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Speaker 1: Tonight, another inflation report comes in that is well lower

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Speaker 1: than expected. You're listening to Simply Money, presented by all

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Speaker 1: Worth Financial on Bob Sponseller along with Brian James. Well,

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Speaker 1: have you noticed how much more you are paying for

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Speaker 1: stuff these days? More than you did a year ago?

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Speaker 1: The December consumer price index numbers came out today, Brian,

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Speaker 1: and the news seems to be good. I know, no

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Speaker 1: one likes paying any more than they did last year,

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Speaker 1: but at least we're paying a little less more than

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Speaker 1: we did last year.

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Speaker 2: Less more is a good more, right, that's what we

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Speaker 2: want so so about right now, it's about two point

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Speaker 2: seven percent more than we did this time last year.

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Speaker 2: And that remember what we've always been looking for is

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Speaker 2: we want the Fed to be the FED really wants

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Speaker 2: to be inflation at about two percent and wait whether

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Speaker 2: we'll ever get back down there, who knows, But that's

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Speaker 2: really kind of the goal.

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Speaker 1: Well, that's we're shooting for. It goes back to the

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Speaker 1: dual mandate? Is it the right dual mandate? But that's

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Speaker 1: the story. That's an argument, whole other discussion for another day.

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Speaker 1: I agree with you. I think it's going to be

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Speaker 1: a while before we get to two percent, But two

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Speaker 1: point seven is a whole lot better than three point

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Speaker 1: seven or four point seven, So at least we're moving

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Speaker 1: in the right direction.

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Speaker 2: We are we are, So let's focus on the details

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Speaker 2: of the report here. So core inflation, let's talk about that.

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Speaker 2: That's really what the FED cares about. It strips out

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Speaker 2: food and energy prices, and most people look at that

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Speaker 2: and they go, well, why would we Why would we

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Speaker 2: strip that out?

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Speaker 1: Food and energy? Those theme kind of vital wouldn't we

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Speaker 1: pay attention? Those are both.

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Speaker 2: Very volatile, very volatile parts of the inflation calculation. So

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Speaker 2: it can be good to look at look at the

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Speaker 2: core inflation without those items to get a real picture

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Speaker 2: what's going on. Because you know, we get something like

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Speaker 2: avian flu, bird flu, that kind of thing, all of

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Speaker 2: a sudden, chicken prices are through the roof. That's not

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Speaker 2: something the FED can control anyway, so via interest rates,

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Speaker 2: and so that's why we look at the core inflation

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Speaker 2: rates to truly get down to what's what is the

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Speaker 2: true core of where we are. So if you strip

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Speaker 2: out food and energy and get down to core inflation,

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Speaker 2: we're paying about two point six percent more for those

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Speaker 2: things than we did last year. That number is lower

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Speaker 2: than economists expected. That's a good thing. We like that

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Speaker 2: only about eleven of these seventy three forecasters predicted two

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Speaker 2: point six percent, So this is a that means the

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Speaker 2: other the other eighty two we're wrong or sixty two

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Speaker 2: for any that is.

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Speaker 1: Math is going to be a struggle this morning, apparently.

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Speaker 1: So obviously a.

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Speaker 2: Lot of economists were a little more, a little more

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Speaker 2: pessimistic than what the actual results were here.

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Speaker 1: Yeah, and a couple of things drove this number. I mean,

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Speaker 1: the cost of used cars is still up there, the

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Speaker 1: shelter index, and that's a topic that we continue to

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Speaker 1: talk about. I know this administration is trying to deal

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Speaker 1: with it. Both sides of the aisle recognized the need

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Speaker 1: to have more affordable housing in this country. The shelter

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Speaker 1: index went up zero point four percent. That was the

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Speaker 1: biggest driver of inflation this time around. The food index

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Speaker 1: rose point seven while energy prices only rows point three percent.

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Speaker 1: And that's why, you know, in the real world, Brian,

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Speaker 1: we can't just strip out food and energy. And I'll

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Speaker 1: just use myself in this example of Brian, because after all,

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Speaker 1: it's all about me. I like beef, Brian, I like beef.

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Speaker 1: I like to eat beef while I'm watching football. The

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Speaker 1: price of you you seem like that kind of guy. Yeah,

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Speaker 1: the price of beef is up there, it's going up. Meanwhile,

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Speaker 1: the price of gas has plummeted, so you know, you

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Speaker 1: got to factor all this stuff in. There's good and

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Speaker 1: bad things move around at the end of the day.

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Speaker 1: Two point six, two point seven, it's not a bad number.

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Speaker 1: I think the important thing is that for folks that

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Speaker 1: are working out there, I think the good news is

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Speaker 1: wages are starting to increase at a rate above the

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Speaker 1: inflation rate. People that are working and are doing a

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Speaker 1: good job are getting decent pay raises, not sky high

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Speaker 1: pay raises, but at least pay raises that move above

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Speaker 1: the rate of inflation. So at least we're seeing some

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Speaker 1: green shoots here that things are moved in the right

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Speaker 1: direction in terms of real purchasing power for consumers.

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Speaker 2: You know, Bob, you mentioned gas prices, and there's something

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Speaker 2: I've been This is something I've been really curious about

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Speaker 2: because I don't pay a ton of attention. I'm not

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Speaker 2: one of these people that's going to drive an extra

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Speaker 2: ten miles to go get you know, wherever the gas is,

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Speaker 2: wherever gas is cheapest. I'm too lazy for stuff like that,

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Speaker 2: so I just pump it and forget it.

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Speaker 1: But you're one of those one percenters, none of this

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Speaker 1: stuff matters to you.

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Speaker 2: I would say that I'm lazy and I'm not exactly

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Speaker 2: a budget conscious with it that way.

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Speaker 1: But obviously, yeah, as you mentioned, we're in the low

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Speaker 1: twos on gas.

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Speaker 2: I can't remember that when it was this low, and

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Speaker 2: it's a surprise.

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Speaker 1: It's a huge surprise to me that this isn't louder.

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Speaker 2: Why is the administration not trumpeting that this happened and

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Speaker 2: taking credit for it, because remember when we were at

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Speaker 2: the flip side, we kept getting all those stupid stickers

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Speaker 2: on the gas pump. I did this, I did this,

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Speaker 2: and it was Joe Biden or you could have even

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Speaker 2: done it with Trump earlier on. It doesn't really matter.

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Speaker 2: But at this point gas prices are lower than they've

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Speaker 2: ever been and nobody's taking credit for it.

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Speaker 1: That kind of fascinates people. Well, I try to stay

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Speaker 1: away from opinions on this show, Brian, but I will

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Speaker 1: throw one out there right now, and please shoot holds

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Speaker 1: holes in it if you want to. I think there's

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Speaker 1: still a lot of these quote unquote economists out there

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Speaker 1: that are still really upset about these tariffs, and they

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Speaker 1: just keep waiting for inflation to spike due to the tariffs,

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Speaker 1: and the data just never shows up. It seems to

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Speaker 1: have settled in at a one time thing. You know,

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Speaker 1: the tariffs are in there. We'll see if the Supreme

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Speaker 1: Court takes them away. I think as soon as tomorrow,

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Speaker 1: by the way, But the whole tariff thing is settled in.

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Speaker 1: It's kind of a new paradigm and we're not getting

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Speaker 1: spiking inflation due to tariffs. I think that's the big

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Speaker 1: story is, you know, that game is in. It's settled.

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Speaker 1: People need to get over that, you know, depending on

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Speaker 1: which side of the aisle or ideology you like to,

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Speaker 1: you know, hold on to you here. That's that's my

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Speaker 1: thought and opinion here. I think some of these economists

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Speaker 1: need to kind of let that go a little bit. Yeah,

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Speaker 1: I think I think there's there's a good truth.

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Speaker 2: And we had Andy Stout on just yesterday talking about

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Speaker 2: you know we would and I remember asking him the

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Speaker 2: direct question. I was looking forward to it because we

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Speaker 2: hadn't talked to him in a few weeks, and I

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Speaker 2: was wanting to ask him how much longer can the

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Speaker 2: United States continue to kind of bully its way around

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Speaker 2: the around the world and put these changes in place.

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Speaker 2: And his answer was probably a while, because we are

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Speaker 2: just that much larger of an economy, We're just that

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Speaker 2: much larger of an engine.

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Speaker 1: And you know, ideology aside other.

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Speaker 2: Countries, if they want to make it, if they want

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Speaker 2: to survive and compete on the global States, they're going

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Speaker 2: to have to find a way again, like it or not.

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Speaker 2: Don't have to be friends to find a way to

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Speaker 2: work together. But there's probably a good amount of runway,

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Speaker 2: according to Andy, anyway that we can continue to kind

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Speaker 2: of impose our will economically speaking, good, bad and different.

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Speaker 2: I'm not saying this is all wonderful things, but we

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Speaker 2: have not seen the market really wobble. We haven't seen

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Speaker 2: inflation spike, as Bob just kind of highlighted there, and

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Speaker 2: so apparently steady as she goes for the moment.

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Speaker 1: All right, in the spirit of avoiding politics and everybody

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Speaker 1: getting along, let's transition to earning season, Brian, because after

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Speaker 1: after all, corporate earnings is the mother's milk of stock

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Speaker 1: market performance. We got some. We got a big announcement

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Speaker 1: before the open early this morning from JP Morgan, and

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Speaker 1: we've got some other bank earnings coming later on this week,

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Speaker 1: but give us a rundown on JP Morgan's quarter.

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Speaker 2: JP Morgan kicked off earning season with the the This

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Speaker 2: is the fourth quarter earning season we're talking about, of

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Speaker 2: course Q four of twenty five. The they beat the forecast.

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Speaker 2: Remember that's all we ever care about. We don't care

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Speaker 2: what the numbers are. We just care about whether they

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Speaker 2: whether the analysts were right or wrong. So A CEO

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Speaker 2: Jamie Diamond said, each of their major businesses performed really

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Speaker 2: well during the quarter, and that's coming from demand for financing.

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Speaker 1: Robust client activity is.

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Speaker 2: Just a good a healthy, a healthy ish economy, even

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Speaker 2: if slowing, still a healthy economy. Businesses and consumers are

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Speaker 2: borrowing money and that means that's good business for the bank.

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Speaker 2: Payments revenue, according to Jamie, hit a record and that

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Speaker 2: came from deposits and and fee growth.

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Speaker 1: Bank.

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Speaker 2: Other reports coming this Bank of America, City Group, Wells Fargo,

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Speaker 2: those are coming out Wednesday tomorrow, and Goldman Sachs, Morgan

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Speaker 2: Stanley have come out on Thursday. So you know we'll

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Speaker 2: by the end of the week we'll have a much

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Speaker 2: clearer picture. But as the banks go, so do the

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Speaker 2: economy tends to go. So hopefully we'll continue to get

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Speaker 2: more reports to follow, more good ones to follow.

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Speaker 1: JP Morgan, Yeah, this looked like a slight beat, you know,

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Speaker 1: on both the revenue and the earning side. Nothing to

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Speaker 1: really scream about either way, and I think this just

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Speaker 1: good corporate management. Jamie Diamond historically is a wonderful manager

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Speaker 1: of Wall Street. He knows how to play the game,

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Speaker 1: he knows how to manage a bank. They're doing a

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Speaker 1: great job. You know, you mentioned the market matters whether

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Speaker 1: you beat or not. They're also looking at forward looking

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Speaker 1: forecast so you know, at least as of earlier this

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Speaker 1: morning when those numbers came out, the stop was up

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Speaker 1: on that news. Not by a bunch, but it was up.

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Speaker 1: And I think it's to your point, it's kind of

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Speaker 1: steady as you go here. I think a lot of

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Speaker 1: these banks are still expecting to pick up some spread

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Speaker 1: from the yield curve, assuming that short term rates continue

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Speaker 1: to come down the market's pricing in you know, roughly

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Speaker 1: two more rate cuts here in twenty twenty six and

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Speaker 1: if short term rates go down and that long end

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Speaker 1: of the curve stays kind of where it is, that's

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Speaker 1: spread is good news for bank profits. To say nothing

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Speaker 1: of IPO markets and other deals. This is expected to

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Speaker 1: be a big year for deal making, you know, IPOs,

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Speaker 1: private credit, private equity, all of that, and a lot

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Speaker 1: of these major banks participate in that. So it looks

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Speaker 1: like a pretty good time to be invested in financials

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Speaker 1: at least so far.

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Speaker 2: Yeah, and then that would indicate probably a pretty decent

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Speaker 2: time to be invested in the rest of it too,

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Speaker 2: because if the financials are doing okay, it's not like

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Speaker 2: the rest of the other sectors are going to completely

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Speaker 2: fall apart, because it's those other sectors largely that are

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Speaker 2: driving the financial activity. So all these things tend to

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Speaker 2: move in the same direction. You know, there's a lot

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Speaker 2: of thought out there. And I talked to clients all

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Speaker 2: the time, and I've said it myself, just to remind

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Speaker 2: people that the last three years have been fantastic. We've

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Speaker 2: had double digit digging ourselves out of the hole that

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Speaker 2: was twenty twenty two. Let's not be surprised when the

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Speaker 2: market does eventually inevitably take a step back.

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Speaker 1: It will.

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Speaker 2: That's going to happen. So this will be a great

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Speaker 2: time to stress test your financial plan. Figure out what

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Speaker 2: path you were on, and now take say fifteen twenty

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Speaker 2: percent of your financial assets away, and run that path again.

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Speaker 1: Does it still does the ship still float? Or do

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Speaker 1: you have something you need to worry about.

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Speaker 2: This is the time to be thinking about it, because

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Speaker 2: we all know it's coming and we shouldn't be surprised

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Speaker 2: when when that inevitable step comes.

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Speaker 1: Maybe this year, may.

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Speaker 2: Not, that's not my point, don't know, but it will

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Speaker 2: be some time in your lifetime.

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Speaker 1: We know that. So just to make sure you're prepared

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Speaker 1: for it now. You want to prepare for that flood

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Speaker 1: before the proverbial storm surge happens, not after the fact.

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Speaker 1: And we've talked about this a couple times, Brian. In

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Speaker 1: mid term election years, the markets tend to be a

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Speaker 1: bit more volatile at some point in time this year.

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Speaker 1: On average, in mid term election years, the overall stock market,

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Speaker 1: the large cap S and P index drops on average

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Speaker 1: by about nighte teen percent in midterm election years. You know,

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Speaker 1: in all other years the average is about fourteen percent.

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Speaker 1: So to your point, at some point in time, something

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Speaker 1: might cause some investment volatility, whether it's corporate earnings, a

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Speaker 1: government shutdown, geopolitical events. So yeah, you want to build

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Speaker 1: the boat now, have that emergency fund in place. Prepare

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Speaker 1: for market volatility now rather than get caught off guard bike.

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Speaker 2: And you mentioned you mentioned tariff's earlier. Well, that was

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Speaker 2: the last thing that spooked the market. That was last

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Speaker 2: April when tariffs first became news, and the market and

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Speaker 2: in the economy was getting used to the idea that

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Speaker 2: tariffs are going to be an input now to all

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Speaker 2: of our results.

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Speaker 1: Market took a I can't remember.

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Speaker 2: I think it rather dropped close to twenty percent at

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Speaker 2: one point at the you know, from peak to trough.

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Speaker 2: But then we settled down and we recovered and we

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Speaker 2: ended up with a good kind of year. So those

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Speaker 2: kind of headlines can drive the ups and downs of

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Speaker 2: the market. Be prepared, you know, keep your knees bent,

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Speaker 2: stay flexible, and you'll be okay, but just don't be

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Speaker 2: surprised when it happens.

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Speaker 1: All right, is now the time to consider joining the

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Speaker 1: fire movement? F I why some say a new version

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Speaker 1: of it is much cooler. See what I did there, Brian,

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Speaker 1: not gonna acknowledge what you did there. You're listening to

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Speaker 1: Ashamed of Yourself and I am I kind of am.

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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 all Worth Financial. I'm Bob spond

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Speaker 1: Seller along with Brian James, multiple custodians, a pile of

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Speaker 1: different mutual funds, a quote unquote resilient portfolio, but is

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Speaker 1: it really working for you? We'll break all that down next,

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Speaker 1: and how to spot true diversification and how to go

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Speaker 1: into retirement spending with confidence. All of that is coming

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Speaker 1: up straight ahead at six forty three. Have you ever

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Speaker 1: heard of the fire movement? It doesn't involve setting fire

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Speaker 1: to stuff. A couple of years ago, the term was

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Speaker 1: getting a lot of publicity. Brian, I got to admit

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Speaker 1: to you, I've never even heard of this, but I

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Speaker 1: guess that's because I'm old. It's an acronym that stands

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Speaker 1: for financially independent retire early fire. Well, it's back in

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Speaker 1: the news, but this time it might not be so

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Speaker 1: extreme as it once was.

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Speaker 2: Yeah, this was all about this is something I'm familiar with,

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Speaker 2: but it's been around for a while, and it's just

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Speaker 2: the general concept of hyper saving in your very early

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Speaker 2: years in any way that you possibly can, and it

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Speaker 2: involves budgeting and being super super frugal at the extreme.

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Speaker 1: An there's different flavors of it.

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Speaker 2: There's one called fat fire, there's one called coast fire,

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Speaker 2: and there are just different versions. But the whole point

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Speaker 2: is not simply plowing money into your four oh and

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Speaker 2: k with a target goal of retiring at fifty nine

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Speaker 2: and a half.

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Speaker 1: Because that's how those rules work.

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Speaker 2: So there's a lot of steps and processes that they'll

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Speaker 2: recommend so that you can fund yourself earlier in retirement

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Speaker 2: without having to only rely on your fourroo again.

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Speaker 1: So are these basically these goofy vegetarian type people that

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Speaker 1: don't eat meat, ride a bike instead of drive a car,

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Speaker 1: and live in a yurt somewhere in Vermont or Oregon?

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Speaker 1: Is that what we're talking about, I suppose at the

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Speaker 1: most extreme end of it. Yeah.

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Speaker 2: But otherwise these are people who simply are saving money

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Speaker 2: and finding ways, you know, house hacking for example, by

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Speaker 2: a duplex you know, and pay the mortgage with somebody

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Speaker 2: who's living in the other half of it. Stuff like

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Speaker 2: that that can allow somebody to retire in their thirty, thirty, five,

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Speaker 2: forty years old if we've been really, really frugal, and

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Speaker 2: obviously inflation has been a bit of a challenge to that.

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Speaker 1: But I don't poo poo these people.

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Speaker 2: I think it's great that they're thinking that far ahead

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Speaker 2: and they're planning that far ahead. But again, the whole

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Speaker 2: point is not to live it up now. It's to

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Speaker 2: a build a financial structure that they can live on again.

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Speaker 2: Prior to fifty nine and a half. A lot of

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Speaker 2: people get hung up on the idea that well four

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Speaker 2: to oh one k is the only way I can

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Speaker 2: save anything, and that's tied up till fifty nine and

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Speaker 2: a half. I guess that's how long I have to work. Well,

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Speaker 2: that's not really the case. There are ways to take

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Speaker 2: advantage of roth ladders in simply investing in non retirement

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Speaker 2: type investments so you can access a little bit early.

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Speaker 2: It takes a lot of money, and it takes a

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Speaker 2: lot of sacrifice. This is not just a flip a switch,

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Speaker 2: fill out a formas and way and poof.

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Speaker 1: I'm a part of the fire movement.

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Speaker 2: It takes an awful lot of discipline and sacrifice for

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Speaker 2: somebody who really wants to do this. I looked at

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Speaker 2: it early on when I was younger, and I thought,

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Speaker 2: you know what, I like what I do. I don't

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Speaker 2: really want you want to have a wife.

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Speaker 1: Exactly right. You want to have a wife and a

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Speaker 1: kid's kids, and a job and a career and contribute

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Speaker 1: to society. You don't just want to live in isolation

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Speaker 1: and say, look at me, I was able to retire

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Speaker 1: at forty and then figure out how to live off

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Speaker 1: my money, right, correct?

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Speaker 2: That? Yeah, that's exactly what that. That was my decision.

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Speaker 2: You know, so other people think of it very differently.

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Speaker 2: Some people consciously choose we're not going to have children,

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Speaker 2: We're going to keep things simple and you know, have.

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Speaker 1: A little more financial control over our lives. But all right,

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Speaker 1: so what are some of the challenges these early fire

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Speaker 1: adopters are running into now? And then let's talk about

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Speaker 1: how this whole concept has kind of evolved and you know,

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Speaker 1: kind of smooth thought, smoothed out on the edges, so

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Speaker 1: to speak.

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Speaker 2: Yeah, well, I think the big one is healthcare, Bob.

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Speaker 2: And this is big for anybody there are, anybody who

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Speaker 2: wants to retire prior to age sixty five. Maybe they

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Speaker 2: never heard of the fire movement, but they're going to

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Speaker 2: run into the same problem, right because Medicare doesn't kick

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Speaker 2: in until we're age sixty five. You have to have

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Speaker 2: a way to solve for that, and there's a lot

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Speaker 2: of ways to do that. You can, of course simply

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Speaker 2: buy health insurance off the shelf, but you have to

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Speaker 2: be able to cover that expense. For a married couple.

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Speaker 2: That can be you know, over two thousand dollars, sometimes

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Speaker 2: more than that. Or you can go the other extreme

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Speaker 2: and simply get the catastrophic stuff, or the ridiculous irresponsible method,

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Speaker 2: which is to do absolutely nothing at all and just

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Speaker 2: incur the risk if it does indeed happen, but that

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Speaker 2: will definitely sink.

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Speaker 1: Your fire ship for sure. What does the new modern

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Speaker 1: version of fire look like? Brian? What are you know?

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Speaker 1: How are people making adjustments? They're coming up and saying,

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Speaker 1: maybe maybe retiring at forty wasn't the right answer, but

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Speaker 1: I still want to retire responsibly at say fifty two

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Speaker 1: or fifty five or sixty one. How's that all? Yeah,

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Speaker 1: it's just kind of a mid range.

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Speaker 2: So the modern version, let's look back to the beginning.

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Speaker 2: Back to the beginning, it used to be save about

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Speaker 2: fifty to seventy percent of your income for a decade

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Speaker 2: or two and just deprive yourself of lots of things,

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Speaker 2: and then you can stop working when you're age forty.

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Speaker 2: Now it's more of a sort of a middle of

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Speaker 2: the road approach, more like saving twenty five thirty five

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Speaker 2: percent of your income, investing that consistently, and then slowly

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Speaker 2: backing off of work while that financial base grows. And

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Speaker 2: then of course, you know, now they're also talking about

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Speaker 2: emergency funds. You know, I think there's a little more

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Speaker 2: experience among the fire movement that you've kind of got

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Speaker 2: to have. You can't all be invested and just grow

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Speaker 2: because the market doesn't always cooperate. So we got to

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Speaker 2: make sure we have emergency cash covering about twelve months

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Speaker 2: worth of expenses rather than the normal six, which is

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Speaker 2: kind of the average that we usually recommend.

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Speaker 1: Nothing wrong with twelve.

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Speaker 2: Personally, that's where I am, because I just don't want

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Speaker 2: to have to think about this stuff. But you know,

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Speaker 2: so there's there's also ways that they're cutting spending, you know,

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Speaker 2: maybe retiring abroad, people are learning how to retire to

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Speaker 2: other countries where cost can be a little bit lower.

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Speaker 1: That's not as easy as it sounds, of course, for

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Speaker 1: lots of reasons.

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Speaker 2: Maybe moving to a cheaper suburb, cheaper region, you know,

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Speaker 2: which which we happen to live in one We live

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Speaker 2: in a destination for fire type thinking people here. So

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Speaker 2: I think we're starting to see a little bit of

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Speaker 2: that movement as well.

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Speaker 1: Yeah, I think could it be, Brian, that people they

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Speaker 1: thought this was going to be a great idea and

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Speaker 1: then lo and behold, they decided to get married or

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Speaker 1: maybe found a career that they enjoyed in Their key

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Speaker 1: priority in life was not just retiring at thirty nine

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Speaker 1: years of age, having more of a balanced life that

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Speaker 1: actually cost a little bit of money and that.

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Speaker 2: But think about that, Bob, That's that's a sacrifice in

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Speaker 2: and of itself. If I chose a career that I'm

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Speaker 2: just you know, some people pick a career because they

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Speaker 2: can make a lot of money and it burns them

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Speaker 2: out quickly.

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Speaker 1: I know people like that, exactly.

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Speaker 2: We know lots of people and that's not a wrong decision.

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Speaker 2: Maybe it wasn't the best fit, but it was made

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Speaker 2: for the right reasons. I want to make myself financially stable,

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Speaker 2: I may as well pick a career you know that

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Speaker 2: that can put me in that position, but maybe maybe

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Speaker 2: it doesn't last. Those people are making a huge sacrifice

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Speaker 2: to get out of that comfort zone and change their lifestyle,

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Speaker 2: change that what they've become used to in order to

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Speaker 2: fit a different type of a career. That's a sacrifice

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Speaker 2: in and of itself, and that takes discipline too, just

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Speaker 2: like sticking to a a fire type approach.

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Speaker 1: Yeah, and that's what I'm starting to see more and more.

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Speaker 1: I've never met or worked with one of these fire people,

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Speaker 1: but I've worked with several people that were in intense,

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Speaker 1: high pressure jobs and they get into their early to

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Speaker 1: mid fifties and they want to pivot to something else

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Speaker 1: that they truly enjoy, a lifelong passion of theirs that

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Speaker 1: they've not been able to work in vocationally or even

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Speaker 1: volunteer wise, And so it's not really retiring, it's pivoting

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Speaker 1: to something that gives them more meaning and purpose in

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Speaker 1: their life. And like all of this stuff, it takes

438
00:19:33,400 --> 00:19:37,520
Speaker 1: some discussion in planning and running numbers and risk management.

439
00:19:37,560 --> 00:19:39,399
Speaker 1: And that's really the point I think we're trying to

440
00:19:39,440 --> 00:19:41,800
Speaker 1: make with this segment. You're listening to Simply Money presented

441
00:19:41,800 --> 00:19:45,240
Speaker 1: by all Worth Financial on fifty five KRC the talk station.

442
00:19:50,040 --> 00:19:52,680
Speaker 1: You're listening to Simply Money presided by all Worth Financial

443
00:19:52,680 --> 00:19:56,840
Speaker 1: on Bob Sponseller along with Brian James. Let's face it,

444
00:19:56,920 --> 00:20:01,040
Speaker 1: social security is a cornerstone of retirement security for millions

445
00:20:01,080 --> 00:20:05,600
Speaker 1: of Americans, but it does face long term funding challenges,

446
00:20:06,520 --> 00:20:11,119
Speaker 1: and a new analysis shows a sharp generational divide on

447
00:20:11,280 --> 00:20:14,640
Speaker 1: how to fix the problem. Brian, And before you get

448
00:20:14,640 --> 00:20:19,600
Speaker 1: into these numbers, none of this outcome surprises me whatsoever, because,

449
00:20:19,680 --> 00:20:22,840
Speaker 1: let's face it, we all want someone else to pay

450
00:20:23,280 --> 00:20:26,639
Speaker 1: to fix the problems that are before us. And I

451
00:20:26,720 --> 00:20:29,440
Speaker 1: think these numbers you're about to share bear this out.

452
00:20:29,640 --> 00:20:32,760
Speaker 2: I'm reminded of an old Simpsons episode where Homer ran

453
00:20:32,840 --> 00:20:36,080
Speaker 2: for political office under the under the slogan can't someone

454
00:20:36,119 --> 00:20:39,760
Speaker 2: else do it? And this is just a survey of

455
00:20:39,840 --> 00:20:42,240
Speaker 2: two thousand adults. This is by the Cato Institute. They're

456
00:20:42,240 --> 00:20:43,520
Speaker 2: known as a libertarian think tank.

457
00:20:44,440 --> 00:20:46,479
Speaker 1: Who did he run against, by the way, was it

458
00:20:46,520 --> 00:20:48,960
Speaker 1: Montgomery Burns? Oh? It might have been.

459
00:20:49,040 --> 00:20:50,720
Speaker 2: I'm not sure, but it had everything to do with

460
00:20:50,800 --> 00:20:52,520
Speaker 2: I don't want to bring my garbage cans in from

461
00:20:52,520 --> 00:20:55,040
Speaker 2: the curb. Why can't somebody bring them and put them

462
00:20:55,040 --> 00:20:57,080
Speaker 2: behind my house? And that's now, that's what we're talking

463
00:20:57,080 --> 00:20:59,800
Speaker 2: about with Social Security. So more than half of the

464
00:20:59,840 --> 00:21:02,680
Speaker 2: man Americans under age thirty say they'd rather cut benefits

465
00:21:02,680 --> 00:21:05,480
Speaker 2: for current retirees than pay more taxes to help keep

466
00:21:05,480 --> 00:21:08,960
Speaker 2: benefits intact. Hey, go figure, current retirees aren't a fan

467
00:21:09,040 --> 00:21:12,360
Speaker 2: of that. Nine and ten seniors age sixty five year

468
00:21:12,440 --> 00:21:15,480
Speaker 2: olders say younger workers should pay higher taxes to help

469
00:21:15,560 --> 00:21:18,680
Speaker 2: current retirees benefits kind of stay steady. Can't someone else

470
00:21:18,760 --> 00:21:22,440
Speaker 2: do it, Bob? So the danger here is and if

471
00:21:22,440 --> 00:21:24,880
Speaker 2: they do nothing right, so the math just doesn't work.

472
00:21:24,880 --> 00:21:27,600
Speaker 2: The math don't math anymore. There's a hole in the bucket.

473
00:21:27,840 --> 00:21:30,959
Speaker 2: So there's simply not enough money flowing into the system

474
00:21:31,119 --> 00:21:33,560
Speaker 2: to shore up the benefits that were calculated years ago,

475
00:21:33,600 --> 00:21:36,360
Speaker 2: simply because there are fewer workers earning less than there

476
00:21:36,400 --> 00:21:39,240
Speaker 2: have been in prior decades. So currently, as we're sitting

477
00:21:39,240 --> 00:21:42,840
Speaker 2: here right now, if nothing changes, then we're expecting somewhere

478
00:21:42,840 --> 00:21:45,280
Speaker 2: about a twenty to twenty five percent haircut in twenty

479
00:21:45,359 --> 00:21:49,600
Speaker 2: thirty three unless Congress actually does something. Now, we could

480
00:21:49,640 --> 00:21:51,760
Speaker 2: have fixed this all along, Bob right. I mean, we

481
00:21:51,800 --> 00:21:53,760
Speaker 2: could be talking about this in Congress right now. We

482
00:21:53,880 --> 00:21:56,560
Speaker 2: choose not to because it is nothing but a sacrifice.

483
00:21:56,600 --> 00:22:00,760
Speaker 2: No one will gain anything because because of the way

484
00:22:00,760 --> 00:22:02,920
Speaker 2: the math works, we simply have to cut benefits on

485
00:22:03,880 --> 00:22:07,160
Speaker 2: current direes or increased taxes on current workers, or possibly

486
00:22:07,160 --> 00:22:09,520
Speaker 2: a combination of both. There's a million ways that that

487
00:22:09,520 --> 00:22:12,159
Speaker 2: can happen. But what it's gonna take is a politician

488
00:22:12,240 --> 00:22:15,760
Speaker 2: to stake their political career on forcing people to sacrifice.

489
00:22:15,960 --> 00:22:18,359
Speaker 2: There is no way that anybody can put something together

490
00:22:18,400 --> 00:22:21,760
Speaker 2: that is a gain, giving people something they didn't have before.

491
00:22:22,119 --> 00:22:24,359
Speaker 2: It's all sacrifice, and that's why we just don't hear

492
00:22:24,400 --> 00:22:26,000
Speaker 2: about it. We're gonna kick the can until we have

493
00:22:26,080 --> 00:22:26,680
Speaker 2: no choice.

494
00:22:28,119 --> 00:22:32,200
Speaker 1: Yeah, for sure. And here's another interesting thought to kick around.

495
00:22:32,840 --> 00:22:36,520
Speaker 1: Most people don't even understand how social Security works. Again,

496
00:22:36,600 --> 00:22:39,720
Speaker 1: in this survey from the Cato Institute, half don't even know.

497
00:22:40,160 --> 00:22:42,760
Speaker 1: Social Security is a pay as you go program in

498
00:22:42,800 --> 00:22:48,000
Speaker 1: which current workers payroll taxes fund current retirees benefits, not

499
00:22:48,200 --> 00:22:50,800
Speaker 1: the worker's own future retirement. You know, a lot of

500
00:22:50,800 --> 00:22:54,040
Speaker 1: people think that this money is getting put into some

501
00:22:54,160 --> 00:22:58,399
Speaker 1: type of an account for them, and nearly two thirds

502
00:22:58,400 --> 00:23:01,240
Speaker 1: of respondents believe that's what it is. They believe it's

503
00:23:01,240 --> 00:23:04,720
Speaker 1: a mandatory savings program that they pay for, you know,

504
00:23:04,840 --> 00:23:07,040
Speaker 1: kind of like a mandatory four to one K plan.

505
00:23:07,440 --> 00:23:11,480
Speaker 1: One in five people wrongly believe that their payroll taxes

506
00:23:11,520 --> 00:23:15,439
Speaker 1: are actually invested in this Social Security trust fund that

507
00:23:15,480 --> 00:23:18,280
Speaker 1: gets thrown around all the time until they retire. And

508
00:23:18,440 --> 00:23:21,320
Speaker 1: eight percent of folks think their taxes are saved in

509
00:23:21,400 --> 00:23:24,920
Speaker 1: a personal account for them. And then here's the funny thing.

510
00:23:25,000 --> 00:23:28,320
Speaker 1: Twenty one percent admit they have no idea how any

511
00:23:28,320 --> 00:23:30,320
Speaker 1: of this stuff works and really don't want to know.

512
00:23:31,680 --> 00:23:34,719
Speaker 1: Forty three percent of people Brian don't even know what

513
00:23:34,760 --> 00:23:38,800
Speaker 1: a payroll tax is. That is baffling to me, since everybody,

514
00:23:38,880 --> 00:23:42,199
Speaker 1: last time I checked, gets a paycheck stub where you

515
00:23:42,240 --> 00:23:45,520
Speaker 1: actually see where all this money disappears every two weeks.

516
00:23:45,960 --> 00:23:49,439
Speaker 1: And then finally, only about seventeen percent know that the

517
00:23:49,520 --> 00:23:53,800
Speaker 1: tax is split evenly between the employer and the employee.

518
00:23:53,920 --> 00:23:57,360
Speaker 1: So I blame a lot of people, you know, for this,

519
00:23:57,480 --> 00:24:01,760
Speaker 1: namely Congress. They just simply have not educated the American

520
00:24:01,800 --> 00:24:05,240
Speaker 1: public on how this whole system works or doesn't work.

521
00:24:05,760 --> 00:24:08,040
Speaker 1: And yet we do to the point you made prior.

522
00:24:08,119 --> 00:24:10,639
Speaker 1: We do have a ticking time bomb here that's about

523
00:24:10,680 --> 00:24:13,640
Speaker 1: eight years away. This is going to have to get

524
00:24:13,680 --> 00:24:18,000
Speaker 1: on somebody's radar here, you know, somewhat smooth or soon

525
00:24:18,080 --> 00:24:21,760
Speaker 1: and hopefully we can have an adult conversation, you know,

526
00:24:21,840 --> 00:24:25,280
Speaker 1: something new and different for Congress and get some things done.

527
00:24:25,400 --> 00:24:27,159
Speaker 2: Let's talk about that paystub for a minute, because I

528
00:24:27,200 --> 00:24:29,680
Speaker 2: want to. I very frequently and you probably hear it too,

529
00:24:29,800 --> 00:24:32,760
Speaker 2: very frequently, hear comments from just sort of one off

530
00:24:32,760 --> 00:24:35,720
Speaker 2: comments from clients about how well I can't plan on

531
00:24:35,760 --> 00:24:36,280
Speaker 2: Social Security.

532
00:24:36,280 --> 00:24:37,520
Speaker 1: It's not going to be there in eight years. And

533
00:24:37,560 --> 00:24:39,880
Speaker 1: that's not the case. That is simply not how it works.

534
00:24:39,880 --> 00:24:41,840
Speaker 2: The only way that could happen is if is if

535
00:24:41,880 --> 00:24:45,040
Speaker 2: we proactively voted the fiight a taxation out of existence

536
00:24:45,080 --> 00:24:48,320
Speaker 2: payroll taxes. That's not going to happen. What all it

537
00:24:48,400 --> 00:24:51,240
Speaker 2: means is that in twenty thirty three, the amount of

538
00:24:51,280 --> 00:24:53,439
Speaker 2: dollars that will be collected via the top of your

539
00:24:53,480 --> 00:24:55,560
Speaker 2: pay step it happened, it's happening right now, it'll happen

540
00:24:55,600 --> 00:24:58,040
Speaker 2: then is only going to cover about seventy five percent

541
00:24:58,080 --> 00:25:00,200
Speaker 2: of what is currently promised. So but that is a

542
00:25:00,240 --> 00:25:03,280
Speaker 2: far cry from zero. Social security is not going away

543
00:25:03,359 --> 00:25:06,680
Speaker 2: unless we proactively voted out of existence. And again this

544
00:25:07,040 --> 00:25:09,560
Speaker 2: is coming from this is coming from demographic changes. So

545
00:25:09,600 --> 00:25:12,800
Speaker 2: the reason for this is us population is just continuing

546
00:25:12,840 --> 00:25:16,639
Speaker 2: to get older. So in twenty twenty five, just this

547
00:25:16,720 --> 00:25:19,359
Speaker 2: past year, a record four point one million people are

548
00:25:19,400 --> 00:25:21,720
Speaker 2: expected to hit age sixty five. That's the most we've

549
00:25:21,760 --> 00:25:25,840
Speaker 2: ever had reached that milestone. By twenty fifty, the sixty

550
00:25:25,840 --> 00:25:28,680
Speaker 2: five an older group is projected to increase forty two

551
00:25:28,760 --> 00:25:31,960
Speaker 2: percent to eighty two million from fifty eight million and

552
00:25:32,040 --> 00:25:34,760
Speaker 2: twenty two So that means the share of the population

553
00:25:34,880 --> 00:25:37,480
Speaker 2: is up to almost a quarter of the population being

554
00:25:37,520 --> 00:25:40,399
Speaker 2: that age. That's the problem that we have, and we

555
00:25:40,480 --> 00:25:42,359
Speaker 2: have tried to fix this pob so over the years,

556
00:25:42,560 --> 00:25:45,760
Speaker 2: policy experts have thrown out ideas. Every single year, some

557
00:25:46,760 --> 00:25:49,880
Speaker 2: congress person raises a bill, but it's shot down based

558
00:25:49,920 --> 00:25:53,119
Speaker 2: on political lines. Democrats always raised the idea of we

559
00:25:53,160 --> 00:25:56,560
Speaker 2: need to increase taxes on current workers to make this work,

560
00:25:56,920 --> 00:26:01,680
Speaker 2: and then Republicans will reject that immediately, and Republicans want

561
00:26:01,680 --> 00:26:04,800
Speaker 2: to cut benefits on retirees and Democrats shoot that out

562
00:26:04,840 --> 00:26:07,119
Speaker 2: of this guy. So it's going to take a you know,

563
00:26:07,160 --> 00:26:10,240
Speaker 2: an across the aisle attempt of people who understand math

564
00:26:10,280 --> 00:26:12,280
Speaker 2: and are willing to have a rough conversation with the

565
00:26:12,320 --> 00:26:14,479
Speaker 2: American public. I don't know that we're there yet, but

566
00:26:14,480 --> 00:26:15,840
Speaker 2: that's the only way it ever gets fixed.

567
00:26:16,600 --> 00:26:18,639
Speaker 1: Well, And just as a reminder, going back to the

568
00:26:18,680 --> 00:26:22,280
Speaker 1: beginning here, Social Security is and was intended to be

569
00:26:22,480 --> 00:26:27,000
Speaker 1: a federal anti poverty program that was established in nineteen

570
00:26:27,160 --> 00:26:32,160
Speaker 1: thirty five as part of President Franklin Delano Roosevelt's New

571
00:26:32,280 --> 00:26:35,840
Speaker 1: Deal after the Great Depression. Again well intentioned. It's like, hey,

572
00:26:35,920 --> 00:26:39,160
Speaker 1: let's put some kind of social safety net in here,

573
00:26:39,280 --> 00:26:43,960
Speaker 1: not only for retirement retirees, but for widows and orphans

574
00:26:44,080 --> 00:26:47,240
Speaker 1: and folks on disability that no one ever talks about.

575
00:26:47,520 --> 00:26:51,160
Speaker 1: There is an embedded disability program in Social Security too, that,

576
00:26:51,200 --> 00:26:53,600
Speaker 1: by the way, costs money. You know, it's meant to

577
00:26:53,640 --> 00:26:57,760
Speaker 1: be an anti poverty program, you know, a social safety net,

578
00:26:58,080 --> 00:27:00,560
Speaker 1: but it does cost money. And again, we're gonna have

579
00:27:00,600 --> 00:27:05,480
Speaker 1: to have an adult conversation from from Congress and whoever's

580
00:27:05,560 --> 00:27:08,440
Speaker 1: president here over the next eight years to fix this thing.

581
00:27:09,000 --> 00:27:11,600
Speaker 1: And I sure hope it, sure hope it happens. Hey,

582
00:27:11,640 --> 00:27:13,800
Speaker 1: if you were if you were a betting man, going

583
00:27:13,840 --> 00:27:17,080
Speaker 1: back to that whole prop bet thing. If you had

584
00:27:17,080 --> 00:27:18,760
Speaker 1: to put money down on this thing, what do you

585
00:27:18,800 --> 00:27:20,600
Speaker 1: think is going to happen? Brian? How do you think that?

586
00:27:20,840 --> 00:27:23,040
Speaker 1: How do you think this thing's gonna get fixed? I

587
00:27:23,040 --> 00:27:24,600
Speaker 1: think we're going to fix it at the last minute.

588
00:27:24,600 --> 00:27:27,080
Speaker 2: It's probably gonna involve a government shutdown, because that's how

589
00:27:27,119 --> 00:27:29,080
Speaker 2: when when we're painted into a corner, that's what we do.

590
00:27:29,160 --> 00:27:31,719
Speaker 2: Everybody takes their ball and goes home, and then we'll

591
00:27:31,760 --> 00:27:33,919
Speaker 2: come up with some kind of compromise. I cannot see

592
00:27:34,200 --> 00:27:36,280
Speaker 2: one side winning in the other side losing. I think

593
00:27:36,280 --> 00:27:38,640
Speaker 2: it's going to have to be a sacrifice among all parties.

594
00:27:39,680 --> 00:27:42,080
Speaker 1: I don't think you're wrong there. Here's the all Worth advice.

595
00:27:42,240 --> 00:27:46,080
Speaker 1: It's pretty cut and dry. Don't rely on Social Security

596
00:27:46,800 --> 00:27:50,680
Speaker 1: as your main source of your retirement income. You're listening

597
00:27:50,760 --> 00:27:53,280
Speaker 1: to Simply Money, presented by all Worth Financial on fifty

598
00:27:53,280 --> 00:28:05,520
Speaker 1: five KRC, the talk station. Do you have a question

599
00:28:05,920 --> 00:28:08,640
Speaker 1: this financial question? I guess you could ask us other

600
00:28:08,800 --> 00:28:11,880
Speaker 1: questions too, but do you have a financial question you'd

601
00:28:11,920 --> 00:28:14,119
Speaker 1: like for us to answer. There's a red button you

602
00:28:14,160 --> 00:28:16,480
Speaker 1: can click while you're listening to the show. If you're

603
00:28:16,520 --> 00:28:19,840
Speaker 1: listening on the iHeart app. Simply record your question there

604
00:28:20,200 --> 00:28:23,040
Speaker 1: and it will come straight to us. All right, Brian

605
00:28:23,320 --> 00:28:28,000
Speaker 1: Mark and Madeira says, I'm realizing our portfolio returns look fine,

606
00:28:28,119 --> 00:28:31,200
Speaker 1: but our cash flow timing is a bit messy. How

607
00:28:31,200 --> 00:28:35,959
Speaker 1: do you align investment distributions with real life spending instead

608
00:28:35,960 --> 00:28:37,560
Speaker 1: of just annual projections.

609
00:28:37,640 --> 00:28:40,240
Speaker 2: Yeah, Mark, that's a pretty common problem because we're also

610
00:28:40,360 --> 00:28:42,880
Speaker 2: accustomed to, you know, every week, every two weeks or

611
00:28:42,920 --> 00:28:45,000
Speaker 2: every month, I get X amount of dollars that drops

612
00:28:45,040 --> 00:28:46,960
Speaker 2: into my checking account, and I pay the bills out

613
00:28:47,000 --> 00:28:50,520
Speaker 2: of that, and the machine just continues to run infinitely. Well,

614
00:28:50,560 --> 00:28:53,000
Speaker 2: now when I switch to I'm spending my own nest

615
00:28:53,080 --> 00:28:55,840
Speaker 2: egg down, well, yeah, I have that problem, that exact problem.

616
00:28:55,840 --> 00:28:57,720
Speaker 2: Now I am my own payroll department. How often do

617
00:28:57,760 --> 00:28:59,640
Speaker 2: I want to be paid and how much and so forth.

618
00:29:00,040 --> 00:29:01,800
Speaker 2: So I think the core mistake here is trying to

619
00:29:01,800 --> 00:29:04,400
Speaker 2: manage investments off of annual return assumptions.

620
00:29:04,680 --> 00:29:05,800
Speaker 1: Real life operates.

621
00:29:05,800 --> 00:29:07,680
Speaker 2: Of course, when your bills are due, when they're due,

622
00:29:07,960 --> 00:29:11,880
Speaker 2: markets compound annually, but that electric bill comes every single month.

623
00:29:12,240 --> 00:29:14,600
Speaker 2: So one good way to think about this maybe separate

624
00:29:14,640 --> 00:29:17,400
Speaker 2: into three layers. First off, what's your spending layer? This

625
00:29:17,440 --> 00:29:20,320
Speaker 2: is twelve to twenty four months of known expenses. Keep

626
00:29:20,360 --> 00:29:22,800
Speaker 2: that in cash money markets, you know, that can kind

627
00:29:22,800 --> 00:29:25,440
Speaker 2: of be a combination of an emergency fund and a cushion,

628
00:29:25,440 --> 00:29:27,719
Speaker 2: and just spend out of that. Keep it in some

629
00:29:27,800 --> 00:29:30,560
Speaker 2: kind of high yield savings account that will still produce

630
00:29:30,600 --> 00:29:33,200
Speaker 2: some income for you, but at least that's what you're

631
00:29:33,240 --> 00:29:35,640
Speaker 2: spending your bills out of, and then it won't matter

632
00:29:35,680 --> 00:29:37,560
Speaker 2: to which a market what the market is doing. So

633
00:29:37,600 --> 00:29:39,960
Speaker 2: then the second layer would be something that's producing income.

634
00:29:40,040 --> 00:29:43,320
Speaker 2: This is where dividends, bond interest, and these systematic withdrawals

635
00:29:44,160 --> 00:29:47,960
Speaker 2: would exist. That's the distribution frequency to your spending frequency,

636
00:29:48,000 --> 00:29:49,160
Speaker 2: to the best you can get to it.

637
00:29:49,240 --> 00:29:50,960
Speaker 1: Right. Some of these bills are predictable, some of.

638
00:29:50,960 --> 00:29:53,320
Speaker 2: Them mark get as close as you can, and that

639
00:29:53,400 --> 00:29:56,560
Speaker 2: might mean holding some less efficient assets. If this is

640
00:29:56,560 --> 00:29:59,320
Speaker 2: something that's on your mind. Smooth cash flow often matters

641
00:29:59,360 --> 00:30:01,240
Speaker 2: more than max yield. You're just when you're just trying

642
00:30:01,240 --> 00:30:03,120
Speaker 2: to keep a ship afloat. And then the third layer,

643
00:30:03,160 --> 00:30:04,680
Speaker 2: this is the long term layer. This is what you're

644
00:30:04,800 --> 00:30:06,480
Speaker 2: what you've been doing for decades, and it's why you

645
00:30:06,520 --> 00:30:08,320
Speaker 2: have the ability to live this way in the first place.

646
00:30:08,520 --> 00:30:10,760
Speaker 2: You still got long term capital out there. Those are

647
00:30:10,760 --> 00:30:13,440
Speaker 2: your equities and other growth types investments. Uh, those are

648
00:30:13,480 --> 00:30:16,480
Speaker 2: intentionally insulated from that near term spending. These aren't the

649
00:30:16,480 --> 00:30:19,200
Speaker 2: dollars you would touch for that bill that came unexpectedly.

650
00:30:19,240 --> 00:30:20,600
Speaker 2: So this is the only this is the one where

651
00:30:20,600 --> 00:30:23,600
Speaker 2: you're going to refill the other two buckets. So anyway,

652
00:30:23,640 --> 00:30:25,920
Speaker 2: lots to think about there, and the hope that helps.

653
00:30:26,480 --> 00:30:28,720
Speaker 2: So we're gonna move on now into we've got a

654
00:30:28,800 --> 00:30:31,240
Speaker 2: We've got a question here from Seth and Fort Mitchell

655
00:30:31,280 --> 00:30:33,560
Speaker 2: who says that they've accumulated a mix of funds that

656
00:30:33,640 --> 00:30:35,640
Speaker 2: have different fiscal year distributions.

657
00:30:35,800 --> 00:30:36,760
Speaker 1: How do you coordinate all this?

658
00:30:36,800 --> 00:30:39,280
Speaker 2: And you how do you manage these surprise capital gain

659
00:30:39,320 --> 00:30:42,000
Speaker 2: payouts that don't line up with the calendar year. Somebody

660
00:30:42,000 --> 00:30:44,160
Speaker 2: got a nasty gram in December. I'm guessing about a

661
00:30:44,240 --> 00:30:45,800
Speaker 2: mutual fund distribution.

662
00:30:46,200 --> 00:30:48,440
Speaker 1: Yeah, Brian, and I feel like my answer is going

663
00:30:48,520 --> 00:30:51,120
Speaker 1: to be very similar to the answer you just gave

664
00:30:51,240 --> 00:30:55,440
Speaker 1: to Mark, worded slightly differently. First of all, Seth, you

665
00:30:55,520 --> 00:30:58,280
Speaker 1: know these are these mutual fund companies will announce in

666
00:30:58,320 --> 00:31:00,840
Speaker 1: advance when these things are coming, but you do have

667
00:31:00,920 --> 00:31:03,440
Speaker 1: to pay attention. You got to read this stuff, or

668
00:31:03,480 --> 00:31:05,640
Speaker 1: have an advisor that's going to read it for you

669
00:31:06,080 --> 00:31:08,840
Speaker 1: and factor all that into your income strategy. And I

670
00:31:08,840 --> 00:31:12,320
Speaker 1: think to the point Brian made you know before in

671
00:31:12,400 --> 00:31:16,680
Speaker 1: answering Mark's question, life doesn't tend to work according to

672
00:31:16,720 --> 00:31:21,720
Speaker 1: a fixed linear spreadsheet of identical monthly expenses. So you

673
00:31:21,760 --> 00:31:23,840
Speaker 1: want to make sure you're not cutting this too close.

674
00:31:23,920 --> 00:31:27,000
Speaker 1: In other words, you know it's okay to fill up

675
00:31:27,000 --> 00:31:31,280
Speaker 1: that emergency fund or high yield cash savings account a

676
00:31:31,320 --> 00:31:33,959
Speaker 1: little bit higher to factor into some of this stuff.

677
00:31:34,000 --> 00:31:38,280
Speaker 1: But from a tax management standpoint, know when these distributions

678
00:31:38,320 --> 00:31:42,000
Speaker 1: are coming. Again, if you're paying attention to the publications

679
00:31:42,000 --> 00:31:44,240
Speaker 1: that these mutual fund companies put out, they're going to

680
00:31:44,320 --> 00:31:47,800
Speaker 1: tell you what the capital gain distribution is and when

681
00:31:47,840 --> 00:31:50,680
Speaker 1: it's likely to come, So you could at least plan

682
00:31:51,160 --> 00:31:55,120
Speaker 1: from an income and tax strategy appropriately. That'd be my

683
00:31:55,240 --> 00:31:59,400
Speaker 1: answer without having a full context of the question and

684
00:31:59,400 --> 00:32:02,320
Speaker 1: where you're coming at that coming from, all right, Peter

685
00:32:02,440 --> 00:32:06,520
Speaker 1: and Anderson says, our advisor says our portfolio is quote

686
00:32:06,600 --> 00:32:10,240
Speaker 1: unquote resilient, but I don't know what that actually means.

687
00:32:10,320 --> 00:32:15,040
Speaker 1: How do you define resilience in a measurable way? Measure it,

688
00:32:15,240 --> 00:32:17,680
Speaker 1: quantify it. Brian, what does resilient mean?

689
00:32:18,000 --> 00:32:20,080
Speaker 2: Yeah, well, I think it's more of the clients who

690
00:32:20,120 --> 00:32:23,040
Speaker 2: are resilient than the portfolio, because the portfolio is going

691
00:32:23,120 --> 00:32:24,880
Speaker 2: to do what it does. Yeah, resilience is one of

692
00:32:24,920 --> 00:32:26,840
Speaker 2: those terms that gets that just kind of gets thrown

693
00:32:26,880 --> 00:32:29,600
Speaker 2: around and you're just like, what's being called out here?

694
00:32:29,640 --> 00:32:31,719
Speaker 2: My advisor said it's resilient, so I guess it is,

695
00:32:31,800 --> 00:32:34,800
Speaker 2: so we'll just leave it at that. But practical, in

696
00:32:34,840 --> 00:32:38,480
Speaker 2: real practical terms, a portfolio that is resilient is really

697
00:32:38,520 --> 00:32:40,920
Speaker 2: one that allows you to keep making the good decisions

698
00:32:40,960 --> 00:32:43,120
Speaker 2: even when the conditions are bad. That's why I said

699
00:32:43,240 --> 00:32:45,640
Speaker 2: it's the client who is resilient, not the portfolio. So

700
00:32:45,640 --> 00:32:47,760
Speaker 2: there's there's really four ways you can look at this.

701
00:32:48,280 --> 00:32:51,120
Speaker 2: First would be draw down depth. This isn't volatility. This

702
00:32:51,200 --> 00:32:53,840
Speaker 2: is actual peak to trough loss. We talked earlier in

703
00:32:53,840 --> 00:32:56,040
Speaker 2: the show about what happened in April. Peak to trough

704
00:32:56,040 --> 00:32:58,240
Speaker 2: loss in the stock mark was about twenty percent, So

705
00:32:58,400 --> 00:33:01,240
Speaker 2: you know, if you have a twenty percent dropped and

706
00:33:01,320 --> 00:33:03,760
Speaker 2: you need about twenty seven percent to get back to

707
00:33:03,760 --> 00:33:06,480
Speaker 2: to get back to normal, it'd be just because of

708
00:33:06,520 --> 00:33:07,200
Speaker 2: the way that works.

709
00:33:07,240 --> 00:33:09,800
Speaker 1: So a portfolio that is extremely.

710
00:33:09,360 --> 00:33:11,800
Speaker 2: Volatile is going to need to need to be volid

711
00:33:11,840 --> 00:33:13,080
Speaker 2: on the upside too to recover that.

712
00:33:13,440 --> 00:33:15,200
Speaker 1: Also, you know, the second part here is what is

713
00:33:15,240 --> 00:33:16,600
Speaker 1: the duration of a draw down?

714
00:33:16,640 --> 00:33:19,640
Speaker 2: How long will it take this particular portfolio to get

715
00:33:19,680 --> 00:33:20,440
Speaker 2: back to prior highs.

716
00:33:20,480 --> 00:33:22,120
Speaker 1: And these are things you can look at history for.

717
00:33:22,360 --> 00:33:24,480
Speaker 2: You can use online tools and plug your your ticker

718
00:33:24,520 --> 00:33:26,360
Speaker 2: symbols or whatever it is that you own and get

719
00:33:26,360 --> 00:33:29,360
Speaker 2: an idea for what that resilience has been.

720
00:33:30,080 --> 00:33:32,200
Speaker 1: You know what about cash flow survivability too?

721
00:33:32,240 --> 00:33:34,760
Speaker 2: Can it survive twelve to twenty four months of spending

722
00:33:34,800 --> 00:33:37,959
Speaker 2: without selling the riskier assets during a bear market? That

723
00:33:38,040 --> 00:33:40,400
Speaker 2: this is where that emergency fund comes in, that cushion.

724
00:33:40,760 --> 00:33:42,800
Speaker 2: And what Bob and I like to talk about frequently

725
00:33:42,840 --> 00:33:44,680
Speaker 2: with is let's figure out what bills are coming to

726
00:33:44,680 --> 00:33:46,360
Speaker 2: do in the next twelve months, and let's make sure

727
00:33:46,360 --> 00:33:48,920
Speaker 2: those assets are covered. Maybe those need to be carved out.

728
00:33:48,960 --> 00:33:50,800
Speaker 2: Now we're sitting at a time where the market is

729
00:33:50,840 --> 00:33:53,080
Speaker 2: absolutely at a peak, so maybe this is the time

730
00:33:53,120 --> 00:33:56,720
Speaker 2: to carve those out and then finally recovery participation. So

731
00:33:56,800 --> 00:33:59,440
Speaker 2: when we see that recovery year after a bad stock

732
00:33:59,480 --> 00:34:02,440
Speaker 2: market year, for example, does this portfolio tend to swing

733
00:34:02,520 --> 00:34:04,240
Speaker 2: back up during the rebounds, or does it kind of

734
00:34:04,320 --> 00:34:07,080
Speaker 2: lag because risk was permanently reduced at the wrong time.

735
00:34:07,240 --> 00:34:08,600
Speaker 2: So you got to look at the funds and things

736
00:34:08,600 --> 00:34:10,719
Speaker 2: that you own and understand what they're doing under the hood.

737
00:34:10,960 --> 00:34:14,279
Speaker 2: Not to mention you yourself, some clients will get spooked and

738
00:34:14,520 --> 00:34:17,200
Speaker 2: we'll kind of head for the exits whenever we hit

739
00:34:17,239 --> 00:34:18,040
Speaker 2: a bumpy market.

740
00:34:18,200 --> 00:34:20,520
Speaker 1: All right, one more quick one. Jerry in Greenhill's Bob.

741
00:34:20,760 --> 00:34:23,880
Speaker 2: He's got investments across multiple custodians with that all have

742
00:34:23,920 --> 00:34:26,200
Speaker 2: different reporting styles, and he's wanting to know, how do

743
00:34:26,239 --> 00:34:28,880
Speaker 2: you get a clean apples to Apple's view of performance

744
00:34:28,880 --> 00:34:29,239
Speaker 2: and risk.

745
00:34:29,680 --> 00:34:32,319
Speaker 1: Well, it can be a little mind boggling, Jerry. If

746
00:34:32,360 --> 00:34:36,279
Speaker 1: you're just relying on these statements that custodians put out,

747
00:34:36,280 --> 00:34:38,440
Speaker 1: they're generally going to give you rate of return numbers,

748
00:34:38,520 --> 00:34:42,480
Speaker 1: not a whole lot on risk adjusted or peer adjusted risk,

749
00:34:42,520 --> 00:34:44,879
Speaker 1: as you raised in your questions. So you know there

750
00:34:44,920 --> 00:34:47,160
Speaker 1: are tools out there if you want to dial in

751
00:34:47,200 --> 00:34:51,279
Speaker 1: to comparing risk versus standard deviation or sharp ratio or

752
00:34:51,320 --> 00:34:55,000
Speaker 1: things like that. There are tools out there. We've got

753
00:34:55,040 --> 00:34:57,920
Speaker 1: them here. Other good fiduciary advisors have them where you

754
00:34:57,960 --> 00:35:00,839
Speaker 1: could put all your holdings, you know, up on the racks,

755
00:35:00,880 --> 00:35:04,239
Speaker 1: so to speak, and really compare apples to apples risk

756
00:35:04,280 --> 00:35:08,799
Speaker 1: adjusted performance regardless of where those assets are housed. But

757
00:35:08,840 --> 00:35:11,799
Speaker 1: you've got to have some tools to use and so

758
00:35:11,840 --> 00:35:15,680
Speaker 1: you're not just relying on the custodian to tell you

759
00:35:16,120 --> 00:35:20,080
Speaker 1: what that risk adjusted performance really is. Coming up next,

760
00:35:20,160 --> 00:35:22,839
Speaker 1: I've got my two cents on why you might want

761
00:35:22,840 --> 00:35:26,600
Speaker 1: to have a limited liability company as part of your

762
00:35:26,680 --> 00:35:30,240
Speaker 1: whole financial strategy and a state planning strategy. You're listening

763
00:35:30,239 --> 00:35:32,800
Speaker 1: to Simply Money presented by all Worth Financial on fifty

764
00:35:32,800 --> 00:35:41,000
Speaker 1: five KRC the talk station. You're listening to Simply Money

765
00:35:41,000 --> 00:35:44,080
Speaker 1: presented by all Worth Financial. I'm Bob Sponseller along with

766
00:35:44,120 --> 00:35:47,759
Speaker 1: Brian James. Let's get into a topic. Brian, I've had

767
00:35:47,840 --> 00:35:50,480
Speaker 1: come up or at least raised with clients. A lot

768
00:35:50,480 --> 00:35:54,000
Speaker 1: of clients lately coming in that have some vacation properties

769
00:35:54,120 --> 00:35:57,919
Speaker 1: or thinking about having them, or have inherited them from

770
00:35:58,080 --> 00:36:01,680
Speaker 1: parents or grandparents, and it's a topic we want to

771
00:36:01,719 --> 00:36:05,840
Speaker 1: talk about, called a limited liability company and without attempting

772
00:36:05,880 --> 00:36:08,560
Speaker 1: to practice law without a law license, which is always

773
00:36:08,560 --> 00:36:11,520
Speaker 1: a dangerous thing. Let's talk about why somebody might want

774
00:36:11,560 --> 00:36:14,200
Speaker 1: to have one of these things. The number one reason

775
00:36:14,320 --> 00:36:16,920
Speaker 1: most people want to get involved or should consider this

776
00:36:17,480 --> 00:36:21,440
Speaker 1: is limited liability protection. Let's say you have that cottage

777
00:36:21,480 --> 00:36:24,640
Speaker 1: up in Michigan, or that you know rental home down

778
00:36:24,680 --> 00:36:27,880
Speaker 1: in Florida, and four or five different family members are

779
00:36:27,960 --> 00:36:30,839
Speaker 1: using it. Maybe you're renting it out. In other words,

780
00:36:30,880 --> 00:36:33,160
Speaker 1: you got a lot of people flying in there, flowing

781
00:36:33,200 --> 00:36:36,040
Speaker 1: through there on a regular basis, and if something bad

782
00:36:36,080 --> 00:36:40,239
Speaker 1: should happen, a slip and fall attorney comes after you.

783
00:36:40,239 --> 00:36:43,840
Speaker 1: You want to have your liability or your risk limited

784
00:36:44,440 --> 00:36:47,800
Speaker 1: to just the assets owned in that ll scene. That's

785
00:36:47,840 --> 00:36:50,560
Speaker 1: the number one reason I see people you know that

786
00:36:50,680 --> 00:36:54,799
Speaker 1: should consider having these things. They're very simple to set up.

787
00:36:54,880 --> 00:36:57,080
Speaker 1: A good attorney can set that up for you, file

788
00:36:57,120 --> 00:37:00,239
Speaker 1: it for just hundreds of dollars. The drafting fees can

789
00:37:00,239 --> 00:37:03,120
Speaker 1: tend to be pretty low. It's something to definitely talk

790
00:37:03,160 --> 00:37:06,640
Speaker 1: about if you're in that vacation property space that you're

791
00:37:06,719 --> 00:37:09,759
Speaker 1: sharing with relatives, friends, airs, what have you.

792
00:37:09,960 --> 00:37:12,080
Speaker 2: Yeah, and I think too, if you are someone who

793
00:37:12,120 --> 00:37:14,799
Speaker 2: owns multiple properties, then what you might look into is

794
00:37:14,880 --> 00:37:17,840
Speaker 2: one LLC for each one of them. Again, nobody's speaking

795
00:37:17,880 --> 00:37:19,400
Speaker 2: right now as a lawyer, So talk to your own

796
00:37:19,400 --> 00:37:22,319
Speaker 2: attorney about these things. But one bad incident at the

797
00:37:22,360 --> 00:37:24,799
Speaker 2: first property can endanger the whole mess if you stick

798
00:37:24,800 --> 00:37:28,200
Speaker 2: them all in one LLC. And again, this isn't about profitability.

799
00:37:28,280 --> 00:37:30,080
Speaker 2: This isn't about making the that the property is more

800
00:37:30,160 --> 00:37:32,800
Speaker 2: value anything like that. It's about protecting from the terrible

801
00:37:32,800 --> 00:37:34,600
Speaker 2: things that can happen in these types of situations.

802
00:37:34,840 --> 00:37:37,520
Speaker 1: Another reason to have this and it makes the management

803
00:37:37,560 --> 00:37:40,520
Speaker 1: of it more smooth. And you know, somebody's usually in

804
00:37:40,640 --> 00:37:43,040
Speaker 1: charge of running the finances, who's going to pay the

805
00:37:43,080 --> 00:37:45,720
Speaker 1: property tax bill, who's going to pay the utility bill,

806
00:37:46,080 --> 00:37:48,120
Speaker 1: who's going to pay for the repairs and upkeep? And

807
00:37:48,200 --> 00:37:51,200
Speaker 1: a lot of times if you have a bank account

808
00:37:51,280 --> 00:37:55,240
Speaker 1: set up owned by the LLC and the person managing

809
00:37:55,280 --> 00:37:57,960
Speaker 1: the finances can can just go to one account and

810
00:37:58,120 --> 00:38:01,600
Speaker 1: track everything it flows through to your personal tax return.

811
00:38:02,000 --> 00:38:04,759
Speaker 1: And then from an estate tax standpoint, what I see

812
00:38:04,760 --> 00:38:07,120
Speaker 1: all the time, Brian, that people that have trust you

813
00:38:07,160 --> 00:38:10,600
Speaker 1: can take your personal shares in an LLC and just

814
00:38:10,680 --> 00:38:13,600
Speaker 1: have those titled in the trust, so you're still avoiding probate.

815
00:38:13,680 --> 00:38:18,040
Speaker 1: So it's a great strategy to avoid both liability and

816
00:38:18,320 --> 00:38:23,040
Speaker 1: still avoid probate in terms of your overall estate plan strategy.

817
00:38:23,400 --> 00:38:25,759
Speaker 1: Thanks for listening tonight. You've been listening to Simply Money,

818
00:38:25,880 --> 00:38:28,880
Speaker 1: presented by all Worth Financial on fifty five KRC, the

819
00:38:29,200 --> 00:38:29,760
Speaker 1: talk station