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Speaker 1: Tonight, some new terror threats could lead to noisy markets

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Speaker 1: at least in the short term. Plus, are you invested

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Speaker 1: in the right ETFs? And we'll answer your questions. You're

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Speaker 1: listening to simply money pretended by all Worth Financial. I'm

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Speaker 1: Bob Sponseller along with Brian James. Well, after a long

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Speaker 1: holiday weekend, you know the world's global movers and shakers

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Speaker 1: here are convening in Davos, Switzerland to begin the annual

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Speaker 1: World Economic Forum, and all thoughts and cameras and microphones

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Speaker 1: will be focused on Greenland today, Brian, what's going on

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Speaker 1: with Greenland?

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Speaker 2: Well, if you've been high under a rock, you might

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Speaker 2: not have heard. There's a bit of a debate going

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Speaker 2: on over Greenland. So Greenland is the largest island in

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Speaker 2: the world, there's fifty six thousand people that actually work

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Speaker 2: there and center of attention at the moments. On Saturday,

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Speaker 2: Trump announced that ten percent tariffs would get started on

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Speaker 2: imports from eight European countries. This includes Denmark, the UK, France,

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Speaker 2: and Germany, among others, effective February first. So just in

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Speaker 2: a couple of weeks, he's ramping up pressure for Denmark

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Speaker 2: to sell Greenland to the US. He said, these tariffs

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Speaker 2: are going to rise to twenty five percent on June first,

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Speaker 2: if a Greenland deal has not been reached by then.

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Speaker 3: And this isn't new news.

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Speaker 2: Trump announced a trade deal imposing fifteen percent tariffs on

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Speaker 2: most European goods, and that was to avoid to avert

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Speaker 2: a trade war. The EU has yet to ratify that deal,

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Speaker 2: so there's still a lot of talk going back and

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Speaker 2: forth with out all these different topics.

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Speaker 1: Well, it's certainly I think what's getting people's people riled

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Speaker 1: up a little bit, and I think justifiably so is

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Speaker 1: you know, somebody asked President Trump, hey, are you ruling

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Speaker 1: out military action if he can't reach an agreement, and

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Speaker 1: he said no.

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Speaker 4: So, you know, coming fresh off the extraction of the.

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Speaker 1: Venezuelan dictator, you know, by use of military force. I

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Speaker 1: think people that the president literally sometimes are freaking out

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Speaker 1: over this. Again, all these people are literally gonna be

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Speaker 1: in the same resort for a week to talk about

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Speaker 1: all this stuff. And I think, as has been the

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Speaker 1: case all along with the Trump presidency, people might not

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Speaker 1: like the way that he communicates, and oftentimes it can

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Speaker 1: rile people up. But again, I think some type of

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Speaker 1: discussion and negotiation will happen. Parkening back to the tariffs

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Speaker 1: last year. And this Greenland thing is not new. I

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Speaker 1: know you like, I know you love history, Brian.

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Speaker 4: Let's let's talk. Let's talk a little history about Greenland,

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Speaker 4: shall we. Sure?

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Speaker 3: So this is not new.

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Speaker 2: This is the reason there is interest in this area

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Speaker 2: is of course because there are there are because if

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Speaker 2: its positioning, the fact that the ice caps are melting

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Speaker 2: is going to open up new trade routes across the

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Speaker 2: top of the world, and America would very much like

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Speaker 2: to be in as much control of that as we can,

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Speaker 2: and so would Russia and China some other places. So

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Speaker 2: that's why that's that's a lot of the reason that

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Speaker 2: Greenland is night the positioned.

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Speaker 3: To help with that. Plus, the island itself has.

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Speaker 2: A lot of minerals and things that can be used

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Speaker 2: for newer technologies that are coming out that really hasn't

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Speaker 2: been tapped into.

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Speaker 3: Trump has made.

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Speaker 2: No bones about the fact that he feels like Denmark

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Speaker 2: has not taken advantage of what's there, and he would

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Speaker 2: like to be able to take advantage of that for

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Speaker 2: the United States and ostensibly for the rest of the

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Speaker 2: world as well. But so this is not really a

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Speaker 2: super new thing. That the reason this is such a

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Speaker 2: such a difficult topic is because Denmark, of course, is

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Speaker 2: a member of NATO, and if there is some kind

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Speaker 2: of force, whether it's military or not, or whether it's

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Speaker 2: just economic force, that's going to change the dynamics of

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Speaker 2: how NATO actually works, you know, with regard to border sovereignty. Again,

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Speaker 2: I would say that that that extends beyond military force.

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Speaker 3: It also goes to economic force.

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Speaker 2: If we, you know, we're to make them an offer

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Speaker 2: that they simply can't reviews based on overly you know,

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Speaker 2: abusive tariffs or something like that, well then they have

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Speaker 2: no choice. They have to handle land over that's not

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Speaker 2: that much different than military and that's going to change

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Speaker 2: those relationships.

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Speaker 3: So I think that's where the concerns are coming from.

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Speaker 2: Will will we simply pursue this blindly without regard for

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Speaker 2: how relationships might change. And I see the international markets

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Speaker 2: have been out performing the US markets for the better

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Speaker 2: part of a year, and some of it is because

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Speaker 2: the United States, by exiting some of these relationships, is

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Speaker 2: creating opportunities for other countries to work with each other

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Speaker 2: instead of the United States. So I think that's the

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Speaker 2: source of some of the concern are we, you know,

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Speaker 2: being a little pennywise and pound foolish on some of

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Speaker 2: these moves.

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Speaker 1: Yeah, And this discussion about Greenland goes back, you know,

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Speaker 1: believe it or not, back to eighteen sixty eight, right

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Speaker 1: after the United States purchased Alaska from Russia. And as

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Speaker 1: you've already pointed out, I mean Russia, China, and the

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Speaker 1: US have had.

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Speaker 4: Their eye on this you know, island nation ever since.

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Speaker 1: And there was there was talk about also acquiring Greenland

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Speaker 1: back then eighteen sixty eight. The idea never reached a

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Speaker 1: formal even a formal negotiation stage, and the whole thing

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Speaker 1: was abandoned amid what we're dealing with right now now,

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Speaker 1: the perceived political backlash against expansionism by the United States,

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Speaker 1: and then going back to World War Two, after Denmark

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Speaker 1: was occupied by Nazi Germany in nineteen forty, the US

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Speaker 1: actually signed an agreement with Denmark's ambassador to Washington, who

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Speaker 1: by the way, acted completely independently of the Danish government,

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Speaker 1: and that whole agreement was used to build military bases,

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Speaker 1: which the US has won in Greenland right now, and

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Speaker 1: in exchange for that, there was an agreement to defend Greenland.

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Speaker 1: So this whole thing has been going on for years

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Speaker 1: and years and years. Hopefully cooler heads will prevail and

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Speaker 1: we can get something done and avoid tariffs and avoid

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Speaker 1: expansionism and too much aggressiveness towards these fifty six thousand

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Speaker 1: people that call Greenland home. All right, moving on, President

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Speaker 1: Trump will tomorrow unveil a plan for letting savers in

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Speaker 1: four oh one K retire plans use some other money

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Speaker 1: for down payments on a home purchase. And this is

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Speaker 1: according to National Economic Council Director Kevin Hassett. This is

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Speaker 1: an interesting idea, Brian. I don't know how they're going

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Speaker 1: to implement this. There's not a whole lot of meat

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Speaker 1: on the bones here in terms of this what i'll say,

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Speaker 1: broad policy recommendation.

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Speaker 2: Yeah, so the President's going to be announcing this that

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Speaker 2: the annual World Economic FORU Mendavos that you just mentioned.

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Speaker 2: It's a little strange for I'm not sure exactly why

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Speaker 2: those people would care about what Americans are going to

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Speaker 2: do with their retirement plans, but sure so the mechanics

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Speaker 2: they're still working this out. So four o one K,

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Speaker 2: of course, that's your employer retirement plan. You know, so

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Speaker 2: there's there's still a way. There's still lots of things

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Speaker 2: that need to be ironed out here. So so think

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Speaker 2: about this. If you put ten percent down in a home,

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Speaker 2: and then you take ten percent of the equity of

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Speaker 2: your home and put put it in as an asset

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Speaker 2: in your four oh one k. Now, your four one

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Speaker 2: k grows over time. That was one of the comments

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Speaker 2: made describing it. But that also that implies that somehow

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Speaker 2: your four oh one K actually owns part of your home.

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Speaker 2: I don't think that's going to actually the case. I

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Speaker 2: think this is simply if you can verify that you

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Speaker 2: made a down payment with these money, then this this money,

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Speaker 2: then we won't penalize it. They haven't said whether it's

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Speaker 2: gonna be income taxable. Right there, there's already ways to

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Speaker 2: pull money out of your four oh one k for

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Speaker 2: hardship reasons. That doesn't avoid taxes, it avoids the ten

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Speaker 2: percent penalty for being underage. So again, like you said, Bob,

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Speaker 2: there's no meat on the bone here yet. I'll be honest,

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Speaker 2: I'm not a huge fan of it because that just

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Speaker 2: means that there's gonna be that much less to retire on.

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Speaker 2: So if people are attempted to pull those dollars out

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Speaker 2: for a bigger house or something like that. A house

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Speaker 2: is not a great investment over time. It's not gonna

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Speaker 2: grow as fast as somethings. Lots of other options, so

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Speaker 2: you know, I just wouldn't want people looking at this

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Speaker 2: and saying, hey, we've got access to some things we

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Speaker 2: didn't have before. Let's go ahead and buy a bigger

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Speaker 2: home and encumber some of those retirement assets and dump

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Speaker 2: them in a pretty ill liquid asset. So I don't know,

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Speaker 2: it remains to be seen whether this is actually gonna fly.

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Speaker 2: I think we're just talking about it for now.

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Speaker 4: Yeah, I agree with you, Brian.

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Speaker 1: I don't particularly think this is a fantastic idea, and

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Speaker 1: when I just run a few numbers in my head,

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Speaker 1: i'd love to know your thoughts on this. I mean,

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Speaker 1: what we're trying to do is we get we're trying

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Speaker 1: to get first time home buyers into this market, because

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Speaker 1: let's face it, you know, latest data shows that the

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Speaker 1: average age of a home buyer right now is about

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Speaker 1: forty years of age. So we're trying to get these

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Speaker 1: people in there, you know, mid to late twenties to

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Speaker 1: early thirties into a home, and if people pull ten

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Speaker 1: percent of their four to one K balance out in

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Speaker 1: most cases, Brian, even if you let people pull it

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Speaker 1: out tax free, that's not going to be near enough

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Speaker 1: for a down payment on a you know, two hundred

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Speaker 1: and fifty to three hundred thousand dollars home. So I

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Speaker 1: think I kind of agree with the point you've already made.

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Speaker 1: It will allow some older, more well healed people to

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Speaker 1: pull money out. I don't know that it's going to

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Speaker 1: help this first time home buyer segment of the population

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Speaker 1: that we're really trying to help here, but I'll be

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Speaker 1: interested to see what the ideas are and how they

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Speaker 1: plan to implement it.

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Speaker 2: You know, I think a first time home buyer is

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Speaker 2: also a first time four oh one K contributor, so

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Speaker 2: there's not that much money in there. Plus, we need

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Speaker 2: the market to have cooperated in the first place, for

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Speaker 2: there's too have been any benefit, you know, at all

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Speaker 2: for them to take advantage of this.

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Speaker 3: I don't see this moving the needle for that many people.

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Speaker 1: All right. Well, along with all the events that will

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Speaker 1: unfold and Davos, Switzerland list LTS week, let's face it,

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Speaker 1: we're also watching earnings. Earnings are going to be a

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Speaker 1: major story this week as thirty s and P five

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Speaker 1: hundred companies report, including Procter and Gamble, Netflix, Johnson and Johnson,

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Speaker 1: ge Fifth Third, and United Airlines. So a big earnings

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Speaker 1: week and in addition to that, we'll get some economic news.

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Speaker 4: Out as well, So talk about that, Brian.

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Speaker 3: Yeah, So a lot of these data releases coming up.

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Speaker 2: These are just catch ups from before the shutdown, such

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Speaker 2: as November personal income and spending, the Fed's preferred inflation

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Speaker 2: metric that's core PCEE for November, and then revisions to

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Speaker 2: Q three GDP. Remember when we announced GDP. That's never

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Speaker 2: the final, that's just the first draft. So we've got

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Speaker 2: updates coming there. Some other data do out this week,

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Speaker 2: weekly jobless claims and the final print for January consumer sentiments.

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Speaker 2: So stay tuned, make your popcorn.

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Speaker 4: You know.

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Speaker 1: The one thing about this data that's going to be

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Speaker 1: coming out this week, at least from what we're hearing,

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Speaker 1: a lot of this is going to include you know,

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Speaker 1: what we'll call quote unquote catch up data from way

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Speaker 1: back in the government shutdown, which seems like eons ago.

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Speaker 1: But just as a reminder, we really didn't get any

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Speaker 1: economic data to speak of back in October. So a

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Speaker 1: lot of the data is catching up and it's going

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Speaker 1: to start to be reflected in some of these January

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Speaker 1: announcements that we're going to get this week, and it'll

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Speaker 1: give us a bit of a better picture as to

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Speaker 1: where the overall economy and the overall consumer is sitting

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Speaker 1: here as we're about midway through the month of January.

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Speaker 1: Should be an interesting week for sure. Coming up next,

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Speaker 1: we dive into the world of ETF. Do you know

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Speaker 1: exactly what you own? Because they aren't all created equal.

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

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Speaker 1: on fifty five KRC the talk station. We're listening to

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Speaker 1: Simply Money presented by all Worth Financial on Bob Sponsorer

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Speaker 1: along with Brian James. Straight ahead, why why your marginal

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Speaker 1: tax rate could be more important than you think? How

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Speaker 1: aggressive is too aggressive in a five to twenty nine plan?

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Speaker 1: And what kind of risk your HSA should really be taking.

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Speaker 1: These are great questions, they're actual questions from real listeners,

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Speaker 1: and we'll have our answers straight ahead at six forty three. Well,

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Speaker 1: if you take a look at your portfolio, you will

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Speaker 1: likely see a bunch of exchange traded funds in there,

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Speaker 1: or what's commonly known as ETFs, but not.

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Speaker 4: All ETFs are the same.

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Speaker 1: This category investments continues to grow and expand. It's not

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Speaker 1: just passive indexes anymore. A lot of actively traded ETFs

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Speaker 1: in there. So we're going to break down what to

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Speaker 1: look for in terms of differences here in twenty twenty

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Speaker 1: six and beyond, because again, this whole landscape is changing,

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Speaker 1: and not all ETFs are created equal.

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Speaker 3: Brian, ETFs are all the rage.

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Speaker 2: More than a thousand of them were launched last year,

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Speaker 2: and that industry's assets are reaching about thirteen and a

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Speaker 2: half trillion dollars according to Factset, So December saw record

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Speaker 2: inflows and launches. Now, now, if you're hearing this kind

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Speaker 2: of for the first time, we're not telling you about

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Speaker 2: something that is brand new, right. ETFs have been around

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Speaker 2: literally for decades, at least thirty years.

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Speaker 3: Yeah, they're the original.

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Speaker 2: The original one I think was the Spider, the S

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Speaker 2: and P five hundred one that came out, oh boy,

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Speaker 2: late early nineties, I believe something like that. But these

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Speaker 2: things are not new. We're just talking about what they

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Speaker 2: have grown to. So a cumit of three trillion dollars

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Speaker 2: flowed out of traditional mutual funds between twenty fifteen and

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Speaker 2: twenty twenty four, a similar sum moving over to ETF. So, yes,

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Speaker 2: and I can confirm, you know, that's the decision we

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Speaker 2: made at simply Money over it well over a decade ago,

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Speaker 2: to focus more on the exchange traded fund side than

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Speaker 2: on mutual fund sides.

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Speaker 4: But so that's that.

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Speaker 2: Initial eds came from the fact that they could be

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Speaker 2: traded throughout the day and we're more tax efficient. That's

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Speaker 2: different from a mutual fund. Mutual funds are traded at

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Speaker 2: the end of the day.

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Speaker 3: Right.

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Speaker 2: If you're going to place a trade and decide you're

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Speaker 2: gonna buy or sell a mutual fund at ten o'clock

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Speaker 2: in the morning, well you're gonna get whatever happens at

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Speaker 2: the end of the day. That's not ideal. Exchange traded

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Speaker 2: funds offer the same diversification. It's still a basket of

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Speaker 2: other stuff underneath it, but you're trading it right at

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Speaker 2: that moment, just like a stock, and you'll get that

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Speaker 2: moment's price versus waiting the rest of the day.

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Speaker 1: Yeah, and let's face it, I think the big reason

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Speaker 1: for this, you know, continued move, you know, trillions of

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Speaker 1: dollars from traditional mutual funds into ETFs is simply tax

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Speaker 1: efficiency jo Just as a reminder, and we talk about

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Speaker 1: this all the time on this show. I think we're

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Speaker 1: gonna cover a question about it later on in this show. People,

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Speaker 1: you know, in mutual funds, and again, let's face it,

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Speaker 1: people that have owned these for thirty forty fifty years,

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Speaker 1: they have tremendous built up games over the years, and

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Speaker 1: it doesn't make sense to just dump them, you know,

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Speaker 1: because of the tax burden associated with doing that. But

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Speaker 1: you still in the fourth quarter of every year get

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Speaker 1: that you know, unknown capital gain distribution because that's just

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Speaker 1: the way mutual funds work. Everybody mutually participates in a

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Speaker 1: cost basis. So if the fund needs to liquidate anything

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Speaker 1: for any reason, whether that's a shareholder wanting money out

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Speaker 1: of the fund or responsible rebalancing of the portfolio, it's

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Speaker 1: going to trigger.

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Speaker 4: A tax result.

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Speaker 1: And a lot of times people if they can avoid

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Speaker 1: having that tax bill that they have no control over,

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Speaker 1: well they're going to choose to migrate into this ETF world.

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Speaker 4: That's the real reason for the movement.

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Speaker 1: It's why you know, you and any other fiduciary advisors

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Speaker 1: made the wise decision to try to migrate into that world,

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Speaker 1: you know, a long time ago, and so that that's

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Speaker 1: just the at the core the reason why the big

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Speaker 1: surge and emergence of ETFs. But now let's get into

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Speaker 1: some of the main differences be between some of these

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Speaker 1: ets because again it's not just buying an SMP five

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Speaker 1: hundred index fund anymore, yep.

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Speaker 2: Although that is an option, so let's talk about it.

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Speaker 2: Let's start with that. So traditional market cap weighted exchange

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Speaker 2: traded funds like SPY, that's the big one I was

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Speaker 2: hinting at before. That focused on the S and P

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Speaker 2: five hundred or VTI, which is Vanguard's flavor or of

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Speaker 2: the flavor of the similar index.

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Speaker 3: That's the bread and butter. Most portfolios.

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Speaker 2: These types of ETFs are passively tracking indexes.

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Speaker 3: That's all.

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Speaker 2: They are, their index funds. But they come with the

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Speaker 2: tax benefits that Bob just explained. But they do have

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Speaker 2: that same broad market exposure, extremely low cost as well,

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Speaker 2: so simplicity, tax efficiency. This is still something you want

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Speaker 2: to build, you want to use as your core holdings,

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Speaker 2: especially for longer term investors. They are weighted by market

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Speaker 2: capitalizations just like those indexes, so that often means they

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Speaker 2: become concentrated in a few big holdings. We talk about

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Speaker 2: this all the time in terms of how those indexes

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Speaker 2: are set up. So those megacat names Apple, Microsoft, Intel,

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Speaker 2: I'm sorry, te Nvidia, those types of companies that can

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Speaker 2: lead to a lack of diversification, which can hurt during

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Speaker 2: market downturns because those names get hit hard and fast.

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Speaker 3: So then we move on.

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Speaker 2: We've got bond ETFs as well, the bigger ones. There

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Speaker 2: is one under the ticker symbol of AGG which stands

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Speaker 2: for aggregate kind of or b ND. These are easy

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Speaker 2: ways to get diversified fixed income exposure. These are liquid, inexpensive,

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Speaker 2: and they eliminate the need to manage a ladder of

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Speaker 2: individual bonds where you've got something coming due every other week,

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Speaker 2: every other month, or whatever that's happening inside the ETFs.

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Speaker 2: But don't think of this as a bond. A bond

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Speaker 2: ETF itself does not mature. It owns a bunch of

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Speaker 2: stuff that matures inside the portfolio and gets reinvested, but

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Speaker 2: the bond itself does not mature, so you're still exposed

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Speaker 2: to ongoing interest rate risk. If rates go up, then

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Speaker 2: prices fall. Unlike owning a bond outright when you get

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Speaker 2: your principle back at a stated date in the future,

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Speaker 2: that's not what happens here. So this can be a

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Speaker 2: little bit dangerous in volatile rate environments like the one

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Speaker 2: we've seen past twenty two, twenty twenty two.

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Speaker 3: So uh, don't let this spook you.

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Speaker 2: It's just a slightly different structure than what you might

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Speaker 2: be thinking of bonds otherwise, all right.

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Speaker 1: And then dialing it down even further, you can get

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Speaker 1: into sector specific ets like, for example XLK, which is

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Speaker 1: a technology sector ETF, or x l E, which focuses

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Speaker 1: on energy. These allow investors to zoom in on specific

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Speaker 1: sectors of the market if you want to overweight or underweight,

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Speaker 1: you know, specific sectors. Then we get into thematic ETFs

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Speaker 1: such as a r KK or b O ts Z.

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Speaker 1: They aim to capture growth from emerging trends like artificial intelligence,

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Speaker 1: space exploration, or clean energy. They're flashy, they can you know,

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Speaker 1: momentum traders can jump on these. Now we're getting into

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Speaker 1: the realm here where you're starting. If you're if you're

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Speaker 1: venturing into these kind of things, you know you better,

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Speaker 1: You better have somebody watching it, whether it's yourself or

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Speaker 1: a good fiduciary advisor who's allocating a portfolio, because if

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Speaker 1: you're taking big bets on any one of these themes

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Speaker 1: in volatile sectors of the market, you can get whipsawed

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Speaker 1: around in short order by a large amount of money, Brian,

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Speaker 1: And we've seen this from time to time when people

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Speaker 1: want to, you know, pile in to say bitcoin ets.

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Speaker 1: They think they're diversified. Sure, but these asset classes in

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Speaker 1: and of themselves can be very volatile.

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Speaker 3: Yeah, they can be.

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Speaker 2: Very volatile, and there is always the chance of a

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Speaker 2: difference between the portfolio itself and the prices of.

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Speaker 3: Those underlying securities that are underneath there.

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Speaker 2: So of course you've also got international and Emerging market

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Speaker 2: ETFs v A and E E M or two of

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Speaker 2: the bigger ones there. That's if you're kind of building

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Speaker 2: a buy and hold diversified portfolio. In addition, there are

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Speaker 2: some out there that have sort of unique strategies. Now

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Speaker 2: none of these should be looked at as oh my gosh,

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Speaker 2: this is this is the this is alchemy, this is

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Speaker 2: how we're going to make gold out of nothing, But

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Speaker 2: there are there are buffer ETFs or defined outcome ETFs.

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Speaker 2: These have gained popularity among risk conscious investors because they

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Speaker 2: offer built in protection against market drops and they cap

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Speaker 2: your upside Accordingly, these are structured to deliver more predictable returns.

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Speaker 3: Over a fixed period, usually about a year.

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Speaker 2: Now, I'm not a huge fan of these because they

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Speaker 2: tend to be attractive to people who.

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Speaker 3: Wouldn't have panicked in the first place.

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Speaker 2: So my thought is, why have a cap if you

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Speaker 2: wouldn't have reacted to the market anyway. On the aggressive side,

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Speaker 2: there are leveraged and inverse ETFs. If you really want

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Speaker 2: to take a bet that, hey, if the stock market's

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Speaker 2: going to go up, I'll buy a three x S

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Speaker 2: and P five hundred, meaning I'm going to get three

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Speaker 2: times of the S and P five hundred. You have

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Speaker 2: to look at that. That's not you know a lot

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Speaker 2: of people look at that and they say, well, if

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Speaker 2: I'm going to buy and hold anyway, why wouldn't I.

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Speaker 3: Want three times? That is not not not how that works.

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Speaker 2: They get they get recalculated on a daily basis, so

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Speaker 2: that means you can lose three times as much as well.

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Speaker 2: Inverse ETFs, you're betting against the market again, market goes up,

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Speaker 2: not down, so be.

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Speaker 3: Super careful with these.

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Speaker 2: With these ETFs, as a matter of fact, I would

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Speaker 2: suggest don't touch them at all.

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Speaker 4: Here's the all Worth advice.

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Speaker 1: ETFs are efficient tools, but using the right time at

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Speaker 1: the right time and understanding the risks is what makes

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Speaker 1: them powerful. In a well built, well diversified portfolio, should

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Speaker 1: you put big money into upgrades or just buy something newer?

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Speaker 1: Our real estate expert is in next with some important guidance.

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

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Speaker 1: on fifty five KRC the talk station. You're listening to

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Speaker 1: Simply Money presented by Allworth Financial.

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Speaker 3: I'm Bob's Bomseeller.

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Speaker 1: Along with Brian James, joined tonight by our real estate

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Speaker 1: expert and good friend Michelle Sloan, owner of Remax Time. Michelle,

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Speaker 1: thanks for being with us this evening, and I know

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Speaker 1: you want to cover a topic that you know Brian

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Speaker 1: and I run into all the time. We talk to

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Speaker 1: somebody that comes in and says, we we we don't

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Speaker 1: know exactly what we want to do, but we know

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Speaker 1: we want to do something.

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Speaker 4: We want to move into a different place, and.

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Speaker 1: So the question becomes you know, how much do we

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Speaker 1: pile into upgrades into our current house, whether it's either

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Speaker 1: stay there or prepare it to sell at the right price,

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Speaker 1: or does it make sense to just move on and

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Speaker 1: move into something newer. I know this is probably something

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Speaker 1: you go through all the time with, you know, people

437
00:21:09,600 --> 00:21:10,879
Speaker 1: you help buy a home.

438
00:21:11,800 --> 00:21:12,960
Speaker 4: Walk us through the process.

439
00:21:13,000 --> 00:21:14,639
Speaker 1: What do we need to be thinking about, you know,

440
00:21:14,680 --> 00:21:16,480
Speaker 1: if we want to do it the right way, the

441
00:21:16,520 --> 00:21:17,080
Speaker 1: smart way.

442
00:21:17,280 --> 00:21:20,359
Speaker 5: Well, the way that I like to go about it

443
00:21:20,440 --> 00:21:23,760
Speaker 5: is sort of methodical, where we're making a list of

444
00:21:23,880 --> 00:21:27,080
Speaker 5: pros and cons. Okay, you've been living in your house

445
00:21:27,160 --> 00:21:30,400
Speaker 5: for twenty years. You know it needs updates. You know

446
00:21:30,520 --> 00:21:34,440
Speaker 5: it needs some just some changes so that it's going

447
00:21:34,480 --> 00:21:37,119
Speaker 5: to be a good place for you to live for

448
00:21:37,160 --> 00:21:40,200
Speaker 5: the next five to ten years. Now, does it make

449
00:21:40,280 --> 00:21:44,040
Speaker 5: sense if your primary bedroom is up a flight of

450
00:21:44,119 --> 00:21:46,480
Speaker 5: steps on the second floor. You know I went through

451
00:21:46,480 --> 00:21:50,240
Speaker 5: Scott and I went through this fairly recently in the

452
00:21:50,320 --> 00:21:54,719
Speaker 5: last year where we sold our home after twenty five years.

453
00:21:54,720 --> 00:21:56,679
Speaker 5: It was the home that we raised our kids in.

454
00:21:56,760 --> 00:21:59,800
Speaker 5: It was a pretty typical two story property with all

455
00:21:59,840 --> 00:22:03,800
Speaker 5: the bedrooms upstairs, and we realized, okay, we're getting older.

456
00:22:04,359 --> 00:22:08,639
Speaker 5: I had knee replacement surgery, so you know, thinking about

457
00:22:08,880 --> 00:22:11,800
Speaker 5: having to go up and down the steps after major

458
00:22:11,880 --> 00:22:17,719
Speaker 5: surgery definitely not something that's going to be functional, and

459
00:22:17,760 --> 00:22:20,840
Speaker 5: you want your home to be functional. So part of

460
00:22:20,880 --> 00:22:23,800
Speaker 5: the pros and cons is, you know, what do you do?

461
00:22:23,800 --> 00:22:26,399
Speaker 5: Do you want to stay in your home? Spend the

462
00:22:26,440 --> 00:22:29,879
Speaker 5: fifty sixty thousand dollars or whatever it might take to

463
00:22:30,119 --> 00:22:34,440
Speaker 5: update it, or spend ten thousand dollars get it ready

464
00:22:34,480 --> 00:22:37,400
Speaker 5: to sell so that someone else can move in and

465
00:22:37,560 --> 00:22:40,840
Speaker 5: use that property for the next ten or twenty years.

466
00:22:41,200 --> 00:22:44,280
Speaker 2: Michelle, do you have in your mind a like a

467
00:22:44,320 --> 00:22:47,520
Speaker 2: breaking point where you would like, like a certain certain

468
00:22:47,560 --> 00:22:50,359
Speaker 2: percentage of the value of the home that somebody wants

469
00:22:50,400 --> 00:22:52,760
Speaker 2: to improve it by that makes it not worth it?

470
00:22:52,800 --> 00:22:55,200
Speaker 2: And I'm asking this because the phrase I use frequently

471
00:22:55,200 --> 00:22:56,960
Speaker 2: in meetings. People will tell me what they have in mind,

472
00:22:57,200 --> 00:22:57,639
Speaker 2: and it's.

473
00:22:57,520 --> 00:22:58,600
Speaker 3: Usually well thought out.

474
00:22:58,640 --> 00:23:00,320
Speaker 2: They've looked at other things and it's just too much

475
00:23:00,320 --> 00:23:02,680
Speaker 2: to buy something completely new, But they might be putting

476
00:23:02,680 --> 00:23:05,359
Speaker 2: two hundred thousand dollars into a five hundred thousand dollars house.

477
00:23:05,359 --> 00:23:07,399
Speaker 2: That doesn't feel right to me yet I have not

478
00:23:07,520 --> 00:23:09,320
Speaker 2: been faced with that decision yet. What do you think

479
00:23:09,320 --> 00:23:11,080
Speaker 2: when you run across that situation.

480
00:23:10,920 --> 00:23:13,199
Speaker 5: Right, that does not make a lot of sense. And

481
00:23:13,280 --> 00:23:16,560
Speaker 5: if you are over improving your home based on the

482
00:23:16,600 --> 00:23:21,320
Speaker 5: neighborhood comparables, you know it's not really the best idea

483
00:23:21,520 --> 00:23:23,480
Speaker 5: in an investment kind of a world.

484
00:23:23,680 --> 00:23:24,639
Speaker 3: You know what I mean? Right?

485
00:23:24,880 --> 00:23:27,720
Speaker 5: Yeah, that money is gone. You'll never get it back.

486
00:23:27,840 --> 00:23:30,159
Speaker 5: Let's say you know, when you do go to sell it,

487
00:23:30,680 --> 00:23:34,560
Speaker 5: you tell you tell your agent and potential buyers. I've

488
00:23:34,560 --> 00:23:36,840
Speaker 5: put one hundred thousand dollars into this home in the

489
00:23:36,960 --> 00:23:39,280
Speaker 5: last five years. You know I'm going to get all

490
00:23:39,320 --> 00:23:41,199
Speaker 5: of that back. Well, then I have to be the

491
00:23:41,240 --> 00:23:43,119
Speaker 5: bad guy and I have to say, well, you're not

492
00:23:43,200 --> 00:23:45,879
Speaker 5: going to get all of that back. So those are

493
00:23:45,920 --> 00:23:49,119
Speaker 5: the kinds of conversations that you want to have with

494
00:23:49,280 --> 00:23:52,560
Speaker 5: someone that you know and trust, and as you're a

495
00:23:52,840 --> 00:23:56,399
Speaker 5: real estate advisor, I want you to talk about those

496
00:23:56,520 --> 00:23:59,920
Speaker 5: kinds of things. So you know, as far as I have,

497
00:24:00,000 --> 00:24:04,480
Speaker 5: I have a really good example of somebody who was

498
00:24:04,600 --> 00:24:08,560
Speaker 5: in a situation where they sold their primary residence. It

499
00:24:08,600 --> 00:24:11,040
Speaker 5: was a two story. They were ready to make a move,

500
00:24:11,440 --> 00:24:13,040
Speaker 5: but they didn't know where they were going to go.

501
00:24:13,600 --> 00:24:15,800
Speaker 5: So we were looking at we were looking at all

502
00:24:15,800 --> 00:24:20,120
Speaker 5: the different things. We were looking at resale, we were

503
00:24:20,119 --> 00:24:23,640
Speaker 5: looking at new construction, and we were kind of all

504
00:24:23,680 --> 00:24:27,399
Speaker 5: around the board. The one constant was they wanted to

505
00:24:27,440 --> 00:24:30,280
Speaker 5: be close enough to their kids and their grandkids to

506
00:24:30,320 --> 00:24:32,080
Speaker 5: be able to help out. So they were in their

507
00:24:32,119 --> 00:24:35,840
Speaker 5: early seventies, pretty typical situation for an awful lot of

508
00:24:35,880 --> 00:24:39,119
Speaker 5: people where they had to make some decisions. And so

509
00:24:39,560 --> 00:24:41,560
Speaker 5: if you're with me, I'm going to go through this

510
00:24:41,720 --> 00:24:45,520
Speaker 5: scenario of the pros and cons of both types of

511
00:24:45,560 --> 00:24:47,200
Speaker 5: properties that they were considering.

512
00:24:47,440 --> 00:24:50,520
Speaker 1: Michelle, you know, as you're preparing somebody, because I know

513
00:24:50,880 --> 00:24:53,560
Speaker 1: you're looking at these houses, like you've already talked about,

514
00:24:54,000 --> 00:24:55,679
Speaker 1: you know, what's going to work for the people that

515
00:24:55,720 --> 00:24:58,600
Speaker 1: are currently living there, and then what's going to probably

516
00:24:58,720 --> 00:25:02,000
Speaker 1: work or be marketable or attractive to somebody that might

517
00:25:02,080 --> 00:25:04,840
Speaker 1: want to buy the house that your client is selling.

518
00:25:04,880 --> 00:25:07,119
Speaker 1: What would you say are the top two or three

519
00:25:07,160 --> 00:25:10,800
Speaker 1: things perhaps that you look at right away that say, hey,

520
00:25:10,840 --> 00:25:13,520
Speaker 1: in order to make that twenty or thirty year old home,

521
00:25:13,920 --> 00:25:16,080
Speaker 1: you know, even though it's a beautiful home and it

522
00:25:16,119 --> 00:25:18,600
Speaker 1: should sell very quickly, what are a couple of things

523
00:25:18,600 --> 00:25:22,520
Speaker 1: that folks should think about fixing or repairing that don't

524
00:25:22,560 --> 00:25:25,280
Speaker 1: break the bank financially in order to make that home

525
00:25:25,320 --> 00:25:26,960
Speaker 1: more attractive to the next buyer.

526
00:25:27,119 --> 00:25:31,040
Speaker 5: Absolutely, the first thing is cleaning and decluttering. You know,

527
00:25:31,080 --> 00:25:33,080
Speaker 5: there's not a lot of cost involved in that, but

528
00:25:33,160 --> 00:25:37,760
Speaker 5: you may need some help neutralizing, getting rid of you know,

529
00:25:37,920 --> 00:25:41,560
Speaker 5: bold colors, those kinds of things. You know, that is

530
00:25:41,640 --> 00:25:45,080
Speaker 5: really important. And again it may if you're having someone

531
00:25:45,160 --> 00:25:48,719
Speaker 5: paint your home, you may have some sticker shock because

532
00:25:48,840 --> 00:25:52,879
Speaker 5: having the cost of having a professional painter come in

533
00:25:52,920 --> 00:25:56,560
Speaker 5: and paint could be several thousand dollars and most of

534
00:25:56,600 --> 00:25:57,360
Speaker 5: time I just.

535
00:25:57,320 --> 00:25:59,680
Speaker 4: Went through that. Personally, I was shocked at how much

536
00:25:59,680 --> 00:25:59,960
Speaker 4: it cost.

537
00:26:00,280 --> 00:26:02,040
Speaker 3: But hey, it costs what it cost if.

538
00:26:02,720 --> 00:26:04,240
Speaker 1: You want to get somebody in there that does it

539
00:26:04,240 --> 00:26:07,720
Speaker 1: the right way. But yeah, I've experienced that firsthand here recently,

540
00:26:07,760 --> 00:26:09,120
Speaker 1: but go ahead, absolutely.

541
00:26:09,160 --> 00:26:12,160
Speaker 5: And then flooring. I think flooring is so important. If

542
00:26:12,160 --> 00:26:15,639
Speaker 5: you have carpet and it's worn, you know, somebody's going

543
00:26:15,720 --> 00:26:17,480
Speaker 5: to walk in and go, I'm going to have to

544
00:26:17,480 --> 00:26:20,199
Speaker 5: replace that carpet. It's going to cost me, and in

545
00:26:20,240 --> 00:26:23,240
Speaker 5: the buyer's mind, it's always going to cost more than

546
00:26:23,280 --> 00:26:26,399
Speaker 5: it really will in real life. So it's always better

547
00:26:26,480 --> 00:26:29,240
Speaker 5: for you to remove you as a seller, to remove

548
00:26:29,320 --> 00:26:33,800
Speaker 5: that challenge. Yeah, and you know, go ahead and take

549
00:26:33,840 --> 00:26:35,359
Speaker 5: care of it. You don't have to put the most

550
00:26:35,400 --> 00:26:38,000
Speaker 5: expensive carpet in, as long as it's clean, trush and

551
00:26:38,080 --> 00:26:41,400
Speaker 5: new and nice and neutral to walk in and say

552
00:26:41,440 --> 00:26:42,920
Speaker 5: I can live with this. Yeah.

553
00:26:43,040 --> 00:26:43,320
Speaker 4: Yeah.

554
00:26:43,359 --> 00:26:46,760
Speaker 2: So I recently helped a friend get a house ready

555
00:26:48,600 --> 00:26:50,480
Speaker 2: via estate sale, and they were kind of scrambled to

556
00:26:50,480 --> 00:26:52,239
Speaker 2: get things done, and my job was to replace all

557
00:26:52,280 --> 00:26:54,119
Speaker 2: the lighting fixtures and the ceiling fans and all that.

558
00:26:54,359 --> 00:26:56,199
Speaker 2: And we threw all this stuff in the landfill and

559
00:26:56,200 --> 00:26:58,320
Speaker 2: it felt terrible. But you're looking at this stuff, it

560
00:26:58,320 --> 00:27:00,560
Speaker 2: didn't quite match, you know. It seemed seemed like they

561
00:27:00,560 --> 00:27:03,119
Speaker 2: bought the former owners bought a ceiling thing because it

562
00:27:03,160 --> 00:27:05,000
Speaker 2: looked cool, not because it mastered everything else. So I

563
00:27:05,080 --> 00:27:06,720
Speaker 2: kind of get it, But man, did that not feel

564
00:27:06,800 --> 00:27:09,399
Speaker 2: right throwing all that perfectly functional stuff into a landfill

565
00:27:09,400 --> 00:27:10,679
Speaker 2: because nobody else is going to buy it.

566
00:27:10,680 --> 00:27:12,359
Speaker 3: The donation companies didn't even want it.

567
00:27:12,400 --> 00:27:15,040
Speaker 2: But I guess you're saying there really is value to

568
00:27:15,119 --> 00:27:16,800
Speaker 2: the plain white ceiling fan, or.

569
00:27:16,800 --> 00:27:19,840
Speaker 5: Not at all value exactly, or putting a cap on it,

570
00:27:19,960 --> 00:27:21,800
Speaker 5: you know, And I'm putting a light fixture in the

571
00:27:21,800 --> 00:27:25,320
Speaker 5: place of the of the old Ratty fan that has

572
00:27:25,840 --> 00:27:31,919
Speaker 5: really no appeal to a new generation of buyers. So

573
00:27:31,960 --> 00:27:34,639
Speaker 5: we're always those are the kinds of things we have

574
00:27:34,760 --> 00:27:35,040
Speaker 5: to do.

575
00:27:35,359 --> 00:27:38,040
Speaker 1: All right, Hey, great advice as always from our real

576
00:27:38,119 --> 00:27:41,680
Speaker 1: estate expert, Michelle Sloan, owner of Remax Time. Michelle, thanks

577
00:27:41,720 --> 00:27:43,679
Speaker 1: as always for spending time with us tonight.

578
00:27:43,840 --> 00:27:45,320
Speaker 4: Hope you have a great rest of the week.

579
00:27:45,600 --> 00:27:48,160
Speaker 1: You're listening to Simply Money presented by all Worth Financial

580
00:27:48,240 --> 00:27:55,639
Speaker 1: on fifty five KRC, the talk station. You're listening to

581
00:27:55,640 --> 00:27:58,960
Speaker 1: Simply Money presented by all Worth Financial, umbop sponsorer along

582
00:27:59,000 --> 00:28:01,800
Speaker 1: with Brian James. You have a financial question you'd like

583
00:28:01,800 --> 00:28:03,600
Speaker 1: for us to answer. There's a red button you can

584
00:28:03,600 --> 00:28:06,280
Speaker 1: click while you're listening to the show. If you're listening

585
00:28:06,359 --> 00:28:10,000
Speaker 1: on the iHeart app, simply record your question and it

586
00:28:10,080 --> 00:28:13,320
Speaker 1: will come straight to us. All right, Brian Nick and

587
00:28:13,440 --> 00:28:17,040
Speaker 1: Milford leads us off tonight. He says, my retirement projections

588
00:28:17,080 --> 00:28:21,280
Speaker 1: were built years ago assuming lower tax rates. How do

589
00:28:21,359 --> 00:28:25,600
Speaker 1: I update withdrawal assumptions now that more of each dollar

590
00:28:26,119 --> 00:28:27,400
Speaker 1: is going to taxes?

591
00:28:28,000 --> 00:28:30,600
Speaker 2: Yeah, well, this is a great question, and I'm glad

592
00:28:30,640 --> 00:28:33,080
Speaker 2: you're thinking of this. Rather than just your spending, because

593
00:28:33,119 --> 00:28:35,080
Speaker 2: that income to cover your spending has to come from

594
00:28:35,080 --> 00:28:37,199
Speaker 2: somewhere and it's going to get tax, so you got

595
00:28:37,320 --> 00:28:39,480
Speaker 2: to pay attention to that. So when tax assumptions change,

596
00:28:39,480 --> 00:28:41,479
Speaker 2: the mistake a lot of people make is lowering that

597
00:28:41,640 --> 00:28:43,000
Speaker 2: net spending line.

598
00:28:42,720 --> 00:28:45,200
Speaker 3: In their projection. You know, that's too simple to hides.

599
00:28:45,280 --> 00:28:47,480
Speaker 2: The real issue, which you actually need to do, is

600
00:28:47,560 --> 00:28:51,760
Speaker 2: update the conversion between portfolio withdrawals and usable cash. So

601
00:28:51,800 --> 00:28:53,520
Speaker 2: the first thing I want to do is rebuild that

602
00:28:53,600 --> 00:28:57,080
Speaker 2: plan and after tax dollars. You know, older projections often

603
00:28:57,120 --> 00:28:59,760
Speaker 2: assume something like withdraw one hundred bucks, spend one hundred bucks.

604
00:29:00,240 --> 00:29:02,280
Speaker 3: Work anymore? Need three layers of this.

605
00:29:02,680 --> 00:29:06,080
Speaker 2: What's the gross withdrawal level, what leaves the account, what's

606
00:29:06,120 --> 00:29:08,800
Speaker 2: owed in taxes? And then therefore what is my net spending,

607
00:29:08,800 --> 00:29:11,200
Speaker 2: So make sure you're paying attention to that. Also, you're

608
00:29:11,200 --> 00:29:14,080
Speaker 2: gonna want to update your effective tax rates by account type,

609
00:29:14,120 --> 00:29:16,080
Speaker 2: not just a single blended rate if you really want

610
00:29:16,120 --> 00:29:19,960
Speaker 2: to get into this stuff. You know, so your traditional

611
00:29:19,960 --> 00:29:21,840
Speaker 2: IRA four one K money that's going to get tax

612
00:29:21,920 --> 00:29:25,880
Speaker 2: at ordinary income rates, Plus you have potential Medicare premium

613
00:29:25,880 --> 00:29:27,200
Speaker 2: surcharges that could come off of that.

614
00:29:27,200 --> 00:29:28,080
Speaker 3: Don't forget about that.

615
00:29:28,360 --> 00:29:30,320
Speaker 2: Roth accounts are going to be zero tax, but they

616
00:29:30,320 --> 00:29:32,800
Speaker 2: have a really high strategic value because they can continue

617
00:29:32,800 --> 00:29:34,680
Speaker 2: to grow, so you might not want to touch those

618
00:29:34,720 --> 00:29:37,840
Speaker 2: early in retirement. Taxable broker's accounts are somewhere in the

619
00:29:37,840 --> 00:29:40,880
Speaker 2: middle because capital gains rates are usually somewhere between zero

620
00:29:40,960 --> 00:29:44,000
Speaker 2: and ordinary income rates for for a given situation. Dividend

621
00:29:44,000 --> 00:29:47,560
Speaker 2: taxation is also more friendly as well. So in any case,

622
00:29:47,800 --> 00:29:49,800
Speaker 2: there's a lot of moving parts to this, and hopefully

623
00:29:49,840 --> 00:29:51,880
Speaker 2: those couple ideas will give you it gets you started

624
00:29:52,040 --> 00:29:53,040
Speaker 2: how you should think about it.

625
00:29:53,600 --> 00:29:55,040
Speaker 3: Moving on to Tom and Mason.

626
00:29:55,120 --> 00:29:58,240
Speaker 2: Tom says this portfolio throws off dividend's interest in capital

627
00:29:58,280 --> 00:30:00,200
Speaker 2: gains at different times of the year, and he's one dering,

628
00:30:00,240 --> 00:30:04,000
Speaker 2: how do you manage cash flow without accidentally stacking income

629
00:30:04,000 --> 00:30:05,000
Speaker 2: into the same tax here?

630
00:30:05,000 --> 00:30:06,240
Speaker 3: How would you handle that, Bob.

631
00:30:07,200 --> 00:30:09,480
Speaker 1: Well, Brian, it sounds like Tom has some of these

632
00:30:09,560 --> 00:30:12,200
Speaker 1: mutual funds that he's owned for years, and we when

633
00:30:12,240 --> 00:30:14,120
Speaker 1: we already covered you know kind of the pros and

634
00:30:14,160 --> 00:30:15,720
Speaker 1: cons of that, And I feel like you did a

635
00:30:15,720 --> 00:30:19,880
Speaker 1: great job of kind of already answering Tom's question as

636
00:30:19,880 --> 00:30:22,960
Speaker 1: you answered Nick's question, But in particular without getting into

637
00:30:23,080 --> 00:30:25,760
Speaker 1: you know, too analytical here, I think most of the

638
00:30:25,840 --> 00:30:28,360
Speaker 1: time in a portfolio, when we whether we look at

639
00:30:28,360 --> 00:30:32,800
Speaker 1: our bond portfolio or dividend producing stock portfolio, we pretty

640
00:30:32,840 --> 00:30:38,800
Speaker 1: much know, you know, within within a reasonable amount of proximity,

641
00:30:38,840 --> 00:30:40,800
Speaker 1: what our dividends and interests are going to be for

642
00:30:40,840 --> 00:30:44,200
Speaker 1: the year. Uh, It's pretty easy to get those numbers,

643
00:30:44,600 --> 00:30:47,920
Speaker 1: and your fiduciary advisor can pretty much help you do that.

644
00:30:48,080 --> 00:30:51,040
Speaker 1: If that's not not something you feel good about doing

645
00:30:51,080 --> 00:30:52,720
Speaker 1: on your own or want to do on your own.

646
00:30:53,200 --> 00:30:56,640
Speaker 1: It's this wild card of those fourth quarter capital gains

647
00:30:56,680 --> 00:30:59,280
Speaker 1: distributions that we don't know what that number is going

648
00:30:59,360 --> 00:31:01,840
Speaker 1: to be, and that might be what Tom's getting to

649
00:31:01,960 --> 00:31:05,040
Speaker 1: here in his question. So I think as you're doing

650
00:31:05,120 --> 00:31:08,720
Speaker 1: tax planning throughout the year, and again I underline tax

651
00:31:08,800 --> 00:31:12,880
Speaker 1: planning instead of just tax preparation, I think you can

652
00:31:12,960 --> 00:31:16,040
Speaker 1: run a couple different scenarios. If you're trying to evaluate,

653
00:31:16,160 --> 00:31:19,920
Speaker 1: say Wroth conversions or whether you're going to potentially run

654
00:31:19,960 --> 00:31:23,760
Speaker 1: a foul of moving over that irma threshold to have

655
00:31:23,840 --> 00:31:27,200
Speaker 1: your Medicare costs you know, go up, run a couple

656
00:31:27,360 --> 00:31:31,080
Speaker 1: projections depending on what those capital gain distributions might be,

657
00:31:31,680 --> 00:31:34,200
Speaker 1: and then that gives you some time to plan accordingly

658
00:31:34,640 --> 00:31:38,240
Speaker 1: and maybe shift some income around or don't recognize income

659
00:31:38,360 --> 00:31:40,920
Speaker 1: in the first place in the way of things like

660
00:31:41,040 --> 00:31:42,160
Speaker 1: say Wroth conversions.

661
00:31:42,280 --> 00:31:44,320
Speaker 4: So there's ways to get out ahead of this.

662
00:31:44,520 --> 00:31:47,240
Speaker 1: Unfortunately, it does require a little bit of work, but

663
00:31:47,400 --> 00:31:50,360
Speaker 1: you know that's why guys like Brian and I have jobs,

664
00:31:50,840 --> 00:31:54,440
Speaker 1: all right. Brian in hyde Park says, I'm realizing my

665
00:31:54,560 --> 00:31:58,160
Speaker 1: marginal tax rate matters more than my average tax rate.

666
00:31:58,560 --> 00:32:01,440
Speaker 1: When I'm deciding whether to sell investments or do a

667
00:32:01,440 --> 00:32:05,080
Speaker 1: Wroth conversion. Which one should I actually be planning around.

668
00:32:05,160 --> 00:32:08,200
Speaker 2: Great question, Yeah, that's the exact right question to ask,

669
00:32:08,480 --> 00:32:11,040
Speaker 2: But the answer is not one or the other. Right,

670
00:32:11,320 --> 00:32:15,080
Speaker 2: So you plan decisions around your marginal tax rate. Maybe

671
00:32:15,080 --> 00:32:16,960
Speaker 2: on those Roth conversions, I want to stay under the

672
00:32:16,960 --> 00:32:18,880
Speaker 2: twenty two percent of the twenty four percent. That's where

673
00:32:18,880 --> 00:32:20,960
Speaker 2: you're paying attention to the margins when you're thinking about

674
00:32:21,000 --> 00:32:24,040
Speaker 2: what to decide and the outcomes, though, those get planned

675
00:32:24,080 --> 00:32:26,560
Speaker 2: around the average tax rate. So in other words, when

676
00:32:26,600 --> 00:32:28,560
Speaker 2: you're let's say you've pulled the trigger, you decided, yes,

677
00:32:28,600 --> 00:32:31,040
Speaker 2: I'm doing this Wroth conversion. Here's how many dollars I'm

678
00:32:31,080 --> 00:32:33,080
Speaker 2: moving from one side to the other. Then you're going

679
00:32:33,120 --> 00:32:36,000
Speaker 2: to want to use your average or effective tax rate

680
00:32:36,040 --> 00:32:39,840
Speaker 2: to figure out what that withholding should be or not withholding.

681
00:32:39,840 --> 00:32:41,560
Speaker 2: You don't want to withhold off a Roth conversion if

682
00:32:41,600 --> 00:32:43,959
Speaker 2: you can avoid it. You want to pay those taxes

683
00:32:44,000 --> 00:32:46,160
Speaker 2: out of something else. But just make sure that you

684
00:32:46,240 --> 00:32:49,560
Speaker 2: are you're using both of those numbers. That marginal rate

685
00:32:49,640 --> 00:32:52,040
Speaker 2: is going to govern those incremental decisions because you know,

686
00:32:52,080 --> 00:32:54,880
Speaker 2: for example, roth conversion adds ordinary income on top of

687
00:32:54,920 --> 00:32:57,080
Speaker 2: what you already earn, so you're already in some kind

688
00:32:57,120 --> 00:32:59,960
Speaker 2: of margin. If you voluntarily choose to do a Roth conversion,

689
00:33:00,120 --> 00:33:02,080
Speaker 2: you're going to push further into that margin and maybe

690
00:33:02,120 --> 00:33:04,719
Speaker 2: bump up against that next one. In addition, right, you

691
00:33:04,760 --> 00:33:06,760
Speaker 2: also want to think about with Roth conversions, you also

692
00:33:06,760 --> 00:33:09,160
Speaker 2: want to think about your Medicare surcharges, which to me,

693
00:33:09,280 --> 00:33:12,400
Speaker 2: don't let that. Don't let the Medicare premium wag the dog,

694
00:33:12,760 --> 00:33:15,720
Speaker 2: because the taxes are going to be what they are.

695
00:33:15,840 --> 00:33:18,400
Speaker 2: When you're looking at a Roth conversion, you're looking at

696
00:33:18,400 --> 00:33:21,160
Speaker 2: something that's going to benefit you for decades versus those

697
00:33:21,240 --> 00:33:24,040
Speaker 2: IRMA increases where those surch charges might hurt you for

698
00:33:24,120 --> 00:33:27,920
Speaker 2: one year two years from now, because that's the decisions

699
00:33:27,960 --> 00:33:30,880
Speaker 2: made in twenty six will affect your Medicare premium church

700
00:33:30,960 --> 00:33:33,520
Speaker 2: charges in twenty eight, But in twenty thirty eight, none

701
00:33:33,560 --> 00:33:35,640
Speaker 2: of it matters because you will have already done those

702
00:33:35,680 --> 00:33:38,200
Speaker 2: ROTH conversions and those dollars are growing tax free, So

703
00:33:38,240 --> 00:33:40,680
Speaker 2: it might be worthwhile to sacrifice on those on those

704
00:33:40,720 --> 00:33:42,600
Speaker 2: Medicare premiums, whether we whether we kind.

705
00:33:42,440 --> 00:33:44,480
Speaker 3: Of like it or not. All right, we'll do one more.

706
00:33:44,520 --> 00:33:45,800
Speaker 3: We've got John in Westchester.

707
00:33:45,920 --> 00:33:50,080
Speaker 2: John asks should my HSA follow the same risk profile

708
00:33:50,120 --> 00:33:51,640
Speaker 2: as the rest of his portfolio?

709
00:33:51,680 --> 00:33:52,600
Speaker 3: What do you think about that, Bob?

710
00:33:54,120 --> 00:33:56,960
Speaker 1: Well, John, Let's first of all, HSA stands for health

711
00:33:57,000 --> 00:33:59,840
Speaker 1: savings account and we love those type of accounts. In

712
00:34:00,040 --> 00:34:03,480
Speaker 1: a lot of cases, they're underutilized. So here's how I'd

713
00:34:03,520 --> 00:34:07,400
Speaker 1: answer your question, John, all other things being equal, YEP,

714
00:34:07,480 --> 00:34:11,000
Speaker 1: I think your risk profile should stay the same, especially

715
00:34:11,440 --> 00:34:14,520
Speaker 1: if you're going to take full advantage of all the

716
00:34:14,600 --> 00:34:18,160
Speaker 1: long term tax benefits associated with a health savings account.

717
00:34:18,280 --> 00:34:19,040
Speaker 4: Here's what I mean.

718
00:34:19,760 --> 00:34:21,719
Speaker 1: You know a lot of people put that money in

719
00:34:21,760 --> 00:34:24,200
Speaker 1: that HSA and then spend it right away. You know,

720
00:34:24,239 --> 00:34:26,680
Speaker 1: they use it like as they're checking account for their

721
00:34:26,719 --> 00:34:29,080
Speaker 1: out of pocket healthcare expenses in the current year.

722
00:34:29,719 --> 00:34:32,200
Speaker 4: And you know, for those that can handle.

723
00:34:31,880 --> 00:34:34,680
Speaker 1: It from a cash flow standpoint, you should think about

724
00:34:34,680 --> 00:34:37,480
Speaker 1: this exactly the opposite. Think of that as a long

725
00:34:37,600 --> 00:34:41,440
Speaker 1: term growth vehicle. And the beautiful tax benefit of these

726
00:34:41,640 --> 00:34:44,080
Speaker 1: hsas is if you can make it to sixty five

727
00:34:44,200 --> 00:34:48,239
Speaker 1: or beyond and not touch your HSA for anything, now

728
00:34:48,320 --> 00:34:51,400
Speaker 1: you've got complete flexibility. You can use those funds for

729
00:34:51,520 --> 00:34:55,200
Speaker 1: healthcare costs tax free, or you can just pull the

730
00:34:55,239 --> 00:34:56,720
Speaker 1: money out like a regular IRA.

731
00:34:56,920 --> 00:35:00,000
Speaker 4: You avoid all penalties and you just pay ordinary income taxes.

732
00:35:00,120 --> 00:35:02,759
Speaker 1: So if you can move yourself into that kind of

733
00:35:02,800 --> 00:35:05,799
Speaker 1: thought and build that assumption into your plan, you could

734
00:35:05,840 --> 00:35:08,719
Speaker 1: take a longer term outlook with those funds and get

735
00:35:08,719 --> 00:35:11,560
Speaker 1: some nice growth, you know, potentially for decades.

736
00:35:12,280 --> 00:35:14,120
Speaker 4: Coming up next, I've got my two.

737
00:35:14,000 --> 00:35:17,760
Speaker 1: Cents on how to take advantage of some potential short

738
00:35:17,880 --> 00:35:21,400
Speaker 1: term market volatility when it happens. You're listening to Simply

739
00:35:21,440 --> 00:35:24,040
Speaker 1: Money presented by all Worth Financial on fifty five KRC

740
00:35:24,480 --> 00:35:31,960
Speaker 1: the talk station. You're listening to Simply Money presented by

741
00:35:31,960 --> 00:35:36,120
Speaker 1: Allworth Financial on Bob Sponseller along with Brian James. Brian,

742
00:35:36,160 --> 00:35:38,440
Speaker 1: I want to get into a topic that you know

743
00:35:38,560 --> 00:35:40,919
Speaker 1: you may or may not agree with, and that's part

744
00:35:40,920 --> 00:35:42,799
Speaker 1: of what makes this show fun. And what I'm going

745
00:35:42,880 --> 00:35:45,480
Speaker 1: to talk about here, I'm going to mention something. You know,

746
00:35:45,880 --> 00:35:49,759
Speaker 1: God forbid, we talk about market timing, but you know,

747
00:35:50,120 --> 00:35:52,920
Speaker 1: when we head, especially when we head into mid term

748
00:35:52,960 --> 00:35:57,399
Speaker 1: election years, Historically every year, you know, take politics out

749
00:35:57,440 --> 00:36:00,560
Speaker 1: of it, the market it's in some way, way, shape

750
00:36:00,640 --> 00:36:04,080
Speaker 1: or form throughout the year declines at least one time

751
00:36:04,160 --> 00:36:08,720
Speaker 1: by on average about fourteen percent. In midterm election years,

752
00:36:08,920 --> 00:36:14,080
Speaker 1: historically that number rises to nineteen percent. My point here is,

753
00:36:14,280 --> 00:36:17,560
Speaker 1: you know, somewhere along the line there there's probably going

754
00:36:17,600 --> 00:36:20,719
Speaker 1: to be an opportunity here to buy low if we

755
00:36:20,760 --> 00:36:24,960
Speaker 1: get some type of market correction for whatever reason. A

756
00:36:25,000 --> 00:36:27,919
Speaker 1: way to anticipate that and take advantage of that.

757
00:36:29,320 --> 00:36:30,520
Speaker 4: Is is, you know, we.

758
00:36:30,520 --> 00:36:33,640
Speaker 1: Got our normal emergency fund where we're taking care of

759
00:36:33,719 --> 00:36:35,920
Speaker 1: three to six months worth of expenses, and we talk

760
00:36:35,960 --> 00:36:39,600
Speaker 1: about for early retirees, in order to avoid sequence of

761
00:36:39,600 --> 00:36:42,600
Speaker 1: return risk, maybe bumping that up to one to three years.

762
00:36:43,400 --> 00:36:45,600
Speaker 4: And I look at the data, look at you know,

763
00:36:45,640 --> 00:36:47,080
Speaker 4: there's a record number of.

764
00:36:48,160 --> 00:36:52,279
Speaker 1: Assets now sitting in cash in bank accounts or cash equivalents,

765
00:36:52,719 --> 00:36:54,399
Speaker 1: And I just want to say I don't think that's

766
00:36:54,440 --> 00:36:57,120
Speaker 1: a bad thing. I think it's always good to have

767
00:36:57,160 --> 00:37:00,359
Speaker 1: a little dry powder to play with if and when

768
00:37:00,600 --> 00:37:04,080
Speaker 1: we get these volatility events, kind of like what happened

769
00:37:04,160 --> 00:37:07,960
Speaker 1: last year when we got these tariff announcements in early April.

770
00:37:08,000 --> 00:37:11,280
Speaker 1: For people that didn't panic and had some dry powder

771
00:37:11,320 --> 00:37:14,120
Speaker 1: to put to work, it was a wonderful buying opportunity.

772
00:37:14,520 --> 00:37:17,960
Speaker 1: And I just love that whole concept. What do you think, Yeah.

773
00:37:17,840 --> 00:37:18,680
Speaker 3: I mean, I guess, I guess.

774
00:37:18,719 --> 00:37:20,840
Speaker 2: My question is if there, if we've got dry powder,

775
00:37:20,880 --> 00:37:23,840
Speaker 2: then how much powder has been sitting off to the side,

776
00:37:23,920 --> 00:37:25,920
Speaker 2: and how much has it missed out on while it

777
00:37:26,000 --> 00:37:27,839
Speaker 2: was sitting there being dried. Now let's be clear, we're

778
00:37:27,880 --> 00:37:30,000
Speaker 2: not talking about the emergency fund.

779
00:37:29,880 --> 00:37:31,400
Speaker 3: That should always be dry powder.

780
00:37:31,440 --> 00:37:34,920
Speaker 2: That's its whole purpose is to exist and be liquid,

781
00:37:34,920 --> 00:37:37,240
Speaker 2: and if it spits out three maybe four percent income,

782
00:37:37,280 --> 00:37:37,920
Speaker 2: that's a bonus.

783
00:37:38,120 --> 00:37:38,760
Speaker 3: That's gravy.

784
00:37:38,760 --> 00:37:41,680
Speaker 2: But we're talking about the ability to pull from some

785
00:37:41,840 --> 00:37:44,000
Speaker 2: kind of pile of cash to invest in the market

786
00:37:44,000 --> 00:37:46,480
Speaker 2: when the opportunity arises, such as when it falls. I

787
00:37:46,520 --> 00:37:49,040
Speaker 2: think that the danger here in us talking about it

788
00:37:48,840 --> 00:37:53,840
Speaker 2: is that April was largely the one and only true

789
00:37:53,920 --> 00:37:56,239
Speaker 2: opportunity to have bought on the low. So if you

790
00:37:56,320 --> 00:37:59,640
Speaker 2: had money sitting in cash, you know after twenty two

791
00:38:00,080 --> 00:38:01,839
Speaker 2: you maybe you were spooked by that market, you didn't

792
00:38:01,880 --> 00:38:03,319
Speaker 2: go in right away, Well then you sure as heck

793
00:38:03,360 --> 00:38:05,600
Speaker 2: missed out on twenty three and twenty four in that

794
00:38:05,640 --> 00:38:08,120
Speaker 2: first quarter of twenty five, which were basically to the moon.

795
00:38:08,400 --> 00:38:10,680
Speaker 2: So well, I don't I don't poopoo the idea that

796
00:38:10,760 --> 00:38:12,320
Speaker 2: maybe we should we should think.

797
00:38:12,200 --> 00:38:12,919
Speaker 3: About it that way.

798
00:38:13,320 --> 00:38:15,839
Speaker 2: Just don't be tempted to pile up cash cash cash

799
00:38:15,880 --> 00:38:17,759
Speaker 2: and let it sit there for three years looking for

800
00:38:17,800 --> 00:38:20,560
Speaker 2: this entry opportunity, because if it goes up ten ten

801
00:38:20,600 --> 00:38:22,920
Speaker 2: percent then drops back to eight percent, you think, hey,

802
00:38:23,000 --> 00:38:23,480
Speaker 2: I got.

803
00:38:23,280 --> 00:38:24,160
Speaker 3: In two percent lower.

804
00:38:24,200 --> 00:38:25,719
Speaker 2: And my thought is, no, you missed out on eight

805
00:38:25,719 --> 00:38:27,759
Speaker 2: percent game because you didn't pull the trigger on day one.

806
00:38:28,040 --> 00:38:29,520
Speaker 3: I'm not a huge fan of.

807
00:38:29,480 --> 00:38:32,680
Speaker 2: The idea of holding back cash to invest later, but

808
00:38:32,680 --> 00:38:34,920
Speaker 2: if the opportunity comes up you do have a windfall,

809
00:38:35,080 --> 00:38:36,920
Speaker 2: then I would say, sure to take a look and

810
00:38:37,080 --> 00:38:38,040
Speaker 2: pull the trigger quickly.

811
00:38:38,080 --> 00:38:38,319
Speaker 3: Though.

812
00:38:38,920 --> 00:38:40,680
Speaker 4: There you go, Thanks for listening tonight.

813
00:38:40,719 --> 00:38:42,680
Speaker 1: You've been listening to simply money, because I'd buy all

814
00:38:42,680 --> 00:38:45,839
Speaker 1: worth Financial on fifty five KRC, the talk station