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Speaker 1: Tonight despite flying blind for a little while when government

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Speaker 1: economic data was not available to them. The Federal Reserve

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Speaker 1: is meeting this week and is going to make a

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Speaker 1: decision on interest rates, and that decision could impact all

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Speaker 1: of us. You're listening to Simply Money, presented by Allworth Financial.

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Speaker 1: I'm Bob Sponseller along with Brian James. We're joined tonight

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Speaker 1: by all Worths Chief Investment Officer Andy Stout. Andy's always

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Speaker 1: a fabulous resource to try to make sense of all

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Speaker 1: of this complex economic stuff. And by the way, he

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Speaker 1: and his team also managed a little over thirty five

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Speaker 1: billion dollars for our clients here at Allworth. Andy, thanks

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Speaker 1: for joining us. And let's get right to it. What's

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Speaker 1: the Fed going to do this Wednesday? And you know,

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Speaker 1: we see that we've already I guess we've already priced

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Speaker 1: in a quarter point rate cut, and so I'll say,

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Speaker 1: what's going to happen this Wednesday? And I guess, more importantly,

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Speaker 1: what's going to happen likely in Anuary relative to interest rates?

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Speaker 2: Well, the Fed will most likely cut rates here when

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Speaker 2: they meet on Wednesday. There's about a ninety five percent chance,

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Speaker 2: So I mean it's pretty much a lock at this point.

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Speaker 2: I mean, obviously anything can happen, but it seems like

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Speaker 2: it's pretty much dialed in that the FED will cut rates.

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Speaker 2: So that's not that's not unexpected. You know, what's going

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Speaker 2: to be more interesting is how Chair Pale essentially navigates

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Speaker 2: the economic divide between the different committee members over there,

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Speaker 2: because over the past few weeks we've seen some members

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Speaker 2: Fed governors talking about, you know, I'm really worried about inflation.

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Speaker 2: We got to maybe be a little bit slower on that.

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Speaker 2: If we have some other FED members saying, you know,

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Speaker 2: we got to be a little bit more about the

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Speaker 2: labor market, so we should be cutting rates. And there's

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Speaker 2: been a really big divide, and then when we put

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Speaker 2: it all together, Share Pale probably will be able to

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Speaker 2: get enough people wrangle the herd of cats, if you

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Speaker 2: will onto onto his side, that we get a rate cut.

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Speaker 2: The bigger question, though, is how he sets up January.

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Speaker 3: To your point, well, can we talk about January then?

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Speaker 3: To you, what do you feel right now? Granted a

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Speaker 3: lot can happen between now and then, but are we

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Speaker 3: on do you think we're going to be staying on

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Speaker 3: this declining rate path?

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Speaker 4: How quick will they be to pivot given the rhetoric.

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Speaker 3: That has come out of this administration that we wanted

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Speaker 3: rates cut since before it made any sense to cut

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Speaker 3: rates because that was a campaign promise. So are is

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Speaker 3: there any chance we waiver off of that?

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Speaker 4: Anyway?

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Speaker 2: When you look at what's going to happen in January,

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Speaker 2: we'll get a very big clue when the Fed meets

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Speaker 2: this week because they're going to release their quarterly Summary

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Speaker 2: of Economic Projections, which includes their DOP plot. The top

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Speaker 2: plot is. Besides this sounding really you know, fancy and

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Speaker 2: rhyming and all that good stuff, it's really actually interesting

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Speaker 2: because what it shows it shows where each Fed member

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Speaker 2: thinks rates should be at the end of upcoming calendar years.

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Speaker 2: When we look back at the one that the last

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Speaker 2: one that came out in September, it shows that there

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Speaker 2: would probably just be one rate cut in twenty twenty six,

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Speaker 2: and that's likely to be at least That's what most

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Speaker 2: economists think, is that you could see just one more

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Speaker 2: cut pricing on the dot blot. I'm want to be

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Speaker 2: too shocked if we see two cuts priced in for

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Speaker 2: twenty twenty six at least shown to be the median dot.

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Speaker 2: But it's going to be a close call. Now in

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Speaker 2: terms of what might actually happen in January, I think

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Speaker 2: they're probably going to wait, but you will have to

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Speaker 2: see when the FED meat meets next on it. It's

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Speaker 2: going to be January twenty eighth. See what the data

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Speaker 2: looks like because we haven't had data. I mean, we've

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Speaker 2: been in the data blackout, and once we start to

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Speaker 2: get this data, we'll be able to see what does

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Speaker 2: the job market look like? You know, what does inflation

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Speaker 2: look like? And right now we just don't know. So

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Speaker 2: until we have that, I think it's most likely that

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Speaker 2: the FED uh stands still.

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Speaker 1: Well, hey, not to belabor this point, but what you know,

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Speaker 1: the FED talks all the time about being data dependent

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Speaker 1: and appropriately, so what data are is the FED going

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Speaker 1: to get, you know, government and otherwise data in other words,

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Speaker 1: back to normal data generation. What data are they going

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Speaker 1: to have between now and the January meeting.

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Speaker 2: Well, they will actually start to get that data. So

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Speaker 2: just to kind of poke a little bit of fun

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Speaker 2: at the FED, because who doesn't like to do that?

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Speaker 4: Right?

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Speaker 2: If they're data dependent? I mean, why are they cutting

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Speaker 2: rates when they haven't had any data?

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Speaker 1: Right?

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Speaker 2: Or I mean it doesn't make any sense. So what

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Speaker 2: the FED is really more data dependent on is probably

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Speaker 2: like the stock market reaction, it's going to be what

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Speaker 2: the bond market things. That we have gotten some data,

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Speaker 2: but it's been mostly private market data. We're not going

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Speaker 2: to get that official data up until really next week.

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Speaker 2: December sixteenth is when the labor market data comes out,

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Speaker 2: and that'll be for the month of November. It should

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Speaker 2: have been last week, but because of the shutdown, it

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Speaker 2: was delayed. We'll get the inflation data for November on

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Speaker 2: December eighteenth, so we'll have that, and then we'll also

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Speaker 2: get the December data before the next meeting, so the

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Speaker 2: FED will have two months of new fresh data for

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Speaker 2: both the labor market and inflation. And oh, by the way,

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Speaker 2: on December twenty third, I guess, Merry Christmas, Happy Hanukkah

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Speaker 2: for those of you celebrating. That's when we'll get the

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Speaker 2: GDP report for Q three.

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Speaker 4: So then, are we feeling that.

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Speaker 3: Do you feel there's a pivot point coming up where

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Speaker 3: we might need to be making some changes to capital assumptions,

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Speaker 3: those kinds of things where we kind of status quo

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Speaker 3: at the moment.

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Speaker 2: Well, in terms of how we think about you know

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Speaker 2: where the markets might head. It's really important to look

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Speaker 2: at what's expected from an economic standpoint, because when you

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Speaker 2: see these big pullbacks in the market, brind it typically

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Speaker 2: occur around recessions, because when you have a slower economic

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Speaker 2: growth rate, that pulls down earnings growth rate and earnings

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Speaker 2: are really what drives the value of the stock market.

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Speaker 2: And when you look at valuations in general, I mean,

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Speaker 2: the market's near the upper end of valuations, there's no

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Speaker 2: question about that. What has supported things, though, is that

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Speaker 2: the earnings growth rate has continued. So until we get

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Speaker 2: a real shock to that earnings growth rate, we'll probably

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Speaker 2: still see I mean least for the longer term investors.

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Speaker 2: Obviously the lucky and have in the short term, but

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Speaker 2: we don't really expect any sort of shock to those

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Speaker 2: capital market assumptions.

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Speaker 1: Andy, Let's let's talk about just good old asset allocation

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Speaker 1: and rebalancing here. Heading into the end of the year,

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Speaker 1: obviously the S and P five hundreds up about eighteen percent,

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Speaker 1: but Brian and I talk about this all the time

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Speaker 1: on this show, So much of that return is concentrated

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Speaker 1: in just a few tech names. This year From an

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Speaker 1: overall financial planning standpoint and just responsible, you know, rebalancing

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Speaker 1: an asset allocation. What are you and your team looking

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Speaker 1: at and maybe what are some of the moves that

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Speaker 1: you think we should be considering here heading into the

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Speaker 1: end of the year.

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Speaker 2: You're right, a lot of the emphasis is on those

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Speaker 2: bigger companies like the mag seven, if you will, but

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Speaker 2: there's been some other companies out there that've had, you know,

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Speaker 2: some very good returns this year. I mean, you know,

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Speaker 2: Western Digital is one example for an AI play. You know,

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Speaker 2: they've had an extraordinary run up this year, and they're

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Speaker 2: not in those top seven. That's why it's really important

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Speaker 2: to have, you know, the broader diversification and when you

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Speaker 2: look at returns kind of across different sectors or asset classes.

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Speaker 2: You mentioned large caps up about eighteen percent. You know,

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Speaker 2: small caps have had a pretty good year. Two through

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Speaker 2: Friday at least, they're up about fifteen percent. And when

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Speaker 2: you look outside of the US, it's actually been even

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Speaker 2: better with both developed markets, which is which are countries

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Speaker 2: like Europe as an example, in Japan, as well as

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Speaker 2: emerging markets which include you know, China and you know, India, Mexico.

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Speaker 2: You know, on average, those those they're up around thirty percent,

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Speaker 2: so it's been even better outside of the US.

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Speaker 1: Now.

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Speaker 2: Part of that is due to a declining dollar, which

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Speaker 2: is off about eight percent for the year. So but

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Speaker 2: the point is that regardless of where you've looked this

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Speaker 2: past year, there have been some positive returns. So you

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Speaker 2: don't want to always push all of your eggs in

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Speaker 2: one basket, and you know that's not something that you know,

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Speaker 2: we're big believers in. But when you think about just

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Speaker 2: the big picture of diversification being diversified this year, you know,

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Speaker 2: every acid class is done pretty good. So as long

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Speaker 2: as you've had some diversification kind of spread out, you know,

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Speaker 2: you've been hanging in there and you've been doing pretty

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Speaker 2: well as long as you haven't made any emotional decison,

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Speaker 2: because you remember back in April, that's when the market was,

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Speaker 2: you know, kind of in a free fall because the

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Speaker 2: world is coming to you and oh no, AI spending

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Speaker 2: is collapsing, and there were so many other worries up

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Speaker 2: in the market was down in large cuts, down about

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Speaker 2: nineteen percent or very very quickly. As long as you

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Speaker 2: didn't panic, you did pretty well this year so far.

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Speaker 3: So let's talk a little more about about asset allocation,

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Speaker 3: because I think one of the one of the areas

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Speaker 3: that people have been frustrated with over the past decade

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Speaker 3: or so, maybe even longer, is fixed income, right cause

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Speaker 3: we all know we need something to offset the stock market,

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Speaker 3: and for a long time that's just been the assumption

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Speaker 3: that we need an occasion of bonds. And when I

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Speaker 3: started this industry thirty some years ago, the recommendation of

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Speaker 3: the rule of thumb was your age in bonds. And

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Speaker 3: I'm thinking at the tender age of fifty one, half

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Speaker 3: of my portfolio would have been in something that's been

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Speaker 3: underperforming forever. So but that's not the case anymore. Bonds

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Speaker 3: are finally starting to perform again. Are we feeling differently

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Speaker 3: than we have over the past ten to fifteen years,

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Speaker 3: so that bonds can be more reliable part of the portfolio.

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Speaker 2: When you look at bonds over the long run where

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Speaker 2: you typically see their returns go. When I say long run,

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Speaker 2: like maybe over the next ten years on average, When

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Speaker 2: you have like a forward looking it's really based on

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Speaker 2: what that starting yield is. So right now, with a

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Speaker 2: yields around four percent, do you eve or take? That's

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Speaker 2: where you might be able to see some your total

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Speaker 2: return really look like over the next few years. On average,

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Speaker 2: when you look at what's been going on this year,

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Speaker 2: bonds have had a really good year. I mean, treasury

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Speaker 2: bonds are about six percent, corporate bonds are up about

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Speaker 2: seven and a half percent, And that just highlights that

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Speaker 2: not all bonds are created equals. So it'll really depend on,

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Speaker 2: you know, what the economic environment is. So when the

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Speaker 2: economy is doing fine, you know, corporate bonds will tend.

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Speaker 4: To be better.

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Speaker 2: When you start to see that scare, that's where treasury

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Speaker 2: bonds often perform a little better, and that's why you

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Speaker 2: want to have that diversification, even within the fixed income side.

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Speaker 2: So when I'm thinking about bonds in general, I'm thinking

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Speaker 2: about asset glasses overall. You know, bonds certainly provide a

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Speaker 2: ballast for you, like you're saying, Brian, or stock market volatility,

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Speaker 2: you know, but just a bigger picture, it comes down

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Speaker 2: to being able to make sure you have that right

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Speaker 2: investment mix so you avoid those emotional decisions.

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Speaker 4: Now if you have.

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Speaker 2: The uh, the wherewithal to withstand the volatility like we

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Speaker 2: had back in April and not make any you know,

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Speaker 2: rash decisions, and you don't and you need that risk

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Speaker 2: if you have the willingness to take the risk, the

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Speaker 2: need to take the risk, you know, having that equity

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Speaker 2: out higher equity allocation probably makes sense. But that's where

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Speaker 2: it comes back to financial planning. That's why you want

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Speaker 2: to make sure that you have that investments to support

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Speaker 2: your financial plan. Now if you're unable to uh manage

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Speaker 2: that volatility, because let's face that, people are not rational.

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Speaker 2: We tend to make the worst decisions when our emotions

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Speaker 2: are flaring up. It's easy to say, yes, I want

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Speaker 2: to you know, buy low and sell high. But when

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Speaker 2: push comes to sub when you see the blood in

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Speaker 2: the streets, and it's a little harder to to say, okay,

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Speaker 2: well everything's down, I want to buy now. That's when

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Speaker 2: people panic and that's what and that's when they want

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Speaker 2: to sell. That's why having a financial plan to guide

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Speaker 2: that asset allocation is critical.

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Speaker 1: And right the right investment risk. I mean touch a

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Speaker 1: little bit on gold because a lot a lot of

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Speaker 1: our clients have been asking about this, you know, and

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Speaker 1: I think to your point on emotion, I mean, Gold's

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Speaker 1: up nearly sixty percent this year. So when any asset

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Speaker 1: club goes up or any stock goes up by that amount,

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Speaker 1: you know, the calls are going to come in and say,

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Speaker 1: should we be participating? Uh, we usually don't get a

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Speaker 1: sixty percent up year in gold. That doesn't happen very often.

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Speaker 1: Is this a sign of longer term inflation worries or

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Speaker 1: just to flight to safety or just a speculative run

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Speaker 1: At this point, talk to us a little bit about

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Speaker 1: gold and where you see gold, you know, moving into

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Speaker 1: twenty twenty six.

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Speaker 2: Well, it certainly had a good year. Repeat of sixty

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Speaker 2: percent back to back years would be relatively unprecedented for

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Speaker 2: pretty much any asset class out there. So it seems

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Speaker 2: unlikely that we see anything like that, you know, and

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Speaker 2: when we think about what's been driving a lot of

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Speaker 2: it has been i'll call it that inflation fears and

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Speaker 2: also just a lot of speculative invest who have been

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Speaker 2: looking to capitalize on recent run ups. So you're probably

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Speaker 2: seeing a little bit of a push in that area.

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Speaker 2: Will that continue? I mean it's tough to say. I

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Speaker 2: would be shocked if we did see another sixty percent

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Speaker 2: return though in twenty twenty six.

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Speaker 1: All right, thanks Andy. Coming up next, why many people

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Speaker 1: think a seventh figure net worth isn't enough and how

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Speaker 1: you can overcome that mindset challenge. You're listening to Simply

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Speaker 1: Money presented by all Worth Financial on fifty five KARC,

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Speaker 1: the talk station. You're listening to Simply Money presented by

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Speaker 1: all Worth Financial. I'm Bob Sponsller along with Brian James.

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Speaker 1: If you can't listen to Simply Money live every night,

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Speaker 1: subscribe and get our daily podcast. You can listen the

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Speaker 1: following morning during your commute or at the gym, or

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Speaker 1: while you're out Christmas shopping. Imagine that, and if you

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Speaker 1: think your friends or family could use some financial advice,

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Speaker 1: tell them about us as well. Just search Simply Money

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Speaker 1: on the iHeart app or wherever you find your podcast.

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Speaker 1: Straight Ahead at six forty three from ETF Strategies to

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Speaker 1: S and P five hundred Concentration Risk, We're going to

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Speaker 1: take on your most nuanced investing questions. Well. For years,

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Speaker 1: hitting quote unquote millionaire status a net worth of a

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Speaker 1: million dollars was the gold standard. It meant you were rich,

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Speaker 1: you were financially successful, maybe even set for life. But

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Speaker 1: a new wave of data reveals a confusing twist. Many

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Speaker 1: millionaires aren't feeling that wealthy. Brian, Yeah, talk about this

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Speaker 1: latest survey, and I'm not surprised at all by these

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Speaker 1: numbers you're about to share.

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Speaker 3: Yeah, it's a recent survey from Northwestern Mutual. Only about

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Speaker 3: three and ten Americans with at least a million dollars

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Speaker 3: in investable assets think of themselves as wealthy, and Bob,

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Speaker 3: I think you can confirm this too, as can all

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Speaker 3: the other all Worth advisors that whenever we do a

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Speaker 3: financial plan, and part of that is constructing your net

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Speaker 3: worth statement for people and we point out exactly where

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Speaker 3: they are, and I'll always ask people, do you feel

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Speaker 3: like a millionaire? And in my three decades of doing this,

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Speaker 3: no one has ever said yes. We've always got that

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Speaker 3: voice in the back of our heads. It just tells

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Speaker 3: us that we're not okay and we're going to need some,

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Speaker 3: you know, a little bit of help, you know, getting

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Speaker 3: to that, to that confident feeling, which good thing the

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Speaker 3: financial plan.

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Speaker 4: I guess, well, where's this coming from?

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Speaker 3: So this is it's inflation and cost of living, Bob,

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Speaker 3: A million dollars simply doesn't buy what it did decades ago.

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Speaker 4: It's not that.

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Speaker 3: Over abundance that it used to be, making us feel

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Speaker 3: like it feel comfortable, that we can really pay for

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Speaker 3: any bill that comes down the pipe.

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Speaker 1: I think yeah, And I think the key is the

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Speaker 1: words you just used decades ago. I mean those of

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Speaker 1: us that are in our forties, fifties, and sixties, I

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Speaker 1: mean we were we were raised thinking that being a

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Speaker 1: millionaire was again the gold standard. If you got there,

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Speaker 1: you were set. But look, we're not talking about recent inflation.

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Speaker 1: We're just talking about normal inflation that has accumulated over ten, twenty,

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Speaker 1: thirty forty years. And you know, I'm not you know,

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Speaker 1: thumbing my nose at a million dollars. It's a lot

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Speaker 1: of money, but in terms of replacing a paycheck and retiring,

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Speaker 1: people need to realize that a million dollars today is

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Speaker 1: not nearly what it was thirty years ago. And I

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Speaker 1: think people just need to make a paradigm shift and

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Speaker 1: to your point, put together an actual financial plan which

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Speaker 1: lays out the numbers on what is it going to

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Speaker 1: take to be able to retire in the manner in

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Speaker 1: which you have become accustomed to living from a lifestyle standpoint,

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Speaker 1: and I think this is just catching more and more

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Speaker 1: people off guard.

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Speaker 4: Yeah, it also has to do with where these assets are.

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Speaker 3: You know, a lot of times people don't understand it

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Speaker 3: and really have no idea what their net worth is

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Speaker 3: because not all assets are you know, first of all,

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Speaker 3: in one place where you can easily track with the

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Speaker 3: value everything is. And then we're all accustomed to, you know,

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Speaker 3: logging into our four one k's that kind of thing.

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Speaker 3: You can see exactly what it was worth as of

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Speaker 3: yesterday's market clothes, sometimes even today's current prices.

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Speaker 4: But that doesn't do any good for.

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Speaker 3: Real estate other types of harder investments that just aren't

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Speaker 3: valued on a day basis, so people don't take the time.

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Speaker 4: Well, some do.

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Speaker 3: Some have that obsessive Excel spreadsheet they update once a

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Speaker 3: week or once a day, as it may be, but

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Speaker 3: you know, we just don't have the visibility to it

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Speaker 3: as well. But that's also a problem of liquidity. You know,

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Speaker 3: some of these investments are not very liquid. I may

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Speaker 3: have several million dollars worth of real estate, but I

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Speaker 3: can't turn it around tomorrow. It's not a checking account,

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Speaker 3: so I can't unnecessarily access it very quickly without making

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Speaker 3: some permanent decisions and jumping through a lot of hoops

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Speaker 3: to get that to a point where I need whether

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Speaker 3: I'm literally selling it or borrowing against it. Those aren't

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Speaker 3: very quick types of types of investments there.

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Speaker 1: Yeah, And just to drive this point home again with

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Speaker 1: with just some simple math, Brian, I mean, the rule

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Speaker 1: of thumb for years and years in decades has been,

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Speaker 1: you know, whatever you have saved up, play on a

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Speaker 1: withdrawal rate of somewhere let's say four four and a half,

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Speaker 1: you know, maximum five percent, and that way you'll preserve

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Speaker 1: your principle, maybe have it grow a little bit at

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Speaker 1: the inflation rate and be able to replace your income. Well,

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Speaker 1: let's just say even at the high end of that

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Speaker 1: five percent of a million dollars is fifty grand. Ask

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Speaker 1: yourself out there, am I living on more than fifty

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Speaker 1: thousand dollars right now? And if the answer to that's yes,

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Speaker 1: or or maybe even double that amount, well a million

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Speaker 1: dollars is not going to get it done. You know,

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Speaker 1: we can layer on things like social security and if

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Speaker 1: you have a pension income, but hopefully you get our

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Speaker 1: point here, four to five percent of a million dollars

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Speaker 1: is not going to replace most people's lifestyle in twenty

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Speaker 1: twenty five. And so Debriyan's point, you do have to

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Speaker 1: put together a financial plan for your individual situation. It

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Speaker 1: doesn't matter what your neighbors are doing or what you

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Speaker 1: see on social media social media, it matters what your

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Speaker 1: lifestyle is. And the sooner you can get out in

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Speaker 1: front of this and plan accordingly, you're not going to

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Speaker 1: get into your fifties and sixties and be, you know,

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Speaker 1: get that negative surprise that you just are not on

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Speaker 1: track to be able to retire in the manner in

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Speaker 1: which you would like.

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Speaker 3: So let's talk about solutions here. What can we do

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Speaker 3: to get ourselves out of this sort of bubble of.

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Speaker 4: Lack of confidence.

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Speaker 3: Well, well, make sure you've got liquidity, make sure you

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Speaker 3: have what you need that you can get to. So

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Speaker 3: keep a portion of these assets and more easy to

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Speaker 3: access accounts outside of real estate, outside retirement accounts. You know,

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Speaker 3: this is sometimes known as an emergency fund as well

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Speaker 3: as you know, just just kind of that mid term

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Speaker 3: funding things that I you know, I think we all

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Speaker 3: have a general, generally good understanding of the fact that

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Speaker 3: I need cash to pay the bills here in the

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Speaker 3: shorter run, but maybe think about those shorter to medium

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Speaker 3: term goals. I know, I'm going to buy a car

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Speaker 3: next year. We've got that wedding to pay for whatever

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Speaker 3: those things are. Make sure those are out there. Just

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Speaker 3: the idea that okay, yeah, we got to a big

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Speaker 3: bill coming up, but we already know how we're going

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Speaker 3: to pay for it. Then that doesn't sit in the

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Speaker 3: back of your head and eat away at you that

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Speaker 3: you've got this massive bill if you already have kind

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Speaker 3: of a sinking fund for it. And then also a

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Speaker 3: diversify not just for growth. A lot of us are obsessed,

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Speaker 3: you know, with a stock market and those types of

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Speaker 3: growth assets, so we can inflate our networth. But remember

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Speaker 3: at some point it's okay, you're allowed to switch these

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Speaker 3: assets on to start producing income. So this is dividend stocks,

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Speaker 3: maybe you've rental, real estate, buffer ETF, dividend focused funds,

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Speaker 3: those kinds of things where you're creating cash flow instead

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Speaker 3: of just expanding that networth.

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Speaker 4: A number there, and you do have.

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Speaker 1: To plan for some longer term risks, SEINQ. What's of

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Speaker 1: return risk if we have a market correction, I mean,

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Speaker 1: just plane on inflation, which you know, no matter what

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Speaker 1: rate we are today, we can I think we can

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Speaker 1: all agree inflation is not going away forever. It's a

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Speaker 1: thing and it has to be factored into your cash flow,

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Speaker 1: planning and taxes. And this is a good time to

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Speaker 1: mention a good trusted advisor if you know, if they're

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Speaker 1: doing their job, they're going to ask the right questions

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Speaker 1: and help you build this type of financial plan that

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Speaker 1: we're talking about and hopefully get you on the right

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Speaker 1: track to not worry about so much the term millionaire,

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Speaker 1: but focus more on what you need to do to

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Speaker 1: get to where you need to be for your plan

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Speaker 1: lifestyle needs. Here's the all Worth advice. Real wealth is

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Speaker 1: not just what you're worth, it's what you can access,

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Speaker 1: how securely you live, and how confident you can feel

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Speaker 1: about your future. Next, we'll break down three big gaps

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Speaker 1: you should understand if you decide to leave the workforce

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Speaker 1: before eight sixty five. You're listening to Simply Money, presented

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Speaker 1: by all Worth Financial on fifty five KRC. The talk

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Speaker 1: station you're listening to, Simply Money was ied my all

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Speaker 1: Worth Financial on Bob spond Seller along with Brian James.

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Speaker 1: More and more people are stepping away from the workforce

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Speaker 1: earlier than expected. Sometimes it's an eye out that happens.

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Speaker 1: Sometimes it's just burnout. Sometimes it's frankly the sense that hey,

436
00:20:41,960 --> 00:20:46,080
Speaker 1: I've saved enough out of here. But here's what a

437
00:20:46,160 --> 00:20:49,440
Speaker 1: lot of folks don't realize. And Brian, we're gonna get

438
00:20:49,440 --> 00:20:53,320
Speaker 1: into this healthcare cost thing. Walking away early from the

439
00:20:53,320 --> 00:20:57,679
Speaker 1: workforce opens up three big planning gaps that can quietly

440
00:20:57,800 --> 00:21:01,880
Speaker 1: cost folks hundreds of thousands of if they're not careful

441
00:21:01,920 --> 00:21:05,960
Speaker 1: and don't plan ahead. Let's get into it, because this

442
00:21:05,960 --> 00:21:09,760
Speaker 1: this comes up more and more, at least in the

443
00:21:09,800 --> 00:21:12,080
Speaker 1: meetings that I have with clients. People are looking to

444
00:21:12,080 --> 00:21:15,600
Speaker 1: get out early before sixty five, and I think oftentimes

445
00:21:15,600 --> 00:21:18,000
Speaker 1: they're shocked. It's some of the things that they need

446
00:21:18,040 --> 00:21:20,159
Speaker 1: to plan for that perhaps they had not thought of.

447
00:21:21,040 --> 00:21:23,960
Speaker 3: Yeah, Bob, this is the that window between I really

448
00:21:24,000 --> 00:21:26,760
Speaker 3: if they like, I've saved enough money to pay the bills,

449
00:21:27,080 --> 00:21:29,240
Speaker 3: but I'm not yet old enough to take advantage of

450
00:21:29,240 --> 00:21:31,280
Speaker 3: the retirement benefits that the country has put in place,

451
00:21:31,359 --> 00:21:34,240
Speaker 3: most specifically social Security and medicare so kind of that

452
00:21:34,280 --> 00:21:36,560
Speaker 3: financial limbo. So well, today we're going to walk through

453
00:21:36,600 --> 00:21:39,360
Speaker 3: these three gaps that we've identified, you know, through through

454
00:21:39,359 --> 00:21:41,200
Speaker 3: building plans and plans for people to help them.

455
00:21:41,240 --> 00:21:42,639
Speaker 4: Bridge these issues.

456
00:21:42,680 --> 00:21:44,760
Speaker 3: So, first, Office of Healthcare, this is the big one.

457
00:21:44,880 --> 00:21:48,200
Speaker 3: So Medicare eligibility begins at age sixty five for everybody.

458
00:21:48,200 --> 00:21:49,560
Speaker 3: But obviously, if you're going to go away in your

459
00:21:49,600 --> 00:21:51,840
Speaker 3: late fifties, you know, say fifty eight, Well that's seven years.

460
00:21:51,880 --> 00:21:53,440
Speaker 4: You got to cover that bill some other way.

461
00:21:54,119 --> 00:21:55,680
Speaker 3: So a lot of people think they can just jump

462
00:21:55,720 --> 00:21:58,119
Speaker 3: on the Affordable Care Act exchange, but a lot of

463
00:21:58,240 --> 00:22:00,719
Speaker 3: but the premiums can be really high. You're looking at

464
00:22:00,880 --> 00:22:03,800
Speaker 3: for an individual one thousand, maybe fifteen hundred bucks a month,

465
00:22:03,840 --> 00:22:06,440
Speaker 3: depending on the kind of care you need. But also

466
00:22:06,520 --> 00:22:08,080
Speaker 3: if you're married now you got to kind of double

467
00:22:08,119 --> 00:22:10,600
Speaker 3: that too. There's a few ways around this. Remember, if

468
00:22:10,640 --> 00:22:13,440
Speaker 3: you may have access to cobra, this should buy you

469
00:22:13,440 --> 00:22:16,000
Speaker 3: a little bit of time. You should have the ability

470
00:22:16,040 --> 00:22:20,040
Speaker 3: to have your your former employer continue to keep you

471
00:22:20,080 --> 00:22:21,560
Speaker 3: as a part of their group even though you have

472
00:22:21,640 --> 00:22:25,359
Speaker 3: separated from service. That is usually limited to eighteen months

473
00:22:25,359 --> 00:22:28,200
Speaker 3: for you and the spouse, and you'll be paying both habs.

474
00:22:28,200 --> 00:22:28,639
Speaker 4: Rest assured.

475
00:22:28,640 --> 00:22:30,160
Speaker 3: It's still going to get more expensive, but you're part

476
00:22:30,160 --> 00:22:32,760
Speaker 3: of a group, so it's cheaper versus the Affordable Care

477
00:22:32,800 --> 00:22:36,000
Speaker 3: Act plans where you will be you'll be buying it

478
00:22:36,119 --> 00:22:37,400
Speaker 3: off the shelf as an individual.

479
00:22:38,040 --> 00:22:41,000
Speaker 4: So and as well as you can also right right now.

480
00:22:41,000 --> 00:22:43,239
Speaker 3: There are subsidies. These subsidies are in question right there.

481
00:22:43,280 --> 00:22:46,760
Speaker 3: There are hot topics right now. The income that you generate,

482
00:22:46,920 --> 00:22:49,040
Speaker 3: right if you have income coming in from investments, you've

483
00:22:49,040 --> 00:22:51,760
Speaker 3: been doing roth conversions, well, then you may lose access

484
00:22:51,760 --> 00:22:54,280
Speaker 3: to some of these subsidies, meaning those premiums are going

485
00:22:54,320 --> 00:22:55,919
Speaker 3: to go up, and so you're going to kind of

486
00:22:55,920 --> 00:22:58,439
Speaker 3: lose the affordable in the Affordable Care Act. So this

487
00:22:58,480 --> 00:23:00,000
Speaker 3: is why if you're going to pull the trigger on this,

488
00:23:00,080 --> 00:23:02,719
Speaker 3: be sure that you're looking with eyes wide open at

489
00:23:02,760 --> 00:23:04,679
Speaker 3: the solutions you have, whether that's going to be COBRA,

490
00:23:05,240 --> 00:23:07,520
Speaker 3: the ACA, or structuring those withdrawals to make sure you

491
00:23:07,560 --> 00:23:10,239
Speaker 3: stay below those certain income threshold when you're buying off

492
00:23:10,280 --> 00:23:12,239
Speaker 3: the shelf. But regardless, it needs to be a big

493
00:23:12,280 --> 00:23:13,040
Speaker 3: part of the strategy.

494
00:23:14,200 --> 00:23:16,600
Speaker 1: All right, let's talk about gap number two, something we'll

495
00:23:16,640 --> 00:23:20,240
Speaker 1: call the income timing gap. And this one's sneaky. Most

496
00:23:20,240 --> 00:23:23,480
Speaker 1: people aren't thinking about, you know, fifty nine and a half,

497
00:23:23,560 --> 00:23:27,400
Speaker 1: sixty five, seventy three. You know some key ages here

498
00:23:27,440 --> 00:23:30,880
Speaker 1: on when assets become available or when you must take

499
00:23:31,840 --> 00:23:35,600
Speaker 1: assets out of qualified plan accounts. A lot some people think, hey,

500
00:23:35,920 --> 00:23:38,320
Speaker 1: I've got this pile of money, I'll just use it.

501
00:23:38,359 --> 00:23:40,320
Speaker 1: But if you start pulling from a four to one

502
00:23:40,400 --> 00:23:42,840
Speaker 1: K account before each fifty nine and a half, you

503
00:23:42,920 --> 00:23:47,040
Speaker 1: could trigger early withdrawal penalties if things are not structured correctly.

504
00:23:47,640 --> 00:23:50,119
Speaker 1: On the flip side, if you wait too long, you

505
00:23:50,160 --> 00:23:53,960
Speaker 1: could get slammed with required minimum distributions at age seventy three.

506
00:23:54,080 --> 00:23:56,800
Speaker 1: So there's some planning that needs to take place there

507
00:23:57,160 --> 00:23:59,520
Speaker 1: with regard to your four oh one ks and even

508
00:23:59,600 --> 00:24:02,520
Speaker 1: IRA as well. So the sweet spot, and we talk

509
00:24:02,600 --> 00:24:06,040
Speaker 1: about this all the time, Brian, is often between your

510
00:24:06,080 --> 00:24:09,840
Speaker 1: work years and when the government triggers kick in, you know,

511
00:24:09,920 --> 00:24:13,480
Speaker 1: Medicare and Social Security. That's the window for roth conversions,

512
00:24:13,880 --> 00:24:18,200
Speaker 1: capital gains, harvesting, strategic withdrawals, things like that. But put

513
00:24:18,320 --> 00:24:20,800
Speaker 1: to your prior point, if you get into some of

514
00:24:20,840 --> 00:24:25,480
Speaker 1: these strategies for longer term tax efficiency, that can throw

515
00:24:25,520 --> 00:24:29,680
Speaker 1: your income much higher than where you're going to be

516
00:24:29,680 --> 00:24:33,280
Speaker 1: able to qualify for some of these ACA ACA subsidies.

517
00:24:33,560 --> 00:24:36,639
Speaker 1: So there's a lot of planning and discussion and weighing

518
00:24:36,720 --> 00:24:39,199
Speaker 1: pros and cons of this before you just pull the trigger.

519
00:24:40,400 --> 00:24:43,520
Speaker 1: What we're talking about here is really putting together a

520
00:24:44,000 --> 00:24:49,240
Speaker 1: customized income plan rather than just winging it, because the

521
00:24:49,280 --> 00:24:51,440
Speaker 1: consequences of winging it can be severe.

522
00:24:52,080 --> 00:24:53,840
Speaker 3: Yeah, and a lot, and you're you're going to have

523
00:24:53,920 --> 00:24:56,480
Speaker 3: to choose between which goal you're going to prioritize and

524
00:24:56,520 --> 00:24:58,920
Speaker 3: which goal you're going to sacrifice. You know that there's

525
00:24:58,960 --> 00:25:02,440
Speaker 3: no way to get all these things set in a

526
00:25:02,440 --> 00:25:04,959
Speaker 3: way where you can benefit the most from each one

527
00:25:04,960 --> 00:25:07,359
Speaker 3: of them. For example, let's say you're passionate about ROTH conversions.

528
00:25:07,359 --> 00:25:09,800
Speaker 3: This is that same window of time. Ironically, when your

529
00:25:09,800 --> 00:25:13,359
Speaker 3: income drops before you have turned on Social Security, and

530
00:25:13,400 --> 00:25:16,720
Speaker 3: definitely before age seventy three or seventy five, depending on

531
00:25:16,760 --> 00:25:19,919
Speaker 3: your age, when require minimum distributions come in, that's the

532
00:25:19,960 --> 00:25:22,880
Speaker 3: best window to do ROTH conversions. However, roth conversions work

533
00:25:22,960 --> 00:25:26,480
Speaker 3: directly immediately against your ACA premiums, that that's going to

534
00:25:26,480 --> 00:25:27,159
Speaker 3: be a solution for you.

535
00:25:27,200 --> 00:25:28,880
Speaker 4: So you'll just have to figure out what is your.

536
00:25:28,800 --> 00:25:32,200
Speaker 3: Comfort zone for getting those ROTH conversions done for tax

537
00:25:32,200 --> 00:25:36,080
Speaker 3: free growth forever versus having a little bit of a

538
00:25:36,200 --> 00:25:41,560
Speaker 3: premium attached to your medicarriature your medical insurance costs there

539
00:25:41,600 --> 00:25:44,120
Speaker 3: So moving on, let's go to the market risk gap.

540
00:25:44,119 --> 00:25:46,440
Speaker 3: Guess what investments go up and down? We don't get

541
00:25:46,440 --> 00:25:49,080
Speaker 3: to control that, and that's the biggest risk. That's really

542
00:25:49,160 --> 00:25:50,960
Speaker 3: kind of the hardest to see. What we call sequence

543
00:25:50,960 --> 00:25:53,320
Speaker 3: of returns, and then we discuss it frequently here. What

544
00:25:53,359 --> 00:25:55,200
Speaker 3: this really means is that the worst thing that can

545
00:25:55,200 --> 00:25:57,159
Speaker 3: happen to anybody is for the market to take a

546
00:25:57,160 --> 00:26:00,680
Speaker 3: big hit early in retirement. This doesn't happen very often.

547
00:26:00,720 --> 00:26:03,720
Speaker 3: We're talking about the big years where we have huge swings.

548
00:26:04,000 --> 00:26:06,000
Speaker 3: So we've had a few of them somewhat recently, and

549
00:26:06,040 --> 00:26:09,000
Speaker 3: I'm referring to twenty twenty two. So somebody who retired

550
00:26:09,000 --> 00:26:11,439
Speaker 3: in twenty twenty one immediately saw their portfolio take some

551
00:26:11,520 --> 00:26:12,800
Speaker 3: kind of the hit. I would say at least ten

552
00:26:12,840 --> 00:26:15,480
Speaker 3: to twenty percent, depending on how they were invested. Hopefully

553
00:26:15,480 --> 00:26:17,640
Speaker 3: not everything was still in the market at that time

554
00:26:17,640 --> 00:26:19,560
Speaker 3: if they had retired, but some people did go through

555
00:26:19,600 --> 00:26:22,160
Speaker 3: that also, two thousand and eight, those kinds of things,

556
00:26:22,280 --> 00:26:24,119
Speaker 3: those kinds of years. So even if you have the

557
00:26:24,119 --> 00:26:27,359
Speaker 3: same portfolio, same average rate of return, those bad years

558
00:26:27,400 --> 00:26:30,160
Speaker 3: early mean the math is just going to work against you.

559
00:26:30,160 --> 00:26:32,960
Speaker 3: Your number might come up. Sometimes this happens to people.

560
00:26:33,280 --> 00:26:36,199
Speaker 3: Cash flow strategy is going to matter. So one approach

561
00:26:36,280 --> 00:26:37,959
Speaker 3: we like to use with clients who might be exposed

562
00:26:38,000 --> 00:26:40,280
Speaker 3: to this is working out of a bucket system, right,

563
00:26:40,320 --> 00:26:42,960
Speaker 3: So let's create a bucket and let's just make sure

564
00:26:42,960 --> 00:26:45,080
Speaker 3: we've got the first year or two worth of expenses

565
00:26:45,119 --> 00:26:49,520
Speaker 3: in really conservative or just things like cash money markets, CDs,

566
00:26:49,560 --> 00:26:51,879
Speaker 3: those kinds of things time to come do when that

567
00:26:51,920 --> 00:26:54,359
Speaker 3: bill comes due. So that when we know we have

568
00:26:54,440 --> 00:26:56,960
Speaker 3: significant bills coming due, maybe it's that big family trip

569
00:26:57,000 --> 00:26:58,520
Speaker 3: that you've always wanted to take, that's come and do

570
00:26:58,640 --> 00:27:01,200
Speaker 3: it a year, year and a half, those kinds of things.

571
00:27:01,240 --> 00:27:04,159
Speaker 3: As you're rounding out your family obligations, make sure that

572
00:27:04,240 --> 00:27:06,119
Speaker 3: money is somewhere where can where you can get to

573
00:27:06,160 --> 00:27:08,000
Speaker 3: it easily and it's not really at risk. That way,

574
00:27:08,040 --> 00:27:10,920
Speaker 3: you won't have the longer term. That really does two things.

575
00:27:10,920 --> 00:27:13,400
Speaker 3: It protects that expense, that bill from not getting paid,

576
00:27:13,760 --> 00:27:16,240
Speaker 3: and it will also protect your longer term assets. That

577
00:27:16,320 --> 00:27:17,960
Speaker 3: will then you know very well are going to ride

578
00:27:17,960 --> 00:27:19,640
Speaker 3: the waves a little bit, but if you know you're

579
00:27:19,680 --> 00:27:21,080
Speaker 3: not going to be dipping into them, that makes it

580
00:27:21,119 --> 00:27:23,520
Speaker 3: that much more comfortable to have to pay those bills.

581
00:27:24,359 --> 00:27:26,919
Speaker 1: Yeah, this sequence of return risk is real and a

582
00:27:26,920 --> 00:27:29,520
Speaker 1: lot of people don't think about it because, let's face it, Brian.

583
00:27:29,560 --> 00:27:32,159
Speaker 1: When we're working and we're just socking money away in

584
00:27:32,160 --> 00:27:34,479
Speaker 1: our four to one k's and we're in the what

585
00:27:34,520 --> 00:27:38,119
Speaker 1: we'll call the accumulation phase, you don't really care about

586
00:27:38,160 --> 00:27:40,760
Speaker 1: sequence of return. All you care about is what's my

587
00:27:40,960 --> 00:27:44,520
Speaker 1: average rate of return over the years and decades, because

588
00:27:44,520 --> 00:27:47,479
Speaker 1: that's what builds wealth. Well. When you start turning that

589
00:27:47,600 --> 00:27:52,119
Speaker 1: wealth into a paycheck, volatility matters, and that's really what

590
00:27:52,200 --> 00:27:54,280
Speaker 1: Brian just talked about here, and this is why you

591
00:27:54,320 --> 00:27:58,159
Speaker 1: have to be intentional about planning ahead of some of

592
00:27:58,200 --> 00:28:03,200
Speaker 1: this potential volatility which always comes, and make sure your

593
00:28:03,240 --> 00:28:06,639
Speaker 1: income strategy is aligned with your goals and needs in

594
00:28:06,680 --> 00:28:09,320
Speaker 1: the short term. Here's the all Worth advice. Leaving the

595
00:28:09,359 --> 00:28:12,800
Speaker 1: workforce early doesn't mean you're at the finish line. You're

596
00:28:12,880 --> 00:28:17,399
Speaker 1: just at one stage of a longer, often more complex race.

597
00:28:18,400 --> 00:28:23,000
Speaker 1: Confused by top heavy markets, real yields or real assets.

598
00:28:23,400 --> 00:28:27,240
Speaker 1: We'll tackle your biggest investment questions next. You're listening to

599
00:28:27,240 --> 00:28:29,800
Speaker 1: Simply Money presented by all Worth Financial on fifty five

600
00:28:29,880 --> 00:28:37,280
Speaker 1: KRC the talk station. You're listening to Simply Money presented

601
00:28:37,320 --> 00:28:40,440
Speaker 1: by all Worth Financial on Bob Sponsorlar along with Brian James.

602
00:28:40,920 --> 00:28:43,000
Speaker 1: Do you have a financial question you'd like for us

603
00:28:43,040 --> 00:28:45,200
Speaker 1: to answer. Well, there's a red button you can click

604
00:28:45,240 --> 00:28:48,040
Speaker 1: while you're listening to the show. If you're listening on

605
00:28:48,080 --> 00:28:51,560
Speaker 1: the iHeart app, simply record your question and it will

606
00:28:51,600 --> 00:28:55,440
Speaker 1: come straight to us. Paul in Montgomery leads us off

607
00:28:55,440 --> 00:28:58,400
Speaker 1: tonight Brian. He says, we've always used mutual funds in

608
00:28:58,400 --> 00:29:01,560
Speaker 1: our four to one k, but I've heard ETFs can

609
00:29:01,640 --> 00:29:05,280
Speaker 1: be way more tax efficient. Does that matter inside a

610
00:29:05,280 --> 00:29:09,040
Speaker 1: retirement account or does it only matter in taxable accounts?

611
00:29:09,160 --> 00:29:11,200
Speaker 4: Great question, No, it doesn't matter.

612
00:29:11,240 --> 00:29:14,440
Speaker 3: Next question, Uh, No, I'm kidding, of course, But yeah,

613
00:29:14,480 --> 00:29:16,360
Speaker 3: this is this is a fairly simple one, but with

614
00:29:16,360 --> 00:29:18,200
Speaker 3: with some with some details behind it, because it's not

615
00:29:18,240 --> 00:29:21,560
Speaker 3: something to be ignored. But tax efficiency is only relevant

616
00:29:21,600 --> 00:29:24,800
Speaker 3: to a non retirement account. Retirement accounts, by definition, are

617
00:29:24,960 --> 00:29:27,840
Speaker 3: tax sheltered there that's either raw if you're not paying

618
00:29:27,840 --> 00:29:29,960
Speaker 3: any taxes at all, or it was pre tax meaning

619
00:29:30,000 --> 00:29:32,400
Speaker 3: you deducted it. Uh, and you're you're going to pay

620
00:29:32,400 --> 00:29:34,480
Speaker 3: income taxes out the back end. But the important thing

621
00:29:34,520 --> 00:29:38,040
Speaker 3: to your question, Paul is that, no, the activity inside

622
00:29:38,040 --> 00:29:40,840
Speaker 3: the accounts, while it stays inside the accounts, doesn't have

623
00:29:40,880 --> 00:29:43,400
Speaker 3: any impact on your on your current year's taxes. Now

624
00:29:43,400 --> 00:29:45,320
Speaker 3: that doesn't mean to ignore you know that you've got

625
00:29:45,400 --> 00:29:48,480
Speaker 3: mutual funds versus ETFs. Those kinds of things. ETFs are

626
00:29:48,480 --> 00:29:49,760
Speaker 3: a little bit tough. I don't I don't know that

627
00:29:49,800 --> 00:29:52,440
Speaker 3: I've even seen an ETF in a retirement plan four

628
00:29:52,480 --> 00:29:55,040
Speaker 3: win K retirement plan other than where somebody has their

629
00:29:55,040 --> 00:29:57,160
Speaker 3: own broker's account attached to it, where sometimes you can

630
00:29:57,200 --> 00:29:59,240
Speaker 3: do that, but you're truly doing your own thing at

631
00:29:59,240 --> 00:30:01,800
Speaker 3: that point. So don't don't bang your head against Waalt

632
00:30:01,800 --> 00:30:04,160
Speaker 3: too hard looking for ETFs inside your four oh one k's.

633
00:30:04,320 --> 00:30:07,280
Speaker 3: Most four oh one k's have put the effort into

634
00:30:08,440 --> 00:30:10,680
Speaker 3: finding the cheapest of mutual funds out there that they

635
00:30:10,680 --> 00:30:13,240
Speaker 3: possibly can. There are mechanical reasons for this. It is

636
00:30:13,280 --> 00:30:15,880
Speaker 3: a little bit tougher to divide ETFs up into a

637
00:30:15,960 --> 00:30:18,520
Speaker 3: small amount that's coming out of you know, somebody these paycheck.

638
00:30:18,520 --> 00:30:20,600
Speaker 3: If somebody's got one hundred bucks going in their paycheck

639
00:30:20,640 --> 00:30:22,760
Speaker 3: and then spread across fifteen funds, that's a pretty tiny

640
00:30:22,840 --> 00:30:24,880
Speaker 3: dollar amount. Mutual funds are better equipped to handle that

641
00:30:25,400 --> 00:30:27,760
Speaker 3: over time. So you know, you do want to pay

642
00:30:27,800 --> 00:30:30,120
Speaker 3: attention to cost, that's the big factor. But don't be

643
00:30:30,160 --> 00:30:32,920
Speaker 3: disappointed that you're not seeing ETFs in there. But and again,

644
00:30:32,960 --> 00:30:35,520
Speaker 3: set aside your tax concerns. That's going to be totally

645
00:30:35,520 --> 00:30:37,920
Speaker 3: dictated by whether you've got wroth or pre tax dollars

646
00:30:37,960 --> 00:30:39,840
Speaker 3: in there or after tax. That's a different question than

647
00:30:39,840 --> 00:30:41,960
Speaker 3: the investments inside. All right, So now we're going to

648
00:30:41,960 --> 00:30:45,480
Speaker 3: move on to Harry in Westchester, and Harry is thinking

649
00:30:45,520 --> 00:30:47,840
Speaker 3: about the different types of investments in what they yield.

650
00:30:48,160 --> 00:30:50,960
Speaker 3: Confused about real versus nominal yield on bonds? What's the

651
00:30:51,000 --> 00:30:53,240
Speaker 3: difference between those two and how do you evaluate whether

652
00:30:53,280 --> 00:30:55,360
Speaker 3: a bond is truly protecting your purchasing power?

653
00:30:55,360 --> 00:30:59,440
Speaker 1: Bob, Well, Harry, I mean, let's just define these terms.

654
00:30:59,520 --> 00:31:02,400
Speaker 1: Nominal yield is just what I'll call the yield that's

655
00:31:02,400 --> 00:31:05,080
Speaker 1: on the sticker on the window shield. It's the gross

656
00:31:05,280 --> 00:31:08,960
Speaker 1: yield on a bond, fairly easy to find. And what

657
00:31:09,040 --> 00:31:11,800
Speaker 1: you got to evaluate, though, is whether that's going to

658
00:31:11,880 --> 00:31:14,840
Speaker 1: get you where you need to be in terms of

659
00:31:14,880 --> 00:31:17,760
Speaker 1: purchasing power. So we got to factor in two other

660
00:31:17,840 --> 00:31:21,600
Speaker 1: things in addition to nominal yield. One is inflation and

661
00:31:21,640 --> 00:31:24,880
Speaker 1: the other is taxes. So you know that's where you

662
00:31:24,960 --> 00:31:27,000
Speaker 1: got to sit down and say, what am I truly

663
00:31:27,080 --> 00:31:30,440
Speaker 1: getting you know, out the door here factoring in those

664
00:31:30,480 --> 00:31:34,040
Speaker 1: two things other than nominal yield, and see your bonds

665
00:31:34,080 --> 00:31:36,920
Speaker 1: are getting you where you need to be in terms

666
00:31:36,960 --> 00:31:40,040
Speaker 1: of what that bond portion of your financial plan needs

667
00:31:40,080 --> 00:31:44,480
Speaker 1: to accomplish. That's really the difference between nominal and real.

668
00:31:45,200 --> 00:31:48,080
Speaker 1: When they talk about real yield. Real yield is just

669
00:31:48,160 --> 00:31:53,280
Speaker 1: the yield adjusted for inflation. So again inflation, real yield,

670
00:31:53,440 --> 00:31:56,280
Speaker 1: nominal yield, taxes. You got to factor all that stuff

671
00:31:56,360 --> 00:32:01,440
Speaker 1: into how to construct properly construct a bond portfolio. Greg

672
00:32:01,480 --> 00:32:03,720
Speaker 1: and hyde Park says, with the S and P five

673
00:32:03,800 --> 00:32:07,000
Speaker 1: hundred so top heavy, right now, how do you decide

674
00:32:07,000 --> 00:32:11,000
Speaker 1: whether equal weight indexing or market cap weighting makes more

675
00:32:11,120 --> 00:32:14,760
Speaker 1: sense for long term growth? I'm glad Greg is asking

676
00:32:14,800 --> 00:32:18,680
Speaker 1: this question. It appears that he's been listening to us, Brian,

677
00:32:18,680 --> 00:32:21,800
Speaker 1: because we've been hitting on this topic often this year.

678
00:32:22,600 --> 00:32:22,840
Speaker 4: Yeah.

679
00:32:22,920 --> 00:32:25,600
Speaker 3: So the question behind the question here is is when

680
00:32:25,600 --> 00:32:27,440
Speaker 3: the S and P five hundred is as top heavy

681
00:32:27,440 --> 00:32:30,000
Speaker 3: as it is today, meaning that the largest companies drive

682
00:32:30,080 --> 00:32:33,040
Speaker 3: most of the indexes returns the way it's constructed, then

683
00:32:33,800 --> 00:32:36,120
Speaker 3: the question is should investor stick with market cap waiting

684
00:32:36,200 --> 00:32:37,320
Speaker 3: or shift to equal weighting?

685
00:32:37,360 --> 00:32:39,040
Speaker 4: Well, the market cap.

686
00:32:38,920 --> 00:32:41,760
Speaker 3: Weighting gives the biggest companies the biggest influence versus an

687
00:32:41,840 --> 00:32:44,440
Speaker 3: equal weight where every company has the same seat at

688
00:32:44,480 --> 00:32:46,520
Speaker 3: the table, the one you're seeing crawling across the bottom

689
00:32:46,520 --> 00:32:49,200
Speaker 3: of your TV screen that is cap weighted, meaning the

690
00:32:49,240 --> 00:32:52,680
Speaker 3: bigger the company, the larger the impact that has on

691
00:32:52,720 --> 00:32:54,880
Speaker 3: the index. And that's where we're talking about Nvidia and

692
00:32:55,040 --> 00:32:56,800
Speaker 3: Apple and those biggest.

693
00:32:56,440 --> 00:32:57,840
Speaker 4: Companies out there driving everything.

694
00:32:58,440 --> 00:33:02,160
Speaker 3: So generally speaking, though over the last thirty years, equal

695
00:33:02,160 --> 00:33:05,160
Speaker 3: weight has often outperformed, but that usually happens only in

696
00:33:05,160 --> 00:33:07,880
Speaker 3: the environments where there's some kind of leadership rotation away

697
00:33:07,920 --> 00:33:10,680
Speaker 3: from megacaps. We haven't seen that in a while. Smaller

698
00:33:10,720 --> 00:33:14,320
Speaker 3: companies tend to rebound after periods of unperformance. So in contrast,

699
00:33:14,520 --> 00:33:16,840
Speaker 3: when a handful of the big ones dominate, think of

700
00:33:16,880 --> 00:33:19,000
Speaker 3: the late nineties or even the past several years, market

701
00:33:19,000 --> 00:33:21,240
Speaker 3: cap weighting will pull ahead because you're riding the winners

702
00:33:21,240 --> 00:33:23,920
Speaker 3: out at full strength. So think about if you're going

703
00:33:23,960 --> 00:33:25,800
Speaker 3: to make a choice between these two. First of all,

704
00:33:25,800 --> 00:33:27,800
Speaker 3: don't agonize too much over this. This isn't the pot

705
00:33:27,800 --> 00:33:29,120
Speaker 3: of gold at the end of the rainbow. It's just

706
00:33:29,160 --> 00:33:31,080
Speaker 3: to understand, you know, how these things are constructed and

707
00:33:31,120 --> 00:33:33,600
Speaker 3: what the impacts are. But to think about what you

708
00:33:33,600 --> 00:33:36,320
Speaker 3: feel about market leadership. If you feel like today's you know,

709
00:33:36,400 --> 00:33:38,760
Speaker 3: megacaps are going to keep compounding, well, then going with

710
00:33:38,840 --> 00:33:41,760
Speaker 3: that market cap weighting makes sense the way it's currently constructed.

711
00:33:42,320 --> 00:33:42,480
Speaker 1: You know.

712
00:33:42,520 --> 00:33:45,800
Speaker 3: On the other hand, if you're rebalancing preference, if that

713
00:33:45,920 --> 00:33:47,360
Speaker 3: is more important to you, then you're going to want

714
00:33:47,360 --> 00:33:49,400
Speaker 3: to focus on the equal weight because using an index

715
00:33:49,480 --> 00:33:51,920
Speaker 3: is not going to allow you to rebalance very efficiently

716
00:33:51,920 --> 00:33:54,320
Speaker 3: because it's always going to be market cap weighted. And

717
00:33:54,360 --> 00:33:56,960
Speaker 3: then also risk tolerance it has a lot to do

718
00:33:56,960 --> 00:33:58,400
Speaker 3: with this equal weight is going to be a little

719
00:33:58,440 --> 00:34:01,000
Speaker 3: more volatile because of the tilt towards the smaller companies

720
00:34:01,160 --> 00:34:04,160
Speaker 3: which will have bigger swings. So there really isn't a need,

721
00:34:04,160 --> 00:34:06,320
Speaker 3: though to pick one side here. Both of them can

722
00:34:06,320 --> 00:34:08,239
Speaker 3: work as long as you understand what the impact. I

723
00:34:08,280 --> 00:34:11,000
Speaker 3: think it's much more more philosophical in terms of understanding

724
00:34:11,000 --> 00:34:13,640
Speaker 3: how these things are built and being able to kind

725
00:34:13,640 --> 00:34:16,760
Speaker 3: of anticipate what you'll be feeling as things move around.

726
00:34:17,040 --> 00:34:18,759
Speaker 4: I will move on to Uh, We'll move on.

727
00:34:18,680 --> 00:34:21,520
Speaker 3: To Marke in cold Spring, who's got for one more here,

728
00:34:21,560 --> 00:34:24,600
Speaker 3: He's got questions about growth versus value. He's asking how

729
00:34:24,640 --> 00:34:26,720
Speaker 3: they how do those two different things behave in different

730
00:34:26,760 --> 00:34:29,279
Speaker 3: economic cycles, and how do you map that portfolio to

731
00:34:29,360 --> 00:34:30,360
Speaker 3: these different outcomes?

732
00:34:31,800 --> 00:34:34,680
Speaker 1: Well, Mark, I mean growth funds are growth ETFs. I

733
00:34:34,680 --> 00:34:37,719
Speaker 1: mean it is what the word implies, earnings growth and

734
00:34:37,840 --> 00:34:40,440
Speaker 1: a lot of times the pe ratios can get high,

735
00:34:40,680 --> 00:34:43,680
Speaker 1: meaning the price versus a unit of earnings. And you know,

736
00:34:43,719 --> 00:34:45,560
Speaker 1: we talk about the cap weighting of the s and

737
00:34:45,560 --> 00:34:47,719
Speaker 1: P five hundred all the time. Brian's has covered that.

738
00:34:48,200 --> 00:34:51,359
Speaker 1: So just understand when when when these stocks have made

739
00:34:51,360 --> 00:34:53,440
Speaker 1: a run like they have, you're paying up for this

740
00:34:53,600 --> 00:34:56,560
Speaker 1: growth and you're assuming that that growth and that growth

741
00:34:56,680 --> 00:35:00,640
Speaker 1: rate is going to continue. Value funds or value ETFs

742
00:35:00,719 --> 00:35:03,160
Speaker 1: are more focused on the health of the balance sheet.

743
00:35:03,440 --> 00:35:06,880
Speaker 1: They often pay higher dividends. Those can be more sensitive

744
00:35:06,920 --> 00:35:11,640
Speaker 1: to interest rate fluctuations. So you're gonna have less volatility

745
00:35:11,760 --> 00:35:15,720
Speaker 1: in general in value funds or value ets and growth.

746
00:35:15,920 --> 00:35:18,279
Speaker 1: You're also going to have a little bit less upside

747
00:35:18,440 --> 00:35:24,040
Speaker 1: in healthy markets. So and again remember the dividends matter

748
00:35:24,200 --> 00:35:27,239
Speaker 1: because when interest rates start to move around, uh, if

749
00:35:27,239 --> 00:35:29,959
Speaker 1: people think they're going to get more value with less

750
00:35:30,040 --> 00:35:33,040
Speaker 1: risk by investing in bonds, they'll tend to sell out

751
00:35:33,040 --> 00:35:36,120
Speaker 1: as some of these value stocks because on a risk

752
00:35:36,160 --> 00:35:39,800
Speaker 1: adjusted basis, they see more value in bonds or Casher

753
00:35:39,800 --> 00:35:43,399
Speaker 1: equivalents even sometimes. So that's a little bit how these

754
00:35:43,440 --> 00:35:48,719
Speaker 1: different you know, vehicles behave under different economic regimes. All right,

755
00:35:48,760 --> 00:35:51,839
Speaker 1: before you close the books on twenty twenty five, are

756
00:35:51,880 --> 00:35:56,319
Speaker 1: you sure you took your required minimum distribution correctly? We're

757
00:35:56,320 --> 00:36:00,240
Speaker 1: gonna walk through a checklist next that can hopefully seave

758
00:36:00,320 --> 00:36:04,120
Speaker 1: you from that looming twenty five percent penalty that is

759
00:36:04,160 --> 00:36:07,959
Speaker 1: out there for unsuspecting folks. You're listening to Simply Money

760
00:36:07,960 --> 00:36:10,800
Speaker 1: presented by all Worth Financial on fifty five KRC the

761
00:36:11,120 --> 00:36:17,400
Speaker 1: talk station. You're listening to Simply Money presented by all

762
00:36:17,440 --> 00:36:21,560
Speaker 1: Worth Financial on Bob Sponseller along with Brian James. All Right,

763
00:36:21,600 --> 00:36:23,239
Speaker 1: we're getting down to the end of the year, and

764
00:36:23,320 --> 00:36:26,759
Speaker 1: if you're a seventy three or older, or you inherited

765
00:36:26,920 --> 00:36:31,520
Speaker 1: a retirement account, the IRS literally has their handout. We're

766
00:36:31,520 --> 00:36:37,000
Speaker 1: talking about requirement required minimum distributions or r mds for

767
00:36:37,120 --> 00:36:40,799
Speaker 1: short Brian, But in the interest of time, I want

768
00:36:40,800 --> 00:36:44,440
Speaker 1: to cover one of these that really catches some people

769
00:36:44,440 --> 00:36:48,719
Speaker 1: off guard. Often under the New Secure Act and that's

770
00:36:48,760 --> 00:36:54,239
Speaker 1: these inherited iras. The rules for an inherited iras have

771
00:36:54,400 --> 00:36:57,600
Speaker 1: changed big time. And if you're a non spouse beneficiary,

772
00:36:58,160 --> 00:37:01,000
Speaker 1: you might be on that ten year rule. And even

773
00:37:01,040 --> 00:37:04,480
Speaker 1: so you might still owe an RMD this year. Will

774
00:37:04,520 --> 00:37:06,960
Speaker 1: you cover what we need to be on the lookout

775
00:37:07,040 --> 00:37:08,320
Speaker 1: for in that situation.

776
00:37:08,840 --> 00:37:11,799
Speaker 3: Yeah, that's so. These rules did change a lot. So

777
00:37:11,920 --> 00:37:16,320
Speaker 3: in twenty twenty. For anybody who died before twenty twenty,

778
00:37:16,320 --> 00:37:18,480
Speaker 3: you're subject to the original rules, which were that you

779
00:37:18,520 --> 00:37:22,200
Speaker 3: could spread out that distribution over your lifetime. There's a

780
00:37:22,200 --> 00:37:24,680
Speaker 3: calculation you got to go through, but you as the beneficiary,

781
00:37:24,719 --> 00:37:26,880
Speaker 3: which spread it out over your remaining thirty forty fifty

782
00:37:26,920 --> 00:37:29,640
Speaker 3: sixty years of life, and it wasn't that much. Now,

783
00:37:29,719 --> 00:37:33,560
Speaker 3: anybody who passed after twenty twenty, you have to take

784
00:37:33,600 --> 00:37:35,600
Speaker 3: it all out within ten years. And I think we're

785
00:37:35,640 --> 00:37:37,680
Speaker 3: five years into this now, so I think people kind

786
00:37:37,680 --> 00:37:39,440
Speaker 3: of get the notion that I have to have a

787
00:37:39,480 --> 00:37:41,399
Speaker 3: ten year clock kind of ticking in my head.

788
00:37:41,400 --> 00:37:42,920
Speaker 4: I got to liquidate the whole thing. And this is

789
00:37:42,920 --> 00:37:43,800
Speaker 4: all about paying taxes.

790
00:37:43,840 --> 00:37:46,320
Speaker 3: By the way, it's not that you know, the IRS

791
00:37:46,360 --> 00:37:48,279
Speaker 3: isn't going to confiscate your money. You just have to

792
00:37:48,320 --> 00:37:50,480
Speaker 3: pay taxes on it, and it loses its tax shelter

793
00:37:50,560 --> 00:37:52,400
Speaker 3: from then on. After you pull the money out, you

794
00:37:52,400 --> 00:37:53,640
Speaker 3: do whatever it is that you want to do with

795
00:37:53,680 --> 00:37:55,800
Speaker 3: it. It's just like any other dollar in your checking account.

796
00:37:56,000 --> 00:37:58,640
Speaker 3: But here's the big rule that changed this year. You

797
00:37:58,680 --> 00:38:00,719
Speaker 3: may have to you probably you do have to take

798
00:38:00,760 --> 00:38:04,279
Speaker 3: at least a small amount of require minimum distribution If

799
00:38:04,280 --> 00:38:07,920
Speaker 3: that person who preceded you and bequeathed this unto you,

800
00:38:08,040 --> 00:38:11,239
Speaker 3: if they themselves were of require minimum distribution age, then

801
00:38:11,280 --> 00:38:12,360
Speaker 3: you do need to take.

802
00:38:12,200 --> 00:38:14,719
Speaker 4: Out a minimal amount. It's not nearly as much as

803
00:38:14,719 --> 00:38:15,200
Speaker 4: it used to be.

804
00:38:15,280 --> 00:38:17,960
Speaker 3: But at the same time, you can't just do nothing

805
00:38:17,960 --> 00:38:20,640
Speaker 3: anymore in that particular situation and wait until year tend

806
00:38:20,640 --> 00:38:22,839
Speaker 3: to liquidate. So make sure you've got several weeks left

807
00:38:22,880 --> 00:38:24,680
Speaker 3: to sort this out. Has to get done by the

808
00:38:24,760 --> 00:38:26,399
Speaker 3: end of the calendar year. Make sure you're on top

809
00:38:26,440 --> 00:38:26,640
Speaker 3: of that.

810
00:38:27,880 --> 00:38:31,200
Speaker 1: Here's the ll Worth advice. The IRS doesn't just accept

811
00:38:31,480 --> 00:38:35,560
Speaker 1: I forgot as an excuse. Make sure you're planning accordingly

812
00:38:35,680 --> 00:38:39,120
Speaker 1: for your rmds, and you only got twenty two days

813
00:38:39,200 --> 00:38:41,359
Speaker 1: or so to do it, and Christmas is coming up,

814
00:38:41,360 --> 00:38:43,400
Speaker 1: people are getting busy. Make sure you get out in

815
00:38:43,400 --> 00:38:46,160
Speaker 1: front of this now. Thanks for listening tonight. You've been

816
00:38:46,200 --> 00:38:48,600
Speaker 1: listening to Simply Money, saided by all Worth Financial on

817
00:38:48,719 --> 00:38:51,120
Speaker 1: fifty five KRC, the talk station