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Speaker 1: Tonight what investors safe risk is and what it actually

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Speaker 1: means for your money. You're listening to Simply Money, presented

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

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Speaker 1: Let's talk a little bit about that four letter word

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Speaker 1: in investing risk. The moment the market drops a few

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Speaker 1: percentage points, the headlines start to scream, emotions run high,

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Speaker 1: and some people start wondering if they should move to

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Speaker 1: cash by gold or bury their money in a coffee

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Speaker 1: can in the backyard. But here's the truth. What most

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Speaker 1: people think is risk isn't and that misunderstanding can cost

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Speaker 1: you more than a market downturn. Ever will what say you, Brian?

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Speaker 2: So let's talk about the difference between volatility and risk.

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Speaker 2: Volatility is stuff going up and down in a day

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Speaker 2: to day basis, and I'm not even limiting that, limiting

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Speaker 2: that to the stock market. That's life, Bob. Sometimes we

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Speaker 2: have good days, we have bad days. We have good

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Speaker 2: mornings and good afternoons and vice versa and so forth.

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Speaker 1: I like to have all good days, Brian.

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Speaker 2: Okay, well, you keep hanging your hat on that and

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Speaker 2: tell me how that works out. As we know, we

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Speaker 2: all need to be flexible. Things don't go our way

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Speaker 2: one hundred percent of the time. Sometimes we fail seventy

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Speaker 2: eighty percent of the time, like a baseball player. But anyway,

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Speaker 2: the difference between volatility and risk volatility again, it's just

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Speaker 2: those ups and down. Risk is really the idea that

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Speaker 2: something permanent can happen. So you know what I mean

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Speaker 2: by that is, let's bring that to the market, right. So,

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Speaker 2: every now and then we'll run across as a client

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Speaker 2: who maybe they have kids, or somebody who's new to investing.

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Speaker 2: He hasn't really thought about it. And everybody has the

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Speaker 2: same story. Bob, I'm sure you've heard this too. Well,

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Speaker 2: SO and so invested in the market and they lost everything.

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Speaker 2: And my first in my mind, I go, okay, DS,

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Speaker 2: because I can show you a chart of the stock

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Speaker 2: the stock market, the S and P five hundred. It

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Speaker 2: has gone up, not down for you know, a many,

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Speaker 2: many many decades now. It has never gone to zero.

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Speaker 2: So if SO and so lost all their money quote

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Speaker 2: unquote in the stock market, that means so and so

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Speaker 2: is investing in things that to permanently go away. That

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Speaker 2: could be options, It could be you know, it could

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Speaker 2: be penny stocks, those kinds of things that really do

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Speaker 2: go poof in the middle of the night.

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Speaker 1: That does happen out there.

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Speaker 2: But if you're investing in the diversified portfolio, then you

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Speaker 2: were experiencing volatility, not risk.

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Speaker 1: Yeah, I always say the same exact thing to clients, Brian,

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Speaker 1: I quickly like to differentiate between risk and volatility. And

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Speaker 1: you said it, risk is, hey, I'm gonna put money

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Speaker 1: in something and it's going to completely evaporate. I mean,

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Speaker 1: none of the stuff that we do for clients, and

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Speaker 1: I know all good fiduciary advisors do for their client,

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Speaker 1: they're not putting their retirement money into something that can

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Speaker 1: evaporate or go away. And that's completely different than the

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Speaker 1: person that says, hey, I tried out the market and

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Speaker 1: I lost it all. I mean maybe they went out

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Speaker 1: and put one hundred grand in game, stop thinking it

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Speaker 1: was going to go to three hundred bucks in two weeks.

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Speaker 1: That's a whole different ballgame than what we're doing. We're

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Speaker 1: talking about volatility, and that's the variation in the return,

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Speaker 1: not the risk of completely blowing the whole thing up.

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Speaker 2: Exactly, And there are risks other than the ups and

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Speaker 2: downs of the market that happens every single day. Real

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Speaker 2: risk is somebody who you know retires with a three

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Speaker 2: million dollar portfolio and on paper you want to go, hey,

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Speaker 2: this person's in good shape. But then they're spending like

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Speaker 2: they have ten million dollars. That is real risk. So

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Speaker 2: needing one hundred thousand dollars a year but only planning

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Speaker 2: for seventy thousand, right, that's overspending.

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Speaker 1: That is real, real risk.

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Speaker 2: And that's the kind of stuff that doesn't surface until

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Speaker 2: it's way, way, way too late to do anything about it.

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Speaker 2: If you live that way for ten, fifteen, twenty years

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Speaker 2: of your retirement, you're going to have a problem in

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Speaker 2: the future. So that means we need to be thinking

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Speaker 2: about now about the risk of not knowing what our

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Speaker 2: budget is like and what are what it's going to

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Speaker 2: cost to maintain our lifestyle.

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Speaker 1: Yeah, no matter what that top you know, that top

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Speaker 1: number is, that pile of money is, You've got to

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Speaker 1: temper that spending up front by understanding what that plan

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Speaker 1: will support. Because oftentimes that big number might seem like

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Speaker 1: a comfortable way to proceed, but when you look at

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Speaker 1: spending at a certain amount for five, ten, fifteen, thirty years,

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Speaker 1: it can go away quickly. If you're not careful. Yeah.

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Speaker 2: Now, let's talk about a third topic of risk here,

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Speaker 2: and that's the idea of playing it too safe, you know,

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Speaker 2: as one of our old friends around here used to say,

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Speaker 2: going broke safely. So a lot of smart discipline savers

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Speaker 2: out there maybe can be a little too conservative and

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Speaker 2: perhaps a little, you know, a little too unaccepting of

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Speaker 2: how reality can be. So after two thousand and eight,

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Speaker 2: a lot of people out there did make the choice

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Speaker 2: to shift to CDs and annuities are sitting in cash

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Speaker 2: for a while, And the bottom of the two thousand

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Speaker 2: and eight market was March of two thousand and nine,

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Speaker 2: and a lot of people sat on the sidelines until

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Speaker 2: twelve thirteen, fourteen, fifteen.

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Speaker 1: Sometimes.

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Speaker 2: Matter of fact, I have clients who did not come

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Speaker 2: on back on board till twenty twenty one.

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Speaker 1: That was when we got to know them.

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Speaker 2: They sat in cash for literally fifteen years and missed

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Speaker 2: out on They probably should have had three times what

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Speaker 2: they had even invested conservatively, had they stayed invested over

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Speaker 2: that time period. And of course, the way the market,

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Speaker 2: the market thinks it's funny, so is somebody who reinvested

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Speaker 2: in twenty twenty one, what happened to them, Bob, immediately

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Speaker 2: over cliff in twenty two, right, so we took it again.

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Speaker 2: The stock market has a bad, bad, nasty habit of

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Speaker 2: punishing people twice for trying to time well.

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Speaker 1: And we don't ignore the year twenty twenty. I mean,

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Speaker 1: you have people sitting out of the market, and then

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Speaker 1: we have a little thing called COVID come along the

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Speaker 1: way where the market fell what thirty eight to forty

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Speaker 1: percent about three weeks. That'll scare some people off as well.

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Speaker 2: Absolutely, that's true the way I think of that, though,

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Speaker 2: that was over and done within within thirty days, which

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Speaker 2: was the up to the top to bottom of the market,

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Speaker 2: and then we had it all back by the summer.

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Speaker 2: Nobody remembers that though, Bob, because we were all hiding

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Speaker 2: in our basements thinking we were going to die. If

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Speaker 2: you remember what the attitude back then was, twenty two

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Speaker 2: was a little different.

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Speaker 1: That's when we had the great unwinding of all that stuff. Yeah.

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Speaker 1: I think a lot of times the reason people go

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Speaker 1: to cash and stay there is perhaps they were over

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Speaker 1: allocated to two risky stocks or too heavy of a

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Speaker 1: concentrated position to begin with, going into that kind of situation,

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Speaker 1: and yeah, when everything tanks fifty to sixty percent because

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Speaker 1: you're not well diversified, that can't carry you off for

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Speaker 1: a few years. You're listening to Simply Money, presented by

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

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Speaker 1: All right, let's get into some real life examples here

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Speaker 1: using some real math. What can we and should we

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Speaker 1: be doing uh to understand and factor volatility into a

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Speaker 1: responsible retirement plan in portfolio? Okay, Bob, let's set the scene.

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Speaker 2: You retired ten years ago and you had two million

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Speaker 2: dollars back then. He said, you know what, I really

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Speaker 2: can't stomach the the ups and downs on the roller

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Speaker 2: coaster ride of the stock market. So I'm just going

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Speaker 2: to stick to the stuff that's predictable CDs and treasuries.

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Speaker 2: I'm good to go. I'm never going to read a

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Speaker 2: headline again. At the time, it feels responsible, like a good, solid,

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Speaker 2: safe move. But let's do the math behind it. Well,

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Speaker 2: a sixty forty portfolio, right, and that means sixty percent

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Speaker 2: stocks forty percent bonds. That's kind of the dried and

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Speaker 2: true conservative ish goldilock zone portfolio that might have returned

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Speaker 2: about seven and eight seven to eight percent every year

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Speaker 2: over that decade, and that those are real numbers. That's

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Speaker 2: not that that's just the way things have come out

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Speaker 2: historically speaking. If you're focusing on that cash heavy approach

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Speaker 2: or the CDs, remember we said ten years ago, we

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Speaker 2: haven't had these high rates for all ten years, So

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Speaker 2: you'd be averaging closer to one to two percent in

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Speaker 2: exchange for not having had to worry about the headlines.

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Speaker 2: So on a two million dollar portfolio, that's a difference

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Speaker 2: of a million bucks, Bob. If you average seventy eight percent,

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Speaker 2: you're gonna wind up with somewhere over three million dollars

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Speaker 2: in that range. But if you're only getting that one

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Speaker 2: to too, it's not even gonna come anywhere close to that.

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Speaker 2: And you have to factor in two. We've got inflation

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Speaker 2: hiding in the background, right. If we're gonna keep up

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Speaker 2: with inflation, we can't, you know, we can't stick to

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Speaker 2: only the safe stuff and predictable. We've got to let

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Speaker 2: something grow that can keep up with inflation.

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Speaker 1: Well, using my simple Green Hills High School math, Brian,

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Speaker 1: a million dollars profit on two million dollars, I mean,

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Speaker 1: that's fifty percent return over ten years. That's a game

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Speaker 1: changer in terms of a long term wealth plan.

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Speaker 2: Yes, and it's not a huge amount. It's not a

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Speaker 2: huge amount of return. That's a conservative portfolio.

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Speaker 1: And this isn't saying wor stock picking gurus and we

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Speaker 1: picked the right stocks at the right time. This is

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Speaker 1: just basic blocking and tackling, doing the right things, having

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Speaker 1: a good sound acid allocation strategy, and letting it work

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Speaker 1: over time. The difference is measurable huge.

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Speaker 2: And let's circle back to the whole point of this

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Speaker 2: particular segment, which is the difference between risk and volatility.

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Speaker 2: Risk again, is the idea of not allowing your assets

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Speaker 2: to keep up with inflation so that you can maintain

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Speaker 2: your lifestyle. Volatility is just the idea of knowing that

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Speaker 2: if I want these seven eight percent returns so that

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Speaker 2: I can deal with inflation over the rest of my life,

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Speaker 2: then volatility is just knowing that sometimes it rains. It

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Speaker 2: is not the weather man's job to help you avoid

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Speaker 2: the rain. That's not the case. It's the weatherman's job

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Speaker 2: to help you navigate it. Make sure you know what

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Speaker 2: might be coming and what should you do.

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Speaker 1: To prepare well. And here's the real point here. I

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Speaker 1: think it takes sitting down, running numbers, looking at what

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Speaker 1: amount of risk in return your plan needs to achieve

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Speaker 1: and tolerate in order to meet your long term objectives.

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Speaker 1: And if you don't do that and you leave it

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Speaker 1: all to chance, then everybody, I don't care who you are,

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Speaker 1: you leave it to emotion, and that's where fear and

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Speaker 1: greed run in. It could because you don't have a plan,

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Speaker 1: You don't look fifteen, twenty thirty years out. And that's

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Speaker 1: what we want to try to help people avoid. Tonight

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Speaker 1: is just that bury your head in the sand and

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Speaker 1: forget it kind of mentality.

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Speaker 2: Yeah, and remember if you if your safe money is

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Speaker 2: growing by two percent and inflation is more like four,

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Speaker 2: you're actually losing money in terms of purchasing bout.

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Speaker 1: Here's the all Worth advice. The riskiest thing you could

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Speaker 1: do with your money is not understand what risk really is.

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Speaker 1: Coming up next, our take on a headline that suggests

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Speaker 1: we should embrace stock market bubbles. You're listening to Simply

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

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

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

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Speaker 1: trying not to laugh at that intro music from our

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Speaker 1: buddy jokes Trekker. Hey, if you can't listen to Simply

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Speaker 1: tell them about us as well. Search Simply Money on

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Speaker 1: the iHeart app or wherever you find your podcasts. Should

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Speaker 1: you be doing rawth conversions even though you don't need

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Speaker 1: the money yet. It's one of the questions you asked

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Speaker 1: us to tackle, and we're going to answer that one

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Speaker 1: straight ahead. At six forty three, there's a provocative headline

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Speaker 1: making its way around the financial media right now why

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Speaker 1: we should welcome stock market bubbles? Brian who is making

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Speaker 1: this claim? And what's going on here?

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Speaker 2: Yet another provocative headlines And it seems like all the

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Speaker 2: headlines are provocative, But then again, I guess that's what

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Speaker 2: makes them headlines. We want to grab eyeballs and you know,

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Speaker 2: and sell advertisement. So anyway, this particular claim is coming

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Speaker 2: from Mark Hulbert, and he makes it.

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Speaker 1: He does make a fair point.

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Speaker 2: Some of these the transformative technologies that we've seen have

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Speaker 2: happened during stock market bubbles. There's something, there's a catalyst

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Speaker 2: that's causing you know, everybubble has something inside of it.

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Speaker 2: It's either the real estate bubble from you know, from

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Speaker 2: twenty years ago, that's when it began. We had the

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Speaker 2: tech bubble before that, when the internet first came on

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Speaker 2: the scene. We also had uh there was sort of

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Speaker 2: another bubble when when mobile phones and smartphones became a thing,

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Speaker 2: and nowadays we're talking about AI. There's always a catalyst

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Speaker 2: underneath these kinds of things. So on one hand, that

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Speaker 2: that's how we grow the market. A new some kind

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Speaker 2: of new environment, some kind of new tool out there

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Speaker 2: that can help people be more productive, be more efficient,

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Speaker 2: can help companies make more money. But at the same time,

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Speaker 2: just like anything, we overreact to it as investors. We

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Speaker 2: inflate it too much and then we panic too much

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Speaker 2: on the downside.

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Speaker 1: Yeah, I think I think the word momentum trade comes,

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Speaker 1: you know, comes to mind. And we can talk a

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Speaker 1: little bit about AI stocks here over the last few years.

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Speaker 1: I mean, we've talked about this many times. The S

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Speaker 1: and P five hundred. If you look at the index,

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Speaker 1: thirty to thirty five percent of the market cap of

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Speaker 1: the S and P is weighted in just seven companies

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Speaker 1: the quote unquote magnificent seven. They've had a great ride,

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Speaker 1: and then you know, we go back to we go

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Speaker 1: back to you know, earlier and things the legs can

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Speaker 1: come out from under some of those stocks. You have

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Speaker 1: big market volatility in the short term. In other words,

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Speaker 1: people can ride a momentum trade longer than they need

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Speaker 1: to and not properly diversify, and that's where they can

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Speaker 1: get hurt by this, you know, quote unquote bubble and Brian,

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Speaker 1: I don't know about you. This is why I always

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Speaker 1: like to have a little dry powder. I like to

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Speaker 1: have a little cash on hand because I agree with

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Speaker 1: Mark Holbert, when things start to tank and go down,

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Speaker 1: that's usually a tremendous buying opportunity to buy things that

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Speaker 1: got oversold on the downside.

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Speaker 2: Yeah, and I think I think these periods can be

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Speaker 2: extremely educational, not only for people who are just experienced

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Speaker 2: in the market for the first time, but also for

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Speaker 2: people who are sneaking up on retirement or who have

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Speaker 2: retired and then all of a sudden they're now having

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Speaker 2: to navigate the ups and downs of the market that

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Speaker 2: have always been there but they haven't paid attention because

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Speaker 2: they're too busy working, raising kids and so forth. Now

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Speaker 2: they've got the time to pay attention, and they feel

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Speaker 2: like they've got more to risk because the nest egg

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Speaker 2: is bigger, of course, and it's coming closer and closer

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Speaker 2: to the time where we need to tap into.

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Speaker 1: It well and emotionally and financially, people don't care as

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Speaker 1: much about volatility when you're earning money and putting money

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Speaker 1: away because you got your paycheck supporting you every month,

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Speaker 1: and you know long term. People know long term, if

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Speaker 1: they buy and hold and let it go, it eventually

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Speaker 1: quote unquote comes back. But I think a lot of

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Speaker 1: people get over they get over comfortable with large stock

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Speaker 1: concentrations as well concentrated positions. And then when you do

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Speaker 1: retire and you've got to turn that portfolio into a paycheck,

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Speaker 1: that's where you can be left with more potential volatility

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Speaker 1: than you might think you have. And then if one

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Speaker 1: of these bubbles rear their ugly head and you're not

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Speaker 1: prepared for it, it can really derail a good long

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Speaker 1: term plan.

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Speaker 2: Right exactly, And that's the bad side of the bubble.

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Speaker 2: But where the bad decision making comes in usually comes

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Speaker 2: during the inflation period. Of the bubble can encourage some

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Speaker 2: bad behavior. Just from a behavioral finance standpoint, bubbles can

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Speaker 2: be dangerous because they that means stuff is going up,

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Speaker 2: and sometimes we own that stuff and we're celebrating it,

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Speaker 2: or other other times we're watching people other people that

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Speaker 2: maybe we work with or family members, whatever, who are

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Speaker 2: talking about these kinds of things at the cocktail parties.

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Speaker 2: That creates the fear of missing out. So if you've

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Speaker 2: got one to five million dollars, you know that that's

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Speaker 2: a really really big deal, because that can if you

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Speaker 2: get sucked into those kind of things, that can be

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Speaker 2: a massive loss when that bubble pops.

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Speaker 1: Well, one of my favorite sayings is you only need

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Speaker 1: to get rich once. Brian. You know you don't want

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Speaker 1: to do all this work, do all this saving, do

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Speaker 1: all this responsible investing and saving and discipline for twenty thirty,

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Speaker 1: forty fifty years and then fall into that fear of

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Speaker 1: missing out trap, you know, overweighting the magnificent seven stocks

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Speaker 1: or thinking you're going to get cute with cryptocurrency in

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Speaker 1: the short term and then you completely ruin what you've

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Speaker 1: spent thirty to fifty years building. It's something we've got

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Speaker 1: to help people watch out.

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Speaker 2: For absolutely and an another way that can sneak in is, Hey,

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Speaker 2: my brother in law wants to open a restaurant.

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Speaker 1: I've got a good chunk of money here staved.

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Speaker 2: I'll throw a little thing something at this, you know,

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Speaker 2: because I can afford to do it. Those kinds of

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Speaker 2: things can really sneak up. Again, it's that that fear

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Speaker 2: of missing out that can really catch up to us.

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Speaker 1: Well, we've all read stories about professional athletes that do

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Speaker 1: just that, right, they get these huge signing bonuses, or

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Speaker 1: people that win the lottery, people that have a bunch

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Speaker 1: of money, you know, on hand and have you know,

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Speaker 1: they want to look it away to double or triple

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Speaker 1: that bunch of money, and they go and make risky

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Speaker 1: decisions and then have it have it. Then they're surprised

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Speaker 1: and disappointed how quickly some of that money can disappear

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Speaker 1: on them. Yeah.

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Speaker 2: So, now that we've beaten that horse to death, what

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Speaker 2: should we do about it?

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Speaker 1: Right?

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Speaker 2: So, how do we bubble proof our financial plans? Really

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Speaker 2: the first thing, and this isn't the most interesting of

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Speaker 2: advice necessarily, but stay diversified, don't wander away from you know,

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Speaker 2: the dance with the one that brung you, of course,

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Speaker 2: which is a diversified portfolio is going to keep you stable.

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Speaker 2: If you want to dabble in things that you think

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Speaker 2: that you're interested in or that you think might have

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Speaker 2: a you know, it might might have a nice pop here,

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Speaker 2: that's fine, go ahead and do that with a small

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Speaker 2: portion of your money.

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Speaker 1: But think about it this way.

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Speaker 2: If you already have a solid nest egg, then you

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Speaker 2: certainly wouldn't take it to the casino to gamble it.

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Speaker 2: But some of these more speculative things, that's literally what

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Speaker 2: you're doing. But it's okay to take a small portion.

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Speaker 2: And if you you know, take one percent of your

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Speaker 2: portfolio and you hit it right and it becomes three percent,

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Speaker 2: that's great, but it's not a life changing event. On

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Speaker 2: the other hand, if you put fifty percent of your

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Speaker 2: portfolio in and it drops fifty seventy five percent, that

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Speaker 2: is a life changing event. So so weigh the risk

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Speaker 2: of the way the risk versus the return. Is this

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Speaker 2: really going to move the needle for me and change

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Speaker 2: my life or am I just doing this for fun?

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Speaker 1: What we're talking about here, Brian, in the midst of

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Speaker 1: doing a responsible and building a responsible retirement plan, is

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Speaker 1: putting some guard rails about your portfolio, around your portfolio.

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Speaker 1: What do I mean We talk about this all the time.

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Speaker 1: Stress test the thing, look at your goals, look at

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Speaker 1: your income sources, look at what you've got, and then

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Speaker 1: run various scenarios about what can and likely will happen

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Speaker 1: in the future. Interest rates will go up, interest rates

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Speaker 1: will go down, We'll have low growth periods in the market,

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Speaker 1: high growth periods of the market. Kind of simulate that,

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Speaker 1: kind of those all those situations in advance. And the

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Speaker 1: nice thing is a lot of this good software that

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Speaker 1: we use with clients. I mean it goes back and

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Speaker 1: looks at historical volatility going back seventy years. We're not

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Speaker 1: going to be one hundred percent accurate, but we could

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Speaker 1: at least put enough guardrails around a portfolio to keep

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Speaker 1: the plan from going off the rails and then really

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Speaker 1: putting someone in a dangerous spot.

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Speaker 2: Yeah, and as advisors, we're subject to this stuff too.

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Speaker 2: We're human as well. So I'll share a quick personal story. So,

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Speaker 2: so my family decided recently to make a slightly off

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Speaker 2: the beaten path investment in a kind of a private

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Speaker 2: arrangement that is very different from the from the ninety

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Speaker 2: the other ninety eight percent of our portfolio, which is

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Speaker 2: diversified like we normally would do. And frankly, it's Andy

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Speaker 2: Stouts problem. He's the one who manages all just along

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Speaker 2: with the rest of all worths twenty six billion or so.

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Speaker 2: But in any case, this I had a conversation with

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Speaker 2: the CPA about how does this work?

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Speaker 1: What am I?

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Speaker 2: You know, I'm a financial advisor, I'm not a CPA,

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Speaker 2: so what are the things I'm not thinking of? And

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Speaker 2: I got the bright idea of, hey, we could do

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Speaker 2: a little more if we used our IRA dollars for

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Speaker 2: this and the ants. I'll never forget this one of

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Speaker 2: those things that stuck in my brain. It wasn't that

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Speaker 2: long ago, just a few months. His answer to that

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Speaker 2: was because that's not a simple thing to do. You

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Speaker 2: can do those kinds of things, but there's a lot

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Speaker 2: of moving parts to investing iras in things that are

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Speaker 2: not publicly traded. The quick thing he said to me

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Speaker 2: was why do you want a complicated life? And Bob,

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Speaker 2: that knocked me back on my heels and I thought,

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Speaker 2: my god, what what really?

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Speaker 1: What I am I doing?

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Speaker 2: Is it really worth jumping through all these hoops just

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Speaker 2: to get this done, you know, for a very small

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Speaker 2: portion of my portfolio, because it's something my family is

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Speaker 2: interested in. And that, yes, that made me take a

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Speaker 2: breath and go, Okay, let's think about what I'm really

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Speaker 2: trying to accomplish here and why do why do I

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Speaker 2: want a complicated life?

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Speaker 1: Well, and the good the big point here is you

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Speaker 1: were willing to swallow your pride and your excitement a

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Speaker 1: little bit and get a second set of eyes on

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Speaker 1: the whole situation, get an objective viewpoint on something you

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Speaker 1: and your family are considering in advance of pulling the

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Speaker 1: trigger and making the decision. And that enabled you, you know,

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Speaker 1: through getting that good advice and a second set of eyes,

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Speaker 1: it enabled you to maybe avoid a huge mistake.

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Speaker 2: We all need that financial Jiminy cricket. So find somebody

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Speaker 2: out there who thinks the same way as you do

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Speaker 2: and bounce your ideas off and see what they say.

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Speaker 2: They're in armslength the way they might make a different decision.

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Speaker 1: Here's the all Worth advice. Bubbles may fund innovation, but

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Speaker 1: they often deflate retirements. Stick with the plan, not the

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Speaker 1: hype from riches to rags. What the Vanderbilt family can

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Speaker 1: teach your family about preserving wealth across generations. You're listening

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Speaker 1: to Simply Money, presented by all Worth Financial on fifty

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Speaker 1: five KRC, the talk station. You're listening to Simply Money

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Speaker 1: presented by all Worth Financial. I'm selling along with Brian James.

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Speaker 1: It's one of the most famous stories of lost wealth

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Speaker 1: in American history. The Vanderbilt family, once among the richest

435
00:20:06,240 --> 00:20:09,159
Speaker 1: dynasties in the world, built a fortune that would be

436
00:20:09,200 --> 00:20:13,280
Speaker 1: worth over two hundred billion dollars in today's dollars. Brian,

437
00:20:14,000 --> 00:20:20,080
Speaker 1: Yet within just two generations that wealth was essentially gone, evaporated.

438
00:20:20,200 --> 00:20:20,840
Speaker 1: What happened?

439
00:20:21,000 --> 00:20:23,680
Speaker 2: Yeah, this is kind of an American story on the

440
00:20:23,720 --> 00:20:26,320
Speaker 2: way up and on the way down. So Cornelius Vanderbilt,

441
00:20:26,320 --> 00:20:27,840
Speaker 2: you've heard of him, You've heard of the family. There's

442
00:20:27,880 --> 00:20:30,600
Speaker 2: a university named after him. Down to Tennessee, there's the

443
00:20:30,600 --> 00:20:32,920
Speaker 2: Biltmore Estate, which was the gigantic house that they all

444
00:20:32,960 --> 00:20:36,159
Speaker 2: lived in. Now, all that money came from railroads and shipping,

445
00:20:36,320 --> 00:20:39,000
Speaker 2: and at the peak, Cornelius Vanderbilt was the richest man

446
00:20:39,040 --> 00:20:43,320
Speaker 2: in America. His son carried on the reputation and doubled

447
00:20:43,320 --> 00:20:46,320
Speaker 2: that fortune. But by the nineteen seventies, when there was

448
00:20:46,320 --> 00:20:50,240
Speaker 2: one hundred and twenty Vanderbilt descendants all gathered at one reunion,

449
00:20:50,480 --> 00:20:53,280
Speaker 2: not a single seven digit millionaire in the room. Everybody

450
00:20:53,280 --> 00:20:56,360
Speaker 2: had kind of nobody.

451
00:20:56,080 --> 00:20:57,960
Speaker 1: Had carried the torch forward from that point.

452
00:20:58,119 --> 00:21:00,280
Speaker 2: So what happened? Why did this happen? Well, a lot

453
00:21:00,280 --> 00:21:02,920
Speaker 2: of poor planning, people just not thinking ahead. And I

454
00:21:02,920 --> 00:21:05,760
Speaker 2: can imagine, Bob, but this isn't necessarily this isn't a

455
00:21:05,800 --> 00:21:08,800
Speaker 2: difference between good and bad people. This is just people

456
00:21:08,840 --> 00:21:12,040
Speaker 2: having been raised in an environment of the opposite of scarcity.

457
00:21:12,080 --> 00:21:13,800
Speaker 1: I don't have to worry about things.

458
00:21:13,840 --> 00:21:16,240
Speaker 2: Therefore, I don't worry about things, and I don't necessarily

459
00:21:16,240 --> 00:21:18,320
Speaker 2: think about the future because it's not really a problem.

460
00:21:18,480 --> 00:21:20,000
Speaker 1: So lack of purpose around money.

461
00:21:20,520 --> 00:21:23,800
Speaker 2: But really what it was, Bob, was the absence of

462
00:21:24,000 --> 00:21:27,640
Speaker 2: the financial education and discussions between generations. It just got

463
00:21:27,720 --> 00:21:30,520
Speaker 2: quieter and quieter until the the wealth just kind of

464
00:21:30,520 --> 00:21:30,920
Speaker 2: went away.

465
00:21:31,800 --> 00:21:34,320
Speaker 1: Yeah, and we could talk about a potential two hundred

466
00:21:34,320 --> 00:21:36,879
Speaker 1: billion dollar fortune going away, and people might think, well,

467
00:21:36,920 --> 00:21:39,360
Speaker 1: that's an extreme case. I mean, let's bring this back

468
00:21:39,400 --> 00:21:41,960
Speaker 1: to real life, because we do deal with this with

469
00:21:42,080 --> 00:21:44,800
Speaker 1: folks that come into our office every once in a while,

470
00:21:45,440 --> 00:21:47,920
Speaker 1: and you know, it comes down to the adult children

471
00:21:48,000 --> 00:21:51,199
Speaker 1: with no financial boundaries. You know, maybe you're helping a

472
00:21:51,240 --> 00:21:54,120
Speaker 1: thirty five year old quote unquote get back on their

473
00:21:54,160 --> 00:21:57,639
Speaker 1: feet for like the fourth time, or you're covering all

474
00:21:57,760 --> 00:22:00,200
Speaker 1: your grandkids' expenses because you want to be a great

475
00:22:00,240 --> 00:22:03,080
Speaker 1: grandma and grandpa even though their parents are fully capable

476
00:22:03,080 --> 00:22:06,040
Speaker 1: of of doing it. We tend to want to help

477
00:22:06,119 --> 00:22:10,399
Speaker 1: make life super super easy for everyone, and that leads

478
00:22:10,440 --> 00:22:14,159
Speaker 1: to some you know, expensive you know, doling out of

479
00:22:14,240 --> 00:22:17,920
Speaker 1: money that can We think we're helping, but sometimes we're

480
00:22:17,920 --> 00:22:21,439
Speaker 1: just enabling bad behavior, or not even bad behavior, but

481
00:22:21,600 --> 00:22:25,560
Speaker 1: just not preparing the next generation to be self sufficient

482
00:22:25,600 --> 00:22:27,760
Speaker 1: and responsible from the money standpoint.

483
00:22:27,800 --> 00:22:30,200
Speaker 2: Sometimes not helping can be the best help you can

484
00:22:30,240 --> 00:22:32,879
Speaker 2: give anyone, you know the old Give me a fish

485
00:22:32,880 --> 00:22:34,560
Speaker 2: and I'm good for a day. Teach me to fish

486
00:22:34,600 --> 00:22:37,600
Speaker 2: and I'm good for a lifetime. This also can cause

487
00:22:37,680 --> 00:22:40,080
Speaker 2: rifts between families, and that's kind of the opposite, right.

488
00:22:40,480 --> 00:22:42,840
Speaker 2: A family that is financially stable and doesn't have to

489
00:22:42,840 --> 00:22:45,480
Speaker 2: worry about money so much really should be a happy place, right,

490
00:22:45,480 --> 00:22:47,639
Speaker 2: That's what we all strive for. But in a lot

491
00:22:47,680 --> 00:22:50,639
Speaker 2: of cases, it can cause strife between the generations because

492
00:22:50,920 --> 00:22:52,600
Speaker 2: mom and dad, or grandma and grandpa, the ones who

493
00:22:52,640 --> 00:22:55,680
Speaker 2: originally built the wealth to provide all of that security

494
00:22:55,720 --> 00:22:58,360
Speaker 2: for everyone who comes after them, They view it very

495
00:22:58,440 --> 00:23:00,920
Speaker 2: very differently. They view it as their life work, their blood,

496
00:23:00,920 --> 00:23:03,640
Speaker 2: sweat and tears and so forth. But the further down

497
00:23:03,640 --> 00:23:07,400
Speaker 2: the generations we go, the less impactful that can be. Now,

498
00:23:07,440 --> 00:23:11,399
Speaker 2: now there's ways to avoid that. It's basically telling the story.

499
00:23:11,440 --> 00:23:13,639
Speaker 2: Make sure everybody knows the story of this family and

500
00:23:13,680 --> 00:23:16,280
Speaker 2: how we got where we are, What sacrifices were made

501
00:23:16,280 --> 00:23:18,720
Speaker 2: along the way, What were the things that we really, really,

502
00:23:18,760 --> 00:23:21,040
Speaker 2: in a heartbroken manner, had to choose not to do

503
00:23:21,280 --> 00:23:24,240
Speaker 2: over time because we know we had to. We had

504
00:23:24,240 --> 00:23:26,919
Speaker 2: to make that sacrifice at the time. And then how

505
00:23:26,920 --> 00:23:29,240
Speaker 2: are the new generations reacting to that? Are they able

506
00:23:29,280 --> 00:23:31,240
Speaker 2: to make those same types of decisions.

507
00:23:31,080 --> 00:23:33,720
Speaker 1: You're listening to Simply Money presented by all Worth Financial

508
00:23:33,760 --> 00:23:37,480
Speaker 1: on Bob Sponsler along with Brian James. Yeah, Brian. Sometimes

509
00:23:37,520 --> 00:23:39,880
Speaker 1: I run into folks who you know, who have worked

510
00:23:40,040 --> 00:23:44,520
Speaker 1: very hard. They came from very modest beginnings, They earned

511
00:23:44,600 --> 00:23:48,080
Speaker 1: every dime that they have and worked extremely hard. And

512
00:23:48,119 --> 00:23:51,320
Speaker 1: sometimes folks will say, I just I just want to

513
00:23:51,359 --> 00:23:54,680
Speaker 1: make things a little easier for my kids and my grandkids.

514
00:23:55,320 --> 00:23:58,560
Speaker 1: And I understand the sentiment. I feel that way sometimes too,

515
00:23:59,200 --> 00:24:02,000
Speaker 1: but that's often not the best way to go about it.

516
00:24:02,040 --> 00:24:04,040
Speaker 1: I mean, you got we got to allow people to

517
00:24:04,119 --> 00:24:08,720
Speaker 1: earn it and go through some of life's trials and tribulations,

518
00:24:08,760 --> 00:24:13,280
Speaker 1: because that's that's what builds character and it builds financial literacy. Okay, Bob,

519
00:24:13,320 --> 00:24:15,560
Speaker 1: blocking and tackling. So how do we do this?

520
00:24:15,600 --> 00:24:18,440
Speaker 2: How do we avoid that that that curse of the Vanderbilts. Well,

521
00:24:18,480 --> 00:24:21,199
Speaker 2: first off, focus on the values, not the dollars. If

522
00:24:21,240 --> 00:24:24,120
Speaker 2: you teach the right values, the dollars will follow. Help

523
00:24:24,160 --> 00:24:27,560
Speaker 2: people understand exactly what it means to to to work hard.

524
00:24:27,600 --> 00:24:27,719
Speaker 1: Right.

525
00:24:27,760 --> 00:24:29,320
Speaker 2: That's that kind of goes without saying we all know

526
00:24:29,359 --> 00:24:31,399
Speaker 2: the harder your work, the better off you'll be. But

527
00:24:31,440 --> 00:24:34,560
Speaker 2: at the same time, that sacrifice quote unquote can be

528
00:24:34,800 --> 00:24:37,119
Speaker 2: simply you know what you need to not spend one

529
00:24:37,200 --> 00:24:39,560
Speaker 2: hundred percent of your take home pay because you know

530
00:24:39,760 --> 00:24:41,840
Speaker 2: there are there are bigger things to worry about. That

531
00:24:41,960 --> 00:24:43,919
Speaker 2: is a sacrifice for a very young person who's just

532
00:24:43,920 --> 00:24:46,040
Speaker 2: getting started and now finally has money for their own

533
00:24:46,520 --> 00:24:48,800
Speaker 2: for the first time. You know, that can be the

534
00:24:48,840 --> 00:24:50,760
Speaker 2: standard ten percent of R four one k, or maybe

535
00:24:50,800 --> 00:24:53,280
Speaker 2: make it twenty percent. But that's that's a way Again

536
00:24:53,280 --> 00:24:55,160
Speaker 2: you're focusing on the values, not the dollars.

537
00:24:55,400 --> 00:24:56,720
Speaker 1: Also use trust in.

538
00:24:56,680 --> 00:24:59,520
Speaker 2: A smart manner, right If you have a trust, it's

539
00:24:59,560 --> 00:25:02,720
Speaker 2: not inten only to protect those assets. It can also

540
00:25:02,800 --> 00:25:05,679
Speaker 2: distribute money based on what you want to happen. So

541
00:25:06,200 --> 00:25:09,359
Speaker 2: that might mean that whatever wealth you have at the

542
00:25:09,440 --> 00:25:11,879
Speaker 2: day of your passing, you know, without anything else in place,

543
00:25:12,040 --> 00:25:13,679
Speaker 2: that might drop out of the sky on top of

544
00:25:13,720 --> 00:25:16,800
Speaker 2: someone's head, is that individual prepared to handle that sum

545
00:25:16,800 --> 00:25:18,639
Speaker 2: of money if not, or if you want them to

546
00:25:18,720 --> 00:25:20,560
Speaker 2: kind of earn it a little more, you know, Bob,

547
00:25:20,720 --> 00:25:22,520
Speaker 2: I've known of trust in my past that would pay

548
00:25:22,520 --> 00:25:25,679
Speaker 2: different amounts of money based on different things that that

549
00:25:25,760 --> 00:25:28,040
Speaker 2: a person had accomplished over time, different careers.

550
00:25:28,040 --> 00:25:28,680
Speaker 1: They might choose.

551
00:25:28,720 --> 00:25:31,280
Speaker 2: You choose become a teacher or some kind of public servant,

552
00:25:31,760 --> 00:25:33,119
Speaker 2: you might get a little more for that. If you

553
00:25:33,119 --> 00:25:35,440
Speaker 2: want to become a business person, there were restrictions on

554
00:25:35,520 --> 00:25:37,320
Speaker 2: you know, how you could how you could receive it,

555
00:25:37,760 --> 00:25:40,400
Speaker 2: those kinds of things. That's a moving target and things

556
00:25:40,480 --> 00:25:42,840
Speaker 2: can change and can get complicated. But again that's the

557
00:25:42,840 --> 00:25:44,760
Speaker 2: purpose of a trust. You're not just trying to protect

558
00:25:44,760 --> 00:25:46,640
Speaker 2: it from somebody who might want to sue you outside

559
00:25:46,640 --> 00:25:48,880
Speaker 2: the family, You're trying to protect the family itself.

560
00:25:49,640 --> 00:25:51,399
Speaker 1: Yeah, I want to go back to maybe an example

561
00:25:51,440 --> 00:25:53,920
Speaker 1: of it, and I'm going back to you know, I'm old, Brian,

562
00:25:53,960 --> 00:25:56,120
Speaker 1: but going back to that first paper route. At nine

563
00:25:56,200 --> 00:25:58,560
Speaker 1: years old, I remember my parents sitting down with me

564
00:25:58,600 --> 00:26:00,879
Speaker 1: and saying, Hey, you're going to go out collect this cash.

565
00:26:00,920 --> 00:26:03,040
Speaker 1: Here's what you're gonna do with it. You're gonna split

566
00:26:03,080 --> 00:26:05,520
Speaker 1: it into thirds. A third of it you're gonna save,

567
00:26:06,240 --> 00:26:08,399
Speaker 1: a third of it you can spend now on whatever

568
00:26:08,440 --> 00:26:11,119
Speaker 1: you want, and a third of it you're gonna give away.

569
00:26:11,560 --> 00:26:15,480
Speaker 1: And I'm like, what you know, give away? But fast

570
00:26:15,520 --> 00:26:17,680
Speaker 1: forward to today, and I think this is a full

571
00:26:17,720 --> 00:26:20,440
Speaker 1: proof way to go about it. Out of every dollar

572
00:26:20,480 --> 00:26:24,040
Speaker 1: you earn, give ten percent away to someone else, save

573
00:26:24,160 --> 00:26:27,479
Speaker 1: twenty percent, pay taxes on, and spend the rest of it.

574
00:26:27,520 --> 00:26:29,960
Speaker 1: If you follow that plan for thirty or forty years,

575
00:26:30,080 --> 00:26:32,480
Speaker 1: you're gonna live a great life and have plenty of money. Yeah.

576
00:26:32,560 --> 00:26:34,439
Speaker 2: My parents got a hold of me when I was

577
00:26:34,480 --> 00:26:36,680
Speaker 2: probably ten years old, and I was the same age,

578
00:26:36,720 --> 00:26:38,200
Speaker 2: so I had a paper out walking up and down

579
00:26:38,280 --> 00:26:40,480
Speaker 2: Jesse Road. I would collect my money and I would

580
00:26:40,520 --> 00:26:43,000
Speaker 2: spend it immediately at Whistles Deli and Drug Palace and

581
00:26:43,040 --> 00:26:45,120
Speaker 2: Supreme Nut and Candy there up on Cheviot Road.

582
00:26:45,520 --> 00:26:46,480
Speaker 1: Didn't bring home a dime.

583
00:26:46,560 --> 00:26:48,359
Speaker 2: Did that for several months, and Mom and Dad finally

584
00:26:48,400 --> 00:26:50,199
Speaker 2: noticed that I never had any money even though I

585
00:26:50,240 --> 00:26:52,480
Speaker 2: was delivering papers, you know, once a week. And we

586
00:26:52,520 --> 00:26:55,120
Speaker 2: had a little discussion about exactly what are we accomplishing here?

587
00:26:55,359 --> 00:26:58,040
Speaker 1: But isn't it isn't it interesting? You know how as

588
00:26:58,040 --> 00:27:00,600
Speaker 1: both of us age and we work in the industry,

589
00:27:00,720 --> 00:27:05,080
Speaker 1: we both remember those stories formuli. We both had parents

590
00:27:05,160 --> 00:27:08,480
Speaker 1: that instilled those values and it sticks with us, you know,

591
00:27:08,600 --> 00:27:10,879
Speaker 1: to this day. All Right, here's the all Worth Advice.

592
00:27:10,920 --> 00:27:15,280
Speaker 1: The best estate plan passes down not just money, but

593
00:27:15,480 --> 00:27:19,560
Speaker 1: meaning structure and values. All Right, you've got questions, We've

594
00:27:19,560 --> 00:27:22,960
Speaker 1: got answers, our ask the advisor segment is coming up next.

595
00:27:23,280 --> 00:27:25,880
Speaker 1: You're listening to Simply Money presented by all Worth Financial

596
00:27:25,920 --> 00:27:34,639
Speaker 1: on fifty five KRC the talk station. You're listening to

597
00:27:34,640 --> 00:27:37,760
Speaker 1: Simply Money presented by all Worth Financial. I'm Bob Sponseller

598
00:27:37,800 --> 00:27:40,919
Speaker 1: along with Brian James. Do you have a financial question

599
00:27:41,040 --> 00:27:43,679
Speaker 1: for us? There? Is a red button you can click

600
00:27:43,800 --> 00:27:46,680
Speaker 1: while you're listening to the show right on the iHeart app.

601
00:27:46,760 --> 00:27:50,040
Speaker 1: Simply record your question and it will come straight to us.

602
00:27:50,280 --> 00:27:52,440
Speaker 1: All right, Brian, let's get into it. Let's hear from

603
00:27:52,760 --> 00:27:55,880
Speaker 1: Susan in Montgomery. My husband and I was sixty three.

604
00:27:55,960 --> 00:27:59,560
Speaker 1: I'm recently retired. Well, a two point four million dollar portfolio.

605
00:28:00,040 --> 00:28:02,600
Speaker 1: Should we be using roth conversions even though we don't

606
00:28:02,760 --> 00:28:03,640
Speaker 1: need the money yet?

607
00:28:04,400 --> 00:28:06,360
Speaker 2: Yeah, that's great, that's a great question, sous I'm glad

608
00:28:06,400 --> 00:28:09,800
Speaker 2: you're thinking about this because Roth conversions A lot of

609
00:28:09,840 --> 00:28:11,560
Speaker 2: people will roll in and just say, you know what,

610
00:28:11,720 --> 00:28:13,480
Speaker 2: I'm retired, it's time to convert to roths.

611
00:28:13,520 --> 00:28:15,280
Speaker 1: Let's just do the paperwork and be done with it.

612
00:28:15,320 --> 00:28:18,480
Speaker 2: Well, Roth conversions, let's be clear, very very very much

613
00:28:18,560 --> 00:28:22,719
Speaker 2: an intelligently decided sacrifice in exchange for a benefit. Sometimes

614
00:28:22,760 --> 00:28:25,480
Speaker 2: it's appropriate, sometimes it's not. What I would be saying

615
00:28:25,800 --> 00:28:27,560
Speaker 2: is it doesn't have anything to do with you needing

616
00:28:27,600 --> 00:28:28,400
Speaker 2: the money with.

617
00:28:28,400 --> 00:28:29,719
Speaker 1: That size of a portfolio.

618
00:28:29,880 --> 00:28:31,720
Speaker 2: Susan doesn't give us the detail how much of this

619
00:28:31,800 --> 00:28:33,680
Speaker 2: is in pre tax dollars, but we'll just assume you

620
00:28:33,720 --> 00:28:34,439
Speaker 2: know most of it is.

621
00:28:35,000 --> 00:28:36,760
Speaker 1: That's a good thing, right, They worked hard.

622
00:28:37,160 --> 00:28:39,560
Speaker 2: But at the same time, what they're looking at in

623
00:28:39,600 --> 00:28:42,480
Speaker 2: about twelve years, when they turn seventy five, they're going

624
00:28:42,520 --> 00:28:44,840
Speaker 2: to have required minimum distributions that's going to put them

625
00:28:45,000 --> 00:28:48,320
Speaker 2: they'll have basically a solid six digit income probably two

626
00:28:48,400 --> 00:28:52,360
Speaker 2: hundred thousand dollars at that time from then on, meaning

627
00:28:52,400 --> 00:28:53,800
Speaker 2: they're always they're never going to be in a low

628
00:28:53,840 --> 00:28:56,400
Speaker 2: bracket again. So what she's thinking about is, Okay, we're

629
00:28:56,400 --> 00:28:58,240
Speaker 2: in a low bracket now, we just retired, we have

630
00:28:58,280 --> 00:29:00,280
Speaker 2: lower income than we've had in a long time. Answer

631
00:29:00,320 --> 00:29:03,440
Speaker 2: to that is unqualified. Yes, you should learn about it, right,

632
00:29:03,560 --> 00:29:06,000
Speaker 2: do it not do it? That's different. It differs by situation.

633
00:29:06,280 --> 00:29:08,840
Speaker 2: You should definitely learn about it. And the important key

634
00:29:08,880 --> 00:29:11,800
Speaker 2: to all this for anybody considering it is that you

635
00:29:12,360 --> 00:29:14,800
Speaker 2: want to be able to ideally pay those taxes that

636
00:29:14,880 --> 00:29:17,040
Speaker 2: will come DOE the year you do the conversion. Pay

637
00:29:17,080 --> 00:29:19,520
Speaker 2: them out of non IRA money. You don't want to

638
00:29:19,520 --> 00:29:22,120
Speaker 2: pay taxes on money for the purpose of turning around

639
00:29:22,120 --> 00:29:25,360
Speaker 2: and paying taxes again. Use your non IRA money to

640
00:29:25,680 --> 00:29:27,960
Speaker 2: pay those taxes. Get that conversion done, all right, So

641
00:29:28,000 --> 00:29:30,440
Speaker 2: let's move on to James and Anderson Township, who's got

642
00:29:30,480 --> 00:29:31,360
Speaker 2: another question for us.

643
00:29:31,880 --> 00:29:33,480
Speaker 1: My wife and I want to give each of our

644
00:29:33,560 --> 00:29:35,680
Speaker 1: kids twenty thousand dollars this year to help for a

645
00:29:35,760 --> 00:29:38,640
Speaker 1: home down payment. Is that the best way to do it,

646
00:29:38,720 --> 00:29:42,400
Speaker 1: or should we be looking at trusts or something? Well, James,

647
00:29:42,480 --> 00:29:44,680
Speaker 1: I like to keep things pretty simple, so I'm gonna.

648
00:29:44,760 --> 00:29:47,080
Speaker 1: I'm gonna. I don't think you need to get too

649
00:29:47,120 --> 00:29:50,160
Speaker 1: complicated with a trust or some exotic instrument like that.

650
00:29:50,520 --> 00:29:52,640
Speaker 1: On The one number I want to point out is

651
00:29:53,000 --> 00:29:56,240
Speaker 1: the twenty thousand. The gift tax limit. The limit you

652
00:29:56,280 --> 00:29:59,080
Speaker 1: can give to any human being at any time, for

653
00:29:59,160 --> 00:30:02,200
Speaker 1: any reason in only twenty five is nineteen thousand dollars.

654
00:30:02,760 --> 00:30:05,320
Speaker 1: If your kid is married, you can double that if

655
00:30:05,360 --> 00:30:07,840
Speaker 1: you're willing to give nineteen thousand to his or her

656
00:30:07,880 --> 00:30:09,960
Speaker 1: spouse as well, so you can give up the thirty

657
00:30:09,960 --> 00:30:13,040
Speaker 1: eight thousand. But you can't give twenty thousand dollars to

658
00:30:13,080 --> 00:30:16,040
Speaker 1: any one kid without having to file a gift ex return,

659
00:30:16,120 --> 00:30:18,280
Speaker 1: which you know we don't need to get into, you know,

660
00:30:18,320 --> 00:30:20,080
Speaker 1: doing that if we can avoid it. The other thing

661
00:30:20,120 --> 00:30:23,200
Speaker 1: I would point out is before you do all this,

662
00:30:23,320 --> 00:30:25,240
Speaker 1: you got to look at the timing of when your

663
00:30:25,320 --> 00:30:27,600
Speaker 1: kids are going to be looking at buying the house.

664
00:30:27,880 --> 00:30:31,240
Speaker 1: So if it's in the short term here. Make sure

665
00:30:31,280 --> 00:30:34,600
Speaker 1: that you're coordinating all this with your kid's lender of choice,

666
00:30:34,640 --> 00:30:37,280
Speaker 1: because sometimes the lenders will have a little bit of

667
00:30:37,320 --> 00:30:40,960
Speaker 1: a look back period, you know, when they underwrite the loan, saying,

668
00:30:40,960 --> 00:30:43,120
Speaker 1: all right, how much of this down payment came from

669
00:30:43,120 --> 00:30:46,120
Speaker 1: mom and dad. And sometimes they don't like that. They

670
00:30:46,120 --> 00:30:49,360
Speaker 1: don't like twenty thousand dollars hitting that bank account the

671
00:30:49,440 --> 00:30:52,120
Speaker 1: month before we pull the trigger on a loan application.

672
00:30:52,360 --> 00:30:55,000
Speaker 1: So I'd keep it simple. I'd give them the money.

673
00:30:55,040 --> 00:30:57,400
Speaker 1: I don't think you need to put it in a trust,

674
00:30:57,440 --> 00:31:00,520
Speaker 1: but check to make sure that there's still going to

675
00:31:00,600 --> 00:31:03,520
Speaker 1: qualify for that loan that they need or want, you know,

676
00:31:03,800 --> 00:31:05,800
Speaker 1: factoring in the gifts that you and your wife are

677
00:31:05,800 --> 00:31:09,000
Speaker 1: giving to them. All right, let's hear from Rick in Westchester.

678
00:31:09,360 --> 00:31:11,880
Speaker 1: I have a one point seven million dollar IRA and

679
00:31:11,880 --> 00:31:16,160
Speaker 1: I'm charitably inclined. I've heard about qualified charitable and distributions.

680
00:31:16,280 --> 00:31:19,800
Speaker 1: How do those work and what should I start easing them? Rick?

681
00:31:19,840 --> 00:31:22,040
Speaker 2: I'm glad to hear that the not only are you

682
00:31:22,120 --> 00:31:25,160
Speaker 2: charitably inclient that's obviously honorable, but that you started with that.

683
00:31:25,280 --> 00:31:27,480
Speaker 2: A lot of people are looking for all these different

684
00:31:27,520 --> 00:31:29,560
Speaker 2: tax techniques that how can I get a deduction right

685
00:31:29,560 --> 00:31:30,920
Speaker 2: now without sacrificing anything.

686
00:31:31,000 --> 00:31:32,280
Speaker 1: Well, there's not a heck of a lot that you

687
00:31:32,280 --> 00:31:33,040
Speaker 1: can do anymore.

688
00:31:33,080 --> 00:31:35,640
Speaker 2: However, if you are if you start from a standpoint

689
00:31:35,640 --> 00:31:37,840
Speaker 2: of yes, I give money to charity anyway, then there

690
00:31:37,840 --> 00:31:40,400
Speaker 2: are definitely many, many steps and techniques you can look

691
00:31:40,440 --> 00:31:42,720
Speaker 2: at that can give you even more of a tax

692
00:31:42,760 --> 00:31:45,239
Speaker 2: benefit than just the plane you know, deduction you might

693
00:31:45,280 --> 00:31:48,120
Speaker 2: get for delivering a load of stuff the Goodwill, for example.

694
00:31:48,160 --> 00:31:51,880
Speaker 2: So what Rick's talking about is a qualified charitable distribution.

695
00:31:52,240 --> 00:31:53,920
Speaker 1: That is a distribution from an IRA.

696
00:31:54,040 --> 00:31:56,680
Speaker 2: This is an actual, differently coded thing that would appear

697
00:31:56,720 --> 00:31:59,760
Speaker 2: on your ten ninety nine. Are qualified charitable distributions are

698
00:32:00,120 --> 00:32:01,680
Speaker 2: looted from your taxable income.

699
00:32:02,000 --> 00:32:03,360
Speaker 1: They do not count as income.

700
00:32:03,440 --> 00:32:05,320
Speaker 2: So this means it doesn't it's not going to affect

701
00:32:05,320 --> 00:32:08,160
Speaker 2: your Medicare premium surcharge, it will not reduce taxation on

702
00:32:08,200 --> 00:32:10,520
Speaker 2: soci security benefits, and it can keep you in that

703
00:32:10,560 --> 00:32:14,560
Speaker 2: lower tax bracket. It does count towards your required minimum distribution.

704
00:32:14,840 --> 00:32:18,120
Speaker 2: So if you are age seventy three or age seventy five,

705
00:32:18,120 --> 00:32:20,680
Speaker 2: if you were born after nineteen sixty, then that IRA

706
00:32:21,040 --> 00:32:25,000
Speaker 2: is going to be required to start to distribute money

707
00:32:25,240 --> 00:32:27,400
Speaker 2: to the tune of about four to five percent in

708
00:32:27,440 --> 00:32:29,600
Speaker 2: the year after starting the year after you turn those

709
00:32:29,640 --> 00:32:31,959
Speaker 2: respective ages. So the whole point of this is you

710
00:32:32,040 --> 00:32:35,080
Speaker 2: designate to your IRA custodian and that's the financial institution

711
00:32:35,120 --> 00:32:38,200
Speaker 2: who holds your money, that this official distribution is a

712
00:32:38,320 --> 00:32:41,040
Speaker 2: qualified charitable distribution and here is the five oh one

713
00:32:41,080 --> 00:32:43,600
Speaker 2: C three charity to whom it is going. So that

714
00:32:43,680 --> 00:32:47,120
Speaker 2: means you have fulfilled your required minimum distribution requirements that

715
00:32:47,160 --> 00:32:49,520
Speaker 2: you'll have to do. Anyway, the money goes straight to

716
00:32:49,560 --> 00:32:51,920
Speaker 2: the charity. You don't pay any income taxes on it,

717
00:32:52,000 --> 00:32:53,880
Speaker 2: and of course neither does the charity, because that's the

718
00:32:53,920 --> 00:32:55,800
Speaker 2: whole point of being a five oh one C three.

719
00:32:55,920 --> 00:32:58,240
Speaker 2: So again, if you start like rick is, I guess

720
00:32:58,240 --> 00:33:00,840
Speaker 2: I already give money to the to to these charities,

721
00:33:00,840 --> 00:33:02,120
Speaker 2: then this is a way you can do it without

722
00:33:02,160 --> 00:33:04,560
Speaker 2: incurring any taxes all at all, to free up those

723
00:33:04,560 --> 00:33:08,120
Speaker 2: dollars to give to the charity. Great idea, right, all right,

724
00:33:08,160 --> 00:33:09,800
Speaker 2: So now we're going to move on one more question.

725
00:33:09,840 --> 00:33:10,000
Speaker 1: Here.

726
00:33:10,000 --> 00:33:12,200
Speaker 2: We're talking to Danielle in Blue Ash who's got a

727
00:33:12,280 --> 00:33:13,320
Speaker 2: question about rental producies.

728
00:33:13,680 --> 00:33:15,600
Speaker 1: We just sold a rental property and are sitting on

729
00:33:15,600 --> 00:33:18,440
Speaker 1: four hundred and fifty thousand dollars in cash. We really

730
00:33:18,440 --> 00:33:21,080
Speaker 1: don't need the income right now. What's the smartest way

731
00:33:21,080 --> 00:33:25,680
Speaker 1: to invest this? Well, my honest answer, Danielle is I

732
00:33:25,760 --> 00:33:29,280
Speaker 1: have no idea. How's that for a qualified answer from

733
00:33:29,280 --> 00:33:31,440
Speaker 1: a future of a job today, Bob, heck of a job?

734
00:33:32,040 --> 00:33:34,880
Speaker 1: But no, My real answer is don't let that money

735
00:33:34,880 --> 00:33:37,200
Speaker 1: burn a hole in your pocket. And what I mean

736
00:33:37,240 --> 00:33:39,320
Speaker 1: by that is put that four hundred and fifty thousand

737
00:33:39,360 --> 00:33:42,920
Speaker 1: dollars in cash in a safe you know, savings account

738
00:33:42,960 --> 00:33:45,760
Speaker 1: or cash equivalent, and then go sit down with a

739
00:33:45,760 --> 00:33:49,200
Speaker 1: good fiduciary financial advisor who can look at both your

740
00:33:49,200 --> 00:33:52,000
Speaker 1: short and long term goals and devise a plan and

741
00:33:52,040 --> 00:33:56,080
Speaker 1: a strategy on how to deploy that money responsibly for

742
00:33:56,160 --> 00:34:00,520
Speaker 1: the long term. All right, coming up next Brian's bottom Line,

743
00:34:00,560 --> 00:34:03,320
Speaker 1: where Brian is going to attempt to practice law without

744
00:34:03,320 --> 00:34:07,120
Speaker 1: a law license and talk about estate planning. You're listening

745
00:34:07,120 --> 00:34:09,760
Speaker 1: to Simply Money presented by all Worth Financial on fifty

746
00:34:09,760 --> 00:34:18,040
Speaker 1: five KRC the talk station. The moment. You're listening to

747
00:34:18,120 --> 00:34:21,200
Speaker 1: Simply Money presented by all Worth Financial on Bob Sponsorer

748
00:34:21,239 --> 00:34:24,800
Speaker 1: along with Brian James and It's time for Brian's bottom Line,

749
00:34:25,080 --> 00:34:26,640
Speaker 1: Brian's bucket of babbe.

750
00:34:26,640 --> 00:34:28,960
Speaker 2: All right, I'm not a lawyer, but I'm playing one

751
00:34:29,000 --> 00:34:31,240
Speaker 2: on the radio today, So I want to talk about

752
00:34:31,239 --> 00:34:34,640
Speaker 2: some basic estate planning steps again, talking to clients during

753
00:34:34,680 --> 00:34:37,000
Speaker 2: the financial planning process, which involves a lot more than

754
00:34:37,040 --> 00:34:39,160
Speaker 2: just investments. Right, that's a tiny piece of everything that

755
00:34:39,160 --> 00:34:42,600
Speaker 2: a financial plan encompasses. Eventually, the conversation turns around to

756
00:34:42,680 --> 00:34:44,840
Speaker 2: what happens to all of this when when I or

757
00:34:44,880 --> 00:34:47,800
Speaker 2: we pass on, And there are some very basic steps

758
00:34:47,800 --> 00:34:50,439
Speaker 2: that everyone should take. And a reason I'm bringing this up, Bob,

759
00:34:50,440 --> 00:34:52,000
Speaker 2: the reason this is important is because a lot of

760
00:34:52,000 --> 00:34:54,000
Speaker 2: people just assume, oh my gosh, I got to bring

761
00:34:54,000 --> 00:34:55,600
Speaker 2: in a lawyer for this. I got, Oh, that's going

762
00:34:55,640 --> 00:34:57,000
Speaker 2: to be thousands of dollars and a lot of work,

763
00:34:57,040 --> 00:34:58,840
Speaker 2: and he's gonna use fancy words that I don't understand,

764
00:34:58,840 --> 00:34:59,799
Speaker 2: and I don't want to do it today.

765
00:34:59,800 --> 00:35:01,080
Speaker 1: Well, worry about it in a few months.

766
00:35:01,200 --> 00:35:03,239
Speaker 2: That's the wrong approach, because anything can happen in those

767
00:35:03,280 --> 00:35:05,440
Speaker 2: few months, and we've all have those horror stories. Anyway,

768
00:35:05,840 --> 00:35:09,319
Speaker 2: easy things you can do. The easiest thing everyone can

769
00:35:09,480 --> 00:35:12,440
Speaker 2: and should do is name beneficiaries on everything that you

770
00:35:12,560 --> 00:35:16,279
Speaker 2: can primarily in the easiest, absolute easiest place to do

771
00:35:16,400 --> 00:35:18,480
Speaker 2: is all your financial accounts. Here I raise your four

772
00:35:18,520 --> 00:35:22,040
Speaker 2: oh one ks. That's relatively obvious because it's shoved into

773
00:35:22,040 --> 00:35:24,520
Speaker 2: your face. On those retirement accounts, right, you kind of

774
00:35:24,560 --> 00:35:27,200
Speaker 2: have to name a beneficiary to get those open.

775
00:35:27,480 --> 00:35:29,719
Speaker 1: So, but always make sure they're up to date.

776
00:35:30,480 --> 00:35:33,160
Speaker 2: And when your company changes four one K providers or

777
00:35:33,160 --> 00:35:36,120
Speaker 2: they change the hware HR software system, double check that

778
00:35:36,239 --> 00:35:38,080
Speaker 2: because I think I've seen at least five times in

779
00:35:38,120 --> 00:35:40,879
Speaker 2: my life where somebody changed the software package of my beneficiaries.

780
00:35:40,880 --> 00:35:42,759
Speaker 1: Win. What's a big one. I've seen that as well.

781
00:35:42,960 --> 00:35:45,359
Speaker 2: It happens very frequently or sometimes our clients while we're

782
00:35:45,360 --> 00:35:47,279
Speaker 2: doing a financial plan, they'll log into their four oh

783
00:35:47,280 --> 00:35:48,680
Speaker 2: one K and the hey, you know, before we get

784
00:35:48,719 --> 00:35:50,799
Speaker 2: the investments click that beneficiary is like, let's just see

785
00:35:50,800 --> 00:35:51,200
Speaker 2: what it says.

786
00:35:51,239 --> 00:35:51,960
Speaker 1: Make sure it makes.

787
00:35:51,840 --> 00:35:54,560
Speaker 2: Sense anyway, that's the easy side, because it's kind of

788
00:35:54,560 --> 00:35:57,200
Speaker 2: shoved in your face. However, where you can also do it,

789
00:35:57,200 --> 00:35:58,719
Speaker 2: it's very easy, but you kind of have to ask

790
00:35:58,760 --> 00:36:01,320
Speaker 2: for it is your non hirement accounts, and I'm talking

791
00:36:01,400 --> 00:36:04,520
Speaker 2: like a joint investment account or an individual brokerage account,

792
00:36:04,560 --> 00:36:07,440
Speaker 2: and we're talking non IRA, non roth, that kind of thing.

793
00:36:08,000 --> 00:36:10,759
Speaker 2: You can ask your financial institution for what's called a

794
00:36:10,840 --> 00:36:14,680
Speaker 2: transfer on death TOOD form, which does the exact same thing.

795
00:36:14,719 --> 00:36:18,560
Speaker 2: That does not change the ownership, but it will establish

796
00:36:18,600 --> 00:36:22,440
Speaker 2: beneficiaries on those taxable accounts banks different from investments banks

797
00:36:22,480 --> 00:36:24,440
Speaker 2: called a POD payable on death.

798
00:36:24,800 --> 00:36:25,440
Speaker 1: But it's just a.

799
00:36:25,360 --> 00:36:28,160
Speaker 2: Piece of paper where you're naming beneficiaries. If you accomplish

800
00:36:28,200 --> 00:36:30,960
Speaker 2: these steps on all of your financial assets, then those

801
00:36:31,120 --> 00:36:33,840
Speaker 2: instantly will bypass probate. You don't need a fancy trust.

802
00:36:34,280 --> 00:36:36,239
Speaker 2: Matter of fact, they bypass the will too. The will

803
00:36:36,320 --> 00:36:39,360
Speaker 2: might say my investment account XYZ goes to my dog,

804
00:36:39,640 --> 00:36:42,680
Speaker 2: but if the beneficiary is listed on the account, the

805
00:36:42,719 --> 00:36:45,080
Speaker 2: beneficiary that is listed wins out. Doesn't matter what the

806
00:36:45,120 --> 00:36:47,440
Speaker 2: will says. A will is still important. I'm not at

807
00:36:47,440 --> 00:36:50,000
Speaker 2: all implying that. But at the same time, the will

808
00:36:50,040 --> 00:36:53,480
Speaker 2: exists to cover anything where you can't clearly name a beneficiary.

809
00:36:53,480 --> 00:36:55,799
Speaker 2: If you can name it on the asset itself via

810
00:36:55,840 --> 00:36:58,040
Speaker 2: the title or the account or the whatever, or your

811
00:36:58,040 --> 00:37:00,439
Speaker 2: house deed, then you should do so. All that stuff

812
00:37:00,520 --> 00:37:03,560
Speaker 2: bypasses probate. And these are easy, simple steps that everyone

813
00:37:03,560 --> 00:37:04,040
Speaker 2: should take.

814
00:37:04,400 --> 00:37:06,640
Speaker 1: Yeah, good stuff, Brian, I actually had this come up

815
00:37:06,800 --> 00:37:09,040
Speaker 1: yesterday in a meeting with a client. They had done

816
00:37:09,080 --> 00:37:12,480
Speaker 1: all the beneficiary work on their iras but completely ignored

817
00:37:12,520 --> 00:37:15,000
Speaker 1: their bank accounts, so we were able to walk through

818
00:37:15,080 --> 00:37:18,160
Speaker 1: how to get their six different beneficiaries set up through

819
00:37:18,239 --> 00:37:20,960
Speaker 1: a pod you know, just by going into the bank

820
00:37:21,000 --> 00:37:23,920
Speaker 1: and getting it done. Good stuff. Thanks for listening everyone.

821
00:37:23,960 --> 00:37:26,239
Speaker 1: You've been listening to Simply Money, presented by all Worth

822
00:37:26,280 --> 00:37:29,480
Speaker 1: Financial on fifty five KARC, the talk station