400 Speaker 3: this shot out left field that disrupted everything. That's in 152 00:07:02,480 --> 00:07:05,520 Speaker 3: other words, it wasn't an economic thing or a decision 153 00:07:05,600 --> 00:07:08,960 Speaker 3: some country made or whatever that triggered you know, that 154 00:07:09,080 --> 00:07:11,200 Speaker 3: that particular recession, it was something that nobody had any 155 00:07:11,200 --> 00:07:13,800 Speaker 3: control over. You know, we can argue that we should 156 00:07:13,800 --> 00:07:16,680 Speaker 3: have been reacted to differently, but the original trigger was 157 00:07:16,800 --> 00:07:18,880 Speaker 3: not part of you know, some kind of economic structure 158 00:07:18,920 --> 00:07:22,560 Speaker 3: as it normally does. Here's a great example of that, 159 00:07:22,600 --> 00:07:25,000 Speaker 3: the financial crisis of two thousand and seventh through two 160 00:07:25,040 --> 00:07:28,040 Speaker 3: thousand and nine, very much self inflicted by the global 161 00:07:28,200 --> 00:07:31,200 Speaker 3: by the global environment letting things go too far, collapse 162 00:07:31,240 --> 00:07:34,440 Speaker 3: in the housing market, combined with excessive risk taking by banks. 163 00:07:34,440 --> 00:07:37,440 Speaker 3: This was the part of the cycle of deregulation that 164 00:07:37,480 --> 00:07:40,800 Speaker 3: we usually love deregulation. At the beginning of the deregulation cycle, 165 00:07:40,840 --> 00:07:43,360 Speaker 3: it makes businesses, it frees them up to make profits 166 00:07:43,360 --> 00:07:46,040 Speaker 3: in more creative ways, and we all benefit by the 167 00:07:46,040 --> 00:07:49,000 Speaker 3: stock market taking off. But as we see time and 168 00:07:49,000 --> 00:07:52,760 Speaker 3: time again, any good thing turn eventually turns into a 169 00:07:52,800 --> 00:07:54,680 Speaker 3: bad thing if we take too much of it and 170 00:07:54,760 --> 00:07:58,120 Speaker 3: we run too far too fast. And banks got really 171 00:07:58,120 --> 00:08:01,560 Speaker 3: really loose with how quickly they were prepared to just 172 00:08:01,600 --> 00:08:04,200 Speaker 3: give money way. I remember that the heads of the 173 00:08:04,200 --> 00:08:06,280 Speaker 3: bank that I was working for, what was that eighteen 174 00:08:06,360 --> 00:08:09,400 Speaker 3: years ago or so, wondering why it was so easy 175 00:08:09,440 --> 00:08:11,600 Speaker 3: to give his customers loans. This was somebody had a 176 00:08:11,640 --> 00:08:13,800 Speaker 3: lot of respect for. But the line had come down 177 00:08:13,840 --> 00:08:16,880 Speaker 3: from above, We're going to do stated income loans. People 178 00:08:16,960 --> 00:08:18,720 Speaker 3: walk in the door and they say I make a 179 00:08:18,760 --> 00:08:21,080 Speaker 3: bazillion dollars, and we go cool, we'll loan you a 180 00:08:21,080 --> 00:08:23,320 Speaker 3: bazillion dollars. I don't think they used the word basilion, 181 00:08:23,320 --> 00:08:25,840 Speaker 3: but that's basically all the under all that the underwriting was. 182 00:08:26,200 --> 00:08:29,240 Speaker 3: That is deregulation. That's what led to that financial crisis. 183 00:08:29,520 --> 00:08:33,360 Speaker 3: That recession lasted eighteen months. That was systemic, meaning, like 184 00:08:33,400 --> 00:08:35,440 Speaker 3: I said, that's something we put into the system kind 185 00:08:35,480 --> 00:08:37,960 Speaker 3: of on purpose and it caused a problem eventually that 186 00:08:38,000 --> 00:08:41,120 Speaker 3: takes a lot longer to unwind and rebuild from. And 187 00:08:41,240 --> 00:08:42,920 Speaker 3: one more, two thousand and one, we had the dot 188 00:08:42,960 --> 00:08:47,319 Speaker 3: com bust, the original Internet bubble popped, overvaluation of tech companies, 189 00:08:47,440 --> 00:08:50,679 Speaker 3: and just the general unwinding of a lot of maybe 190 00:08:50,720 --> 00:08:54,280 Speaker 3: overly exuberant assumptions about what stocks could do if we 191 00:08:54,320 --> 00:08:58,000 Speaker 3: don't care about positive earnings. That one lasted about eight months. 192 00:08:58,640 --> 00:09:02,640 Speaker 1: Yeah, you mentioned the deregular thing, and what tends to happen, Brian, 193 00:09:02,760 --> 00:09:05,840 Speaker 1: we never seem to find the sweet spot here on 194 00:09:06,080 --> 00:09:11,360 Speaker 1: just responsible regulation in this country because of something called politicians. 195 00:09:11,360 --> 00:09:15,040 Speaker 1: Meaning the pendulum always seems to swing too far. And 196 00:09:15,160 --> 00:09:17,480 Speaker 1: boy did it ever back in two thousand and seven 197 00:09:17,520 --> 00:09:20,319 Speaker 1: to two thousand and eight, which you've already outlined, there 198 00:09:20,320 --> 00:09:23,280 Speaker 1: are a lot of people arguing today that we have 199 00:09:23,520 --> 00:09:27,280 Speaker 1: too tight of regulation and people want less regulation because 200 00:09:27,320 --> 00:09:30,600 Speaker 1: it's not freeing up enough capital for businesses to hire 201 00:09:30,640 --> 00:09:33,000 Speaker 1: people and grow their business, and on and on it goes, 202 00:09:33,559 --> 00:09:36,839 Speaker 1: and the politicians lobby back and forth, and again you know, 203 00:09:36,920 --> 00:09:40,920 Speaker 1: that pendulum tends to swing too far in either direction, 204 00:09:41,160 --> 00:09:44,080 Speaker 1: and that just exasperates some of this volatility we have 205 00:09:44,559 --> 00:09:46,240 Speaker 1: from time to time in the marketing. 206 00:09:46,320 --> 00:09:48,680 Speaker 3: Yeah, it does mean I would argue that the pendulum 207 00:09:48,720 --> 00:09:50,600 Speaker 3: is already swung back the other way. So I remember 208 00:09:50,679 --> 00:09:52,160 Speaker 3: back in two thousand and the other big thing that 209 00:09:52,200 --> 00:09:54,079 Speaker 3: was happening in two thousand and eight and still kind 210 00:09:54,080 --> 00:09:56,920 Speaker 3: of does today, was banks were making an enormous amount 211 00:09:56,920 --> 00:09:59,880 Speaker 3: of money off of people bouncing checks that were consulting, 212 00:10:00,200 --> 00:10:03,559 Speaker 3: going around and making recommendations as to how to adjust 213 00:10:03,840 --> 00:10:07,240 Speaker 3: your accounting software as a bank to make sure that 214 00:10:07,320 --> 00:10:09,559 Speaker 3: all the little checks got cash, or the big check 215 00:10:09,600 --> 00:10:12,640 Speaker 3: got cashed first, then all the little ones would get cashed. 216 00:10:12,640 --> 00:10:14,520 Speaker 3: So in other words, if I write five checks in 217 00:10:14,559 --> 00:10:17,320 Speaker 3: a day, then my biggest one gets cashed first to 218 00:10:17,320 --> 00:10:19,280 Speaker 3: take as much money out of my account as possible, 219 00:10:19,320 --> 00:10:21,640 Speaker 3: and then all my little ones. That increased the odds 220 00:10:21,640 --> 00:10:24,440 Speaker 3: that I would have more bounce checks. There's a well 221 00:10:24,440 --> 00:10:27,080 Speaker 3: known consulting firm that ran around and made millions, tens 222 00:10:27,080 --> 00:10:28,960 Speaker 3: of millions of dollars training banks had to do this, 223 00:10:29,480 --> 00:10:31,840 Speaker 3: and as a result of that and other things, we 224 00:10:31,880 --> 00:10:34,839 Speaker 3: got the Consumer Financial Protection Board, which served a good 225 00:10:34,880 --> 00:10:37,640 Speaker 3: purpose at its beginning, and pretty much everybody was in 226 00:10:37,679 --> 00:10:40,280 Speaker 3: support of it. After the wreckage of two thousand and eight, well, 227 00:10:40,320 --> 00:10:43,080 Speaker 3: that just recently got dismantled. And that's perfect evidence to 228 00:10:43,120 --> 00:10:45,520 Speaker 3: me of the pendulum swinging too far one way and 229 00:10:45,520 --> 00:10:47,320 Speaker 3: then too far the other way. Like you said, Bob, 230 00:10:47,480 --> 00:10:50,200 Speaker 3: we never can find that happy medium. We have to push, push, 231 00:10:50,240 --> 00:10:53,040 Speaker 3: push on either extreme until we find the breaking point, 232 00:10:53,080 --> 00:10:54,679 Speaker 3: and then it all swings back the other way. That's 233 00:10:54,720 --> 00:10:56,600 Speaker 3: the cycle of the United States. Unfortunately. 234 00:10:57,640 --> 00:10:58,320 Speaker 2: All right, Well, we. 235 00:10:58,840 --> 00:11:01,640 Speaker 1: Want to end this segment with how not to act here, 236 00:11:01,679 --> 00:11:04,679 Speaker 1: And if you assume every recession that we have or 237 00:11:04,720 --> 00:11:07,440 Speaker 1: the first talk of recession is going to look like 238 00:11:07,480 --> 00:11:11,200 Speaker 1: two thousand and eight. You may overreact to short term 239 00:11:11,280 --> 00:11:16,800 Speaker 1: down terms and miss opportunities during nice, normal recoveries if 240 00:11:16,800 --> 00:11:19,960 Speaker 1: you assume every recession will be really, really quick. You may, 241 00:11:20,000 --> 00:11:24,360 Speaker 1: on the other hand, underestimate real risk during structural crises, 242 00:11:24,600 --> 00:11:26,440 Speaker 1: and we already talked about, I mean, we're in the 243 00:11:26,440 --> 00:11:30,840 Speaker 1: middle of I would say a mini structural crisis right 244 00:11:30,880 --> 00:11:35,319 Speaker 1: now with the uncertainty around petroleum and natural gas. 245 00:11:35,480 --> 00:11:37,800 Speaker 2: We don't know how long this is going to last. 246 00:11:37,840 --> 00:11:40,160 Speaker 1: So this comes back to what we should be doing, 247 00:11:40,600 --> 00:11:44,080 Speaker 1: and it's no different from what we should always be doing. 248 00:11:44,640 --> 00:11:48,000 Speaker 1: You know, make sure you identify what your money needs 249 00:11:48,000 --> 00:11:51,720 Speaker 1: to do for you and when meaning have that short 250 00:11:51,800 --> 00:11:55,400 Speaker 1: term nest egg of non risk assets available so you 251 00:11:55,440 --> 00:11:58,800 Speaker 1: can weather a storm and keep your long term capital 252 00:11:58,920 --> 00:12:03,400 Speaker 1: invested for the long term. Because throughout history, and we 253 00:12:03,440 --> 00:12:06,880 Speaker 1: could cite all of these economic disasters going back to 254 00:12:07,320 --> 00:12:11,400 Speaker 1: the Great Depression, the markets already always recover and recover 255 00:12:11,559 --> 00:12:14,200 Speaker 1: quite well if you give it enough time, and so 256 00:12:14,240 --> 00:12:17,080 Speaker 1: you've got to have enough short term cushion to get 257 00:12:17,120 --> 00:12:20,640 Speaker 1: you through any short term volatility. Here's the all Worth 258 00:12:20,640 --> 00:12:24,280 Speaker 1: advice never judge a book by its cover. Look for 259 00:12:24,640 --> 00:12:30,960 Speaker 1: historical context and current economic context whenever you can. There 260 00:12:31,000 --> 00:12:34,520 Speaker 1: is more stress speaking of stress on a certain alternative 261 00:12:34,520 --> 00:12:38,880 Speaker 1: investment than you or someone you know might have money in. 262 00:12:39,520 --> 00:12:40,760 Speaker 2: We'll talk about that next. 263 00:12:40,800 --> 00:12:42,480 Speaker 1: You're listening to Simply Money for is thated by all 264 00:12:42,520 --> 00:12:46,600 Speaker 1: Worth Financial on fifty five KRC. The talk station you're 265 00:12:46,640 --> 00:12:49,199 Speaker 1: listening to Simply Money was thated buy Allworth Financial on 266 00:12:49,320 --> 00:12:50,760 Speaker 1: Bob Sponseeller. 267 00:12:50,200 --> 00:12:51,640 Speaker 2: Along with Brian James. 268 00:12:52,040 --> 00:12:54,520 Speaker 1: If you can't listen to Simply Money alive every night, 269 00:12:54,760 --> 00:12:58,440 Speaker 1: subscribe and get our daily podcasts. Just search Simply Money 270 00:12:58,520 --> 00:13:02,559 Speaker 1: on the iHeart app or wherever you find your podcast. 271 00:13:03,520 --> 00:13:04,440 Speaker 2: Well, let's say you've. 272 00:13:04,280 --> 00:13:07,839 Speaker 1: Built a four million dollar portfolio, but if your life 273 00:13:07,880 --> 00:13:12,559 Speaker 1: insurance hasn't kept up, could one blind spot, unwind or 274 00:13:12,679 --> 00:13:15,880 Speaker 1: undo the entire plan. It's one of several questions will 275 00:13:15,920 --> 00:13:20,520 Speaker 1: answer straight ahead. For years now, we've heard this pitch. 276 00:13:21,000 --> 00:13:24,960 Speaker 1: Private markets are less volatile, they're smoother, they don't swing 277 00:13:25,440 --> 00:13:29,400 Speaker 1: like the overall stock market, and on paper that's been true. 278 00:13:29,960 --> 00:13:32,839 Speaker 1: You don't see the daily price changes, and I think 279 00:13:32,880 --> 00:13:34,760 Speaker 1: that for a lot of people that's what makes them 280 00:13:34,840 --> 00:13:38,360 Speaker 1: feel more comfortable. You don't see red screens like you 281 00:13:38,480 --> 00:13:41,480 Speaker 1: do every thirty seconds with the S and P five hundred. 282 00:13:41,800 --> 00:13:45,680 Speaker 1: But here's the key question. Are they actually less volatile 283 00:13:46,080 --> 00:13:50,079 Speaker 1: or do they look less volatile because you don't actually 284 00:13:50,120 --> 00:13:51,200 Speaker 1: see the price movement. 285 00:13:51,559 --> 00:13:54,080 Speaker 2: Interesting conversation, Brian and Brian. 286 00:13:54,160 --> 00:13:57,760 Speaker 1: We have talked about this now for four to six months, 287 00:13:58,160 --> 00:14:02,480 Speaker 1: and we're seeing some of our warnings and advice rear 288 00:14:02,559 --> 00:14:04,600 Speaker 1: their ugly head here this week. 289 00:14:04,640 --> 00:14:05,040 Speaker 2: In fact. 290 00:14:05,520 --> 00:14:07,880 Speaker 3: Yeah, So, like always, let's define some terms. So we're 291 00:14:07,880 --> 00:14:09,920 Speaker 3: talking about things that they're new to some people. Right, 292 00:14:10,000 --> 00:14:11,800 Speaker 3: Normally we talk about the stock market and then the 293 00:14:11,840 --> 00:14:14,520 Speaker 3: bond markets. We're talking about public markets, things that anybody 294 00:14:14,520 --> 00:14:17,120 Speaker 3: can get to. But in this case, we're talking about 295 00:14:17,160 --> 00:14:19,400 Speaker 3: private markets a little bit different. So let's talk about 296 00:14:19,400 --> 00:14:22,360 Speaker 3: private credit for a second. Private credit is when companies 297 00:14:22,440 --> 00:14:25,240 Speaker 3: borrow money directly from investors instead of from through a 298 00:14:25,280 --> 00:14:28,480 Speaker 3: bank or through public markets. Right, So banks can loan 299 00:14:28,560 --> 00:14:32,160 Speaker 3: money to you know, directly to come to company's. Banks 300 00:14:32,200 --> 00:14:35,200 Speaker 3: are using their own customers' money, the deposits and the 301 00:14:35,240 --> 00:14:36,960 Speaker 3: other things that they have, and then they are the middleman. 302 00:14:37,040 --> 00:14:39,400 Speaker 3: They then loan it out to whatever company wants to 303 00:14:39,640 --> 00:14:42,360 Speaker 3: borrow that money or through a public market. A company 304 00:14:42,360 --> 00:14:44,480 Speaker 3: can create a bond and sell a bond on the 305 00:14:44,520 --> 00:14:47,360 Speaker 3: open market, and there's middle there are underwriters, there are middleman. 306 00:14:47,400 --> 00:14:50,720 Speaker 3: The financial institutions will are the middlemen to create those 307 00:14:50,720 --> 00:14:52,720 Speaker 3: bonds and sell them to the public markets. Not what 308 00:14:52,760 --> 00:14:55,720 Speaker 3: we're talking about today. Private credit is when companies borrow 309 00:14:55,760 --> 00:14:59,080 Speaker 3: money directly from investors. There is no middleman, no bank, 310 00:14:59,160 --> 00:15:02,160 Speaker 3: no financial institute. So think about a mid sized company 311 00:15:02,160 --> 00:15:04,560 Speaker 3: that needs one hundred million dollars. Traditionally they go to 312 00:15:04,640 --> 00:15:07,600 Speaker 3: a bank, but today increasingly they're going to firms that 313 00:15:07,640 --> 00:15:09,280 Speaker 3: you haven't much heard of, but you're going to hear 314 00:15:09,320 --> 00:15:12,560 Speaker 3: a lot more about Apollo Ares and Blackstone. These are 315 00:15:12,680 --> 00:15:16,040 Speaker 3: huge asset managers. Blackstone and black Rock are two different companies. 316 00:15:16,080 --> 00:15:19,280 Speaker 3: By the way, those firms pull money from investors, often 317 00:15:19,360 --> 00:15:22,400 Speaker 3: high net worth individuals, and then they lend it directly 318 00:15:22,440 --> 00:15:25,360 Speaker 3: to those companies. So this is attracting investors because that 319 00:15:25,600 --> 00:15:28,000 Speaker 3: they can be higher yields than traditional bonds. But let's 320 00:15:28,000 --> 00:15:31,600 Speaker 3: not forget because there are higher yields, that usually indicates 321 00:15:31,600 --> 00:15:34,600 Speaker 3: there are some concerns about that company's ability to pay 322 00:15:34,600 --> 00:15:36,880 Speaker 3: off that loan. Think of your own credit rating or 323 00:15:36,920 --> 00:15:38,440 Speaker 3: maybe some of your friends and family. If you know 324 00:15:38,520 --> 00:15:41,480 Speaker 3: somebody that's got lower credit, they may constantly be complaining 325 00:15:41,520 --> 00:15:44,560 Speaker 3: that they can't get the mortgage rate that other people can, 326 00:15:44,680 --> 00:15:46,400 Speaker 3: or they have higher rates on their credit cards. Those 327 00:15:46,480 --> 00:15:49,000 Speaker 3: kinds of things that indicates that the lending institution thinks 328 00:15:49,040 --> 00:15:51,120 Speaker 3: that they're not a great risk. Same thing holds true 329 00:15:51,120 --> 00:15:54,560 Speaker 3: in the private markets. Those financial institutions are there, not always, 330 00:15:54,560 --> 00:15:58,440 Speaker 3: but oftentimes to provide credit where traditional ways aren't as 331 00:15:58,680 --> 00:16:01,640 Speaker 3: aren't feasible because of the under writing concerns. So these 332 00:16:01,680 --> 00:16:04,600 Speaker 3: are attractive again because of those higher yields. They provide 333 00:16:04,600 --> 00:16:07,440 Speaker 3: regular income at those higher yields, which can be nice. 334 00:16:07,720 --> 00:16:09,720 Speaker 3: But this is floating rates, so it can move up 335 00:16:09,720 --> 00:16:12,360 Speaker 3: and down. We're obviously not talking about CDs, treasury bonds. 336 00:16:12,360 --> 00:16:14,120 Speaker 3: This is stuff that does float around a little bit, 337 00:16:14,760 --> 00:16:18,560 Speaker 3: and private credit is diversified away from stocks and public ponds. 338 00:16:18,560 --> 00:16:21,280 Speaker 3: They can behave differently, that's good and bad. They can 339 00:16:21,360 --> 00:16:24,080 Speaker 3: behave differently from the other things that you have in 340 00:16:24,080 --> 00:16:26,840 Speaker 3: your portfolio. So lots of pros and cons. But as 341 00:16:26,840 --> 00:16:29,200 Speaker 3: you're entering into these things, you're considering them, you need 342 00:16:29,200 --> 00:16:31,160 Speaker 3: to look under every stone for the different things that 343 00:16:31,200 --> 00:16:31,960 Speaker 3: you need to understand. 344 00:16:33,000 --> 00:16:36,120 Speaker 1: Well, one thing people need to understand, and this is 345 00:16:36,160 --> 00:16:39,200 Speaker 1: what happens when all this stuff gets marketed to the 346 00:16:39,280 --> 00:16:43,800 Speaker 1: general public is a current redemption problem or redemption risk 347 00:16:43,920 --> 00:16:47,360 Speaker 1: liquidity risk like we're seeing right now. Two of these 348 00:16:47,520 --> 00:16:51,840 Speaker 1: major private credit funds, Apollo and Ares, basically told investors 349 00:16:52,280 --> 00:16:55,120 Speaker 1: you can't have all your money back right now. And 350 00:16:55,160 --> 00:16:57,680 Speaker 1: that's not a small issue for some. You know, there 351 00:16:57,680 --> 00:17:01,040 Speaker 1: are a lot of investors that requested to redeem about, say, 352 00:17:01,080 --> 00:17:04,400 Speaker 1: eleven percent twelve percent of the money they had invested, 353 00:17:04,480 --> 00:17:07,320 Speaker 1: and these companies came back and said, well, we'll give. 354 00:17:07,200 --> 00:17:10,440 Speaker 2: You five percent right now. And here's the problem, Brian. 355 00:17:10,560 --> 00:17:13,480 Speaker 1: These things get marketed and sold and people look for 356 00:17:13,520 --> 00:17:17,679 Speaker 1: them because they chase yield in the short term, and 357 00:17:17,800 --> 00:17:21,119 Speaker 1: depending on whether they're being sold by a financial advisor 358 00:17:21,280 --> 00:17:24,479 Speaker 1: or somebody else, you know, people only sometimes hear what 359 00:17:24,520 --> 00:17:28,280 Speaker 1: they want to hear. They're enticed by that potential for 360 00:17:28,400 --> 00:17:31,480 Speaker 1: excess yield, but they don't read the fine print or 361 00:17:31,560 --> 00:17:34,160 Speaker 1: want to understand the fine print about hey, you got 362 00:17:34,200 --> 00:17:36,760 Speaker 1: to tie your money up for a while, and you're 363 00:17:36,760 --> 00:17:38,720 Speaker 1: not going to get it all back if you've got 364 00:17:38,760 --> 00:17:41,640 Speaker 1: too much of your money. You know, piled into this thing. 365 00:17:41,760 --> 00:17:44,400 Speaker 1: I remember Michael Milk and Brian the. 366 00:17:44,359 --> 00:17:49,080 Speaker 3: Old jew Pants mc hammer, yah, all of it. 367 00:17:49,720 --> 00:17:53,080 Speaker 1: Well, I heard a very interesting interview with him yesterday. 368 00:17:53,160 --> 00:17:56,080 Speaker 1: If I'm not mistaken, that man actually went to prison. 369 00:17:56,240 --> 00:17:58,720 Speaker 1: For some period of time. He was known as the 370 00:17:58,840 --> 00:18:01,800 Speaker 1: junk bond King. And this is back in the late 371 00:18:01,800 --> 00:18:05,280 Speaker 1: eighties early nineties where we were back to chasing yield 372 00:18:05,359 --> 00:18:08,960 Speaker 1: and the whole junk bond market just completely fell out 373 00:18:08,960 --> 00:18:11,359 Speaker 1: of bed. People lost a lot of money. He brought 374 00:18:11,440 --> 00:18:14,679 Speaker 1: up a good point yesterday, a reminder that most of 375 00:18:14,720 --> 00:18:18,560 Speaker 1: the people, most of the investors in these big private 376 00:18:18,680 --> 00:18:24,920 Speaker 1: private credit funds are institutional investors, pension funds, insurance companies, 377 00:18:25,440 --> 00:18:28,679 Speaker 1: people that are managing risk, you know, with billions and 378 00:18:28,760 --> 00:18:31,960 Speaker 1: billions of dollars, and they are in for the long term. 379 00:18:32,040 --> 00:18:34,520 Speaker 1: They understand that they need to tie this money up. 380 00:18:35,040 --> 00:18:35,240 Speaker 2: You know. 381 00:18:35,359 --> 00:18:38,880 Speaker 1: Again, when people do not understand what they're getting into, 382 00:18:39,000 --> 00:18:41,640 Speaker 1: you know, when they're a retail investor, and sometimes it's 383 00:18:41,680 --> 00:18:44,480 Speaker 1: not their fault, it's how it's marketed to them. These 384 00:18:44,560 --> 00:18:47,359 Speaker 1: are the people that can get left holding the bag, 385 00:18:47,560 --> 00:18:50,639 Speaker 1: you know, when they when they run into a liquidity crunch. 386 00:18:51,440 --> 00:18:53,880 Speaker 3: Yeah, and again it's really important to understand these kinds 387 00:18:53,880 --> 00:18:55,520 Speaker 3: of things you're getting into. And now it's occurring to 388 00:18:55,560 --> 00:18:56,800 Speaker 3: me that I don't think I was very cool in 389 00:18:56,840 --> 00:18:59,000 Speaker 3: the eighties because I said parachute pants and mc hammer 390 00:18:59,040 --> 00:19:01,119 Speaker 3: that was actually the nineties. I don't think it's it 391 00:19:01,160 --> 00:19:03,440 Speaker 3: comes as a shock to anybody that Brian James wasn't 392 00:19:03,440 --> 00:19:06,000 Speaker 3: the coolest kid on the block. But in any case, yeah, 393 00:19:06,040 --> 00:19:09,040 Speaker 3: these are tools, right. We talk about them all all 394 00:19:09,119 --> 00:19:12,400 Speaker 3: the time to make sure people understand understand what they're 395 00:19:12,440 --> 00:19:15,120 Speaker 3: looking at when they encounter them. That doesn't mean they're bad. 396 00:19:15,200 --> 00:19:17,000 Speaker 3: A tool by itself is not bad. It's what you 397 00:19:17,080 --> 00:19:19,040 Speaker 3: do with it that matters. If you're looking for something 398 00:19:19,080 --> 00:19:23,199 Speaker 3: to be pure, income, to be perfect and no stress, 399 00:19:23,240 --> 00:19:26,240 Speaker 3: no concern at all, that's probably not private anything these 400 00:19:26,280 --> 00:19:29,320 Speaker 3: ad elements. There is definitely opportunity for greater returns, but 401 00:19:29,400 --> 00:19:32,520 Speaker 3: you're also introducing the opportunity for greater risk and stress 402 00:19:32,760 --> 00:19:34,880 Speaker 3: because you're getting into things you may or may not understand. 403 00:19:34,880 --> 00:19:36,479 Speaker 3: That doesn't mean don't do it, but make sure you've 404 00:19:36,480 --> 00:19:38,439 Speaker 3: got somebody in the middle who does understand it and 405 00:19:38,480 --> 00:19:39,199 Speaker 3: that you trust. 406 00:19:40,040 --> 00:19:43,479 Speaker 1: Here's the all Worth advice. Alternative investments can play a 407 00:19:43,640 --> 00:19:47,359 Speaker 1: very valuable rule in your role in your portfolio, but 408 00:19:47,600 --> 00:19:50,560 Speaker 1: only if you're comfortable trading liquidity. 409 00:19:50,400 --> 00:19:52,480 Speaker 2: For longer term opportunity. 410 00:19:53,400 --> 00:19:56,360 Speaker 1: What if the biggest risk in retirement isn't running out 411 00:19:56,359 --> 00:19:59,439 Speaker 1: of money, but never actually using your money. 412 00:19:59,640 --> 00:20:00,760 Speaker 2: We're here to help with that. 413 00:20:00,840 --> 00:20:03,160 Speaker 1: Next you're listening to Simply Money, presented by all Worth 414 00:20:03,200 --> 00:20:06,320 Speaker 1: Financial on fifty five KRC the talk station. 415 00:20:08,240 --> 00:20:09,520 Speaker 2: You're listening to Simply. 416 00:20:09,320 --> 00:20:12,119 Speaker 1: Money presented by all Worth Financial on Bob spond Seller 417 00:20:12,160 --> 00:20:16,760 Speaker 1: along with Brian James. But we spend decades talking about 418 00:20:16,800 --> 00:20:20,719 Speaker 1: one risk, and that's the risk of running out of money, 419 00:20:20,960 --> 00:20:23,680 Speaker 1: and for good reason, nobody wants to be eighty five 420 00:20:23,760 --> 00:20:28,000 Speaker 1: years old and broke. But there's another risk that's quietly 421 00:20:28,119 --> 00:20:31,840 Speaker 1: becoming more common and Brian and I, Brian, you and 422 00:20:31,920 --> 00:20:35,119 Speaker 1: I talk about this more often than not now in 423 00:20:35,200 --> 00:20:38,800 Speaker 1: our client review meetings, especially for people with a higher 424 00:20:38,840 --> 00:20:42,960 Speaker 1: net worth, And it's this living way too conservatively, not 425 00:20:43,280 --> 00:20:46,320 Speaker 1: enjoying the money you worked very hard over a long 426 00:20:46,359 --> 00:20:49,639 Speaker 1: time to build, not using it, not living the life 427 00:20:50,119 --> 00:20:51,480 Speaker 1: you really planned for. 428 00:20:51,960 --> 00:20:54,600 Speaker 2: It's an interesting topic to some. 429 00:20:54,880 --> 00:20:57,640 Speaker 1: We might be you know, speaking a foreign language here, 430 00:20:57,720 --> 00:21:00,479 Speaker 1: meaning what do you mean having too much money. But 431 00:21:00,560 --> 00:21:02,920 Speaker 1: for a lot of people, this really is an issue 432 00:21:02,960 --> 00:21:05,560 Speaker 1: that needs to get flushed out and talked about. 433 00:21:05,840 --> 00:21:07,840 Speaker 3: Yeah, this is this is a very common I often 434 00:21:07,880 --> 00:21:09,840 Speaker 3: say that I spend most of my time sitting at 435 00:21:09,840 --> 00:21:12,080 Speaker 3: the table with clients in my office begging them to 436 00:21:12,119 --> 00:21:14,560 Speaker 3: spend their own money. That seems to be my job nowadays. 437 00:21:15,080 --> 00:21:17,320 Speaker 3: So let's talk about how we wind up in that situation. 438 00:21:17,600 --> 00:21:21,200 Speaker 3: Meet the oversaver. So let's say you're sixty five years old, 439 00:21:21,280 --> 00:21:23,720 Speaker 3: you got five million dollars saved. You've done everything right, 440 00:21:23,880 --> 00:21:26,920 Speaker 3: you've accumulated, you've invested, you've been disciplined, and now you're 441 00:21:26,920 --> 00:21:29,360 Speaker 3: still acting like you're forty five and sweating that next 442 00:21:29,359 --> 00:21:31,520 Speaker 3: paycheck and looking for ways to increase your four oh 443 00:21:31,560 --> 00:21:34,520 Speaker 3: and K contributions, all that stuff you're also afraid to spend. 444 00:21:34,560 --> 00:21:37,280 Speaker 3: You're holding forty percent of this in cash, another huge 445 00:21:37,359 --> 00:21:40,040 Speaker 3: chunk in conservative bonds, and you've been withdrawing maybe what 446 00:21:40,080 --> 00:21:42,560 Speaker 3: two percent a year or something like that. Inflation is 447 00:21:42,600 --> 00:21:45,880 Speaker 3: still a factor, longevity is increasing, and ironically, you may 448 00:21:45,920 --> 00:21:48,000 Speaker 3: never come close to running out of money. People find 449 00:21:48,000 --> 00:21:51,400 Speaker 3: themselves in this situation all the time because they've simply 450 00:21:51,440 --> 00:21:54,320 Speaker 3: never stepped back from that one tree that they're staring at, 451 00:21:54,320 --> 00:21:57,159 Speaker 3: which is accumulation to look at the entire forest of 452 00:21:57,200 --> 00:22:00,280 Speaker 3: what they've built for themselves. So, you know's let's figure 453 00:22:00,280 --> 00:22:02,840 Speaker 3: out how could we do this differently. So if that 454 00:22:02,880 --> 00:22:05,520 Speaker 3: portfolio is even moderately invested, let's just call it a 455 00:22:05,520 --> 00:22:09,040 Speaker 3: balanced allocation, maybe sixty percent stocks, forty percent bonds, maybe 456 00:22:09,080 --> 00:22:12,640 Speaker 3: even fifty to fifty, you know, over the entire portfolio, 457 00:22:12,800 --> 00:22:15,040 Speaker 3: Andrew withdrawing one hundred and fifty to two hundred thousand 458 00:22:15,040 --> 00:22:17,000 Speaker 3: a year out of that five million, there's a very 459 00:22:17,040 --> 00:22:19,879 Speaker 3: high probability that money's gonna last through all these crazy things. 460 00:22:20,000 --> 00:22:22,480 Speaker 3: There are plenty of studies out there, and we always 461 00:22:22,520 --> 00:22:25,000 Speaker 3: talk about this four percent rule, and that comes from 462 00:22:25,000 --> 00:22:27,720 Speaker 3: a study where where the individual behind it basically looked 463 00:22:27,720 --> 00:22:30,040 Speaker 3: at all thirty year periods, thirty years being you know, 464 00:22:30,119 --> 00:22:33,680 Speaker 3: roughly a nice long, healthy retirement over every thirty year 465 00:22:33,760 --> 00:22:37,040 Speaker 3: period from nineteen twenty to nineteen sixty, twenty one to 466 00:22:38,680 --> 00:22:41,200 Speaker 3: fifty one and whatever, thirty year periods, not forty year periods. 467 00:22:41,200 --> 00:22:44,920 Speaker 3: But to get my point, you heard that dinion anyway, 468 00:22:44,720 --> 00:22:47,360 Speaker 3: But looking for what can I get away with over 469 00:22:47,440 --> 00:22:50,320 Speaker 3: those actual real market years, What can I get away 470 00:22:50,320 --> 00:22:52,719 Speaker 3: with to pull out that was four percent. So that's 471 00:22:52,720 --> 00:22:54,520 Speaker 3: where this one hundred and fifty to two hundred thousand 472 00:22:54,560 --> 00:22:57,160 Speaker 3: comes out of a five million dollar portfolio. Basically, there's 473 00:22:57,200 --> 00:22:59,400 Speaker 3: no thirty year period in time where that money would 474 00:22:59,440 --> 00:23:01,960 Speaker 3: not have last that even invested pretty conservatively. 475 00:23:01,960 --> 00:23:06,800 Speaker 1: Bob, Yeah, and again it it comes down to what 476 00:23:06,800 --> 00:23:09,840 Speaker 1: what is the money really here for? And sometimes people 477 00:23:09,880 --> 00:23:13,320 Speaker 1: are shocked with, you know, how much money they've actually accumulated. 478 00:23:13,359 --> 00:23:16,120 Speaker 1: And Brian, I think this comes down to a mindset. 479 00:23:16,280 --> 00:23:19,160 Speaker 1: You know, when we're talking to people in their late seventies, 480 00:23:19,200 --> 00:23:22,520 Speaker 1: early eighties about this whole subject, or even late sixties, 481 00:23:22,600 --> 00:23:26,439 Speaker 1: oftentimes they had parents that, you know, live through the 482 00:23:26,480 --> 00:23:29,679 Speaker 1: Great Depression, and there's just always this fear in the 483 00:23:29,720 --> 00:23:32,720 Speaker 1: back of people's minds no matter how large that net 484 00:23:32,760 --> 00:23:35,960 Speaker 1: worth number gets is, man, I want to make sure 485 00:23:36,119 --> 00:23:39,720 Speaker 1: I don't run out of money. And here's the challenge is, 486 00:23:40,160 --> 00:23:43,240 Speaker 1: you know, oftentimes they've got kids or grandkids that they 487 00:23:43,440 --> 00:23:46,480 Speaker 1: dearly love and they'd love to help out with either 488 00:23:46,520 --> 00:23:51,320 Speaker 1: college education expenses or maybe help buying a vehicle or 489 00:23:51,320 --> 00:23:54,120 Speaker 1: a down payment on a home. And you know, when 490 00:23:54,160 --> 00:23:57,440 Speaker 1: people are getting started out in life in their early twenties, 491 00:23:57,520 --> 00:24:00,480 Speaker 1: late twenties, early thirties, whatever it is. You know, a 492 00:24:00,600 --> 00:24:03,560 Speaker 1: ten to twenty to thirty thousand dollars gift right now 493 00:24:04,080 --> 00:24:07,320 Speaker 1: makes a huge difference in their quality of life as 494 00:24:07,320 --> 00:24:11,680 Speaker 1: opposed to what we see all too often people passing 495 00:24:11,720 --> 00:24:14,760 Speaker 1: away and leaving this same kid, you know, three four 496 00:24:14,840 --> 00:24:18,439 Speaker 1: million dollars in their late sixties. And that's great, it 497 00:24:18,560 --> 00:24:22,399 Speaker 1: helps solidifize their retirement. But man, getting a little bit 498 00:24:22,480 --> 00:24:25,800 Speaker 1: of money when they were starting out again, raising kids, 499 00:24:25,800 --> 00:24:28,840 Speaker 1: buying their first home, all that that really would have 500 00:24:29,000 --> 00:24:31,560 Speaker 1: improved the quality of life in a huge way for 501 00:24:31,640 --> 00:24:34,480 Speaker 1: the whole family. And sometimes we got we got to 502 00:24:34,640 --> 00:24:37,760 Speaker 1: educate people on just hey, what what are we really 503 00:24:37,800 --> 00:24:41,280 Speaker 1: trying to do here? And when it's a very interesting 504 00:24:41,320 --> 00:24:43,400 Speaker 1: conversation to have with folks. 505 00:24:43,160 --> 00:24:45,840 Speaker 3: It really is. And and oftentimes we have you know, 506 00:24:46,000 --> 00:24:48,639 Speaker 3: this can happen even between and within a married couple 507 00:24:48,680 --> 00:24:51,880 Speaker 3: that generally know they have enough, but they've never sat 508 00:24:51,920 --> 00:24:53,520 Speaker 3: down and talked to each other about what does this 509 00:24:53,600 --> 00:24:56,080 Speaker 3: mean to us? You know that, But there's just this 510 00:24:56,240 --> 00:24:58,200 Speaker 3: notion that while we don't have any debt, we don't 511 00:24:58,240 --> 00:25:00,760 Speaker 3: run up our credit cards and ends or meeting just 512 00:25:00,800 --> 00:25:02,639 Speaker 3: fine every month and people don't. I just had this 513 00:25:02,680 --> 00:25:06,040 Speaker 3: conversation yesterday with where I asked, well, what do we 514 00:25:06,080 --> 00:25:08,040 Speaker 3: think we're spending? And they both kind of awkwardly looked 515 00:25:08,040 --> 00:25:10,000 Speaker 3: at each other sheepishly and then back in me because 516 00:25:10,000 --> 00:25:12,120 Speaker 3: they had no idea. Okay, what do you think you're time? 517 00:25:12,160 --> 00:25:14,120 Speaker 3: What do you think you're paying in taxes? Ticket stand? 518 00:25:14,160 --> 00:25:16,919 Speaker 3: What do you think your percentages and taxes? And they 519 00:25:16,960 --> 00:25:18,840 Speaker 3: guessed twenty five percent? And I showed them right on 520 00:25:18,840 --> 00:25:20,439 Speaker 3: the return that they had just handed me, where they 521 00:25:20,480 --> 00:25:23,600 Speaker 3: were literally paying nothing because they were living off their savings. 522 00:25:23,920 --> 00:25:27,520 Speaker 3: It just goes to show how, you know, good hardworking 523 00:25:27,560 --> 00:25:30,680 Speaker 3: people who just aren't financially inclined can be very, very 524 00:25:30,720 --> 00:25:32,600 Speaker 3: blind to what the reality is. And this was actually 525 00:25:32,640 --> 00:25:36,120 Speaker 3: a good, happy situation. But I was begging them, yes, 526 00:25:36,160 --> 00:25:37,960 Speaker 3: you guys have been talking about taking this trip for 527 00:25:38,040 --> 00:25:40,720 Speaker 3: so long, go do it. Just swipe the credit card 528 00:25:40,720 --> 00:25:42,800 Speaker 3: and forget what it's actually going to be and get 529 00:25:42,800 --> 00:25:45,320 Speaker 3: the notion out of your head that you that you 530 00:25:45,320 --> 00:25:47,919 Speaker 3: cannot afford to do these things, because they were the 531 00:25:47,960 --> 00:25:51,280 Speaker 3: definition of that oversaver that we were talking about. Possibly 532 00:25:51,359 --> 00:25:54,400 Speaker 3: worked a little too long. You know. They were happy though, 533 00:25:54,440 --> 00:25:56,399 Speaker 3: so really wasn't a negative thing. I really hate when 534 00:25:56,480 --> 00:25:59,119 Speaker 3: somebody's sitting in front of me exhausted and just burnt 535 00:25:59,119 --> 00:26:01,160 Speaker 3: out and the life is just been sucked out of him. 536 00:26:01,320 --> 00:26:03,440 Speaker 3: And then they realized that they worked maybe five or 537 00:26:03,480 --> 00:26:05,520 Speaker 3: six years longer than they had to. That's painful to 538 00:26:05,520 --> 00:26:06,440 Speaker 3: see sometimes. 539 00:26:06,800 --> 00:26:08,359 Speaker 2: Yeah, Brian, it's funny you bring that up. 540 00:26:08,400 --> 00:26:11,760 Speaker 1: I'm about to have a meeting tomorrow with an actual couple, 541 00:26:11,960 --> 00:26:16,000 Speaker 1: relatively new client, and we're talking exactly about this topic. 542 00:26:17,040 --> 00:26:19,920 Speaker 2: I think he's sixty one, she might be sixty. 543 00:26:20,480 --> 00:26:23,359 Speaker 1: And I ran an initial financial plan for them, and 544 00:26:23,400 --> 00:26:25,880 Speaker 1: I think they were shocked at how big their net 545 00:26:25,920 --> 00:26:28,919 Speaker 1: worth was going to grow. And these are moderate risk investors. 546 00:26:29,560 --> 00:26:32,680 Speaker 1: And you know, the wife comes back to me, she's 547 00:26:32,720 --> 00:26:34,880 Speaker 1: a CPA, you know, by the way, and said, hey, 548 00:26:35,040 --> 00:26:38,320 Speaker 1: she knows her numbers, but still questions, well, no, but 549 00:26:38,440 --> 00:26:40,760 Speaker 1: she she's not working outside the home. This is her 550 00:26:40,800 --> 00:26:43,280 Speaker 1: husband who's earning a high income and still killing it 551 00:26:43,280 --> 00:26:46,160 Speaker 1: every day and working very hard. And she comes back 552 00:26:46,200 --> 00:26:48,560 Speaker 1: and says, Bob, there's one more number I want to see, 553 00:26:48,560 --> 00:26:50,760 Speaker 1: because the whole plan had assumed he was going to 554 00:26:50,840 --> 00:26:54,600 Speaker 1: retire in three years. And she said, what if my 555 00:26:54,800 --> 00:26:58,960 Speaker 1: husband retires this year, like right now, what is the 556 00:26:59,040 --> 00:27:01,760 Speaker 1: impact on the plan. And then she actually dialed up 557 00:27:01,760 --> 00:27:04,840 Speaker 1: an exact amount that she wants each of the three 558 00:27:04,920 --> 00:27:07,920 Speaker 1: kids to inherit and I said, hey, are those inflation 559 00:27:08,160 --> 00:27:11,480 Speaker 1: adjusted numbers or current year numbers in terms of the inheritance? 560 00:27:11,840 --> 00:27:14,800 Speaker 1: And she said, well, I guess inflation adjusted. But if 561 00:27:14,840 --> 00:27:18,159 Speaker 1: I don't like the answer, I might change that too, Meaning. 562 00:27:18,760 --> 00:27:20,080 Speaker 3: Really it changed my mind. 563 00:27:20,520 --> 00:27:24,200 Speaker 1: She wants to get her husband back now and retire now, 564 00:27:24,320 --> 00:27:25,959 Speaker 1: and I think we're going to have the means to 565 00:27:26,000 --> 00:27:28,560 Speaker 1: do it. It should be made for a very interesting 566 00:27:28,920 --> 00:27:31,040 Speaker 1: conversation tomorrow afternoon. 567 00:27:31,400 --> 00:27:33,840 Speaker 3: Here's the all with football moment. I'm excited you get 568 00:27:33,880 --> 00:27:34,240 Speaker 3: to have that. 569 00:27:34,720 --> 00:27:37,160 Speaker 1: Yeah, those are the fun meetings. Here's the all Worth advice. 570 00:27:37,280 --> 00:27:40,959 Speaker 1: A great retirement plan doesn't just protect your wealth, it 571 00:27:40,960 --> 00:27:45,120 Speaker 1: gives you the confidence to actually enjoy it. From tax 572 00:27:45,200 --> 00:27:48,879 Speaker 1: smart investing strategies to helping your kids buy a home. 573 00:27:49,480 --> 00:27:52,680 Speaker 1: Answers to your biggest wealth questions are coming up next. 574 00:27:52,880 --> 00:27:55,520 Speaker 1: You're listening to Simply Money presented by all Worth Financial 575 00:27:55,560 --> 00:28:00,800 Speaker 1: on fifty five KRC the talk station. You're listening to 576 00:28:00,800 --> 00:28:03,440 Speaker 1: Simply Money presented by all Worth Financial on Bob. 577 00:28:03,320 --> 00:28:06,040 Speaker 2: Sponseller along with Brian James. Do you have a. 578 00:28:05,960 --> 00:28:08,680 Speaker 1: Financial question you'd like for us to answer. There's a 579 00:28:08,720 --> 00:28:11,280 Speaker 1: red button you can click while you're listening to the show. 580 00:28:11,520 --> 00:28:15,480 Speaker 1: If and only if you're listening on the iHeart app, 581 00:28:15,720 --> 00:28:18,960 Speaker 1: simply record your question and it will come straight to us. 582 00:28:20,160 --> 00:28:20,520 Speaker 2: All right. 583 00:28:20,560 --> 00:28:24,040 Speaker 1: Brian Paul in Westwood says, we've got a four million 584 00:28:24,080 --> 00:28:27,359 Speaker 1: dollar net worth but very little life insurance. Is that 585 00:28:27,440 --> 00:28:30,560 Speaker 1: a gap or we pass the point where we even 586 00:28:30,880 --> 00:28:31,920 Speaker 1: need any insurance? 587 00:28:32,760 --> 00:28:35,879 Speaker 3: Yeah, this is a very very common point that people 588 00:28:35,920 --> 00:28:38,000 Speaker 3: reach when when we've been successful, we've built up a 589 00:28:38,000 --> 00:28:39,959 Speaker 3: good nest egg and it looks like a lot of numbers. 590 00:28:39,960 --> 00:28:42,680 Speaker 3: There's two commas there, and you know sometimes you know 591 00:28:42,680 --> 00:28:44,680 Speaker 3: an extra digit on the end of it. Then you wonder, 592 00:28:44,720 --> 00:28:46,920 Speaker 3: do the stuff we set up when the kids were little? 593 00:28:47,600 --> 00:28:49,280 Speaker 3: What is it? For what purposes it served? Well, this 594 00:28:49,320 --> 00:28:51,920 Speaker 3: is a really really common question. It's not about net worth, 595 00:28:51,960 --> 00:28:55,800 Speaker 3: it's about dependency risk. So you insurance matters most when 596 00:28:55,840 --> 00:28:59,280 Speaker 3: income is high relative to your assets, kids or a 597 00:28:59,320 --> 00:29:01,520 Speaker 3: spouse or somebody out there depends on that income. In 598 00:29:01,520 --> 00:29:03,440 Speaker 3: other words, if something happens to you or your spouse, 599 00:29:03,440 --> 00:29:06,400 Speaker 3: if an income source would disappear, and also that there's 600 00:29:06,400 --> 00:29:09,680 Speaker 3: not enough yet invested to self insure. At four million dollars, 601 00:29:09,680 --> 00:29:12,360 Speaker 3: you're probably you are approaching the point where insurance matters less. 602 00:29:12,360 --> 00:29:14,840 Speaker 3: But that doesn't mean you're automatically past it. So here's 603 00:29:14,880 --> 00:29:16,160 Speaker 3: how to think about it, you know, kind of step 604 00:29:16,160 --> 00:29:18,680 Speaker 3: by step that run the survivor test. One of you 605 00:29:18,760 --> 00:29:22,640 Speaker 3: passes away tomorrow, what happens. Can the surviving spouse maintain 606 00:29:22,680 --> 00:29:26,800 Speaker 3: the lifestyle with the existing portfolio, you know, or any 607 00:29:26,840 --> 00:29:29,480 Speaker 3: remaining income which is, you know, their own or social security, 608 00:29:29,520 --> 00:29:31,520 Speaker 3: that kind of thing. Here's a rough rule to think 609 00:29:31,520 --> 00:29:33,840 Speaker 3: about it. Three to four percent of your portfolio can 610 00:29:33,920 --> 00:29:36,920 Speaker 3: safely cover spending. Then you're largely self insured. The hard 611 00:29:36,960 --> 00:29:39,280 Speaker 3: part will be, you know, getting over the psychological aspect 612 00:29:39,320 --> 00:29:41,800 Speaker 3: of starting to tap into those assets a little more, 613 00:29:41,960 --> 00:29:42,920 Speaker 3: a little earlier than you. 614 00:29:42,880 --> 00:29:43,320 Speaker 2: Might have thought. 615 00:29:43,320 --> 00:29:45,080 Speaker 3: But on four million dollars, that's one hundred and twenty 616 00:29:45,080 --> 00:29:47,960 Speaker 3: twoe hundred and sixty thousand per year, you know, and 617 00:29:48,000 --> 00:29:50,040 Speaker 3: then also you need to account for that timing risk. 618 00:29:50,120 --> 00:29:52,480 Speaker 3: So even if you're technically self insured, meaning you got 619 00:29:52,560 --> 00:29:56,240 Speaker 3: enough money, markets don't necessarily cooperate on demand. Heaven forbid. 620 00:29:56,480 --> 00:29:59,440 Speaker 3: If that death coincides with a downturn, then selling those 621 00:29:59,520 --> 00:30:02,840 Speaker 3: investments to fund your life expenses is can permanently damage 622 00:30:02,880 --> 00:30:05,320 Speaker 3: that plan, which, to be honest, has already been permanently 623 00:30:05,400 --> 00:30:07,960 Speaker 3: damaged due to the death. So it may not be 624 00:30:08,040 --> 00:30:10,920 Speaker 3: as that much of a concern, but inflation is a 625 00:30:10,960 --> 00:30:13,600 Speaker 3: buffer against that. So I would I would I never 626 00:30:13,640 --> 00:30:16,560 Speaker 3: automatically say no, you don't need any insurance. I would say, 627 00:30:16,600 --> 00:30:18,680 Speaker 3: let's take that net worth as a trigger to say, 628 00:30:18,720 --> 00:30:20,600 Speaker 3: you know what, it's time to really review what our 629 00:30:20,640 --> 00:30:23,720 Speaker 3: insurance needs are because they have likely changed from back 630 00:30:23,760 --> 00:30:25,840 Speaker 3: when we were dirt poor and put these policies in place. 631 00:30:25,880 --> 00:30:29,400 Speaker 3: To begin with Mark and Anderson. Mark read something the 632 00:30:29,480 --> 00:30:32,440 Speaker 3: other day about something called a three fifty one conversion, 633 00:30:32,520 --> 00:30:36,240 Speaker 3: something about moving stock into ETFs and saving on taxes. Bob, 634 00:30:36,320 --> 00:30:38,640 Speaker 3: can you walk us through what that is? Are their benefits? 635 00:30:39,240 --> 00:30:42,240 Speaker 2: Well, I'll do my best here. Mark. First of all, 636 00:30:42,320 --> 00:30:44,920 Speaker 2: I don't think this is a viable. 637 00:30:44,520 --> 00:30:47,400 Speaker 1: Strategy for most people that are sitting on, say a 638 00:30:47,440 --> 00:30:50,920 Speaker 1: concentrated position in certain stocks and say hey, I want 639 00:30:50,960 --> 00:30:54,000 Speaker 1: to diversify and move into ETFs and avoid. 640 00:30:53,640 --> 00:30:55,120 Speaker 2: All the capital gains taxes. 641 00:30:55,200 --> 00:30:58,160 Speaker 1: So you know, this is not a panacea for folks 642 00:30:58,160 --> 00:31:01,160 Speaker 1: that have embedded capital gains in their investments. Where it's 643 00:31:01,200 --> 00:31:05,000 Speaker 1: most commonly used is where somebody has a business, say 644 00:31:05,000 --> 00:31:08,000 Speaker 1: an LLC, and they want a bit more of a 645 00:31:08,120 --> 00:31:14,040 Speaker 1: buttoned up, you know, more more complex corporate strategy, say 646 00:31:14,040 --> 00:31:17,120 Speaker 1: a c CORP, where you're trying to raise some venture capital, 647 00:31:17,480 --> 00:31:20,120 Speaker 1: use some stock options, things like that. So what you 648 00:31:20,240 --> 00:31:23,280 Speaker 1: can do is you can take shares of an LLC 649 00:31:23,720 --> 00:31:26,240 Speaker 1: moving into a sea corp, and as long as you 650 00:31:26,280 --> 00:31:29,560 Speaker 1: don't receive much of any cash back, and as long 651 00:31:29,600 --> 00:31:34,280 Speaker 1: as you remain the eighty percent or greater controlling owner 652 00:31:34,320 --> 00:31:37,400 Speaker 1: of that sea corp, you cannot avoid but you can 653 00:31:37,520 --> 00:31:40,600 Speaker 1: defer the capital gains of what you put into that 654 00:31:40,680 --> 00:31:44,400 Speaker 1: sea corporation. So, uh, it's not a very commonly used 655 00:31:44,440 --> 00:31:48,040 Speaker 1: strategy that we see in the retail, you know, investment world. 656 00:31:48,440 --> 00:31:50,960 Speaker 1: And I'll stop there because I am not a CPA, 657 00:31:51,200 --> 00:31:53,720 Speaker 1: so I do not want to give qualified tax advice 658 00:31:53,760 --> 00:31:56,160 Speaker 1: here on the radio. If this is something you really 659 00:31:56,200 --> 00:31:58,600 Speaker 1: want to look into, i'd say get with a good 660 00:31:58,680 --> 00:32:01,960 Speaker 1: CPA that has a lot of experience with three fifty 661 00:32:01,960 --> 00:32:05,240 Speaker 1: one conversions and hopefully he or she can help you out. 662 00:32:05,320 --> 00:32:07,640 Speaker 1: All right, let's go to Bob and pleasant Ridge. Our 663 00:32:07,720 --> 00:32:11,360 Speaker 1: portfolio throws off more income than we need. Is there 664 00:32:11,400 --> 00:32:16,040 Speaker 1: a tax efficient way to reinvest that without creating something 665 00:32:16,080 --> 00:32:17,040 Speaker 1: he calls drag? 666 00:32:17,200 --> 00:32:18,760 Speaker 2: What do we mean by drag? Brian? 667 00:32:19,480 --> 00:32:21,160 Speaker 3: Wow, Well we're talking about there. You know that this 668 00:32:21,240 --> 00:32:24,560 Speaker 3: is exactly where these small structural decisions can compound into 669 00:32:24,640 --> 00:32:27,440 Speaker 3: really meaningful after tax gains over time. So if that 670 00:32:27,520 --> 00:32:31,600 Speaker 3: portfolio is generating excess income, the goal isn't necessarily just reinvest, 671 00:32:31,680 --> 00:32:34,400 Speaker 3: It is to control where and how that reinvestment shows 672 00:32:34,440 --> 00:32:36,680 Speaker 3: up on your tax return. Figure out what type of 673 00:32:36,720 --> 00:32:40,800 Speaker 3: income you're getting. Right, there's different flavors of income qualified dividends. 674 00:32:40,880 --> 00:32:43,640 Speaker 3: Remember our taxic capital gains rates you know, fifteen percent 675 00:32:44,440 --> 00:32:47,960 Speaker 3: most and interest is taxes. Ordinary income that's bonds and 676 00:32:48,000 --> 00:32:50,600 Speaker 3: cash CDs, things like that. If you've got real estate 677 00:32:51,360 --> 00:32:54,520 Speaker 3: investment trusts or rates or non qualified dividends, those are 678 00:32:54,560 --> 00:32:58,320 Speaker 3: taxes us ordinary income. If most of your excess is 679 00:32:58,320 --> 00:33:02,320 Speaker 3: coming from ordinary incomes sourses, that's where the biggest drag lives. 680 00:33:02,400 --> 00:33:02,520 Speaker 2: Right. 681 00:33:02,560 --> 00:33:05,160 Speaker 3: So there's your definition, Bob. It depends on you. Are 682 00:33:05,160 --> 00:33:07,440 Speaker 3: you getting tax drag on your portfolio. It's one thing 683 00:33:07,440 --> 00:33:09,680 Speaker 3: to look at the gross return you're getting or the 684 00:33:09,720 --> 00:33:12,960 Speaker 3: total number of dollars that that portfolio spits out, but 685 00:33:13,040 --> 00:33:14,760 Speaker 3: that's just a gross number. You really got to look 686 00:33:14,760 --> 00:33:16,680 Speaker 3: at the net number to figure out how much did 687 00:33:16,680 --> 00:33:20,400 Speaker 3: my income take away, my income taxes take away because 688 00:33:20,400 --> 00:33:22,640 Speaker 3: of that situation, So you know, you might want to 689 00:33:22,640 --> 00:33:26,440 Speaker 3: turn off that autopilot reinvestment. Automatic dividend reinvestment feels like 690 00:33:26,480 --> 00:33:29,520 Speaker 3: an efficient thing, but it removes control. Instead, what you 691 00:33:29,560 --> 00:33:31,440 Speaker 3: might do is take some of that income and cash 692 00:33:31,560 --> 00:33:35,240 Speaker 3: and then reinvest it intentionally into something more tax efficient 693 00:33:35,480 --> 00:33:37,720 Speaker 3: so that you're not doubling down on the problem anymore. 694 00:33:37,960 --> 00:33:40,920 Speaker 3: And then you know, third prioritize tax efficient efficient vehicles 695 00:33:40,960 --> 00:33:43,680 Speaker 3: for that reinvestment. So in the taxable account this is 696 00:33:43,720 --> 00:33:45,680 Speaker 3: this is kind of high level stuff, but you want 697 00:33:45,680 --> 00:33:48,200 Speaker 3: to favor those broad market ETFs that have low turnover 698 00:33:48,280 --> 00:33:51,800 Speaker 3: and therefore minimum capital gain distributions, tax managed funds and 699 00:33:51,920 --> 00:33:54,840 Speaker 3: municipal bonds. If you for the stuff that's more active, 700 00:33:55,280 --> 00:33:57,560 Speaker 3: use that in your traditional IRA and your roth IRA 701 00:33:57,680 --> 00:34:01,600 Speaker 3: where annual activity does not necessarily translate into taxable activity. 702 00:34:02,120 --> 00:34:04,560 Speaker 3: All right, Time for one more Susan in Mainville. She 703 00:34:04,600 --> 00:34:07,240 Speaker 3: says she wants to help their kids buy homes, and therefore, 704 00:34:07,280 --> 00:34:09,560 Speaker 3: what's the most a tax efficient way to do that? 705 00:34:09,680 --> 00:34:13,520 Speaker 1: Bob Well, first of all, let's define what you can do, 706 00:34:13,640 --> 00:34:15,920 Speaker 1: and some people are surprised by that. You can give 707 00:34:16,000 --> 00:34:19,759 Speaker 1: up to nineteen thousand dollars to any human being you 708 00:34:19,880 --> 00:34:21,560 Speaker 1: want to in twenty twenty six. 709 00:34:21,640 --> 00:34:23,680 Speaker 2: So think about it this way. If you've got you. 710 00:34:23,600 --> 00:34:26,799 Speaker 1: Know you want to help out one kid nineteen times two. 711 00:34:26,840 --> 00:34:30,720 Speaker 1: If you're married, that's thirty eight thousand dollars per child. 712 00:34:31,000 --> 00:34:33,840 Speaker 1: And if the child's married, you know, for a married couple, 713 00:34:33,920 --> 00:34:36,600 Speaker 1: that's up to seventy six thousand dollars in any year 714 00:34:36,680 --> 00:34:39,960 Speaker 1: you can give away without any tax filing. The irs 715 00:34:40,040 --> 00:34:42,879 Speaker 1: isn't going to knock on your door anything like that. 716 00:34:43,040 --> 00:34:46,480 Speaker 1: The question becomes where do we pull the money from 717 00:34:46,520 --> 00:34:49,680 Speaker 1: which to do that with, Whether it's cash or if 718 00:34:49,719 --> 00:34:51,840 Speaker 1: your kids or the people you're giving the money to 719 00:34:52,080 --> 00:34:54,480 Speaker 1: are in a low tax bracket, this might be a 720 00:34:54,520 --> 00:34:57,919 Speaker 1: wonderful opportunity to give away some appreciated stocks to them 721 00:34:58,239 --> 00:35:00,680 Speaker 1: to help with the with buying the house. They can 722 00:35:00,800 --> 00:35:03,680 Speaker 1: sell that stock and pay a much lower capital gains 723 00:35:03,760 --> 00:35:07,480 Speaker 1: rate and sometimes zero capital gains. That's where we want 724 00:35:07,520 --> 00:35:10,479 Speaker 1: to look at. What's the most efficient asset to use 725 00:35:10,880 --> 00:35:13,719 Speaker 1: to make this gift. Coming up next a segment that 726 00:35:13,840 --> 00:35:16,960 Speaker 1: is right up our alley, and in fact it's a 727 00:35:17,000 --> 00:35:17,919 Speaker 1: real home run. 728 00:35:18,480 --> 00:35:19,799 Speaker 2: Yes, unintended. 729 00:35:20,000 --> 00:35:22,759 Speaker 1: You're listening to Simply Money presented by Allworth Financial on 730 00:35:22,880 --> 00:35:29,120 Speaker 1: fifty five krc B Talk station. You're listening to Simply 731 00:35:29,160 --> 00:35:32,560 Speaker 1: Money presented by Allworth Financial on Bob Sponsller along with 732 00:35:32,600 --> 00:35:35,840 Speaker 1: Brian James. Brian, can you believe we went through this 733 00:35:36,000 --> 00:35:38,880 Speaker 1: whole show and still haven't talked about the fact that 734 00:35:38,920 --> 00:35:42,360 Speaker 1: this is opening day for our good old Cincinnati Reds. 735 00:35:44,280 --> 00:35:48,680 Speaker 1: What does baseball have to do with your investment strategy? Well, 736 00:35:48,800 --> 00:35:52,439 Speaker 1: some would say more than you think. Let's break down 737 00:35:52,480 --> 00:35:54,319 Speaker 1: all these wonderful analogies. 738 00:35:54,360 --> 00:35:54,680 Speaker 2: Brian. 739 00:35:55,360 --> 00:36:00,359 Speaker 3: Yeah, we love the time baseball to just about anything life, 740 00:36:00,440 --> 00:36:04,919 Speaker 3: especially on this this locally federal holiday. I'll go ahead 741 00:36:04,960 --> 00:36:07,160 Speaker 3: and call it here in Cincinnati one of my favorite 742 00:36:07,200 --> 00:36:09,880 Speaker 3: days of the year. So, but so let's tie this 743 00:36:09,920 --> 00:36:12,320 Speaker 3: to baseball. Let's think of the illusion of a perfect season. 744 00:36:12,400 --> 00:36:15,399 Speaker 3: Everything every team starts out going this could be our year. 745 00:36:15,440 --> 00:36:17,120 Speaker 3: While they're in their locker room just about to take 746 00:36:17,160 --> 00:36:19,000 Speaker 3: the field for the first of one hundred and sixty 747 00:36:19,000 --> 00:36:22,480 Speaker 3: two chances at perfection. This is the year everything clicks, 748 00:36:22,840 --> 00:36:25,320 Speaker 3: but baseball and investing, of course, has a way of 749 00:36:25,400 --> 00:36:28,239 Speaker 3: humbling you. One hundred and sixty two games, the Big 750 00:36:28,280 --> 00:36:30,480 Speaker 3: one six two, as many in the in the media 751 00:36:30,560 --> 00:36:32,920 Speaker 3: tend to call it, tends to reveal who the who 752 00:36:32,960 --> 00:36:35,640 Speaker 3: the real real players are and who the fakers are, 753 00:36:35,680 --> 00:36:39,120 Speaker 3: and not to mention reality. There are slumps, injuries, bad calls, 754 00:36:39,160 --> 00:36:41,560 Speaker 3: things that are just out of your control. Markets do 755 00:36:41,600 --> 00:36:44,520 Speaker 3: the same thing. Volatility shows up, things that will go 756 00:36:44,520 --> 00:36:46,719 Speaker 3: go according to plan and it just doesn't work out 757 00:36:46,760 --> 00:36:48,080 Speaker 3: the way that you had planned. 758 00:36:48,760 --> 00:36:53,480 Speaker 1: And everything everything looks great on March twenty sixth until 759 00:36:53,760 --> 00:36:56,839 Speaker 1: let's say Nick Lidolo blows out his arm. 760 00:36:56,920 --> 00:36:57,480 Speaker 2: But go ahead. 761 00:36:58,480 --> 00:37:01,200 Speaker 3: That's the spirit. That's exactly the kind of thing that 762 00:37:01,280 --> 00:37:04,120 Speaker 3: we need to get everybody excited for this this season here. 763 00:37:04,719 --> 00:37:06,839 Speaker 3: So you know, but no, just to bring it back 764 00:37:06,840 --> 00:37:08,560 Speaker 3: to why are we talking about the well, we don't 765 00:37:08,560 --> 00:37:10,439 Speaker 3: win on one big swing. You know, you don't win 766 00:37:10,480 --> 00:37:12,840 Speaker 3: the whole season by swinging for the fences every single 767 00:37:12,840 --> 00:37:16,280 Speaker 3: at bat. It's consistency, it's teamwork. All of your stuff 768 00:37:16,320 --> 00:37:20,120 Speaker 3: has to work together. That stuff means not just your investments. 769 00:37:20,160 --> 00:37:23,920 Speaker 3: It's also your family and your job and your overall lifestyle. 770 00:37:23,960 --> 00:37:26,319 Speaker 3: Everything has to come out a certain way for you 771 00:37:26,440 --> 00:37:28,560 Speaker 3: to be, you know, stress free, and it never ever 772 00:37:28,600 --> 00:37:30,880 Speaker 3: works that way. Right, So we've got that. We always 773 00:37:30,880 --> 00:37:33,799 Speaker 3: have the situations bottom of the ninth, two strikes and 774 00:37:34,160 --> 00:37:36,839 Speaker 3: we've got our last chance at not losing this one. 775 00:37:36,840 --> 00:37:39,240 Speaker 3: That happens almost on a daily basis. It's just life. 776 00:37:39,239 --> 00:37:41,799 Speaker 3: It's not failure, it's not success, it's just how life 777 00:37:41,840 --> 00:37:44,839 Speaker 3: works with the daily challenges we face every single day. 778 00:37:45,080 --> 00:37:47,600 Speaker 3: So make sure that your roster is up to date 779 00:37:48,120 --> 00:37:50,239 Speaker 3: and meaning that you've got the correct players in the 780 00:37:50,239 --> 00:37:52,200 Speaker 3: correct positions. Bob, I want you to talk about this 781 00:37:52,239 --> 00:37:53,480 Speaker 3: more than me. He're the baseball guy. 782 00:37:54,600 --> 00:37:56,600 Speaker 2: Well, everybody likes to talk about. 783 00:37:56,400 --> 00:37:59,560 Speaker 1: Home runs and offense in baseball because that's exciting. But 784 00:37:59,600 --> 00:38:02,920 Speaker 1: a lot of things that win baseball games is pitching 785 00:38:03,000 --> 00:38:03,719 Speaker 1: and defense. 786 00:38:04,200 --> 00:38:05,760 Speaker 2: So you gotta play both. 787 00:38:05,920 --> 00:38:08,799 Speaker 1: Meaning, you know, if you score seven eight runs a 788 00:38:08,840 --> 00:38:11,760 Speaker 1: game and you're all offense, you're all growth, growth, growth, 789 00:38:11,800 --> 00:38:14,759 Speaker 1: and you never play any defense. In your financial plan, 790 00:38:14,920 --> 00:38:18,319 Speaker 1: meaning your pitchers better be able to throw strikes, they 791 00:38:18,400 --> 00:38:20,960 Speaker 1: better be able to hold runners on. You better have 792 00:38:21,040 --> 00:38:23,520 Speaker 1: a catcher that could throw somebody out trying to steal. 793 00:38:23,640 --> 00:38:26,319 Speaker 1: If none of that stuff happens and it turns into 794 00:38:26,320 --> 00:38:30,520 Speaker 1: a literal merry go round around the bases, you're giving 795 00:38:30,600 --> 00:38:33,440 Speaker 1: up free nineties with walks and stolen bases and all that. 796 00:38:33,520 --> 00:38:36,240 Speaker 1: You might score eight runs, you might give up eleven 797 00:38:36,520 --> 00:38:38,279 Speaker 1: and not win the game. So you got to play 798 00:38:38,360 --> 00:38:43,239 Speaker 1: defense and offense with your overall investment strategy and financial plan. 799 00:38:43,280 --> 00:38:46,680 Speaker 1: All right, how about that for wearing out the baseball analogies. 800 00:38:46,840 --> 00:38:47,960 Speaker 2: Here's the all Worth advice. 801 00:38:48,080 --> 00:38:52,440 Speaker 1: Building wealth like a winning season isn't about one big swing. 802 00:38:52,520 --> 00:38:56,320 Speaker 1: It's about discipline, balance, playing the long game. 803 00:38:56,600 --> 00:38:57,680 Speaker 2: Thanks for listening tonight. 804 00:38:57,680 --> 00:38:59,880 Speaker 1: You've been listening to Simply Money, presented by all Worth 805 00:39:00,000 --> 00:39:03,040 Speaker 1: an ancel on fifty five krc D talk station