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Speaker 1: Tonight war rages on in the Middle East? Is this

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Speaker 1: time different? 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: it's in times like this that you know, we feel

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Speaker 1: that as financial advisors and as hosts of a radio show,

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Speaker 1: one of our biggest jobs is just to help people

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Speaker 1: keep from making mistakes financially from which they can't recover.

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Speaker 1: And when when major geopolitical events like the one war

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Speaker 1: experiencing right now take place, it's really important to keep

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Speaker 1: some things in perspective because I think the first human

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Speaker 1: emotion we all go through it, even advisors, is man,

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Speaker 1: this feels different this time. So if we roll a

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Speaker 1: des back through a few events here, you know historically

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Speaker 1: over the last fifty years or so that have really

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Speaker 1: rock markets, you know, every crisis feels unique. We go

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Speaker 1: back to the nineteen seventy three oil embargo that felt

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Speaker 1: like the whole global economy was breaking, and in fact

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Speaker 1: it did for quite a while. That was different from

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Speaker 1: nine to eleven, with which felt like, you know, everything

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Speaker 1: might collapse, and that situation was different from the two

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Speaker 1: thousand and seven and eight to nine financial crisis where

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Speaker 1: we literally thought banks might collapse, and that was different

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Speaker 1: from COVID when the entire world shut down and we

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Speaker 1: were locked in our homes for a period of time,

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Speaker 1: And that situation was different from Russia invading in Ukraine,

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Speaker 1: where the obvious concern is are we going to see

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Speaker 1: nuclear weapons fired around the world. So all of these

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Speaker 1: situations are always different, and that's what can make it

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Speaker 1: very unsettling for people. You know, fast forward to today,

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Speaker 1: now we're back with conflict in the Middle East, and

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Speaker 1: again it always feels, you know, like this one. It

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Speaker 1: can feel like this one can have some major implications,

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Speaker 1: more risk, more unknowns. But here's the key and the

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Speaker 1: key we really want to drive home tonight. Markets do

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Speaker 1: not price in emotion at all. They price in expected earnings.

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Speaker 1: That's it. Markets price in the expected profits of companies,

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Speaker 1: and that's what we need to stay focused on. And

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Speaker 1: some things that we are staying focused on, for example,

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Speaker 1: will the price of oil stay elevated, will supply chains

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Speaker 1: be disrupted, will corporate profits potentially fall? How we'll central

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Speaker 1: bank policy change with this conflict in the Middle East?

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Speaker 1: And the key thing to remember is markets price probabilities

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Speaker 1: of all of those events in often within days and

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Speaker 1: Brian often within minutes. And we saw quite a reversal

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Speaker 1: even yesterday in the markets from where things were being

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Speaker 1: priced in the pre market and the S and P

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Speaker 1: and the Nezdak actually ended up yesterday. So you know,

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Speaker 1: what we want to talk about tonight is some of

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Speaker 1: these psychological factors that again impact all of us, and

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Speaker 1: it's important to revisit those and and and to keep

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Speaker 1: all of us from making mistakes from which we can't

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Speaker 1: you know, recover. Brian walk us through some of these

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Speaker 1: psychological biases that again we're all human, all of us,

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Speaker 1: and and it all impacts us.

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Speaker 2: Yeah, and I think one thing I want to acknowledge

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Speaker 2: is the the like what what you just mentioned, right,

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Speaker 2: So we had this news over the weekend, uh, and

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Speaker 2: that means the market isn't open, therefore the market can't

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Speaker 2: react to it. Yes, you can always look at futures,

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Speaker 2: but that's still a little bit different than what is

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Speaker 2: the average investor going to do? Uh, you know when

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Speaker 2: when the markets are wide open, and we saw that

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Speaker 2: people over the weekend actually did decide. You know, it's Saturday.

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Speaker 2: I'm scared of these headlines. I am going to liquidate

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Speaker 2: my portfolio. I'm going to move out, And that happened,

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Speaker 2: and it was over with early Monday morning because like

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Speaker 2: you said them, the you know, whoever was going to

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Speaker 2: get out got out. The market settled down, stabilized, and

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Speaker 2: actually ended up slightly up. That is not the market

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Speaker 2: voting for war. That is simply the fact that most

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Speaker 2: people got over it right.

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Speaker 1: Uh.

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Speaker 2: Our our phones were fairly quiet and not too crazy.

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Speaker 2: We had a in full here and there. But it's

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Speaker 2: kind of predictable. You know, an advisor who's been around

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Speaker 2: for a while knows which of his or her clients

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Speaker 2: are going to be the ones that need to be

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Speaker 2: talked to through this stuff. So but historically speaking, these

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Speaker 2: these things come and they go. We don't want to

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Speaker 2: discount the human toll of it. Of course, we are

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Speaker 2: here in this country. We're insulated with two oceans and

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Speaker 2: a country to the north of us that only invades

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Speaker 2: us with geese every spring or so, but so we

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Speaker 2: are kind of insulated from those from the actual day

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Speaker 2: to day impacts. Certainly feel for the people who are

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Speaker 2: suffering directly from it, but all we do is we

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Speaker 2: worry about our four oh one k's and things here.

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Speaker 2: So let's talk about psychologically and why does this happen? Well,

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Speaker 2: what do we what do our brains tell us when

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Speaker 2: this occurs. Well, there's a couple of things, a couple

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Speaker 2: phenomenon that occur. One of the big ones is recency bias.

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Speaker 2: So we really just kind of overweight what's going on

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Speaker 2: right now, right, what's happening right now must be reality.

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Speaker 2: Everything else has been a mistake ever since. But this

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Speaker 2: is real. The news cycle will not let us alone.

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Speaker 2: I remember before September eleventh, when the breaking news ticker

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Speaker 2: on the bottom of my TV screen meant something. Now,

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Speaker 2: breaking news is sometimes that nothing happened, breaking news, no

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Speaker 2: decision has been made on XYZ. So you can't get

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Speaker 2: away from that stuff. It's visual, it's emotional, and your

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Speaker 2: brain just labels it as this is the truth. This

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Speaker 2: is permanent. The next one is availability biased. This is

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Speaker 2: the more often we see something, the more probable we

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Speaker 2: believe it is. Now this screams social media. It is

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Speaker 2: easy to shove something in our brains multiple times every

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Speaker 2: single day. We have robots that do it. It's not

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Speaker 2: even people anymore versus back in the past when it

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Speaker 2: was a half hour right before dinner, you'd watch the

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Speaker 2: news on TV, and that was really the only exposure

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Speaker 2: you got to it. Now you have a device in

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Speaker 2: your pocket that buzzes with the same headline again and

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Speaker 2: again and again from multiple sources.

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Speaker 1: So if you're.

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Speaker 2: Watching constant coverage, it does feel like global collapse is imminent,

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Speaker 2: that the world is just about to end. But we

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Speaker 2: have to think about this. Is global trade actually frozen?

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Speaker 2: You know, your employers said, you know what, stop selling things,

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Speaker 2: stop making products, stop having these meetings. Is oil structure?

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Speaker 2: Is the oil supply structurally permanently our earnings estimates collapsing.

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Speaker 2: Are we seeing companies saying, hey, we're not going to

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Speaker 2: make any money, we have to sell off this, this

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Speaker 2: and this. No, these things are not happening. So we

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Speaker 2: are just reacting to the initial crazy headline that has

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Speaker 2: grabbed our attention and won't let go. So that availability

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Speaker 2: bias that makes these vivid events feel absolutely catastrophic.

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Speaker 1: And well, yeah, no, just to jump in here because

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Speaker 1: you already mentioned this, I mean, I just want to

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Speaker 1: make sure just to reiterate your point. You know, we're

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Speaker 1: on here talking about money and probability of markets going

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Speaker 1: up and down and you mentioned it, it just bears repeating.

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Speaker 1: We also are human beings. I mean we we are

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Speaker 1: certainly concerned greatly about the human toll in all this.

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Speaker 1: There are civilians in all of these countries being impacted,

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Speaker 1: if not killed. We've lost, you know, some military personnel

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Speaker 1: from the United States. So there's a human toll to

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Speaker 1: all of this too, and we're certainly keeping all of

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Speaker 1: those people in our thoughts and prayers and ask you

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Speaker 1: to do the same. But go ahead, Brian, with the

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Speaker 1: loss of version.

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Speaker 2: Yeah, and then the other this is really behind all

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Speaker 2: of it, right, the loss a version. This one is

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Speaker 2: really really big for high net worth investors. If you've

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Speaker 2: built a five million dollar portfolio, a ten percent decline

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Speaker 2: is five hundred thousand. That's not abstract, that's real money.

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Speaker 2: If you've got a fifty thousand dollars portfolio, that's same.

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Speaker 2: Ten percent decline is five thousand dollars. That's not life changing,

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Speaker 2: that's not a life changing event. But it's the same,

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Speaker 2: it's the same issue. It's the same market movement. The

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Speaker 2: bigger the portfolio, the harder the loss. Your brain will

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Speaker 2: tell you you've got to protect it, You've got to act.

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Speaker 2: We must do something. But the paradox is that urge

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Speaker 2: to protect wealth often creates the very losses you're trying

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Speaker 2: to avoid. So that what that means is, you know,

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Speaker 2: and I did have a handful of wealthy clients call

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Speaker 2: last April when the tariff news really hit the market,

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Speaker 2: and when we had we were down almost twenty percent. Briefly,

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Speaker 2: some people wanted to sell out. I'm scared, I'm worried

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Speaker 2: it's going to go down forty percent, and they wanted

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Speaker 2: to get out at that point. What that does is

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Speaker 2: it sets that loss in concrete based off of these

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Speaker 2: other these other biases that we were talking about, right

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Speaker 2: idiate news must be reality. Therefore I need to act

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Speaker 2: and do something right now. And now we've put in

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Speaker 2: concrete that loss. So what I urge people to do

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Speaker 2: is never ever, ever, ever put a high water mark

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Speaker 2: under your portfolio and say anything that happens that dragged

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Speaker 2: it below this high water mark is a mistake. That

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Speaker 2: is an absolute recipe for disaster. That you're allowing your

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Speaker 2: emotions to take control. Just know that the market, wherever

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Speaker 2: you've grown to now, the market has given you these

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Speaker 2: losses in the past and is giving you more in return,

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Speaker 2: and the fact that the market is at an all

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Speaker 2: time high right now as we're sitting here, means that

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Speaker 2: nothing in the history of the market has ever meant

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Speaker 2: that we should completely stay out, get out and stay out.

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Speaker 2: Doesn't work that way.

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Speaker 1: Yeah, and it's again what we need to do is

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Speaker 1: stay diversified in our portfolio case and point. Yeah. The

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Speaker 1: main risk right now is that Straits of Hermus Twenty

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Speaker 1: percent of the you know, global oil supply is going

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Speaker 1: through there. I mean, I was listening to a couple

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Speaker 1: of news shows this morning where you know, no ships

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Speaker 1: are going through there, and who can blame them for

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Speaker 1: you know, would you would you want to drive an

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Speaker 1: oil tanker through the Straits of Hermeus right now? Heck no,

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Speaker 1: you know you're gonna have to pay somebody a lot

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Speaker 1: of hazard pay Our government officials here on there saying, well,

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Speaker 1: we knocked out the whole Iran Navy, so it's really

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Speaker 1: safe now to go through the straits or Hermves. Nobody

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Speaker 1: is taking that bait right now. We're not seeing any

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Speaker 1: ships going through there. The price of crude oil, you know,

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Speaker 1: I'm seeing estimates it could rise in the short term

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Speaker 1: up to one hundred dollars a barrel from right now.

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Speaker 1: You know, we're we're looking in the low seventies, you know,

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Speaker 1: as of this morning. So not trying to you know,

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Speaker 1: put lipstick on a pig here. It all depends on

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Speaker 1: how long this oil supply disruption lasts. The interesting interesting

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Speaker 1: thing I found yesterday though, Brian, you know, back to

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Speaker 1: how quickly markets react, is you saw a rotation back

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Speaker 1: into tech stocks yesterday. You know, the price gets to

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Speaker 1: a cert point where people say, hey, I think the

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Speaker 1: value looks compelling long term. Some money went back into

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Speaker 1: these tech stocks that you know everyone was running away from,

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Speaker 1: you know, a week ago. And that's how quickly things

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Speaker 1: can turn on a dime. And that's why you have

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Speaker 1: to stay diversified. Talk to us, Brian, about when it

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Speaker 1: is when is it different? When do we really have

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Speaker 1: some structural change that it makes sense to pay attention to. Yeah,

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Speaker 1: I saw it real quick.

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Speaker 2: I saw that with the market too, And I just

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Speaker 2: remember thinking, yesterday the market was angry all morning long,

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Speaker 2: and then it went and had lunch and came back

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Speaker 2: in a better mood and things were fine. So sometimes

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Speaker 2: it does seem like a human being. But anyway, so yeah,

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Speaker 2: sometimes things are different that that's not now, right, But

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Speaker 2: let's describe what that might look like. So different requires

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Speaker 2: these measurable changes. That means sustained global trade breakdown, multi

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Speaker 2: year energy supply shocks, earnings revisions upon earnings revisions, just

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Speaker 2: collapsing across sectors, credit markets freezing. Those are systemic changes.

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Speaker 2: We saw that, excuse me in two thousand and eight.

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Speaker 1: For sure.

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Speaker 2: We we see headlines that look like they might become this,

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Speaker 2: but then they go away because we have to remember

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Speaker 2: that nobody benefits, right, There's nobody pulling strings and pulling

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Speaker 2: levers that benefits from permanently collapsing the economies and the

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Speaker 2: markets of the world. There just isn't anybody out there

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Speaker 2: in a position of power who could do this, who

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Speaker 2: will benefit from doing so.

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Speaker 1: So, I think except short sellers who are talking their

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Speaker 1: book when they go on these media shows.

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Speaker 2: Oh exactly, yes, you're right, you're right, short sellers who

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Speaker 2: are trying to influence the market and are briefly successful,

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Speaker 2: but oftentimes get caught with their pants down too. Yet

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Speaker 2: I remember these things, the problems we create, they unwind,

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Speaker 2: we fix them, we move on. I remember it wasn't

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Speaker 2: that long ago. We were talking about how many trucks

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Speaker 2: were sitting at the parking lot down in Sparta, at

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Speaker 2: the race at that abandoned racetrack down there because they

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Speaker 2: didn't have chips for the computers. That was probably a

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Speaker 2: year and a half of that being an issue that

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Speaker 2: quietly went away because we fixed the supply chain issues,

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Speaker 2: because again, it doesn't benefit anyone to have those problems

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Speaker 2: be permanent. We do things to fix and we make

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Speaker 2: messes and then we clean them up. So a better

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Speaker 2: question to ask instead of asking is this time different?

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Speaker 2: Think about it. The question is has the long term

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Speaker 2: earnings power of global business is permanently changed. If the

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Speaker 2: answer is no, which it pretty much always has been,

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Speaker 2: then your strategy shouldn't either.

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Speaker 1: Let's talk about what disciplined investors should do. This is

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Speaker 1: a great time to consider rebalancing your portfolio to reset

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Speaker 1: to your desired risk tolerance. Take advantage of tax loss

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Speaker 1: harvesting strategies, review your liquidity buckets, make sure those are

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Speaker 1: filled up, and confirm with your advisor what your true

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Speaker 1: risk tolerance is. In other words, stick to a plan,

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Speaker 1: and if you don't have a plan, get one. Here's

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Speaker 1: the all Worth advice don't let temporary uncertainty convince you

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Speaker 1: to abandon a well constructed, long term, permanent financial plan.

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Speaker 1: Coming up next, the hidden tax bomb that could be

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Speaker 1: lurking specifically in your brokerage account. 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 on Bob Sponseller along with Brian James.

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Speaker 1: Let's talk about something we're seeing more and more, especially

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Speaker 1: with families that have accumulated a significant amount of wealth.

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Speaker 1: On paper, everything looks great, big broker's account, long term

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Speaker 1: growth has been there for decades, maybe some low cost ETFs,

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Speaker 1: maybe some individual stocks that have absolutely crushed it over

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Speaker 1: the years, if not decades. And then we run some

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Speaker 1: numbers and we say, man, you do you realize you've

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Speaker 1: got a tax time bomb sitting there if things change,

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Speaker 1: you know, in your life in general and in your

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Speaker 1: financial plan. Let's get into what we mean by a

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Speaker 1: tax bomb, Brian, and more importantly, how do we fix it.

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Speaker 2: Well, basically, what we're talking about is the the price

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Speaker 2: of success off in is taxes. So let's pretend you

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Speaker 2: invested a million dollars over time in brokerage counts now

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Speaker 2: worth three million dollars. You've tripled your money. Congratulations, you

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Speaker 2: are a big winner. But that two million dollars worth

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Speaker 2: of gain, well, of course that hasn't been taxed yet,

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Speaker 2: and I don't think we're shocking anybody to say it's

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Speaker 2: gonna get taxed. So if you're in the twenty percent

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Speaker 2: federal long term capital gains bracket, and that's about four

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Speaker 2: hundred thousand dollars worth of income for a joint filer,

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Speaker 2: and I hope I'm right. I'm gonna consult my cheat sheet.

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Speaker 1: Here real quick.

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Speaker 2: But anyway, you can be in the twenty percent bracket.

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Speaker 2: There's also the fifteen percent bracket that touches most people.

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Speaker 2: But let's pretend you're in that twenty percent bracket and

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Speaker 2: you've got three point eight percent of net investment income tax.

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Speaker 2: That's a newer tax that's come about in the past

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Speaker 2: decade for people who make over a certain amount of

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Speaker 2: money and have income generated off of investments, got to

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Speaker 2: have state tax to put in there, or Kentucky or

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Speaker 2: Indiana wherever you happen to be. Now you're looking at

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Speaker 2: roughly twenty five to thirty percent total, that's potentially five

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Speaker 2: to six hundred thousand dollars in taxes if you liquidate.

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Speaker 2: And remember if you don't liquidate, than that three million dollars. Well,

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Speaker 2: it just plane doesn't exist. We have a lot of

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Speaker 2: people will resist the idea, well, I'm not paying I

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Speaker 2: can't pay any taxes. I got to pay my bills

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Speaker 2: some other way than relying on my portfolio, because by god,

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Speaker 2: I'm not paying any taxes, so you know it can

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Speaker 2: we kind of have to say, look, then I can't

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Speaker 2: pretend as your advisor that that money even exists if

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Speaker 2: it's all limits. So here's the part people miss. This

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Speaker 2: doesn't show up until you weren't thinking about it. You

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Speaker 2: want to rebalance, you want to simplify. You maybe maybe

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Speaker 2: it's time to generate income, or you know, maybe it's

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Speaker 2: time to buy that big house or do the things

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Speaker 2: you've always wanted to do. And we didn't take into

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Speaker 2: account the fact that we might owe taxes. So that

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Speaker 2: now all of a sudden, that tax bill isn't theoretical anymore.

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Speaker 2: It is a real thing, and it is a it's

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Speaker 2: basically its own debt that you're going to have to

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Speaker 2: write a check for out of that checking account.

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Speaker 1: Yeah, and the concentration problem rears its ugly head, especially

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Speaker 1: in the greater Cincinnati area, because, let's face it, we've

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Speaker 1: got some great employers here with solid company stocks, companies

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Speaker 1: like Procter and Gamble, Kroger, Fifth Third, ge Era, Space,

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Speaker 1: And over time, people can accumulate that company stock through

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Speaker 1: various means, and let's face it, it's grown by a lot.

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Speaker 1: Now thirty forty percent, even sometimes sixty percent of someone's

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Speaker 1: taxable investment account is in one single stock. And to

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Speaker 1: the point you already raised, people are they you know,

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Speaker 1: it's a double whammy. People are very loyal to those

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Speaker 1: companies because they work there, they know how they work,

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Speaker 1: they feel confident in those companies. And we've got these embedded,

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Speaker 1: embedded long term capital gains. So because of both of

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Speaker 1: those things, oftentimes people, as you've already said, you know,

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Speaker 1: we got to find the money somewhere else. That that

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Speaker 1: is an impact that can, you know, creep up on

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Speaker 1: people in a couple of different ways. One, I think

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Speaker 1: people underestimate the amount of investment risk embedded in that portfolio.

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Speaker 1: And then sometimes two, depending on how much money they

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Speaker 1: do have elsewhere in the money apart from the money

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Speaker 1: they quote unquote can or won't touch because they have

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Speaker 1: to pay taxes. Now, you're missing out on some lifestyle decisions,

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Speaker 1: maybe that extended family vacation with your family and grandkids,

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Speaker 1: maybe remodeling that basement or kitchen because you just because

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Speaker 1: you don't want to pay some capital gains taxes. And

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Speaker 1: that's where we're you know, we always say all the time,

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Speaker 1: don't let the tax tail wag the dog, so to speak.

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Speaker 1: Sometimes we see people do that and it could be

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Speaker 1: a shame because, as you're about to talk about next, Brian,

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Speaker 1: there are some ways, very effective ways to unleash some

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Speaker 1: of this capital and pay or minimize or eliminate taxes

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Speaker 1: in a very responsible way. But sometimes it could take

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Speaker 1: a little bit of time, and you have to have

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Speaker 1: a process and plan in place.

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Speaker 2: So, yeah, the first thing we can do is take

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Speaker 2: advantage of time.

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Speaker 1: Right.

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Speaker 2: There's no box you can check or way you can

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Speaker 2: fill out your ten forty that's going to get you

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Speaker 2: out of these taxes. You just have to think and

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Speaker 2: know how the tax code works and have a basic.

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Speaker 1: You can die, Brian, that's true.

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Speaker 2: Yeah, you know what, I take it all back if

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Speaker 2: you just die, most of the stuff goes away, you

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Speaker 2: get a step up in cost basis. That is a

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Speaker 2: full proof plan. Let us know how that goes for you.

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Speaker 2: In any case, assuming dying is off the table, then

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Speaker 2: you can just spread it out over time. So we're

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Speaker 2: sitting here, it is what it is is March. We

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Speaker 2: are roughly a quarter of the way through twenty twenty six,

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Speaker 2: and that means that in ten months we're going to

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Speaker 2: be in a new tax year. So what you can

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Speaker 2: do is if you can find a way to cover

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Speaker 2: the need that you have somehow right, so maybe this

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Speaker 2: is a home equity line of creditors. I often recommend

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Speaker 2: that you can get a home equity line of credit

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Speaker 2: for between six and seven percent interest right now, and

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Speaker 2: you could then sell off whatever you need, sell off

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Speaker 2: a piece of it now, pay some taxes now. Ten

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Speaker 2: months later you'll be in a new tax year and

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Speaker 2: you can sell off another chunk. My favorite time of

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Speaker 2: year to talk about this is the fourth quarter of

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Speaker 2: any year, because I get to say, hey, we can

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Speaker 2: do something in December, something anytime next year, and then

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Speaker 2: something the following January, and we can find ourselves in

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Speaker 2: three separate tax years over a span of about thirteen months,

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Speaker 2: so just a little over a year. But anyway, just

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Speaker 2: understand in what taxation you'll be taking in which year.

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Speaker 2: When regarding your investments, what you might want to do

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Speaker 2: instead of sitting on index funds, look into direct indexing solutions.

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Speaker 2: This is owning all five hundred individual stocks in the

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Speaker 2: S and P five hundred instead of an S and

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Speaker 2: P five hundred index mutual fund. That means you have

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Speaker 2: control over each and every one of those positions. You

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Speaker 2: can sell some off at a gain, you can sell

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Speaker 2: some off at losses when that position when that occurs,

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Speaker 2: and there are services out there that will do this

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Speaker 2: automatically for you. Another one's a donor advice fund. If

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Speaker 2: you are already charitably inclined, then understand what a donor

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Speaker 2: advised fund does for you, and you can basically lump

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Speaker 2: multi years worth of donations into one year. Perhaps you've

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Speaker 2: got a year where you're selling a business where there's

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Speaker 2: something significant happening, then you'll you've got the ability to

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Speaker 2: take advantage of that by doing it all in one year.

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Speaker 1: Here's the all Worth advice. Don't wait for the tax

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Speaker 1: bill to surprise you. Identify the embedded gains in your

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Speaker 1: broker account. Now in we owed a proactive multi year

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Speaker 1: strategy to control when and how you pay them. Thanks

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Speaker 1: for listening tonight. Xavier basketball is coming up next. You've

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Speaker 1: been listening to Simply Money, presented by all Worth Financial

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Speaker 1: on fifty five KRC, the talk station