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Speaker 1: Tonight, skepticism over the latest inflation report, what the government

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Speaker 1: just approved that could impact markets, and we answer your

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Speaker 1: pressing money questions. You're listening to simply Money, all Worth

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Speaker 1: Financial and Bob Spondseller along with Brian James. Well, a

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Speaker 1: few days ago, people were cheering over the November inflation report.

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Speaker 1: It was a softer report than any of the economists predicted.

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Speaker 1: And now there might be a reason why All Wors

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Speaker 1: Chief investment Officer Andy Stout joins us tonight. Andy, some

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Speaker 1: are talking about taking issue with the validity of these

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Speaker 1: latest inflation numbers. What's the deal here, Yeah.

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Speaker 2: Let's take a step back and actually look at the data.

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Speaker 2: When we saw the headline data from the government last week,

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Speaker 2: it was really good, right. It showed that inflation was

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Speaker 2: two point seven percent higher over the past year in

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Speaker 2: core prices, which exclude food and energy, and of course

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Speaker 2: they matter, but economists look at it. That showed that

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Speaker 2: prices were two point six percent higher over the past year. Clearly,

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Speaker 2: when you look at that on a graph, it looks

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Speaker 2: like the inflation rates moving lower and lower.

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Speaker 3: And that's a good thing.

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Speaker 2: However, there are so many anomalies in the data. I mean,

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Speaker 2: you can't ignore it completely, but you certainly don't want

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Speaker 2: to give it too much credit. The issue really stems

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Speaker 2: from how they had to handle the data collection. Essentially,

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Speaker 2: when the government collects the data, they do it in

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Speaker 2: real time. And guess what, the government was shut down

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Speaker 2: during October, so they couldn't do a real time collection,

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Speaker 2: if you will. So what they had to do was

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Speaker 2: basically they kept October prices flat, so essentially no change

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Speaker 2: in prices from September to October, and they looked at

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Speaker 2: what the change with a one month change in November

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Speaker 2: would have been. So essentially they're kind of like cramming

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Speaker 2: into two months of actual data just one month of

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Speaker 2: price changes. Now, this will kind of sort itself out

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Speaker 2: in December. For most of the inflation data, except for

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Speaker 2: the biggest category that's shelter inflation and sold inflation is

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Speaker 2: about thirty five percent of the total CPI or inflation basket.

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Speaker 4: Hey Andy, hold my hand and make me feel better

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Speaker 4: about this, because I am looking at on the BLS

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Speaker 4: site the percent changes and see this is CPIU, so

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Speaker 4: all urban consumers. But there are literally three categories that

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Speaker 4: have anything at all. There's gasoline and there's new vehicles

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Speaker 4: and used cars and trucks, every single other category for

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Speaker 4: both October and November, there is no data period. End

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Speaker 4: of story is that this is what you're referring to, right.

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Speaker 2: Well, yes, and now you're looking at the one month change.

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Speaker 2: So there's not going to be a one month change

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Speaker 2: for October or November because there's no Tober data. This

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Speaker 2: data that you see on the BLS which is the

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Speaker 2: Bureau of Labor Statistics site, that's data that they can't

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Speaker 2: actually collect by looking at the sticker prices from you know,

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Speaker 2: various retailers, if you will, they can see what car

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Speaker 2: prices are, like you were saying, but a lot of

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Speaker 2: the data like Shelter, is based on surveys where they

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Speaker 2: reach out to individuals and to see what the rent

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Speaker 2: is of certain properties and things like that and to

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Speaker 2: figure it out. Now, the thing with rent, which is

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Speaker 2: thirty five percent of total inflation, we're not going to

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Speaker 2: see any clean data on that probably now because of

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Speaker 2: this anomaly. Probably at least it's going to be impacting

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Speaker 2: inflation through at least next April. Because what they do

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Speaker 2: is they look technically, they look at six month changes

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Speaker 2: in rent prices. So because we don't have this October data,

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Speaker 2: We're going to probably see inflation artificially lower for the

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Speaker 2: next six months when you look at that year of

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Speaker 2: a year numbers.

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Speaker 1: Andy, you know, we Brian took us into the labor

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Speaker 1: you know, stuff which we want to definitely talk about.

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Speaker 1: Butt's let's go back to inflation numbers for a minute.

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Speaker 1: I tried to listen to you carefully here, Am I

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Speaker 1: correct in assuming that we're just going to basically from

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Speaker 1: a data standpoint, pretend like October didn't happen. We have

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Speaker 1: no October data. Will we ever get October data? Will

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Speaker 1: that factor into perhaps some revisions with December data, or

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Speaker 1: is just October just gone, you know, never never to

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Speaker 1: be seen or heard from again.

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Speaker 3: October's gone.

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Speaker 2: Other than like the data that Brian was pointing out,

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Speaker 2: which they the BLS can collect from you know, different

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Speaker 2: retailers based on the sticker prices, but that is just

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Speaker 2: gone because it's collected in real time. It's collected by

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Speaker 2: the government talking to individuals about different price levels, and

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Speaker 2: they can't go back in time and say, hey, what

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Speaker 2: was it like back in October on these price levels.

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Speaker 2: I mean, it's just not going to happen. So instead

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Speaker 2: we treat October as basically a month that never occurred

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Speaker 2: for all intents and purposes.

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Speaker 4: Okay, but all these surveys, in these interviews, these are

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Speaker 4: now taking place again. Is that? Is that what I'm

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Speaker 4: hearing you say? We're back to doing it the way

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Speaker 4: we used to.

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Speaker 2: So we will have data, Yeah, we will have data

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Speaker 2: going forward, but there's a big hole and it's it's

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Speaker 2: clearly impacting, and we'll get some relief in December.

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Speaker 3: You know. On some of the data.

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Speaker 2: The issue is the rent because what they do they

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Speaker 2: look at like a six month change and they kind

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Speaker 2: of like go through different areas of uh, you know,

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Speaker 2: about a third of the country at a time when

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Speaker 2: they're looking at rent prices. Uh, and we're we've essentially

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Speaker 2: lost a third of that all together, and we won't

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Speaker 2: get that fixed until you know, basically next to April.

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Speaker 4: So as it relates to the markets, Andy, one thing

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Speaker 4: I noticed was that the market's doing okay, I mean it,

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Speaker 4: it kind of shrugged at this. I fix this inflation

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Speaker 4: has been a headline for years now than us pushing

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Speaker 4: pushing below. You know, we've almost kind of broken through

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Speaker 4: the bottom range that we have that we've been hovering

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Speaker 4: around for a while now. But the market didn't really

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Speaker 4: react to it. Didn't didn't react negatively, but it wasn't

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Speaker 4: positive either, you know, kind of a non reaction at all.

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Speaker 4: Do you think that is because of this ambiguity of

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Speaker 4: the data. Maybe there's not confidence that this is really real,

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Speaker 4: but at the same time, it's reasonable to think it

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Speaker 4: might be. So therefore the market didn't panic about the

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Speaker 4: missing data either. Is that a fair assessment or am

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Speaker 4: I making stuff up?

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Speaker 3: Now?

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Speaker 2: I think it's a fair subsistent when you look at

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Speaker 2: it come the end of the day. I mean the

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Speaker 2: initial knee jerk reaction was the market took off and soared.

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Speaker 2: Then people started to notice all these different anomalies and

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Speaker 2: reading like the footnotes from the inflation report, like, well, maybe.

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Speaker 3: This isn't as good as initially thought.

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Speaker 2: The market kind of settled in still, I mean still

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Speaker 2: it was an okay day as far as that goes.

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Speaker 2: But to your point, the market's kind of just taking

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Speaker 2: it at face value in terms of Okay, we know

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Speaker 2: this is a messy report. We know there are some inconsistency,

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Speaker 2: some irregularities. We're gonna just take that with a grain

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Speaker 2: of salt. We're not going to look at that headline

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Speaker 2: number because that headline number of low inflation is very,

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Speaker 2: very misleading.

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Speaker 1: All right, Andy, piggybacking on Brian's point, which I think

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Speaker 1: is a good one. You know, I continue to just

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Speaker 1: monitor the ten year treasury because that's what's really going

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Speaker 1: to move the needle here, you know, longer term with

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Speaker 1: mortgage rates and everything else, and that ten year correct

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Speaker 1: me if I'm wrong. It's not budgeting at all. You know,

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Speaker 1: we're just we just continue to hover around that four

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Speaker 1: point one percent rate, you know, regardless of what the

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Speaker 1: Fed does. I'm also hearing that. You know, let's face it,

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Speaker 1: we've got thirty eight trillion dollars of debt in this country,

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Speaker 1: and Andy, isn't it true that the government has to

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Speaker 1: roll about ten trillion dollars of that debt during twenty

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Speaker 1: twenty six? In other words, they're gonna have to find

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Speaker 1: somebody to purchase that debt. Am I right there? And

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Speaker 1: if so, what are your thoughts on all that as

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Speaker 1: we turn the page into twenty twenty six. Are we

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Speaker 1: gonna be fine in terms of the government financing about

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Speaker 1: a third of its national debt next year?

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Speaker 2: So when you look at interest rate levels, I mean,

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Speaker 2: we've been basically stuck between four percent and four point

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Speaker 2: two percent since just about the beginning of September. So

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Speaker 2: the tenure treasury really hasn't gone anywhere, and it does.

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Speaker 3: Incorporate a number of items.

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Speaker 2: It's not just just what the Fed's doing, but it's

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Speaker 2: really based on what economic growth expectations are, what inflation

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Speaker 2: expectations are, and when you put it all together together,

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Speaker 2: the market's not really seeing much of a change from

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Speaker 2: that perspective, still expecting inflation to be somewhat elevated, still

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Speaker 2: expecting growth GDP growth to be modestly positive overall for

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Speaker 2: you know, the year of twenty twenty five, probably somewhere

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Speaker 2: around two and a half to three percent, depending on

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Speaker 2: where Q three and Q four day to come in at.

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Speaker 2: And it takes all that into consideration, and really nothing

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Speaker 2: much has changed over the past for months, so from

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Speaker 2: the government's perspective when they do have to issue a

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Speaker 2: lot of new debt next year because you know, we

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Speaker 2: have rising deficits and we have to you know, refinance

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Speaker 2: the debt that's maturing. Uh, the rate that we're at

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Speaker 2: right now in this four four point two percent level.

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Speaker 3: It's okay. It's not going to bust the government at all.

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Speaker 2: I mean, there's a lot of concerns about, you know,

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Speaker 2: our debt to GDP ratio, But what I like to

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Speaker 2: look at a little bit more closely is our interest

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Speaker 2: rate to GDP ratio or what what's the interest we're

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Speaker 2: paying on that debt.

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Speaker 3: And we're not.

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Speaker 2: At levels that are really red flags or causing us

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Speaker 2: to get overly concerned. Now, certainly we don't want to

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Speaker 2: see the government continue to have to issue debt at

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Speaker 2: higher and higher interest rates.

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Speaker 3: So you know, if we're at these current.

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Speaker 2: Levels or even a little bit higher, you know that's

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Speaker 2: going to be fined and we're probably going to see

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Speaker 2: some downward pressure at least on short term rates, uh

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Speaker 2: continuing next year. I mean, we've seen the Fed lower

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Speaker 2: rates over the past year and a half, basically from

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Speaker 2: upper end of five and a half to three point

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Speaker 2: seventy five percent, and that will continue to happen. We

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Speaker 2: might see, you know, definitely fewer cuts next year unless

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Speaker 2: the job market collapses. So I'm not too worried about

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Speaker 2: the government having to refinance their debt.

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Speaker 4: Speaking of jobs, Andy, we got some jobs at last

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Speaker 4: week too. Some of that's a little bit messy, but

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Speaker 4: we're still looking, okay, is there can you give us

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Speaker 4: some some insight there?

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Speaker 3: Yeah, it was definitely messy.

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Speaker 2: I would say it's not even close to being as

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Speaker 2: messy as the the CPI report, but it wasn't very

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Speaker 2: clean and there's some data that will never get so,

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Speaker 2: like the October unemployment rate that's gone forever, that will

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Speaker 2: never happen.

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Speaker 3: We got the November unemployment rate and.

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Speaker 2: We can compare it to the September rate, and when

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Speaker 2: you look at it, it's basically it wasn't a big jump.

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Speaker 3: It went from four point four to four to four point.

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Speaker 2: Five six, so about a a little more than a

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Speaker 2: tenth of a percent increase in the unemployment rate from

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Speaker 2: September to November. But when we look at jobs are

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Speaker 2: being added by employers, we can't actually go back and

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Speaker 2: see what October looked like there. So that's a positive

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Speaker 2: from that perspective. Now I say it's a positive from

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Speaker 2: that perspective. When you look at the headline data, it

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Speaker 2: was a negative negative a large drop in October where

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Speaker 2: we saw basically one hundred five thousand jobs declining in

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Speaker 2: October so employers shed one hundred and five thousand workers,

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Speaker 2: and then November saw a bit of a rebound of

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Speaker 2: sixty four thousand. That being said, that headline number is

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Speaker 2: not nearly as bad as it is when you look

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Speaker 2: at the details. The big reason we saw that drop

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Speaker 2: in October. First of all, it wasn't because of the shutdown.

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Speaker 2: Those furloughed workers aren't counted as having lost their job.

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Speaker 2: It was pretty much almost entirely due to a significant

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Speaker 2: drop in federal government workers. But it was tied to

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Speaker 2: deferred resignations from earlier this year, so people who essentially

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Speaker 2: decided to resign, but they didn't hit the October print

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Speaker 2: the payroll number, the payroll numbers until October, So there's

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Speaker 2: one hundred and sixty two thousand jobs lost from those

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Speaker 2: deferred essentially resignations. Now that's why it's important to say, Okay,

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Speaker 2: let's kind of ignore that data, I mean, not completely

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Speaker 2: ignore it, but let's look at data that might see

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Speaker 2: a bit of a trend. That's where we can look

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Speaker 2: at the private payroll data. So what's the private sector doing?

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Speaker 2: And essentially in October, the private sector added fifty two

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Speaker 2: thousand jobs. In November, the private sector added sixty nine

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Speaker 2: thousand jobs, So not gangbusters by any stretch of the imagination,

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Speaker 2: but it does point to a more stable labor market

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Speaker 2: environment than what the headline suggests.

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Speaker 1: Sounds good, Andy A, thanks as always for being with

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Speaker 1: us tonight, and you always do a great job of

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Speaker 1: putting into actual perspective some of these reports. And you know,

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Speaker 1: at times noise we hear, you know, from politicians in

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Speaker 1: the media. Coming up next, what the SEC just approved

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Speaker 1: and why it could change how markets work even if

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Speaker 1: you're not in crypto. You're listening to Simply Money presented

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Speaker 1: by all Worth Financial on fifty five KRC, the talk station.

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Speaker 1: You're listening to Simply Money presented by all Worth Financial

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Speaker 1: on Bob's sponseller along with Brian James straight ahead of

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Speaker 1: six forty three. We're tackling your questions about risk adjusted

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Speaker 1: returns and what those actually mean in your portfolio, whether

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Speaker 1: bond funds still makes sense right now, and how to

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Speaker 1: align your estate plan with your investment strategy. Well, you've

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Speaker 1: probably heard the word blockchain thrown around a lot, usually

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Speaker 1: tied to things like bitcoin or ethereum. But something just

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Speaker 1: happened that has nothing to do with crypto and everything

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Speaker 1: to do with how your traditional investments, say stocks, bonds,

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Speaker 1: ETFs might be bought and sold in the future. This

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Speaker 1: will be an interesting thing to watch happen here in

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Speaker 1: the months and years to come.

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Speaker 4: Brian, Yeah, I like this. I think this is a

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Speaker 4: good headline. Uh so this is to me, this this

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Speaker 4: likens to way back when when in the sixties and seventies,

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Speaker 4: when the custodians stopped dealing with physical certificates and started

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Speaker 4: moving everything electronic. It's gonna speed things up. So here's

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Speaker 4: what's happening. So the SEC is going to be moving

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Speaker 4: to tokenizing stocks. Now here's what is not happening. This

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Speaker 4: is not turning stocks and mutual funds and bonds into crypto,

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Speaker 4: currentcy and anything like that. I know a lot of

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Speaker 4: people associate the word blockchain with crypto because that's where

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Speaker 4: it came from. Crypto is or a blockchain is the

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Speaker 4: was originally the technology behind bitcoin that allowed it to

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Speaker 4: exist on ledgers that are saved on computers all over

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Speaker 4: the world. Basically meaning that if you're gonna fake it,

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Speaker 4: then you've got to fake it, you know, an infinite

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Speaker 4: amount of times, which makes it pretty darn secure. So

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Speaker 4: there's an organization called the DTCC Depository TUST Trust and

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Speaker 4: Clearing Corporation. It is not new, but you've probably never

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Speaker 4: heard of it. It is a huge part of the

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Speaker 4: the idea of moving stocks and bonds around. So every

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Speaker 4: time you buy or sell a stock, bond mutual fund,

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Speaker 4: DTCC is the company behind the scenes making sure that

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Speaker 4: trade happens, he gets processed recorded properly. So now the SEC,

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Speaker 4: who is still the regulator of US markets, has basically

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Speaker 4: told them, yes, go ahead and start using blockchain for

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Speaker 4: some of this. And it's basically like FedEx giving FedEx

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Speaker 4: permission to start testing drones, not really a full rollout,

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Speaker 4: so it's not happening this moment, but a huge step forward.

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Speaker 4: And really what this means, and I'm thinking of when

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Speaker 4: my clients call and they say, hey, we need we

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Speaker 4: need a distribution because we got to pay some our bills,

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Speaker 4: we're gonna take vacation or whatever, then that means I

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Speaker 4: will be able to get them those dollars more quickly. Currently,

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Speaker 4: I normally say, if you're calling me today than then

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Speaker 4: expected a couple of business days from now. This could

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Speaker 4: mean could could could mean almost instantaneous availability of cash

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Speaker 4: when it truly settles in. But this is replacing the

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Speaker 4: plumbing behind an ancient system. It is not gonna happen overnight.

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Speaker 4: But again, I think it's a good thing. What do

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Speaker 4: you think, Bob No, I totally agree.

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Speaker 1: I mean, let's face it, if we haven't noticed already,

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Speaker 1: gone of the days where all these stock traders are

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Speaker 1: hurting around on the Wall Street trading floor waving their

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Speaker 1: arms and waving papers, those days are gone. It's all

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Speaker 1: electronic now, it's more secure, and to your point, it

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Speaker 1: moves quicker.

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Speaker 4: This is all good stuff.

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Speaker 1: I agree, all right. Robinhood, the popular trading app that

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Speaker 1: many listeners know for stocks, ETF's options and crypto, is

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Speaker 1: making headlines by expanding its prediction markets to more sports

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Speaker 1: related event contracts, just in time for the NFL playoffs

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Speaker 1: and big sporting seasons coming up ahead, like the NCAAA

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Speaker 1: March Madness and all that. Brian, this whole prediction market

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Speaker 1: stuff has really taken off, and it's just in its

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Speaker 1: infancy infancy. I mean, let's face it, Americans have become,

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Speaker 1: you know, borderline addicted to gambling and gambling on their phones,

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Speaker 1: and this is just gonna make it easier to gamble

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Speaker 1: on anything, the outcome of anything.

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Speaker 4: Right now, I'm less of a fan of this than

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Speaker 4: a of the blockchain idea for securities. But what we're

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Speaker 4: talking about here is effectively prop bets. These are little

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Speaker 4: contracts that exist for a moment in time, tied to

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Speaker 4: a yes or no question as to whether something happened.

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Speaker 4: Did a team win a game? Did a player throw

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Speaker 4: for a certain number of yards? So you're simply buying

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Speaker 4: these black and white it either happened or it didn't

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Speaker 4: contracts based on what you think will happen. These are

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Speaker 4: just options. It's no different than stock options. The stock options.

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Speaker 1: Will the Federal Reserve issue inflation numbers in say July

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Speaker 1: of twenty twenty six, you can bet.

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Speaker 4: On that you know and that maybe prior to this

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Speaker 4: year that seemed like a pretty certain bet. But now

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Speaker 4: since we're kind of winging it with numbers, that could

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Speaker 4: be an interesting topic. Now. Robinhood is simply is simply

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Speaker 4: leaning into the idea that people want to invest in

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Speaker 4: uncertain outcomes if there is a if there's a potential

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Speaker 4: benefit for it. Now, this is not the same as

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Speaker 4: traditional stock trading. It's just it's literally financial betting on

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Speaker 4: some future outcome. The value of that contract moves up

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Speaker 4: and down like a stock price, depending on how trader

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Speaker 4: think the event will resolves. So if it's one of these,

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Speaker 4: is Team X gonna win a game? Well, now remember

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Speaker 4: that every every little app you look at that's tracking

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Speaker 4: that activity of the game, what do they all have.

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Speaker 4: They all have a percentage of likelihood that a certain

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Speaker 4: team is gonna go ahead and win based on whatever's

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Speaker 4: happening real time in that game. So now you're able

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Speaker 4: to bet on it, You're able to invest your your

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Speaker 4: hard earned dollars on it. And again, I don't like this.

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Speaker 4: I don't feel like this is a great idea to

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Speaker 4: make it this easy for people to do.

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Speaker 1: Yeah, I mean, I think what we definitely don't want

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Speaker 1: to see people do is put the majority of their

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Speaker 1: wroth ira into these you know, outcome bets. I mean,

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Speaker 1: just as somebody who just for fun, you know, messes

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Speaker 1: around with NFL, you know, betting and all that. I mean,

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Speaker 1: anytime you see the crowd you need eighty percent placing

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Speaker 1: a bet on any one outcome, that's usually a sign

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Speaker 1: to beware, because you know you're sitting there thinking, hey,

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Speaker 1: eighty percent of America thinks this is gonna happen. I'm

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Speaker 1: gonna put a whole boatload of money on that, and

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Speaker 1: you can get your you know what handed to you

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Speaker 1: real quick. Because in these outcome bets, you're either right

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Speaker 1: or you're wrong. Uh, there's no in between. So buyer

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Speaker 1: beware there All right, here's the all Worth advice. If

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Speaker 1: you've got money you can afford to lose by all means,

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Speaker 1: have fun, let it rip. You're gonna have multiple opportunities

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Speaker 1: to bet on any kind of outcome, you know, with

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Speaker 1: all of these new companies putting all this stuff online. Otherwise,

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Speaker 1: when it comes to your investment strategy, buyer beware. Coming

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Speaker 1: up next, we're taking a deep look at the latest

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Speaker 1: analysis on social securities future, a growing generational divide, on

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Speaker 1: how to fix it and what that might mean for

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Speaker 1: your retirement planning. You're listening to Simply Money presented by

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Speaker 1: all Worth Financial on fifty five KRC the talk station.

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Speaker 1: You're listening to Simply Money presided by all Worth Financial

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Speaker 1: on Bob Sponseller along with Brian James. Let's face it,

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Speaker 1: social security is a cornerstone of retirement security for millions

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Speaker 1: of Americans. But it does face long term funding challenges,

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Speaker 1: and a new analysis shows a sharp generational divide on

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Speaker 1: how to fix the problem. Brian, And before you get

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Speaker 1: into these numbers, none of this outcome surprises me whatsoever, because,

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Speaker 1: let's face it, we all want someone else to pay

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Speaker 1: to fix the problems that are before us. And I

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Speaker 1: think these numbers you're about to share, bear this out.

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Speaker 4: I'm reminded of an old Simpsons episode where Homer ran

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Speaker 4: for political office the under the slogan can't someone else

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Speaker 4: do it? And this is just a survey of two

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Speaker 4: thousand adults. This is by the Cato Institute. They're known

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Speaker 4: as a libertarian think tank.

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Speaker 1: Who did he run against? By the way, was it

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Speaker 1: Montgomery Burns?

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Speaker 4: Oh it might have been. I'm not sure, but it

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Speaker 4: had everything to do with I don't want to bring

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Speaker 4: my garbage cans in from the curb. Why can't somebody

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Speaker 4: bring them? Put them byd my? So that's now what's

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Speaker 4: what we're talking about with Social Security? So more than

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Speaker 4: half of Americans under age thirty say they'd rather cut

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Speaker 4: benefits for current retirees than pay more taxes to help

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Speaker 4: keep benefits intact. Hey go figure current retirees aren't a

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Speaker 4: fan of that. Nine and ten seniors age sixty five

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Speaker 4: year olders say younger workers should pay higher taxes to

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Speaker 4: help current retirees benefits kind of stay steady. Can't someone

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Speaker 4: else do it, Bob? So the danger here is and

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Speaker 4: if they do nothing right, so the math just doesn't work,

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Speaker 4: the math don't math anymore. There's a hole in the bucket.

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Speaker 4: So there's simply not enough money flowing into the system

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Speaker 4: to shore up the benefits that were calculated years ago,

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Speaker 4: simply because there are fewer workers earning less than there

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Speaker 4: have been in prior decades. So currently, as we're sitting

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Speaker 4: here right now, if nothing changes, then we're expecting somewhere

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Speaker 4: about a twenty to twenty five percent haircut in twenty

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Speaker 4: thirty three unless Congress actually does something. Now, we could

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Speaker 4: have fixed this all along, Bob, right, I mean, we

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Speaker 4: could be talking about this in Congress right now. We

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Speaker 4: choose not to because it is nothing but a sacrifice.

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Speaker 4: No one will gain anything because because of the way

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Speaker 4: the math works, we simply have to cut benefits on

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Speaker 4: current direes or increased taxes on current workers, or possibly

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Speaker 4: a combination of both. There's a million ways that can happen.

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Speaker 4: But what it's gonna take is a politician to stake

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Speaker 4: their political career on forcing people to sacrifice. There is

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Speaker 4: no way that anybody can put something together that is

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Speaker 4: a gain, giving people something they didn't have before. It's

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Speaker 4: all sacrifice, and that's why we just don't hear about it.

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Speaker 4: We're gonna kick the can until we have no choice.

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Speaker 1: Yeah, for sure. And here's another interesting thought to kick around.

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Speaker 1: Most people don't even understand how social Security works. Again.

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Speaker 1: In this survey from the Cato Institute, half don't even

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Speaker 1: know Social Security is a pay as you go program

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Speaker 1: in which current workers payroll taxes fund current retirees benefits,

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Speaker 1: not the worker's own future retirement. You know, a lot

434
00:22:55,320 --> 00:22:58,400
Speaker 1: of people think that this money is getting put into

435
00:22:58,440 --> 00:23:02,560
Speaker 1: some type of an account for them, and nearly two

436
00:23:02,640 --> 00:23:05,639
Speaker 1: thirds of respondents believe that's what it is. They believe

437
00:23:05,640 --> 00:23:09,280
Speaker 1: it's a mandatory savings program that they pay for, you know,

438
00:23:09,440 --> 00:23:11,639
Speaker 1: kind of like a mandatory four to one K plan.

439
00:23:12,000 --> 00:23:16,080
Speaker 1: One in five people wrongly believe that their payroll taxes

440
00:23:16,080 --> 00:23:20,000
Speaker 1: are actually invested in this Social Security trust fund that

441
00:23:20,040 --> 00:23:22,879
Speaker 1: gets thrown around all the time until they retire, and

442
00:23:23,040 --> 00:23:25,879
Speaker 1: eight percent of folks think their taxes are saved in

443
00:23:26,000 --> 00:23:29,479
Speaker 1: a personal account for them. And then here's the funny thing.

444
00:23:29,600 --> 00:23:32,880
Speaker 1: Twenty one percent admit they have no idea how any

445
00:23:32,920 --> 00:23:34,919
Speaker 1: of this stuff works and really don't want to know.

446
00:23:36,280 --> 00:23:39,280
Speaker 1: Forty three percent of people Brian don't even know what

447
00:23:39,359 --> 00:23:43,399
Speaker 1: a payroll tax is. That is baffling to me, since everybody,

448
00:23:43,480 --> 00:23:46,760
Speaker 1: last time I checked, gets a paycheck stub where you

449
00:23:46,840 --> 00:23:50,080
Speaker 1: actually see where all this money disappears every two weeks.

450
00:23:50,560 --> 00:23:54,040
Speaker 1: And then finally, only about seventeen percent know that the

451
00:23:54,080 --> 00:23:58,360
Speaker 1: tax is split evenly between the employer and the employee.

452
00:23:58,520 --> 00:24:01,920
Speaker 1: So I blame a lot of people, you know, for this,

453
00:24:02,080 --> 00:24:06,320
Speaker 1: namely Congress. They just simply have not educated the American

454
00:24:06,359 --> 00:24:09,840
Speaker 1: public on how this whole system works or doesn't work.

455
00:24:10,320 --> 00:24:12,600
Speaker 1: And yep, we do. To the point you made prior,

456
00:24:12,680 --> 00:24:15,240
Speaker 1: we do have a ticking time bomb here that's about

457
00:24:15,240 --> 00:24:18,240
Speaker 1: eight years away. This is going to have to get

458
00:24:18,240 --> 00:24:22,600
Speaker 1: on somebody's radar here, you know, somewhat smooth or soon,

459
00:24:22,680 --> 00:24:26,320
Speaker 1: and hopefully we can have an adult conversation, you know,

460
00:24:26,440 --> 00:24:29,800
Speaker 1: something new and different for Congress and get some things done.

461
00:24:29,960 --> 00:24:31,720
Speaker 4: Let's talk about that paystub for a minute, because I

462
00:24:31,760 --> 00:24:34,280
Speaker 4: want to I very frequently and you probably hear it too.

463
00:24:34,359 --> 00:24:37,320
Speaker 4: Very frequently hear comments from just sort of one off

464
00:24:37,359 --> 00:24:40,320
Speaker 4: comments from clients about how well I can't plan on

465
00:24:40,320 --> 00:24:42,000
Speaker 4: soci security. It's not going to be there in eight years.

466
00:24:42,040 --> 00:24:44,080
Speaker 4: And that's not the case. That is simply not how

467
00:24:44,080 --> 00:24:46,040
Speaker 4: it works. The only way that could happen is if

468
00:24:46,160 --> 00:24:49,040
Speaker 4: is if we proactively voted the fiight a taxation out

469
00:24:49,080 --> 00:24:52,600
Speaker 4: of existence payroll taxes. That's not going to happen. What

470
00:24:52,640 --> 00:24:55,240
Speaker 4: all it means is that in twenty thirty three, the

471
00:24:55,320 --> 00:24:57,800
Speaker 4: amount of dollars that will be collected via the top

472
00:24:57,840 --> 00:24:59,520
Speaker 4: of your pay stub it happened, it's happening right now,

473
00:24:59,560 --> 00:25:02,159
Speaker 4: it'll happen then is only going to cover about seventy

474
00:25:02,160 --> 00:25:04,439
Speaker 4: five percent of what is currently promised. So, but that

475
00:25:04,560 --> 00:25:06,879
Speaker 4: is a far cry from zero. Social security is not

476
00:25:06,960 --> 00:25:10,960
Speaker 4: going away unless we proactively voted out of existence. And

477
00:25:11,000 --> 00:25:14,040
Speaker 4: again this is coming from this is coming from demographic changes.

478
00:25:14,080 --> 00:25:16,800
Speaker 4: So the reason for this is US population is just

479
00:25:16,840 --> 00:25:21,080
Speaker 4: continuing to get older. So in twenty twenty five, just

480
00:25:21,119 --> 00:25:23,760
Speaker 4: this past year, a record four point one million people

481
00:25:23,800 --> 00:25:26,080
Speaker 4: are expected to hit age sixty five. That's the most

482
00:25:26,119 --> 00:25:30,000
Speaker 4: we've ever had reached that milestone. By twenty fifty, the

483
00:25:30,080 --> 00:25:33,080
Speaker 4: sixty five an older group is projected to increase forty

484
00:25:33,119 --> 00:25:36,480
Speaker 4: two percent to eighty two million from fifty eight million

485
00:25:36,520 --> 00:25:38,760
Speaker 4: and twenty two So that means the share of the

486
00:25:38,800 --> 00:25:41,720
Speaker 4: population is up to almost a quarter of the population

487
00:25:41,840 --> 00:25:44,359
Speaker 4: being that age. That's the problem that we have, and

488
00:25:44,880 --> 00:25:46,920
Speaker 4: we have tried to fix this pob so over the years,

489
00:25:47,160 --> 00:25:50,320
Speaker 4: policy experts have thrown out ideas. Every single year, some

490
00:25:51,320 --> 00:25:54,480
Speaker 4: congress person raises a bill, but it's shot down based

491
00:25:54,520 --> 00:25:57,679
Speaker 4: on political lines. Democrats always raised the idea of we

492
00:25:57,720 --> 00:26:01,119
Speaker 4: need to increase taxes on current workers to make this work,

493
00:26:01,480 --> 00:26:06,040
Speaker 4: and then Republicans will will reject that immediately, and Republicans

494
00:26:06,119 --> 00:26:09,240
Speaker 4: want to cut benefits on retirees and Democrats shoot that

495
00:26:09,280 --> 00:26:11,840
Speaker 4: out of this guy. So it's going to take an

496
00:26:11,880 --> 00:26:14,920
Speaker 4: across the aisle attempt of people who understand math and

497
00:26:14,960 --> 00:26:17,679
Speaker 4: are willing to have a rough conversation with the American public.

498
00:26:17,760 --> 00:26:19,320
Speaker 4: I don't know that we're there yet, but that's the

499
00:26:19,320 --> 00:26:20,399
Speaker 4: only way it ever gets fixed.

500
00:26:21,160 --> 00:26:23,199
Speaker 1: Well, And just as a reminder, going back to the

501
00:26:23,240 --> 00:26:26,879
Speaker 1: beginning here, social Security is and was intended to be

502
00:26:27,040 --> 00:26:31,600
Speaker 1: a federal anti poverty program that was established in nineteen

503
00:26:31,720 --> 00:26:36,720
Speaker 1: thirty five as part of President Franklin Delano Roosevelt's New

504
00:26:36,840 --> 00:26:40,399
Speaker 1: Deal after the Great Depression. Again well intentioned. It's like, hey,

505
00:26:40,480 --> 00:26:43,760
Speaker 1: let's put some kind of social safety net in here,

506
00:26:43,840 --> 00:26:48,520
Speaker 1: not only for retirement retirees, but for widows and orphans

507
00:26:48,640 --> 00:26:51,800
Speaker 1: and folks on disability that no one ever talks about.

508
00:26:52,119 --> 00:26:55,720
Speaker 1: There is an embedded disability program in Social Security too, that,

509
00:26:55,800 --> 00:26:58,159
Speaker 1: by the way, costs money. You know, it's meant to

510
00:26:58,200 --> 00:27:02,320
Speaker 1: be an anti poverty, you know, a social safety net,

511
00:27:02,680 --> 00:27:05,159
Speaker 1: but it does cost money. And again, we're gonna have

512
00:27:05,200 --> 00:27:10,040
Speaker 1: to have an adult conversation from from Congress and whoever's

513
00:27:10,119 --> 00:27:13,040
Speaker 1: president here over the next eight years to fix this thing.

514
00:27:13,560 --> 00:27:16,200
Speaker 1: And I sure hope it, sure hope it happens. Hey,

515
00:27:16,200 --> 00:27:18,359
Speaker 1: if you were if you were a betting man, going

516
00:27:18,400 --> 00:27:21,639
Speaker 1: back to that whole prop bet thing, if you had

517
00:27:21,680 --> 00:27:23,359
Speaker 1: to put money down on this thing, what do you

518
00:27:23,359 --> 00:27:25,159
Speaker 1: think is gonna happen? Brian, How do you think that?

519
00:27:25,400 --> 00:27:27,280
Speaker 1: How do you think this thing's gonna get fixed?

520
00:27:27,520 --> 00:27:29,160
Speaker 4: I think we're gonna fix it at the last minute.

521
00:27:29,160 --> 00:27:31,480
Speaker 4: It's probably gonna involve a government shut down, because that's

522
00:27:31,520 --> 00:27:33,399
Speaker 4: how when when we're painted into a corner. That's what

523
00:27:33,440 --> 00:27:36,000
Speaker 4: we do. Everybody takes their ball and goes home, and

524
00:27:36,000 --> 00:27:37,760
Speaker 4: then we'll come up with some kind of compromise. I

525
00:27:37,760 --> 00:27:40,639
Speaker 4: cannot see one side winning in the other side losing.

526
00:27:40,680 --> 00:27:42,240
Speaker 4: I think it's going to have to be a sacrifice

527
00:27:42,280 --> 00:27:43,240
Speaker 4: among all parties.

528
00:27:44,240 --> 00:27:46,680
Speaker 1: I don't think you're wrong there. Here's the all Worth advice.

529
00:27:46,800 --> 00:27:50,639
Speaker 1: It's pretty cut and dry. Don't rely on social Security

530
00:27:51,359 --> 00:27:55,440
Speaker 1: as your main source of your retirement income. Coming up next,

531
00:27:55,440 --> 00:27:59,400
Speaker 1: we're answering your questions about managing risk in today's market,

532
00:27:59,800 --> 00:28:03,040
Speaker 1: the truth about bond funds, and why your state plan

533
00:28:03,359 --> 00:28:06,600
Speaker 1: might not be working as well as you think. You're

534
00:28:06,640 --> 00:28:09,119
Speaker 1: listening to Simply Money, presented by all Worth Financial on

535
00:28:09,200 --> 00:28:17,480
Speaker 1: fifty five KRC the talk station. You're listening to Simply

536
00:28:17,480 --> 00:28:20,120
Speaker 1: Money presented by all Worth Financial on Bob spond Seller

537
00:28:20,160 --> 00:28:23,560
Speaker 1: along with Brian James. You have a financial question you'd

538
00:28:23,600 --> 00:28:25,280
Speaker 1: like for us to answer. There's a red button you

539
00:28:25,320 --> 00:28:28,160
Speaker 1: can click while you're listening to the show. If you're

540
00:28:28,200 --> 00:28:31,720
Speaker 1: listening to the show on the iHeart app, simply record

541
00:28:31,800 --> 00:28:36,080
Speaker 1: your question and it will come straight to us. All right, Brian,

542
00:28:36,160 --> 00:28:39,479
Speaker 1: Emily and Cole Rain is working on her finances tonight

543
00:28:39,600 --> 00:28:43,760
Speaker 1: and says we've been saving in iras and a brokerage account,

544
00:28:43,760 --> 00:28:46,680
Speaker 1: but I'm not sure how to coordinate withdraws later down

545
00:28:46,720 --> 00:28:49,760
Speaker 1: the road. How do you build a multi account withdraw

546
00:28:49,840 --> 00:28:53,960
Speaker 1: strategy that adapts to taxes and markets. Wow, you talk

547
00:28:54,000 --> 00:28:56,640
Speaker 1: about a conundrum here, Brian. You got to build a

548
00:28:56,720 --> 00:28:58,640
Speaker 1: lot of assumptions into a plan like that.

549
00:28:59,000 --> 00:29:01,160
Speaker 4: Yeah, then this is pretty I mean, we all have

550
00:29:01,240 --> 00:29:04,640
Speaker 4: different flavors of taxation across our different investments accounts. So

551
00:29:04,680 --> 00:29:06,280
Speaker 4: the first thing you're gonna you're gonna want to do, Emily,

552
00:29:06,400 --> 00:29:09,240
Speaker 4: you segment these accounts by the tax treatment, not by

553
00:29:09,280 --> 00:29:12,320
Speaker 4: the age. You know. So you've got three buckets here.

554
00:29:12,320 --> 00:29:14,720
Speaker 4: You got your taxable money that's that brokera'e account that's

555
00:29:14,760 --> 00:29:16,600
Speaker 4: just in your name, spits out of ten ninety nine

556
00:29:16,640 --> 00:29:20,040
Speaker 4: every year tax deferred with those of year pre tax assets.

557
00:29:20,080 --> 00:29:21,960
Speaker 4: You didn't specify what kind of iras you have, but

558
00:29:21,960 --> 00:29:24,239
Speaker 4: I'm going to assume you got both flavors, and then

559
00:29:24,280 --> 00:29:26,520
Speaker 4: also tax free, which is anything has a word rawth

560
00:29:26,600 --> 00:29:27,880
Speaker 4: in it. Now, now this could be four oh one

561
00:29:27,960 --> 00:29:31,040
Speaker 4: k's iras doesn't matter. But each bucket has a different

562
00:29:31,080 --> 00:29:34,400
Speaker 4: tax cost and so the question always comes, which one

563
00:29:34,400 --> 00:29:37,160
Speaker 4: do I tap into first? Well, our answer to that is,

564
00:29:37,440 --> 00:29:41,000
Speaker 4: use those taxable assets early, but deliberately, so consciously spend

565
00:29:41,000 --> 00:29:42,720
Speaker 4: those down and you might even you know, some people

566
00:29:42,800 --> 00:29:45,400
Speaker 4: find themselves having built up a pile of cash in

567
00:29:45,440 --> 00:29:47,920
Speaker 4: the bank for whatever reason. Right, A lot of the times,

568
00:29:48,040 --> 00:29:50,719
Speaker 4: a lot of time when we retire, it's very frequent

569
00:29:50,760 --> 00:29:52,920
Speaker 4: I see somebody has an inheritance or something like that,

570
00:29:53,040 --> 00:29:54,760
Speaker 4: some kind of windfall around this age, and it's just

571
00:29:54,760 --> 00:29:57,400
Speaker 4: sitting in the bank doing nothing, and they mentally carve

572
00:29:57,480 --> 00:29:59,360
Speaker 4: that out and say, well, no, that's my emergency fund.

573
00:29:59,400 --> 00:30:01,920
Speaker 4: Well that's like four four times of your your annual expenses.

574
00:30:01,960 --> 00:30:03,840
Speaker 4: So maybe we need think a little differently about that.

575
00:30:04,160 --> 00:30:07,280
Speaker 4: Use those taxable assets early on. The iras and the

576
00:30:07,280 --> 00:30:09,520
Speaker 4: wroth irays are not nearly as far away as your

577
00:30:09,520 --> 00:30:11,400
Speaker 4: brain wants to tell you. They're just as easy to

578
00:30:11,400 --> 00:30:13,720
Speaker 4: move into your checking account, and they're not. It's not

579
00:30:13,840 --> 00:30:16,560
Speaker 4: that scary to do that. So and also, you know,

580
00:30:16,600 --> 00:30:18,960
Speaker 4: so you want to make let the market's influence which

581
00:30:18,960 --> 00:30:21,320
Speaker 4: it tap you you tap into, not how much you spend.

582
00:30:21,360 --> 00:30:24,040
Speaker 4: In a down market, You're gonna want to prioritize withdraws

583
00:30:24,080 --> 00:30:26,800
Speaker 4: from cash. It's okay to spend down cash reserves and

584
00:30:26,840 --> 00:30:29,760
Speaker 4: then replenish those when the market recovers. Look look at

585
00:30:29,760 --> 00:30:31,920
Speaker 4: the market history and understand, you know, how how things

586
00:30:32,000 --> 00:30:34,160
Speaker 4: kind of ebb and flow. All right, So now we're

587
00:30:34,200 --> 00:30:36,640
Speaker 4: going to move into onto Ben and Anderson. Ben says

588
00:30:36,640 --> 00:30:39,240
Speaker 4: they're thinking about some Roth conversions over the next few years,

589
00:30:39,240 --> 00:30:41,600
Speaker 4: but they also want to delay social Security. So how

590
00:30:41,600 --> 00:30:43,400
Speaker 4: do you put all this That's a lot of variables

591
00:30:43,400 --> 00:30:45,240
Speaker 4: to put into a plan. How do you multiple model

592
00:30:45,600 --> 00:30:48,160
Speaker 4: multiple tax decisions that kind of have an impact on

593
00:30:48,200 --> 00:30:48,479
Speaker 4: each other.

594
00:30:48,520 --> 00:30:52,040
Speaker 1: Bob, Well, I'm thinking about you know, since I just

595
00:30:52,200 --> 00:30:55,120
Speaker 1: recorded Brian's answer to the prior question, I think I

596
00:30:55,160 --> 00:30:58,280
Speaker 1: could hit replay and give the same answer. You know,

597
00:30:58,640 --> 00:31:01,040
Speaker 1: you got to build out any anytime you make these

598
00:31:01,120 --> 00:31:04,480
Speaker 1: long term plans, you need to model out, model it

599
00:31:04,520 --> 00:31:07,880
Speaker 1: out based on different assumptions about rate of return, you know,

600
00:31:08,160 --> 00:31:11,560
Speaker 1: future and current tax rates, the impact of all these

601
00:31:11,600 --> 00:31:13,640
Speaker 1: cash flows and what they do you know in terms

602
00:31:13,680 --> 00:31:16,479
Speaker 1: of IRMA, social Security taxes, all those kind of things.

603
00:31:16,960 --> 00:31:19,360
Speaker 1: And then to Brian's point in the last question, it

604
00:31:19,400 --> 00:31:21,840
Speaker 1: all comes down to what you want and need to

605
00:31:21,880 --> 00:31:24,720
Speaker 1: spend and when, So I think my answer is very

606
00:31:24,760 --> 00:31:27,200
Speaker 1: similar to what Brian just talked about. This is the

607
00:31:27,280 --> 00:31:30,880
Speaker 1: reason we do financial planning. You know, you model out

608
00:31:30,920 --> 00:31:33,640
Speaker 1: different scenarios, you kind of play the what if game,

609
00:31:34,120 --> 00:31:36,480
Speaker 1: and you do the best you can to come up

610
00:31:36,640 --> 00:31:39,960
Speaker 1: with a good strategy, you know, controlling what we can

611
00:31:40,040 --> 00:31:43,880
Speaker 1: control based on what we know in making reasonable assumptions.

612
00:31:44,280 --> 00:31:47,160
Speaker 1: And that's where some of this great software comes in

613
00:31:47,240 --> 00:31:50,280
Speaker 1: that any good fiduciary advisor is going to have at

614
00:31:50,360 --> 00:31:52,920
Speaker 1: his or her disposal. I think you sit down with

615
00:31:53,000 --> 00:31:56,000
Speaker 1: a good advisor and model out some strategies and then hopefully,

616
00:31:56,160 --> 00:31:59,600
Speaker 1: hopefully you feel confident about the decisions you're making and

617
00:31:59,640 --> 00:32:03,320
Speaker 1: why making them all right, Terry and Merrymont says, our

618
00:32:03,360 --> 00:32:07,840
Speaker 1: advisors set our portfolios risk adjusted return looked great, but

619
00:32:07,960 --> 00:32:11,560
Speaker 1: our actual returns have been about average. How do you

620
00:32:11,640 --> 00:32:15,760
Speaker 1: interpret risk adjusted metrics, Brian without fooling yourself?

621
00:32:16,280 --> 00:32:18,960
Speaker 4: Well, yeah, this is a pretty classic disconnect between the two,

622
00:32:19,080 --> 00:32:21,200
Speaker 4: and it kind of happens when these risk metrics are

623
00:32:21,200 --> 00:32:24,800
Speaker 4: treated as a scorecard instead of really diagnostics. So here's

624
00:32:24,840 --> 00:32:27,320
Speaker 4: how to think about this. So understand what these risk

625
00:32:27,360 --> 00:32:30,560
Speaker 4: adjusted metrics are actually measuring. There, they're looking at how

626
00:32:30,640 --> 00:32:33,760
Speaker 4: much volatility you have in your portfolio. They're not looking

627
00:32:33,880 --> 00:32:36,560
Speaker 4: at how much return you got. That's very, very different.

628
00:32:36,560 --> 00:32:39,360
Speaker 4: Most people tend to focus on how much money did

629
00:32:39,400 --> 00:32:41,600
Speaker 4: I get, how much more money, how much more growth

630
00:32:41,600 --> 00:32:43,840
Speaker 4: did I get, versus what I need my portfolio to do.

631
00:32:44,040 --> 00:32:46,560
Speaker 4: And frankly, we all in great markets like we've had

632
00:32:46,560 --> 00:32:48,480
Speaker 4: over the last three years, we all lose sight at risk.

633
00:32:48,520 --> 00:32:51,160
Speaker 4: We haven't had much risk, you know, really at all

634
00:32:51,200 --> 00:32:53,160
Speaker 4: since twenty twenty two, which was one of the five

635
00:32:53,200 --> 00:32:55,880
Speaker 4: worst years we've ever had. We had a hiccup last

636
00:32:55,960 --> 00:32:58,880
Speaker 4: April when everybody panicked about tariffs briefly, but then that

637
00:32:59,040 --> 00:33:01,920
Speaker 4: settled down. So other than that, we really just kind

638
00:33:01,960 --> 00:33:04,200
Speaker 4: of get hung up on how much my portfolio is growing,

639
00:33:04,240 --> 00:33:05,840
Speaker 4: not how much it could how big of a hit

640
00:33:05,880 --> 00:33:07,600
Speaker 4: it could take. So what you're going to want to

641
00:33:07,640 --> 00:33:09,680
Speaker 4: do here is make sure that you understand what you

642
00:33:09,680 --> 00:33:11,880
Speaker 4: have in your portfolio and don't just look at what

643
00:33:11,920 --> 00:33:13,800
Speaker 4: it's done over the past three years, which, if it's

644
00:33:13,840 --> 00:33:16,560
Speaker 4: properly arranged, should have been great. But make sure you

645
00:33:16,680 --> 00:33:18,840
Speaker 4: understand what could it do, What did that pile of

646
00:33:18,880 --> 00:33:21,840
Speaker 4: stuff do in twenty two, you know, and be prepared

647
00:33:21,880 --> 00:33:23,480
Speaker 4: for that to happen again. It doesn't mean it's a

648
00:33:23,520 --> 00:33:26,600
Speaker 4: bad thing. Mark. Sometimes market goes down, sometimes it rains.

649
00:33:26,720 --> 00:33:28,520
Speaker 4: Just make sure that you have the ability to handle it,

650
00:33:28,560 --> 00:33:31,680
Speaker 4: but most importantly, make sure you understand what it's capable

651
00:33:31,720 --> 00:33:34,480
Speaker 4: of on the downside. We simply haven't seen that in many,

652
00:33:34,480 --> 00:33:38,280
Speaker 4: many years. So be paying attention another one, Father, This

653
00:33:38,320 --> 00:33:39,960
Speaker 4: is probably be our last one for today. Lee and

654
00:33:40,040 --> 00:33:42,760
Speaker 4: Fort Thomas. Lee says they've got several bond funds, Bob,

655
00:33:43,440 --> 00:33:45,560
Speaker 4: and what he's heard is that that what matters is

656
00:33:45,600 --> 00:33:47,680
Speaker 4: their sensitivity to the yield curve, but he's not sure

657
00:33:47,680 --> 00:33:50,120
Speaker 4: what that means exactly. How do you evaluate curve risk

658
00:33:50,200 --> 00:33:52,000
Speaker 4: without becoming a fixed income expert?

659
00:33:52,920 --> 00:33:54,920
Speaker 1: All right, Lee, you're thinking about this the right way.

660
00:33:54,960 --> 00:33:57,880
Speaker 1: I'll keep this as simple as possible. Brian alluded it

661
00:33:57,880 --> 00:34:01,000
Speaker 1: to the last question. Let's just use an example like

662
00:34:01,080 --> 00:34:04,400
Speaker 1: twenty twenty two when interest rates went up. You know,

663
00:34:04,480 --> 00:34:07,400
Speaker 1: back in twenty twenty two, the Fed raised interest rates

664
00:34:07,440 --> 00:34:11,000
Speaker 1: seven times to combat inflation. And I think a lot

665
00:34:11,040 --> 00:34:13,600
Speaker 1: of people know, anybody that was sitting on bonds or

666
00:34:13,640 --> 00:34:16,719
Speaker 1: bond funds, they lost quite a bit of money in

667
00:34:16,760 --> 00:34:19,319
Speaker 1: twenty twenty two. And here's why. And this gets back

668
00:34:19,400 --> 00:34:23,160
Speaker 1: to your question. The longer term, the longer the duration

669
00:34:23,360 --> 00:34:26,840
Speaker 1: of your bond fund, the more sensitive it's going to

670
00:34:26,880 --> 00:34:29,400
Speaker 1: be in a move to a move in interest rates.

671
00:34:29,400 --> 00:34:31,879
Speaker 1: Because let's face it, when you're in a bond, you're

672
00:34:32,080 --> 00:34:35,880
Speaker 1: loaning somebody money at a given interest rates. Well, it

673
00:34:35,960 --> 00:34:39,080
Speaker 1: stands to reason if you lock in that loan rate

674
00:34:39,200 --> 00:34:43,880
Speaker 1: for say ten years, and interest rates move up, you've

675
00:34:43,960 --> 00:34:48,839
Speaker 1: locked yourself into a yield that is way lower than

676
00:34:48,880 --> 00:34:52,279
Speaker 1: what somebody could get today if they go out in

677
00:34:52,440 --> 00:34:55,799
Speaker 1: loan money in the current interst rate environment. That's the

678
00:34:56,080 --> 00:35:00,160
Speaker 1: That's what interest rate sensitivity means, and that's why you

679
00:35:00,200 --> 00:35:03,759
Speaker 1: know it's good to just ladder your bond portfolio, have

680
00:35:03,880 --> 00:35:06,680
Speaker 1: different maturity dates and all that, so you're not just

681
00:35:06,760 --> 00:35:10,799
Speaker 1: betting the ranch on interest rates not moving up or

682
00:35:10,880 --> 00:35:13,440
Speaker 1: down over a long period of time. You want to

683
00:35:13,480 --> 00:35:16,920
Speaker 1: have a mix of everything so your bond portfolio can

684
00:35:17,000 --> 00:35:21,319
Speaker 1: adjust as interest rates move around. Hope that helps Lee.

685
00:35:21,760 --> 00:35:24,800
Speaker 1: Coming up next, how to gift investments the smart way

686
00:35:25,040 --> 00:35:27,319
Speaker 1: and why it could be one of the most impactful

687
00:35:27,360 --> 00:35:31,160
Speaker 1: financial decisions you make. You're listening to Simply Money, presented

688
00:35:31,160 --> 00:35:34,720
Speaker 1: by Allworth Financial on fifty five KRC. The talk station.

689
00:35:38,680 --> 00:35:41,200
Speaker 1: You're listening to Simply Money Presided by Allworth Financial on

690
00:35:41,320 --> 00:35:44,920
Speaker 1: Bob spond Seller along with Brian James. If you're thinking

691
00:35:44,920 --> 00:35:48,240
Speaker 1: about helping the kids in your life build a strong

692
00:35:48,280 --> 00:35:52,080
Speaker 1: financial future, there's a strategy that goes far beyond cash

693
00:35:52,440 --> 00:35:58,040
Speaker 1: or a savings bond, and that's gifting your actual existing investments. Brian,

694
00:35:58,120 --> 00:35:59,880
Speaker 1: let's get into how some of that works.

695
00:36:00,440 --> 00:36:05,040
Speaker 4: Yeah, you know this is we often think about inheritance

696
00:36:05,080 --> 00:36:08,319
Speaker 4: and waiting until after I've passed on, but you know,

697
00:36:08,360 --> 00:36:10,120
Speaker 4: sometimes people want to think about it a little differently,

698
00:36:10,120 --> 00:36:12,600
Speaker 4: and so let's talk about the tax rules that come

699
00:36:12,600 --> 00:36:14,560
Speaker 4: into play here. And it's probably not as scary as

700
00:36:14,560 --> 00:36:16,719
Speaker 4: a lot of people think. So if you're not thinking

701
00:36:16,760 --> 00:36:18,719
Speaker 4: about it this year, we're obviously sneaking up pretty click

702
00:36:18,760 --> 00:36:20,279
Speaker 4: to the end of the year here, so it might

703
00:36:20,280 --> 00:36:21,480
Speaker 4: be a little late to do this year, But so

704
00:36:21,560 --> 00:36:23,759
Speaker 4: let's talk about next year. You can gift up to

705
00:36:23,880 --> 00:36:27,800
Speaker 4: nineteen thousand dollars per person or thirty eight thousand dollars

706
00:36:27,880 --> 00:36:30,920
Speaker 4: as a married couple without triggering any gift taxes or

707
00:36:30,960 --> 00:36:34,040
Speaker 4: without triggering any reporting or eating into your lifetime exception,

708
00:36:34,440 --> 00:36:36,440
Speaker 4: and you don't need to give new money This is

709
00:36:36,480 --> 00:36:38,399
Speaker 4: just the value of anything you want to you want

710
00:36:38,400 --> 00:36:40,600
Speaker 4: to move over. So a lot of people get worried

711
00:36:40,640 --> 00:36:43,080
Speaker 4: about this and know it's not income to the recipient.

712
00:36:43,200 --> 00:36:45,560
Speaker 4: It's of course not deductible to the person gift giving

713
00:36:45,600 --> 00:36:48,720
Speaker 4: it away too. And as you know, as an extra

714
00:36:48,880 --> 00:36:50,840
Speaker 4: to this, let's say you're giving money, you want to

715
00:36:50,840 --> 00:36:52,600
Speaker 4: give it to your own children. Well, if that child

716
00:36:52,680 --> 00:36:55,840
Speaker 4: is married and you trust the spouse, you're okay with

717
00:36:55,920 --> 00:36:58,360
Speaker 4: that in law, then you can give that person nineteen

718
00:36:58,360 --> 00:37:01,319
Speaker 4: thousand dollars too. So a married couple can actually give

719
00:37:01,400 --> 00:37:05,520
Speaker 4: thirty eight thousand dollars to each of their own children's spouses,

720
00:37:05,560 --> 00:37:07,000
Speaker 4: if that makes any sense. If you want to do that,

721
00:37:07,320 --> 00:37:09,360
Speaker 4: and again this is not nearly as scary as you

722
00:37:09,840 --> 00:37:14,319
Speaker 4: might think. What you're working against here is if you

723
00:37:14,400 --> 00:37:16,640
Speaker 4: do more than that, there's nothing stopping. It's not illegal,

724
00:37:16,680 --> 00:37:19,160
Speaker 4: but you do have to report it. Still not taxable,

725
00:37:19,360 --> 00:37:21,160
Speaker 4: but you have to report it because there is a

726
00:37:21,200 --> 00:37:24,759
Speaker 4: lifetime maximum of a million dollars. The reporting tracks that

727
00:37:24,880 --> 00:37:26,440
Speaker 4: over your lifetime. So if you do want to give

728
00:37:26,440 --> 00:37:28,719
Speaker 4: somebody more money than that, knock yourself out, you just

729
00:37:28,800 --> 00:37:31,360
Speaker 4: have to report it. Now, remember you're not passing you

730
00:37:31,400 --> 00:37:33,400
Speaker 4: are passing on the capital gain. So if you have

731
00:37:33,480 --> 00:37:35,759
Speaker 4: low cost base you bought applestock forty years ago, you

732
00:37:35,800 --> 00:37:37,399
Speaker 4: want to give it to your kids. Well, they have

733
00:37:37,480 --> 00:37:40,520
Speaker 4: that low cost basis from forty years ago as well.

734
00:37:40,719 --> 00:37:42,840
Speaker 1: Yeah, and let's talk about why it might make some

735
00:37:42,960 --> 00:37:46,520
Speaker 1: sense instead of writing a check to actually give away

736
00:37:46,640 --> 00:37:51,080
Speaker 1: some existing positions mutual funds ETF stocks that you already own,

737
00:37:51,520 --> 00:37:53,920
Speaker 1: and you already hinted at the answer, Brian, it's because

738
00:37:54,239 --> 00:37:56,800
Speaker 1: in most cases, the kids that you're giving this money

739
00:37:56,840 --> 00:37:59,399
Speaker 1: to are in a lower tax bracket that you are,

740
00:38:00,080 --> 00:38:02,479
Speaker 1: and you can shift this money and have them pay

741
00:38:03,120 --> 00:38:06,080
Speaker 1: the capital gains rates at a much lower tax rate

742
00:38:06,160 --> 00:38:09,040
Speaker 1: than you. It's a great way to you know, position

743
00:38:09,080 --> 00:38:12,120
Speaker 1: your own portfolio to get rid of some you know,

744
00:38:12,280 --> 00:38:15,080
Speaker 1: or to give some of the gain the gainers or

745
00:38:15,120 --> 00:38:18,560
Speaker 1: the winners and put those taxes in a lower tax

746
00:38:18,600 --> 00:38:22,200
Speaker 1: bracket and then reposition your own portfolio. Let's talk about

747
00:38:22,200 --> 00:38:25,080
Speaker 1: what some accounts that we can use to do this, Brian.

748
00:38:25,160 --> 00:38:27,200
Speaker 1: What you know, what are the mechanisms we can use

749
00:38:27,239 --> 00:38:28,080
Speaker 1: to make these gifts.

750
00:38:28,280 --> 00:38:29,960
Speaker 4: Well, if you're going to do this, then you're looking

751
00:38:30,000 --> 00:38:32,520
Speaker 4: at potentially a custodial account. This is the old ugmah

752
00:38:32,560 --> 00:38:34,440
Speaker 4: udmah I'm honestly not a huge fan of this. I

753
00:38:34,760 --> 00:38:36,640
Speaker 4: think sometimes this can just make a mess. But if

754
00:38:36,640 --> 00:38:39,440
Speaker 4: you this is for an underage child underage eighteen or

755
00:38:39,480 --> 00:38:41,879
Speaker 4: twenty one, depending on the state you're in, that's how

756
00:38:41,880 --> 00:38:45,040
Speaker 4: they can own these assets with a custodian involved. I'd

757
00:38:45,040 --> 00:38:47,680
Speaker 4: be looking more at roth irays and five twenty nine

758
00:38:47,719 --> 00:38:50,160
Speaker 4: college plans. That's only cash can flow into those. But

759
00:38:50,239 --> 00:38:52,000
Speaker 4: take some tax advantages out of this. If you're going

760
00:38:52,080 --> 00:38:53,839
Speaker 4: to do it all right.

761
00:38:53,719 --> 00:38:57,120
Speaker 1: Here's the all Worth advice gifting investments. It's not just

762
00:38:57,160 --> 00:39:00,640
Speaker 1: about the money. It's about giving kids a head starred

763
00:39:00,680 --> 00:39:05,759
Speaker 1: on understanding wealth, understanding investment risk and the power of

764
00:39:05,920 --> 00:39:09,080
Speaker 1: long term growth. Thanks for listening tonight. You've been listening

765
00:39:09,120 --> 00:39:12,400
Speaker 1: to Simply Money, presented by all Worth Financial on fifty

766
00:39:12,480 --> 00:39:14,640
Speaker 1: five KRC, the talk station