1 00:00:07,320 --> 00:00:11,640 Speaker 1: Tonight, why channeling a fictional character from the year eighteen 2 00:00:11,880 --> 00:00:15,480 Speaker 1: nineteen might be the best financial move you make this year. 3 00:00:16,200 --> 00:00:18,439 Speaker 1: This is Simply Money, presented by all Worth Financial on 4 00:00:18,600 --> 00:00:22,599 Speaker 1: Bob Sponseller along with Brian James. What if the smartest 5 00:00:22,640 --> 00:00:25,000 Speaker 1: move you could make in this market right now with 6 00:00:25,079 --> 00:00:27,680 Speaker 1: all this turmoil in the Middle East is to take 7 00:00:27,800 --> 00:00:31,360 Speaker 1: a really long nap. There's a guy who did that 8 00:00:32,040 --> 00:00:35,839 Speaker 1: and his name was Rip van Winkle. Ryan, Are we 9 00:00:36,320 --> 00:00:39,720 Speaker 1: just really reaching here and exaggerating? Are we telling everyone 10 00:00:39,720 --> 00:00:41,520 Speaker 1: out there to just go to sleep for the rest 11 00:00:41,560 --> 00:00:42,720 Speaker 1: of this year? Yes? 12 00:00:42,840 --> 00:00:43,680 Speaker 2: Next question. 13 00:00:45,000 --> 00:00:46,080 Speaker 1: Figs our life easier? 14 00:00:46,080 --> 00:00:47,600 Speaker 2: Does that exactly right? And I kind of want to 15 00:00:47,640 --> 00:00:49,319 Speaker 2: do it myself, right? I got Andy Stouff to worry 16 00:00:49,320 --> 00:00:51,440 Speaker 2: about portfolios. If all of our clients just take a 17 00:00:51,440 --> 00:00:53,440 Speaker 2: really long nap, and then we can too, And we'll 18 00:00:53,479 --> 00:00:55,840 Speaker 2: just let Andy drive the boat and we'll we'll ask 19 00:00:55,920 --> 00:00:58,600 Speaker 2: him what happened around Christmas? Anyway, Rip van Winkle, he's 20 00:00:58,600 --> 00:01:01,240 Speaker 2: a fictional character. You've heard of him. Eighteen nineteen short 21 00:01:01,280 --> 00:01:03,880 Speaker 2: story by Washington Irving. So he wanders into the mountains 22 00:01:03,880 --> 00:01:06,399 Speaker 2: and falls asleep and somehow doesn't wake up for twenty years. 23 00:01:06,400 --> 00:01:09,160 Speaker 2: Also doesn't die, but that's not addressed in the story there. 24 00:01:09,400 --> 00:01:12,600 Speaker 2: So he sleeps through the American Revolution. When he wakes up, 25 00:01:12,640 --> 00:01:15,400 Speaker 2: the world, of course, is completely different around him. There's 26 00:01:15,440 --> 00:01:18,119 Speaker 2: a different government, different leaders, whole different economy. The British 27 00:01:18,160 --> 00:01:20,440 Speaker 2: are gone now it's an American government, whatever that is, 28 00:01:21,200 --> 00:01:24,080 Speaker 2: and life has moved forward without him. So why are 29 00:01:24,080 --> 00:01:26,720 Speaker 2: we bringing this up? Well, when markets get volatile, when 30 00:01:26,720 --> 00:01:29,920 Speaker 2: the headlines are streaming war, inflation, rate hikes, scary stuff, 31 00:01:29,959 --> 00:01:33,480 Speaker 2: scary stuff, political dysfunction, the best investment strategy might just 32 00:01:33,520 --> 00:01:36,000 Speaker 2: be to do exactly what he did, go to sleep. 33 00:01:36,400 --> 00:01:39,480 Speaker 2: And I'm saying this because I do have clients who 34 00:01:39,600 --> 00:01:42,480 Speaker 2: have called in concerned about the most recent headlines and 35 00:01:42,480 --> 00:01:44,920 Speaker 2: how much they've lost. I've lost money, I've lost money. Yeah, 36 00:01:45,120 --> 00:01:47,480 Speaker 2: you've lost money over the last seven days. You're up 37 00:01:47,520 --> 00:01:49,840 Speaker 2: for the year because the markets haven't done that much 38 00:01:49,920 --> 00:01:52,800 Speaker 2: despite the scary headlines. Hasn't had that significant of an 39 00:01:52,800 --> 00:01:55,560 Speaker 2: impact on it. So we're not talking about ignoring your finances. 40 00:01:55,600 --> 00:02:00,480 Speaker 2: We're simply suggesting strategically detach yourself from the emotional that 41 00:02:00,600 --> 00:02:03,320 Speaker 2: causes these bad decisions. It causes the panic. Here's what 42 00:02:03,400 --> 00:02:06,440 Speaker 2: volatility does It convinces you that this time is different. 43 00:02:06,640 --> 00:02:09,120 Speaker 2: This time because I'm surrounded by headlines, right, I can 44 00:02:09,160 --> 00:02:11,560 Speaker 2: see the headlines. I see what's moving the market. This time. 45 00:02:11,600 --> 00:02:14,600 Speaker 2: It's different. That convinces you that action equals control. I 46 00:02:14,639 --> 00:02:16,720 Speaker 2: have to do something. I gotta push a button, I 47 00:02:16,760 --> 00:02:20,160 Speaker 2: gotta pull a lever because anything else is irresponsible. However, 48 00:02:20,280 --> 00:02:22,079 Speaker 2: history suggests something very different. 49 00:02:22,080 --> 00:02:25,480 Speaker 1: Bob. Yeah, So we're gonna play a little game here 50 00:02:25,480 --> 00:02:28,200 Speaker 1: on a Friday that we'll call the Rip van Winkle game. 51 00:02:28,280 --> 00:02:31,080 Speaker 1: Let's say you invested a few million dollars into a 52 00:02:31,200 --> 00:02:35,079 Speaker 1: truly diversified portfolio and then literally did take a twenty 53 00:02:35,120 --> 00:02:39,040 Speaker 1: year nap at some of the worst possible starting points 54 00:02:39,040 --> 00:02:43,359 Speaker 1: in modern history. Let's say nineteen seventy three you went 55 00:02:43,400 --> 00:02:47,320 Speaker 1: to sleep right before the oil embargo in stagflation, or 56 00:02:47,360 --> 00:02:50,960 Speaker 1: in nineteen eighty seven, right before Black Monday, or you 57 00:02:51,000 --> 00:02:53,600 Speaker 1: went to sleep in nineteen ninety nine at the peak 58 00:02:53,840 --> 00:02:56,960 Speaker 1: of the tech bubble. Or let's say you took your 59 00:02:56,960 --> 00:02:59,880 Speaker 1: twenty year nap in two thousand and seven, right before 60 00:02:59,880 --> 00:03:03,440 Speaker 1: the financial crisis, and then took another twenty year nap 61 00:03:03,480 --> 00:03:06,400 Speaker 1: in February of twenty twenty, right before COVID shut the 62 00:03:06,400 --> 00:03:09,760 Speaker 1: whole world down if you woke up fifteen to twenty 63 00:03:09,840 --> 00:03:13,000 Speaker 1: years later. In every one of those cases, you were 64 00:03:13,120 --> 00:03:16,560 Speaker 1: wealthier if you just ignored it and let it ride, 65 00:03:16,680 --> 00:03:21,280 Speaker 1: and in many cases substantially wealthier. And here's the important part. 66 00:03:21,560 --> 00:03:24,320 Speaker 1: You would have missed all the panic and angst and 67 00:03:24,520 --> 00:03:28,240 Speaker 1: media stories and cable pundits. You would have missed the 68 00:03:28,360 --> 00:03:31,600 Speaker 1: huge urge to sell. You would have missed the commentators 69 00:03:31,639 --> 00:03:36,240 Speaker 1: telling you capitalism might be over. Ripman Winkle didn't outperform 70 00:03:36,280 --> 00:03:40,360 Speaker 1: because he was brilliant. He outperformed because he was absent. 71 00:03:40,960 --> 00:03:42,880 Speaker 1: Why is this so hard to do, Brian? 72 00:03:43,120 --> 00:03:46,000 Speaker 2: I want to miss all those things that really sounds lovely, Bob. 73 00:03:46,760 --> 00:03:49,000 Speaker 2: This is hard, Bob, because it's you got a five 74 00:03:49,040 --> 00:03:51,760 Speaker 2: million dollar portfolio that drops fifteen percent, Well, that's seven 75 00:03:51,840 --> 00:03:54,240 Speaker 2: hundred and fifty thousand dollars on paper. If I have 76 00:03:54,280 --> 00:03:57,280 Speaker 2: a fifty thousand, important, five thousand dollar portfolio and it 77 00:03:57,360 --> 00:03:59,920 Speaker 2: drops fifteen percent, well I've lost seventy five hundred dollars. 78 00:03:59,760 --> 00:04:02,760 Speaker 2: That's fun. But I certainly haven't lost three quarters of 79 00:04:02,760 --> 00:04:03,680 Speaker 2: a million dollars. 80 00:04:03,720 --> 00:04:04,000 Speaker 1: Bob. 81 00:04:04,480 --> 00:04:06,720 Speaker 2: Well, it's just a percentage, right. The bigger the number, 82 00:04:06,800 --> 00:04:09,600 Speaker 2: the more painful it feels, and then it feels real. 83 00:04:09,600 --> 00:04:11,640 Speaker 2: The more real it feels, so your brain doesn't process 84 00:04:11,640 --> 00:04:13,640 Speaker 2: it as a temporary Well, this is just what it's worth. 85 00:04:13,680 --> 00:04:16,000 Speaker 2: You're not just marking it to market. Your brain will 86 00:04:16,040 --> 00:04:19,479 Speaker 2: process that as a threat. That's loss, a version, recency, bias, 87 00:04:19,560 --> 00:04:21,720 Speaker 2: all those fancy words that we use, and you will 88 00:04:21,800 --> 00:04:25,080 Speaker 2: feel it more intensely. We always feel losses much more 89 00:04:25,080 --> 00:04:27,760 Speaker 2: intensely than we feel additional gain. So this is a 90 00:04:27,760 --> 00:04:30,200 Speaker 2: conversation I have with people who are sitting on way 91 00:04:30,240 --> 00:04:32,080 Speaker 2: too much stock. I had one earlier this week with 92 00:04:32,160 --> 00:04:34,560 Speaker 2: some clients who are fortunate to have been P and 93 00:04:34,560 --> 00:04:37,080 Speaker 2: G employees for a long time. That's usually a pretty 94 00:04:37,160 --> 00:04:39,640 Speaker 2: lucrative proposition. You can make a lot of money doing that. 95 00:04:40,200 --> 00:04:42,080 Speaker 2: And because P and G is a great company. However, 96 00:04:42,160 --> 00:04:44,760 Speaker 2: it is a company and it will take the beating 97 00:04:44,800 --> 00:04:48,080 Speaker 2: occasionally that any an individual stock will. And we always 98 00:04:48,120 --> 00:04:50,320 Speaker 2: talk about the in this particular example, we talk about 99 00:04:50,320 --> 00:04:53,280 Speaker 2: the Dirk Yager years. Dirk Yager was a CEO that 100 00:04:53,320 --> 00:04:55,120 Speaker 2: was put in place in the early two thousand, Like 101 00:04:56,720 --> 00:04:59,640 Speaker 2: this is a perfect example. If anything happens to anybody, yeah, 102 00:04:59,640 --> 00:05:02,840 Speaker 2: I don't like I hope he's not still in town 103 00:05:02,839 --> 00:05:04,800 Speaker 2: listening to the show. But anyway, it doesn't matter what 104 00:05:04,800 --> 00:05:07,839 Speaker 2: Brian thinks. What matters is that the entire market hated him, 105 00:05:07,920 --> 00:05:10,040 Speaker 2: and so P and G, the wonderful company that it is, 106 00:05:10,200 --> 00:05:12,919 Speaker 2: took a fifty percent hit close to it in the 107 00:05:13,000 --> 00:05:15,080 Speaker 2: early two thousands. So anybody who thought they were going 108 00:05:15,160 --> 00:05:17,440 Speaker 2: to tire that year got two or three more years 109 00:05:17,480 --> 00:05:21,080 Speaker 2: tacked onto their working career, all because they were sitting. 110 00:05:21,160 --> 00:05:23,680 Speaker 2: They had taken too much risk. They felt that a 111 00:05:23,720 --> 00:05:25,400 Speaker 2: lot more so. The example I use is you're going 112 00:05:25,440 --> 00:05:28,640 Speaker 2: to feel that loss a lot more than you'll feel 113 00:05:28,680 --> 00:05:32,320 Speaker 2: if it gains right soon. Gaining twenty percent is great, 114 00:05:32,440 --> 00:05:34,680 Speaker 2: Losing twenty percent is the end of the world. The 115 00:05:34,680 --> 00:05:38,240 Speaker 2: way our brains work, we react much more intensely to 116 00:05:38,400 --> 00:05:40,200 Speaker 2: losses than we do gains. 117 00:05:41,400 --> 00:05:43,560 Speaker 1: Yeah, and here's the cruel twist to all of this. 118 00:05:43,680 --> 00:05:47,120 Speaker 1: And we've all lived through this client's advisors. Anybody that 119 00:05:47,200 --> 00:05:50,520 Speaker 1: thinks they want to time the market, those moments when 120 00:05:50,600 --> 00:05:54,040 Speaker 1: you most want to act to do something are often 121 00:05:54,080 --> 00:05:57,679 Speaker 1: the moments when in action was the most valuable decision 122 00:05:57,760 --> 00:06:02,039 Speaker 1: you could make. Markets tend to recover way before headlines improve, 123 00:06:02,600 --> 00:06:07,440 Speaker 1: and they bottom when uncertainty is often still very, very high. 124 00:06:07,960 --> 00:06:10,200 Speaker 1: And I think most people listening that have any kind 125 00:06:10,200 --> 00:06:13,560 Speaker 1: of a portfolio know exactly what we're talking about, the 126 00:06:13,640 --> 00:06:16,120 Speaker 1: end of the tech bubble, the end of the financial crisis, 127 00:06:16,160 --> 00:06:19,279 Speaker 1: the end of COVID. If you sell during peak fear, 128 00:06:19,440 --> 00:06:23,400 Speaker 1: you often miss those fastest recovery days, and those days 129 00:06:23,440 --> 00:06:28,920 Speaker 1: matter disproportionately to long term returns. Brian, imagine if Rip 130 00:06:29,000 --> 00:06:32,120 Speaker 1: van Winkle could have worked with you as an advisor, 131 00:06:32,200 --> 00:06:35,520 Speaker 1: he could have had a direct indexing strategy tax loss 132 00:06:35,560 --> 00:06:39,240 Speaker 1: harvesting buffer at ETFs. Not only would he have made money, 133 00:06:39,520 --> 00:06:42,320 Speaker 1: he would have killed it with tax efficiency and rate 134 00:06:42,360 --> 00:06:43,120 Speaker 1: of return. 135 00:06:43,320 --> 00:06:45,440 Speaker 2: Well, I'm gonna stayed asleep the whole time. That's the 136 00:06:45,440 --> 00:06:46,240 Speaker 2: whole point. 137 00:06:46,440 --> 00:06:50,480 Speaker 1: Okay, Well, talk about what Rip really understood, even if 138 00:06:50,520 --> 00:06:54,320 Speaker 1: fictionally and without knowing he understood it all. 139 00:06:54,320 --> 00:06:56,440 Speaker 2: Right, Bob, But yeah, let's talk about what Rip understood 140 00:06:56,440 --> 00:06:58,920 Speaker 2: even if this was just fiction. So his strategy worked 141 00:06:58,920 --> 00:07:02,240 Speaker 2: for a single reason, long term earnings of the earning's 142 00:07:02,240 --> 00:07:04,320 Speaker 2: power of global businesses, Well, that tends to go up 143 00:07:04,360 --> 00:07:07,720 Speaker 2: over time. Stuff goes up, not down. Companies adapt, they 144 00:07:07,800 --> 00:07:10,040 Speaker 2: react to whatever the market, whatever the scary headline is. 145 00:07:10,040 --> 00:07:12,680 Speaker 2: We fix the problem. I think not that long ago. 146 00:07:12,840 --> 00:07:15,360 Speaker 2: Are our vaunted technology companies that have made money hand 147 00:07:15,440 --> 00:07:17,920 Speaker 2: over fists for decades. I think twice in the last 148 00:07:17,960 --> 00:07:21,040 Speaker 2: five to seven years have laid off tens of thousands 149 00:07:21,040 --> 00:07:23,440 Speaker 2: of workers. That's what they do. They're not doing that 150 00:07:23,480 --> 00:07:25,200 Speaker 2: because they're about to hit the skids, they're about to 151 00:07:25,200 --> 00:07:28,640 Speaker 2: go under. They're doing that because the outside economy has 152 00:07:28,640 --> 00:07:30,680 Speaker 2: dictated that it's time to pull in. It's time to 153 00:07:30,680 --> 00:07:33,080 Speaker 2: reduce expenses so that we can get back to the 154 00:07:33,840 --> 00:07:36,600 Speaker 2: longer term growth that we've become accustomed to. And that's 155 00:07:36,640 --> 00:07:38,840 Speaker 2: exactly what happens. The pendulum begins to swing the other 156 00:07:38,880 --> 00:07:41,240 Speaker 2: way and they go on to greater heights. So we 157 00:07:41,280 --> 00:07:43,280 Speaker 2: don't have to sit here and just take it. Companies 158 00:07:43,320 --> 00:07:46,240 Speaker 2: make changes. This is why we always when people want 159 00:07:46,280 --> 00:07:48,960 Speaker 2: to talk about gold or precious metals during scary times, 160 00:07:49,200 --> 00:07:51,880 Speaker 2: gold can't react. Gold is simply worth what it's worth. 161 00:07:52,040 --> 00:07:54,200 Speaker 2: It's worth only what people think of it. Versus a 162 00:07:54,200 --> 00:07:56,640 Speaker 2: company that can change its makeup. It can change how 163 00:07:56,680 --> 00:07:59,280 Speaker 2: many employees it has, It can change how it approaches 164 00:07:59,320 --> 00:08:01,320 Speaker 2: the market, that kind of products it sells, where it's 165 00:08:01,360 --> 00:08:05,000 Speaker 2: selling them. Supply chains can reroute energy shocks go away. 166 00:08:05,000 --> 00:08:06,920 Speaker 2: Some things we can't control, but they do tend to 167 00:08:06,920 --> 00:08:11,160 Speaker 2: normalize themselves. People still need tooth based software, groceries, all 168 00:08:11,200 --> 00:08:14,680 Speaker 2: this other stuff. Corporate profits are designed to be flexible 169 00:08:14,720 --> 00:08:17,440 Speaker 2: to that, and they expand over decades, not in straight 170 00:08:17,480 --> 00:08:20,960 Speaker 2: lines necessarily, but persistently. So Rip didn't need to know 171 00:08:21,000 --> 00:08:22,720 Speaker 2: what oil was going to do next month. He just 172 00:08:22,720 --> 00:08:25,360 Speaker 2: needed to believe that capitalism would continue to be a thing. 173 00:08:25,600 --> 00:08:28,280 Speaker 2: And that's driven by greed. Bob, I will worry about 174 00:08:28,320 --> 00:08:31,200 Speaker 2: all this stuff when people wake up and aren't greedy 175 00:08:31,360 --> 00:08:33,760 Speaker 2: every single day. And all of us have a little 176 00:08:33,760 --> 00:08:35,280 Speaker 2: bit of that in us. That's why, that's why we're 177 00:08:35,320 --> 00:08:38,160 Speaker 2: having this conversation. Whatever our pile is, we have the 178 00:08:38,240 --> 00:08:40,440 Speaker 2: need for more, We have the desire for more. That's 179 00:08:40,480 --> 00:08:43,400 Speaker 2: greed anyway you want to label it, and that's what 180 00:08:43,480 --> 00:08:44,920 Speaker 2: drives the market forward in the long run. 181 00:08:45,640 --> 00:08:48,000 Speaker 1: All right, before we encourage all of our listeners to 182 00:08:48,080 --> 00:08:50,080 Speaker 1: just go to sleep for twenty years, this is an 183 00:08:50,120 --> 00:08:51,120 Speaker 1: important caveat. 184 00:08:51,120 --> 00:08:52,440 Speaker 2: I still say that sounds fantastic. 185 00:08:52,480 --> 00:08:56,240 Speaker 1: Sometimes you gotta build your plan first before you go 186 00:08:56,320 --> 00:09:01,000 Speaker 1: to sleep. And let's make something very clear. Ripvan investing 187 00:09:01,080 --> 00:09:03,920 Speaker 1: only works if you've built your financial house and got 188 00:09:03,960 --> 00:09:06,920 Speaker 1: your financial house in order and your portfolio before the 189 00:09:06,960 --> 00:09:10,640 Speaker 1: storm hits. If you're retired and you're spending one hundred 190 00:09:10,640 --> 00:09:12,760 Speaker 1: to three hundred thousand dollars a year but you have 191 00:09:13,040 --> 00:09:17,680 Speaker 1: zero liquidity and everything's inequities, yeah, you can't sleep. And 192 00:09:17,720 --> 00:09:20,600 Speaker 1: it's because you're over allocated to stocks and you've got 193 00:09:20,600 --> 00:09:22,600 Speaker 1: no safety net to take care of yourself in the 194 00:09:22,640 --> 00:09:26,480 Speaker 1: short term, and you'll be forced then to sell during downturns. 195 00:09:26,800 --> 00:09:29,080 Speaker 1: If sixty percent of your net worth is tied up 196 00:09:29,120 --> 00:09:31,960 Speaker 1: in one company stock, yeah, there's probably a reason you 197 00:09:32,040 --> 00:09:36,000 Speaker 1: can't sleep. If your over leverage would say marchin debt, well, 198 00:09:36,000 --> 00:09:40,559 Speaker 1: then you absolutely can't sleep, and for probably good reason. 199 00:09:40,600 --> 00:09:43,120 Speaker 1: You're taking on too much risk. In other words, the 200 00:09:43,200 --> 00:09:46,280 Speaker 1: Rip van Winkle strategy works when you have those two 201 00:09:46,320 --> 00:09:49,840 Speaker 1: to three years worth of spending in safe assets. Your 202 00:09:49,880 --> 00:09:54,600 Speaker 1: allocation reflects your real risk tolerance both economically and emotionally. 203 00:09:54,960 --> 00:09:58,880 Speaker 1: You're diversified globally, your tax strategy has been thought through 204 00:09:58,920 --> 00:10:01,760 Speaker 1: in advance, and you don't need to tap into your 205 00:10:01,800 --> 00:10:05,160 Speaker 1: equity holdings at the worst possible moment. In other words, 206 00:10:05,520 --> 00:10:09,960 Speaker 1: Rip isn't reckless. He's prepared for that twenty year nap Brian. 207 00:10:10,480 --> 00:10:13,719 Speaker 2: Yeah, so what should you be thinking about this day? 208 00:10:13,720 --> 00:10:15,520 Speaker 2: Think about it this way. If I wake up fifteen 209 00:10:15,600 --> 00:10:18,160 Speaker 2: years from now, what I regret that I sold today? 210 00:10:18,600 --> 00:10:21,440 Speaker 2: So if the long term, the long term thesis hasn't changed, 211 00:10:21,480 --> 00:10:24,480 Speaker 2: you know, the global economy hasn't permanently broken. If companies 212 00:10:24,520 --> 00:10:27,199 Speaker 2: are still generating profits, which means you you may be 213 00:10:27,320 --> 00:10:29,920 Speaker 2: angry at the headlines, But if you're planning on stopping 214 00:10:29,920 --> 00:10:31,600 Speaker 2: at the grocery store at the end of the day 215 00:10:31,640 --> 00:10:33,439 Speaker 2: like you normally do on the way home from work, well, 216 00:10:33,440 --> 00:10:35,200 Speaker 2: then that means the dollars are going to keep flowing 217 00:10:35,520 --> 00:10:37,360 Speaker 2: and the money's going to continue to move in a circle. 218 00:10:37,400 --> 00:10:39,120 Speaker 2: You went to work to help your company or your 219 00:10:39,160 --> 00:10:41,760 Speaker 2: employer provide whatever it provides to the world, and then 220 00:10:41,800 --> 00:10:44,240 Speaker 2: you stop to spend some of your earned dollars to 221 00:10:44,280 --> 00:10:46,600 Speaker 2: help some other company do the same thing, well, then 222 00:10:46,640 --> 00:10:50,320 Speaker 2: that urge to act is likely just emotional, not rational. Right, 223 00:10:50,360 --> 00:10:52,960 Speaker 2: We're simply reacting to the headlines and ignoring the fact 224 00:10:53,000 --> 00:10:55,800 Speaker 2: that underlying all this, the world keeps turning and money 225 00:10:55,800 --> 00:10:58,040 Speaker 2: continues to move in a circle. So you know about 226 00:10:58,040 --> 00:11:00,280 Speaker 2: the wealthiest families we work with, They're not the ones 227 00:11:00,280 --> 00:11:03,160 Speaker 2: who make these brilliant, tactical calls timing the market and 228 00:11:03,160 --> 00:11:06,840 Speaker 2: all this wonderful stuff. They're the ones who avoided these catastrophic, panicky, 229 00:11:06,840 --> 00:11:10,079 Speaker 2: emotional mistakes. They didn't try to win every news cycle. 230 00:11:10,080 --> 00:11:12,920 Speaker 2: They're not reacting to the headlines. They simply stayed invested 231 00:11:12,960 --> 00:11:15,880 Speaker 2: to let compounding do its job and slept through the 232 00:11:15,920 --> 00:11:19,520 Speaker 2: noise like our old friend Rip van Winkle. Here's the 233 00:11:19,520 --> 00:11:22,560 Speaker 2: all Worth advice. The person who sleeps soundly through the 234 00:11:22,600 --> 00:11:26,360 Speaker 2: storm often wakes up wealthier than the one that stayed 235 00:11:26,440 --> 00:11:29,760 Speaker 2: up all night reacting to every single flash of lightning. 236 00:11:30,280 --> 00:11:33,800 Speaker 2: Coming up next, the one question couples are not asking 237 00:11:33,960 --> 00:11:36,839 Speaker 2: that could be costing them thousands of dollars. You're listening 238 00:11:36,880 --> 00:11:39,240 Speaker 2: to Simply Money, presented by all Worth Financial on fifty 239 00:11:39,240 --> 00:11:48,000 Speaker 2: five KRC the talk station. You're listening to Simply Money 240 00:11:48,080 --> 00:11:50,720 Speaker 2: presented by all Worth Financial on Bob spond Seller along 241 00:11:50,720 --> 00:11:53,440 Speaker 2: with Brian James. Well else, did you pay off the 242 00:11:53,480 --> 00:11:56,600 Speaker 2: house or let that low mortgage rate ride? And what 243 00:11:56,760 --> 00:11:58,679 Speaker 2: if you want to handle it one way and your 244 00:11:58,720 --> 00:12:02,840 Speaker 2: spouse completely dis agrees and just paying off debt always 245 00:12:02,880 --> 00:12:04,000 Speaker 2: make you feel richer? 246 00:12:04,400 --> 00:12:06,880 Speaker 1: Or could it cost you in the long run. We'll 247 00:12:07,240 --> 00:12:09,600 Speaker 1: we'll try to sort all of that out straight ahead 248 00:12:09,600 --> 00:12:13,200 Speaker 1: at six forty three. Here's a simple question for anyone 249 00:12:13,280 --> 00:12:18,160 Speaker 1: who's married and working when it comes to your retirement contributions. 250 00:12:18,200 --> 00:12:20,840 Speaker 1: Have you ever asked, who's four to one k? Should 251 00:12:20,880 --> 00:12:25,000 Speaker 1: we be prioritizing, not are we both saving, not are 252 00:12:25,040 --> 00:12:29,480 Speaker 1: we maxing out? But specifically, whose plan has the better 253 00:12:29,600 --> 00:12:34,000 Speaker 1: employer match? Brian, This is something we come across fairly often. 254 00:12:34,120 --> 00:12:36,760 Speaker 1: People have not dug into the details to actually be 255 00:12:36,840 --> 00:12:39,920 Speaker 1: in a position to make these decisions, and it could 256 00:12:40,040 --> 00:12:44,120 Speaker 1: the wrong decision or ignoring it could literally cost a 257 00:12:44,440 --> 00:12:46,320 Speaker 1: thousands of dollars over the long run. 258 00:12:46,520 --> 00:12:48,320 Speaker 2: Yeah, and that can be a compound. It gets you 259 00:12:48,360 --> 00:12:51,000 Speaker 2: in the future. So let's dig into this. New research 260 00:12:51,040 --> 00:12:54,079 Speaker 2: published in the American Economic Review finds that about twenty 261 00:12:54,080 --> 00:12:56,840 Speaker 2: percent of people one in five couples could increase their 262 00:12:56,880 --> 00:13:00,240 Speaker 2: retirement savings simply by shifting contributions to the space else 263 00:13:00,280 --> 00:13:02,720 Speaker 2: with the higher match. In other words, let's let you know. 264 00:13:02,760 --> 00:13:05,319 Speaker 2: Let let's make up a quick example here. If I'm 265 00:13:05,320 --> 00:13:07,240 Speaker 2: putting in ten percent of my four oh one K, 266 00:13:07,720 --> 00:13:09,880 Speaker 2: and I get a match on the first six percent 267 00:13:10,320 --> 00:13:13,720 Speaker 2: and my spouse is only putting in three percent, but 268 00:13:13,800 --> 00:13:16,040 Speaker 2: she gets a mouse match on her first six percent, 269 00:13:16,320 --> 00:13:18,720 Speaker 2: and if we can't afford any more, that's fine. I 270 00:13:18,760 --> 00:13:22,480 Speaker 2: should reduce my contribution so that she can increase hers, 271 00:13:22,800 --> 00:13:25,480 Speaker 2: and therefore we're both taking advantage of that match. What 272 00:13:25,559 --> 00:13:28,520 Speaker 2: this study found not everybody's doing this. So they're estimating 273 00:13:28,520 --> 00:13:30,720 Speaker 2: about seven hundred and fifty dollars a year in additional 274 00:13:30,760 --> 00:13:34,040 Speaker 2: savings for these couples over lifetime. That's about fourteen thousand 275 00:13:34,080 --> 00:13:37,280 Speaker 2: dollars more in retirement wealth on average. At about ten percent, 276 00:13:37,320 --> 00:13:39,800 Speaker 2: of these couples could potentially gain as much as forty 277 00:13:39,880 --> 00:13:43,040 Speaker 2: thousand dollars more by retirement because of you know, just 278 00:13:43,080 --> 00:13:46,880 Speaker 2: simply not understanding how important that match is and exactly 279 00:13:46,880 --> 00:13:49,200 Speaker 2: how impactful it is once compounded over time. 280 00:13:49,600 --> 00:13:52,360 Speaker 1: Well, Brian, this is huge because this has nothing to 281 00:13:52,440 --> 00:13:56,920 Speaker 1: do with market performance or asset allocation, just in making 282 00:13:56,960 --> 00:14:00,000 Speaker 1: the right fund. This is the free money, the free 283 00:14:00,240 --> 00:14:03,560 Speaker 1: money that you're just passing up by not properly getting 284 00:14:03,600 --> 00:14:07,880 Speaker 1: involved in taking advantage of that company match. This is easy. 285 00:14:08,000 --> 00:14:11,200 Speaker 1: This is just a layup. This is money literally sitting 286 00:14:11,200 --> 00:14:14,480 Speaker 1: there for everyone to grab if you pay attention and 287 00:14:14,840 --> 00:14:15,920 Speaker 1: have things set up correct. 288 00:14:15,960 --> 00:14:18,040 Speaker 2: I absolutely love when we run across the situation and 289 00:14:18,160 --> 00:14:20,160 Speaker 2: talking to somebody because it's a really easy thing to 290 00:14:20,200 --> 00:14:22,280 Speaker 2: do and it makes me feel really smart. 291 00:14:23,080 --> 00:14:25,960 Speaker 1: Now, one of the researchers described it this way. Some 292 00:14:26,040 --> 00:14:29,200 Speaker 1: couples manage money like their roommates. They live under the 293 00:14:29,240 --> 00:14:32,320 Speaker 1: same roof, but financially, you know, they have this mind 294 00:14:32,440 --> 00:14:37,280 Speaker 1: versus yours kind of financial relationship, and they never want 295 00:14:37,280 --> 00:14:39,600 Speaker 1: to talk about each other's four one k. You know, 296 00:14:39,720 --> 00:14:42,480 Speaker 1: this is my bonus or my paycheck or your bonus. 297 00:14:43,080 --> 00:14:46,520 Speaker 1: And again, not to belabor the point too much, but 298 00:14:46,560 --> 00:14:49,440 Speaker 1: if you're not collaborating here on how you're saving as 299 00:14:49,440 --> 00:14:52,720 Speaker 1: a married couple for retirement, you could literally be leaving 300 00:14:52,800 --> 00:14:53,960 Speaker 1: free money on the table. 301 00:14:54,600 --> 00:14:55,280 Speaker 2: That's very true. 302 00:14:55,280 --> 00:14:57,640 Speaker 1: Give us, give us an example, put some math to this. 303 00:14:58,200 --> 00:15:00,000 Speaker 2: So let's do a little bit of math. We like maths. 304 00:15:00,040 --> 00:15:02,040 Speaker 2: So let's say spouse a GE's one hundred percent match 305 00:15:02,040 --> 00:15:04,680 Speaker 2: on the first five percent, spouse b fifty percent on 306 00:15:04,720 --> 00:15:07,000 Speaker 2: the first six If that household has an extra ten 307 00:15:07,040 --> 00:15:09,720 Speaker 2: thousand to contribute and they split it even evenly, well, 308 00:15:09,760 --> 00:15:11,600 Speaker 2: that feels fair, but it's not optimal, like we were 309 00:15:11,600 --> 00:15:15,280 Speaker 2: saying before, So you know, basically maximizing that higher risk 310 00:15:15,360 --> 00:15:19,000 Speaker 2: produces more employer dollars. And that's free money, guaranteed, immediate. 311 00:15:19,040 --> 00:15:20,600 Speaker 2: It's just somebody giving it to you. We're not talking 312 00:15:20,600 --> 00:15:22,640 Speaker 2: about the investment side of things, so let's just make 313 00:15:22,680 --> 00:15:25,120 Speaker 2: sure we're taking advantage of everything where it is. There's 314 00:15:25,200 --> 00:15:27,520 Speaker 2: no investment on earth Pod that's better than one hundred 315 00:15:27,520 --> 00:15:28,080 Speaker 2: percent match. 316 00:15:28,120 --> 00:15:29,560 Speaker 1: It's just all you get to do is throw a 317 00:15:29,560 --> 00:15:30,080 Speaker 1: little your. 318 00:15:29,960 --> 00:15:31,760 Speaker 2: Own money in. Your company will throw a little bit 319 00:15:31,760 --> 00:15:34,080 Speaker 2: more in. But if you don't sit down with your 320 00:15:34,080 --> 00:15:36,760 Speaker 2: spouse and compare who's got access to what, then you 321 00:15:36,800 --> 00:15:40,240 Speaker 2: may be missing out on these opportunities to optimize these things. 322 00:15:40,920 --> 00:15:43,760 Speaker 1: Yeah, and why does this situation rear its ugly head? 323 00:15:43,840 --> 00:15:46,640 Speaker 1: You know, like a lot of things in life in general, 324 00:15:46,720 --> 00:15:50,000 Speaker 1: and with finances, it all comes down to communication. It's 325 00:15:50,040 --> 00:15:54,000 Speaker 1: not the couples are careless. It's that coordination actually requires 326 00:15:54,040 --> 00:15:57,920 Speaker 1: a conversation. And people that are both working, they're both busy. 327 00:15:58,000 --> 00:16:00,000 Speaker 1: You throw some kids in the mix and there's very 328 00:16:00,040 --> 00:16:02,720 Speaker 1: very little time to actually sit down and talk about 329 00:16:02,720 --> 00:16:07,400 Speaker 1: this stuff. And these conversations require a little bit of vulnerability. 330 00:16:07,480 --> 00:16:11,240 Speaker 1: One spouse may not want to feel dependent on another spouse, 331 00:16:11,560 --> 00:16:13,960 Speaker 1: that might be making more money than he or she is. 332 00:16:14,320 --> 00:16:17,240 Speaker 1: One spouse may not want to give up control over 333 00:16:17,320 --> 00:16:21,480 Speaker 1: these assets that are quote unquote mind. One spouse may assume, well, 334 00:16:21,520 --> 00:16:25,120 Speaker 1: we're both contributing. That's good enough. But the research suggests 335 00:16:25,640 --> 00:16:28,160 Speaker 1: good enough isn't optimal. And that's what we're trying to 336 00:16:28,240 --> 00:16:30,680 Speaker 1: drive home and help people here with. And when you're 337 00:16:30,720 --> 00:16:34,280 Speaker 1: building long term wealth, especially for families in that two 338 00:16:34,320 --> 00:16:39,200 Speaker 1: to ten million dollar net worth range, optim optimization, but 339 00:16:39,520 --> 00:16:42,640 Speaker 1: say that four times quick that can really matter and 340 00:16:42,680 --> 00:16:46,440 Speaker 1: add up quickly. So who coordinates best, Brian, Who does 341 00:16:46,440 --> 00:16:47,280 Speaker 1: a good job of this? 342 00:16:47,520 --> 00:16:49,640 Speaker 2: Well, the people who are who are married longer, right, 343 00:16:49,680 --> 00:16:53,280 Speaker 2: So it tends to work out when people are together longer, 344 00:16:53,320 --> 00:16:55,000 Speaker 2: and that that kind of makes sense because they just 345 00:16:55,040 --> 00:16:57,160 Speaker 2: have that much more time to notice that these things 346 00:16:57,360 --> 00:16:59,440 Speaker 2: and kind of learn together how these things work. So 347 00:17:00,360 --> 00:17:02,480 Speaker 2: these are people who are likely to have had shared 348 00:17:02,480 --> 00:17:05,000 Speaker 2: accounts before marriage. Remember this is survey data, so they're 349 00:17:05,200 --> 00:17:07,840 Speaker 2: gathering a bunch of background information on how this might 350 00:17:07,880 --> 00:17:10,719 Speaker 2: have come. You know, shared accounts before marriage. It is 351 00:17:10,760 --> 00:17:13,760 Speaker 2: not a requirement of a financial plan, you know, because 352 00:17:13,760 --> 00:17:15,479 Speaker 2: people come to me and they'll say, well, I have 353 00:17:15,600 --> 00:17:17,480 Speaker 2: my money and my spouse has their money. We just 354 00:17:17,520 --> 00:17:19,080 Speaker 2: kind of we're aware of what's going on, but we 355 00:17:19,160 --> 00:17:21,520 Speaker 2: never combined. That's fine, that's not a you know, requirement 356 00:17:21,520 --> 00:17:23,800 Speaker 2: that you do. Can we can you know, build a 357 00:17:23,800 --> 00:17:26,720 Speaker 2: plan around that. That's not really even a problem as 358 00:17:26,760 --> 00:17:30,399 Speaker 2: long as it's transparent. It's when people are truly trying 359 00:17:30,440 --> 00:17:33,240 Speaker 2: to lead entirely separate lives where I don't even have 360 00:17:33,240 --> 00:17:36,440 Speaker 2: any idea what my spouse's a financial situation, that's where 361 00:17:36,440 --> 00:17:39,359 Speaker 2: the problems come up. And in this survey, it's specifically 362 00:17:39,359 --> 00:17:42,080 Speaker 2: saying that those people where one one hand, the right 363 00:17:42,080 --> 00:17:44,080 Speaker 2: hand doesn't have any idea what the left hand is doing. 364 00:17:44,280 --> 00:17:46,640 Speaker 2: That means that one doesn't know what the other's retirement 365 00:17:46,680 --> 00:17:49,920 Speaker 2: plan is. These are cases where somebody might find out 366 00:17:49,920 --> 00:17:52,159 Speaker 2: that their spouse isn't even contributing to their four O 367 00:17:52,240 --> 00:17:55,600 Speaker 2: one K because maybe they're just not financially interested, they're 368 00:17:55,600 --> 00:17:58,520 Speaker 2: not motivated by this stuff. Money bores them to death, 369 00:17:58,600 --> 00:18:00,360 Speaker 2: or it's like going to the dentist, so they've never 370 00:18:00,400 --> 00:18:03,560 Speaker 2: figured out, you know, that there's an employer match out there. 371 00:18:03,560 --> 00:18:05,879 Speaker 2: I had a family member who who sat on a 372 00:18:06,040 --> 00:18:09,000 Speaker 2: six or seven percent mortgage. This is this is fifteen 373 00:18:09,080 --> 00:18:11,560 Speaker 2: years ago sat on a six or seven percent mortgage 374 00:18:11,600 --> 00:18:13,320 Speaker 2: when he could have been getting two or three percent, 375 00:18:13,640 --> 00:18:16,120 Speaker 2: and I did not have the heart to tell him 376 00:18:16,119 --> 00:18:18,399 Speaker 2: about the six digit figure that he left on the 377 00:18:18,440 --> 00:18:21,960 Speaker 2: table for for the sole goal of not having to 378 00:18:22,000 --> 00:18:24,439 Speaker 2: deal with money because he hated it. So, you know, 379 00:18:24,680 --> 00:18:26,880 Speaker 2: make sure this is this is where you know, make 380 00:18:26,880 --> 00:18:30,280 Speaker 2: sure that the lines of communication are open, and so 381 00:18:30,320 --> 00:18:33,120 Speaker 2: that's how we're gonna not miss these opportunities to build 382 00:18:33,160 --> 00:18:33,600 Speaker 2: our wealth. 383 00:18:34,640 --> 00:18:39,160 Speaker 1: Well, this communication and coordination matters the closer you get 384 00:18:39,200 --> 00:18:42,520 Speaker 1: to retirement, and as your overall net worth you know, 385 00:18:42,640 --> 00:18:45,399 Speaker 1: grows and grows, because it's not just who's four o 386 00:18:45,480 --> 00:18:48,480 Speaker 1: one k we're talking about, it's which account should we 387 00:18:48,560 --> 00:18:51,600 Speaker 1: draw from first? And retirement. You got to dovetail that 388 00:18:51,720 --> 00:18:55,600 Speaker 1: with your social security claiming strategy. When do we execute 389 00:18:55,720 --> 00:18:59,040 Speaker 1: roth conversions and from which four oh one k should 390 00:18:59,040 --> 00:19:02,240 Speaker 1: we do it? Should we even roll over our four 391 00:19:02,200 --> 00:19:05,199 Speaker 1: to oh one ks if there's company stock involved, you know, 392 00:19:05,240 --> 00:19:08,720 Speaker 1: you want to factor in that net unrealized appreciation strategy, 393 00:19:08,720 --> 00:19:10,800 Speaker 1: which we don't have time to get into tonight. There's 394 00:19:10,840 --> 00:19:15,080 Speaker 1: a lot of factors to consider in minimizing taxes as 395 00:19:15,080 --> 00:19:20,680 Speaker 1: a household and developing a good long term retirement withdrawal strategy. 396 00:19:21,240 --> 00:19:26,919 Speaker 1: And again, communication and coordination is so key. Here wealth 397 00:19:27,000 --> 00:19:31,720 Speaker 1: grows faster and it stays in place longer when couples 398 00:19:32,040 --> 00:19:36,040 Speaker 1: think like a team. The absence of coordination may feel 399 00:19:36,080 --> 00:19:39,360 Speaker 1: harmless right now, but man over twenty to thirty years, 400 00:19:39,400 --> 00:19:45,160 Speaker 1: small inefficiency compound quickly, just like the market's compound your returns. 401 00:19:45,640 --> 00:19:49,959 Speaker 1: Household compounding decisions matter greatly. Here's the all Worth advice 402 00:19:50,160 --> 00:19:53,760 Speaker 1: if you're married, stop managing your money like roommates. Sit down, 403 00:19:53,880 --> 00:19:58,080 Speaker 1: compare benefits and coordinate your overall strategy because free money 404 00:19:58,119 --> 00:20:01,520 Speaker 1: from an employer match is just too valuable to leave 405 00:20:01,560 --> 00:20:04,960 Speaker 1: on the table. Coming up next, why sudden money may 406 00:20:05,000 --> 00:20:07,800 Speaker 1: actually make you broke and how to make sure your 407 00:20:07,840 --> 00:20:11,240 Speaker 1: windfall doesn't just blow away. You're listening to Simply Money 408 00:20:11,280 --> 00:20:15,200 Speaker 1: presented by Allworth Financial on fifty five KRC the talk station. 409 00:20:19,920 --> 00:20:22,680 Speaker 1: You're listening to Simply Money presented by all Worth Financial. 410 00:20:22,720 --> 00:20:27,120 Speaker 1: I'm Bob Sponseller along with Brian James Well. Everyone dreams 411 00:20:27,160 --> 00:20:31,159 Speaker 1: of a big financial windfall, a sudden inheritance, a business sale, 412 00:20:31,520 --> 00:20:34,200 Speaker 1: Maybe that stock you've been sitting on that finally goes 413 00:20:34,240 --> 00:20:39,240 Speaker 1: through the roof but new research shows that suddenly sudden money, 414 00:20:39,800 --> 00:20:42,680 Speaker 1: you know, money that you can get your hands on quickly, 415 00:20:42,840 --> 00:20:47,359 Speaker 1: can actually destroy wealth faster than it creates it. Brian, 416 00:20:47,440 --> 00:20:50,160 Speaker 1: there's some new research out there, and walk us through 417 00:20:50,160 --> 00:20:50,600 Speaker 1: it today. 418 00:20:51,400 --> 00:20:55,000 Speaker 2: Yep, newsflash, new research. One in five people who inherit 419 00:20:55,040 --> 00:20:57,440 Speaker 2: a million dollars or more lose half of it within 420 00:20:57,520 --> 00:20:59,600 Speaker 2: five years. Well, every now, we hear these stories every 421 00:20:59,640 --> 00:21:01,160 Speaker 2: now and then, and from people who you know, win 422 00:21:01,200 --> 00:21:02,840 Speaker 2: the lottery, those kinds of things, and you hear the 423 00:21:02,880 --> 00:21:05,239 Speaker 2: horror stories about how they just weren't prepared for it 424 00:21:06,000 --> 00:21:09,360 Speaker 2: and just couldn't their brains simply couldn't handle that situation. 425 00:21:09,760 --> 00:21:13,040 Speaker 2: That's not bad luck, it's normally bad behavior, bad decision making. 426 00:21:13,280 --> 00:21:15,880 Speaker 2: This isn't just lottery winners though, Bob. It's people who 427 00:21:15,920 --> 00:21:18,679 Speaker 2: sell a business, you know, really, anybody who has some 428 00:21:18,760 --> 00:21:21,080 Speaker 2: kind of a massive windfall where a bunch of cash 429 00:21:21,119 --> 00:21:24,399 Speaker 2: falls out of the sky with no strings attached at 430 00:21:24,400 --> 00:21:26,560 Speaker 2: a relatively short period of time. This can be cashing 431 00:21:26,600 --> 00:21:29,200 Speaker 2: out of a career, getting a large inheritance, those kinds 432 00:21:29,200 --> 00:21:31,840 Speaker 2: of things. The faster the money comes, Bob, all the 433 00:21:31,840 --> 00:21:33,800 Speaker 2: faster it can leave. So we're gonna kind of jump 434 00:21:33,840 --> 00:21:36,600 Speaker 2: into the different effects here that can happen and how 435 00:21:36,600 --> 00:21:38,880 Speaker 2: to handle it. So if you're in the situation, we're 436 00:21:38,920 --> 00:21:40,959 Speaker 2: gonna we'll start off with the first one of the 437 00:21:41,000 --> 00:21:44,760 Speaker 2: windfall effect. Here, what really happens when you get a windfall, Well, 438 00:21:44,840 --> 00:21:46,840 Speaker 2: psychologists have actually done some work on this. They call 439 00:21:46,880 --> 00:21:49,479 Speaker 2: it sudden wealth syndrome, which sounds completely fake, but this 440 00:21:49,520 --> 00:21:51,800 Speaker 2: is a real thing. You literally go from thinking in 441 00:21:51,880 --> 00:21:54,720 Speaker 2: terms of thousands of dollars to thinking in millions overnight, 442 00:21:54,760 --> 00:21:56,960 Speaker 2: and this will give your brain whiplash. Think of it 443 00:21:56,960 --> 00:21:59,600 Speaker 2: this way. You've been driving a nice, compact, reasonable car 444 00:21:59,640 --> 00:22:01,240 Speaker 2: for twe years, and all of a sudden you have 445 00:22:01,280 --> 00:22:03,919 Speaker 2: the keys to a Formula one race car that you 446 00:22:03,960 --> 00:22:06,439 Speaker 2: have all the complete freedom to go do whatever you 447 00:22:06,480 --> 00:22:09,080 Speaker 2: want to do with. Obviously it's pretty powerful and fast, 448 00:22:09,080 --> 00:22:10,800 Speaker 2: but if you don't know how to drive that kind 449 00:22:10,800 --> 00:22:13,480 Speaker 2: of car, you're gonna you're gonna have some kind of accident. 450 00:22:13,720 --> 00:22:16,560 Speaker 2: So it happens financially, the rains come off, and all 451 00:22:16,560 --> 00:22:18,359 Speaker 2: of a sudden you don't have the same sets of 452 00:22:18,400 --> 00:22:22,120 Speaker 2: habits and the guardrails because everything just drops. You think 453 00:22:22,160 --> 00:22:24,159 Speaker 2: I can afford it, and you can. We see this 454 00:22:24,240 --> 00:22:26,360 Speaker 2: all the time with with this kind of a windfall, 455 00:22:26,400 --> 00:22:28,879 Speaker 2: it's very easy to throw money at problems when there 456 00:22:28,920 --> 00:22:31,600 Speaker 2: is money around with which to do so. But then 457 00:22:31,680 --> 00:22:34,639 Speaker 2: if that gets baked into the ongoing spending, uh, you 458 00:22:34,680 --> 00:22:36,840 Speaker 2: know that that can come alongside the investment, start to 459 00:22:36,840 --> 00:22:39,200 Speaker 2: get riskier because I feel like I've got a bigger cushion. 460 00:22:39,240 --> 00:22:41,880 Speaker 2: I can afford some some riskier stuff, and a lot 461 00:22:41,880 --> 00:22:43,480 Speaker 2: of the discipline that you had that got you to 462 00:22:43,560 --> 00:22:46,240 Speaker 2: this pace starts to go away. So eventually you get 463 00:22:46,280 --> 00:22:48,840 Speaker 2: to a point where that money is controlling you instead 464 00:22:48,840 --> 00:22:49,520 Speaker 2: of vice versa. 465 00:22:50,240 --> 00:22:52,800 Speaker 1: It's funny you brought up that Formula one race car 466 00:22:52,880 --> 00:22:56,200 Speaker 1: analogy because that that reminds me of an actual client situation. 467 00:22:56,440 --> 00:22:59,680 Speaker 1: You know, business sale, millions of dollars coming in the door, 468 00:23:00,400 --> 00:23:04,080 Speaker 1: and this client went from buying one kind of exotic 469 00:23:04,160 --> 00:23:08,399 Speaker 1: collector car to now they own like eight to ten. Well, 470 00:23:08,440 --> 00:23:10,960 Speaker 1: what happened after that? They needed to build a big 471 00:23:11,040 --> 00:23:15,120 Speaker 1: barn or garage to hold all the cars, and then 472 00:23:15,200 --> 00:23:19,240 Speaker 1: you've got the trips going to custom car shows transporting 473 00:23:19,280 --> 00:23:22,280 Speaker 1: these cars. You know, it becomes a lifestyle. You're hanging 474 00:23:22,320 --> 00:23:25,160 Speaker 1: out with people that can afford you know, eight ten 475 00:23:25,280 --> 00:23:28,119 Speaker 1: different cars and shipping them all over the country, and 476 00:23:28,240 --> 00:23:32,760 Speaker 1: it leads to our next example, which is just lifestyle 477 00:23:33,040 --> 00:23:37,800 Speaker 1: creep or lifestyle inflation. You treat yourself a little bit, 478 00:23:37,920 --> 00:23:40,920 Speaker 1: and then all of a sudden you've really ramped up 479 00:23:40,960 --> 00:23:44,600 Speaker 1: into an overall lifestyle that costs thousands and thousands more 480 00:23:44,960 --> 00:23:48,800 Speaker 1: dollars per year, and some people forget to just check 481 00:23:48,840 --> 00:23:52,160 Speaker 1: and say, can we really afford this? Is this sustainable? Brian? 482 00:23:52,680 --> 00:23:55,639 Speaker 2: Yeah, that big house comes along a lot of times 483 00:23:55,640 --> 00:23:59,040 Speaker 2: with maybe it's a homeowner's association fee that you didn't 484 00:23:59,080 --> 00:24:02,320 Speaker 2: really account for. Definitely, property taxes can sneak up. And 485 00:24:02,359 --> 00:24:04,679 Speaker 2: I'll throw another one out there. I ever spent fifteen 486 00:24:04,720 --> 00:24:07,800 Speaker 2: thousand dollars on a tractor to mow your your new acreage. 487 00:24:08,000 --> 00:24:09,560 Speaker 2: You know, there are lots of things out there that 488 00:24:09,600 --> 00:24:12,280 Speaker 2: can that you don't You don't really see coming and 489 00:24:12,640 --> 00:24:15,480 Speaker 2: until you're actually living in this situation. So we've seen 490 00:24:15,520 --> 00:24:17,879 Speaker 2: people spend like that when the lottery, except they really didn't. 491 00:24:17,920 --> 00:24:20,000 Speaker 2: They inherited a million or more and it became ten 492 00:24:20,040 --> 00:24:22,960 Speaker 2: million in their minds, and then not to mention when 493 00:24:22,960 --> 00:24:24,399 Speaker 2: you have to pay taxes on all these things. So 494 00:24:24,480 --> 00:24:28,080 Speaker 2: it's not nearly you know, is a bottomless supply of 495 00:24:28,080 --> 00:24:30,040 Speaker 2: money as it seems like. It's kind of like eating 496 00:24:30,080 --> 00:24:32,440 Speaker 2: your Thanksgiving dinner every night. It sounds great at first, 497 00:24:32,440 --> 00:24:35,440 Speaker 2: but eventually it's gonna make you throw up. So indulging 498 00:24:35,480 --> 00:24:37,760 Speaker 2: ourselves too much can can kind of ruin the fund 499 00:24:37,760 --> 00:24:38,520 Speaker 2: that comes along with it. 500 00:24:39,200 --> 00:24:42,360 Speaker 1: All right, here's here's another big behavioral area to look 501 00:24:42,400 --> 00:24:45,119 Speaker 1: out for. It. It's just the area of overconfidence. People 502 00:24:45,160 --> 00:24:47,439 Speaker 1: that make a lot of money or have sold a 503 00:24:47,480 --> 00:24:49,919 Speaker 1: business for a big chunk of money. You know, their 504 00:24:50,240 --> 00:24:53,480 Speaker 1: mind says, hey, I made a fortune, I'm really good 505 00:24:53,520 --> 00:24:56,400 Speaker 1: with money. But Brian, you and I know this all 506 00:24:56,400 --> 00:24:59,720 Speaker 1: too well. There is a big difference between the ability 507 00:24:59,760 --> 00:25:05,240 Speaker 1: to make money in some other industry versus actually managing 508 00:25:05,320 --> 00:25:08,280 Speaker 1: money once you've got it in your account, and a 509 00:25:08,359 --> 00:25:10,920 Speaker 1: lot of people have to learn that lesson the hard way. 510 00:25:10,960 --> 00:25:14,239 Speaker 1: They jump into a bunch of private investment deals, you know, 511 00:25:14,280 --> 00:25:18,560 Speaker 1: get over allocated to crypto or high risk startups. They 512 00:25:18,600 --> 00:25:23,280 Speaker 1: forget that wealth preservation is a completely different skill set. 513 00:25:23,720 --> 00:25:27,160 Speaker 1: And I think sometimes Brian, these people are bored by 514 00:25:27,280 --> 00:25:31,639 Speaker 1: just you know, traditional act allocation stuff. They're addicted to 515 00:25:31,680 --> 00:25:35,359 Speaker 1: the adrenaline rush and they always constantly need to be 516 00:25:35,400 --> 00:25:38,000 Speaker 1: going out and taking risk, and you just got to 517 00:25:38,040 --> 00:25:41,240 Speaker 1: put the governor switch on that sometimes to keep from 518 00:25:41,280 --> 00:25:44,120 Speaker 1: losing something that you've spent a lifetime building. 519 00:25:44,640 --> 00:25:47,440 Speaker 2: Making money is not the same as keeping money. It's 520 00:25:47,480 --> 00:25:50,720 Speaker 2: two different, very two different mindsets, two different approaches. So 521 00:25:50,760 --> 00:25:54,640 Speaker 2: people who build wealth over decades, these might be entrepreneurs, savers, 522 00:25:54,800 --> 00:25:56,960 Speaker 2: or just disciplined investors pumping money into their four O, 523 00:25:57,000 --> 00:25:59,120 Speaker 2: one case four or three b's for years. They tend 524 00:25:59,160 --> 00:26:01,320 Speaker 2: to respect money more because they know how hard it 525 00:26:01,400 --> 00:26:04,240 Speaker 2: was to earn. Then we see, you know that sometimes 526 00:26:04,240 --> 00:26:07,080 Speaker 2: it's generation too that doesn't have that same benefit of 527 00:26:07,119 --> 00:26:09,720 Speaker 2: having built it from nothing and so doesn't value it 528 00:26:09,760 --> 00:26:11,760 Speaker 2: as much. It appears to them to have been easy 529 00:26:11,800 --> 00:26:14,199 Speaker 2: to acquire. Therefore they treat it as such. So what 530 00:26:14,280 --> 00:26:14,920 Speaker 2: should we do? 531 00:26:15,200 --> 00:26:15,400 Speaker 1: First? 532 00:26:15,440 --> 00:26:17,720 Speaker 2: Step up, build a team. Make sure you've got people 533 00:26:17,720 --> 00:26:20,960 Speaker 2: around you, a financial plannert, a quarterback everything, a CPA 534 00:26:21,119 --> 00:26:23,359 Speaker 2: or a some kind of accounting outlet to help you 535 00:26:23,400 --> 00:26:25,800 Speaker 2: with the taxes, and an estate planning attorney. If this 536 00:26:25,840 --> 00:26:28,480 Speaker 2: is truly a significant pile of money, not the people 537 00:26:28,560 --> 00:26:31,120 Speaker 2: selling you something. These are people who behave in fiduciary 538 00:26:31,200 --> 00:26:33,720 Speaker 2: manners on what will help you with the future. So 539 00:26:33,920 --> 00:26:35,800 Speaker 2: the next step is figure out what you want. Once 540 00:26:35,800 --> 00:26:37,879 Speaker 2: you've got your team in place, now think about what 541 00:26:37,920 --> 00:26:40,119 Speaker 2: it is that you want. And this also assumes that 542 00:26:40,119 --> 00:26:42,480 Speaker 2: we didn't go out and do a bunch of things immediately. Really, 543 00:26:42,560 --> 00:26:45,200 Speaker 2: I'm going to call it step zero is don't do anything, 544 00:26:45,440 --> 00:26:47,760 Speaker 2: just stop and think before you build that team. Then 545 00:26:47,800 --> 00:26:50,159 Speaker 2: you need to have that discussion about what is it 546 00:26:50,200 --> 00:26:51,560 Speaker 2: that I want. Do I want to use this to 547 00:26:51,600 --> 00:26:54,280 Speaker 2: retire earlier? Do I want to benefit myself my family, 548 00:26:54,840 --> 00:26:57,760 Speaker 2: you know, maybe charities or something like that. Generational wealth 549 00:26:58,680 --> 00:27:01,240 Speaker 2: without some kind of purpose, money tends to get spent 550 00:27:01,520 --> 00:27:02,640 Speaker 2: just because it's sitting there. 551 00:27:03,160 --> 00:27:06,040 Speaker 1: Here's the all Worth advice. Wealth is not a finish line. 552 00:27:06,080 --> 00:27:09,760 Speaker 1: It's a responsibility. The more you have, the more discipline 553 00:27:09,800 --> 00:27:13,520 Speaker 1: it takes to keep it. You've built up two million dollars, 554 00:27:13,520 --> 00:27:16,840 Speaker 1: how do you protect it without missing growth? We'll cover risk, 555 00:27:17,040 --> 00:27:19,720 Speaker 1: income and a little peace of mind coming up next. 556 00:27:20,000 --> 00:27:22,560 Speaker 1: You're listening to Simply Money presented by all Worth Financial 557 00:27:22,600 --> 00:27:31,240 Speaker 1: on fifty five KRC the talk station. You're listening to 558 00:27:31,240 --> 00:27:34,119 Speaker 1: Simply Money presented by all Worth Financial on Bob Sponseller 559 00:27:34,160 --> 00:27:36,920 Speaker 1: along with Brian James. Do you have a financial question 560 00:27:37,000 --> 00:27:39,119 Speaker 1: you'd like for us to answer. There's a red button 561 00:27:39,119 --> 00:27:41,440 Speaker 1: you can click while you're listening to the show right 562 00:27:41,560 --> 00:27:44,439 Speaker 1: on the iHeart app. Simply record your question and it 563 00:27:44,480 --> 00:27:47,760 Speaker 1: will come straight to us, all right, Brian Derek in 564 00:27:47,920 --> 00:27:50,840 Speaker 1: Oakley leads us off tonight. He says, our advisor keeps 565 00:27:50,880 --> 00:27:54,600 Speaker 1: suggesting private equity and private credit. How do we tell 566 00:27:54,680 --> 00:27:59,280 Speaker 1: if these alternatives are true diversification or just higher risk 567 00:27:59,359 --> 00:28:02,160 Speaker 1: along with a pitch yep. 568 00:28:02,280 --> 00:28:04,560 Speaker 2: So we want to make sure that whenever these things 569 00:28:04,560 --> 00:28:06,359 Speaker 2: are coming up more and more often lately, and we 570 00:28:06,400 --> 00:28:08,320 Speaker 2: want to make sure we understand the moving parts that 571 00:28:08,359 --> 00:28:10,800 Speaker 2: are involved when these types of questions come up. So 572 00:28:10,840 --> 00:28:12,800 Speaker 2: private equity, what are we talking about? While we're talking 573 00:28:12,840 --> 00:28:15,879 Speaker 2: about investing in small businesses that are not publicly traded 574 00:28:16,040 --> 00:28:18,520 Speaker 2: kind of sort of the same thing as buying stocks, 575 00:28:19,240 --> 00:28:21,159 Speaker 2: but these are not out there on markets. You're just 576 00:28:21,200 --> 00:28:24,359 Speaker 2: literally connecting with somebody who is run a business. There 577 00:28:24,440 --> 00:28:26,360 Speaker 2: are funds and things that will do this for you, 578 00:28:27,000 --> 00:28:29,919 Speaker 2: and that's presumably what Derek is referring to here. So 579 00:28:30,080 --> 00:28:33,159 Speaker 2: private equity fundraising hit over one point two trillion dollars 580 00:28:33,160 --> 00:28:35,679 Speaker 2: globally in twenty four, slowing down a little bit, but 581 00:28:36,040 --> 00:28:38,040 Speaker 2: still probably going to be out there. So the kind 582 00:28:38,080 --> 00:28:40,200 Speaker 2: of questions you want to ask, you want to make 583 00:28:40,240 --> 00:28:42,440 Speaker 2: sure you understand what the lock up period is? Can 584 00:28:42,480 --> 00:28:44,800 Speaker 2: you get your money back out? Liquidity is always going 585 00:28:44,840 --> 00:28:48,240 Speaker 2: to be going to be a factor for these things. 586 00:28:48,560 --> 00:28:50,960 Speaker 2: What is the fee structure? These are going to be expensive. 587 00:28:50,960 --> 00:28:53,400 Speaker 2: Don't look for the no load version of private equity 588 00:28:53,440 --> 00:28:55,880 Speaker 2: doesn't exist. These things are expensive because there's a lot 589 00:28:55,920 --> 00:28:57,600 Speaker 2: going into them and there's a lot of people wanting 590 00:28:57,640 --> 00:28:59,880 Speaker 2: to make money off of them. And so how do 591 00:28:59,920 --> 00:29:03,720 Speaker 2: you verify the returns? Are these audited self reported valuations? 592 00:29:03,920 --> 00:29:07,040 Speaker 2: Are there default rates, recovery rates on the private credit side? 593 00:29:07,360 --> 00:29:09,479 Speaker 2: What information can you get so that you can understand 594 00:29:09,520 --> 00:29:11,959 Speaker 2: what you're looking at. These can be very valuable tools, 595 00:29:12,360 --> 00:29:14,160 Speaker 2: but you can also hurt yourself with them, So just 596 00:29:14,400 --> 00:29:16,600 Speaker 2: do your research, be careful what's you're what you're getting into? 597 00:29:17,040 --> 00:29:20,000 Speaker 2: All Right, We're gonna move south to Marty down in Florence, 598 00:29:20,120 --> 00:29:23,360 Speaker 2: who says they have a big unrealized gain uh on 599 00:29:23,400 --> 00:29:25,880 Speaker 2: the in their brokerage account. First off, congratulations, that's a 600 00:29:25,880 --> 00:29:27,080 Speaker 2: common problem these days. 601 00:29:27,280 --> 00:29:27,400 Speaker 1: Uh. 602 00:29:27,440 --> 00:29:29,040 Speaker 2: And Marty wants to know if there's anything they can 603 00:29:29,080 --> 00:29:31,760 Speaker 2: do to trim those positions without taking that huge hit 604 00:29:31,880 --> 00:29:32,880 Speaker 2: tax hit all at once. 605 00:29:32,880 --> 00:29:36,040 Speaker 1: What do you think, Bob, Well, Marty, there's definitely ways 606 00:29:36,080 --> 00:29:38,760 Speaker 1: to trim the positions without taking a huge tax hit. 607 00:29:38,840 --> 00:29:41,200 Speaker 1: So good of you to ask the question before you 608 00:29:41,320 --> 00:29:44,000 Speaker 1: just took the tax hit. So, uh, you know, I 609 00:29:44,040 --> 00:29:46,840 Speaker 1: don't know from your question whether this big gain is 610 00:29:46,840 --> 00:29:50,720 Speaker 1: in one heavily concentrated position or whether you've just been 611 00:29:50,760 --> 00:29:52,880 Speaker 1: sitting on a bunch of you know, mutual funds and 612 00:29:52,920 --> 00:29:55,480 Speaker 1: ETFs over years that you know, you got a bunch 613 00:29:55,520 --> 00:29:58,240 Speaker 1: of positions with a lot of unrealized capital gains. So 614 00:29:58,680 --> 00:30:00,840 Speaker 1: depending on what your situation and is the first thing, 615 00:30:00,960 --> 00:30:04,800 Speaker 1: get that stuff into a tax managed a count where 616 00:30:04,840 --> 00:30:08,560 Speaker 1: you've got some tax loss harvesting going on in the background. 617 00:30:09,760 --> 00:30:14,200 Speaker 1: Direct indexing strategies are out there, and indexed exchange programs 618 00:30:14,200 --> 00:30:17,040 Speaker 1: are out there. And what this really means is you 619 00:30:17,080 --> 00:30:20,880 Speaker 1: can go slow. You can harvest some short term losses 620 00:30:20,960 --> 00:30:25,280 Speaker 1: in a diversified portfolio and use that to gradually trim 621 00:30:25,320 --> 00:30:28,800 Speaker 1: those gains in your positions. If you are sitting on 622 00:30:28,800 --> 00:30:33,000 Speaker 1: one big concentrated stock positions, that's where things like collars, 623 00:30:34,120 --> 00:30:37,640 Speaker 1: selling a covered call and buying a protective put on 624 00:30:37,680 --> 00:30:40,440 Speaker 1: the downside might come into play, and that way you 625 00:30:40,480 --> 00:30:44,920 Speaker 1: could protect your gains in that position and kind of 626 00:30:44,960 --> 00:30:47,520 Speaker 1: have the options market pay to do that for you. 627 00:30:47,600 --> 00:30:50,040 Speaker 1: So a lot of different options out there. The best 628 00:30:50,080 --> 00:30:52,400 Speaker 1: thing to do is probably sit down with a good 629 00:30:52,480 --> 00:30:56,200 Speaker 1: fiduciary advisor and walk through some of those options and 630 00:30:56,240 --> 00:30:58,800 Speaker 1: get you set up. Hope that helps all right. Eric 631 00:30:58,840 --> 00:31:01,360 Speaker 1: in Westchester says, are their kids are in their thirties 632 00:31:01,440 --> 00:31:05,000 Speaker 1: and they're successful, but they don't know much about money. 633 00:31:05,040 --> 00:31:08,600 Speaker 1: What's the best way to start involving them in family 634 00:31:08,720 --> 00:31:11,680 Speaker 1: financial discussions? Brian, this is a great question. 635 00:31:11,480 --> 00:31:14,200 Speaker 2: More and more common question these days as wealth is 636 00:31:14,240 --> 00:31:17,160 Speaker 2: reaching new heights, and you know a lot of people 637 00:31:17,160 --> 00:31:19,000 Speaker 2: who are in their fifties and sixties and that have 638 00:31:19,160 --> 00:31:22,600 Speaker 2: been themselves successful now have kids who are doing okay 639 00:31:22,720 --> 00:31:25,200 Speaker 2: and successful as well. But they're starting to worry that 640 00:31:25,000 --> 00:31:28,400 Speaker 2: these kids are not have not quite been through the 641 00:31:28,440 --> 00:31:32,400 Speaker 2: wealth management you know, and training and you know, financial 642 00:31:32,400 --> 00:31:34,920 Speaker 2: planning those kinds of things that they themselves have. So 643 00:31:35,160 --> 00:31:37,760 Speaker 2: why this is important, Well, there's trillions of dollars are 644 00:31:37,800 --> 00:31:39,720 Speaker 2: going to change hands the next twenty years. About eighty 645 00:31:39,760 --> 00:31:42,080 Speaker 2: four trillion is going to move from baby boomers to 646 00:31:42,160 --> 00:31:45,640 Speaker 2: Gen X and millennials by twenty forty five, and so 647 00:31:46,920 --> 00:31:49,880 Speaker 2: this often comes along with people changing. The kids will 648 00:31:49,960 --> 00:31:51,880 Speaker 2: change who they want to talk to in terms of 649 00:31:52,120 --> 00:31:54,040 Speaker 2: working with a financial advisor or if they want to 650 00:31:54,080 --> 00:31:57,200 Speaker 2: at all, because those conversations haven't simply haven't occurred. So 651 00:31:57,840 --> 00:32:00,360 Speaker 2: here's a couple steps to start bringing them in. Start 652 00:32:00,360 --> 00:32:03,200 Speaker 2: with values and not the numbers. Talk about how you built, 653 00:32:03,240 --> 00:32:07,080 Speaker 2: what you built, why it's important to you, and connect 654 00:32:07,160 --> 00:32:08,680 Speaker 2: them to their history. They're going to remember some of 655 00:32:08,720 --> 00:32:10,200 Speaker 2: the stories you told them because it would have affected 656 00:32:10,240 --> 00:32:12,520 Speaker 2: them along the way. Sometimes it's good to have a 657 00:32:12,560 --> 00:32:14,800 Speaker 2: family state of the Union meeting. A lot of families 658 00:32:14,840 --> 00:32:17,680 Speaker 2: do this around the holidays, just to talk about here's 659 00:32:17,680 --> 00:32:20,200 Speaker 2: what we've built, here's here's the goals that mom and 660 00:32:20,400 --> 00:32:22,760 Speaker 2: I have or dad and I have, here's what we're 661 00:32:22,760 --> 00:32:25,120 Speaker 2: thinking about, and here's why we're thinking it. And let 662 00:32:25,160 --> 00:32:27,719 Speaker 2: them share in the in the feedback of that, and 663 00:32:27,760 --> 00:32:30,000 Speaker 2: they'll they'll start to hear how you've gotten to that point, 664 00:32:30,320 --> 00:32:31,880 Speaker 2: and you know, eventually get to the point where you 665 00:32:31,920 --> 00:32:33,880 Speaker 2: do show them open the vault, show them what's in there. 666 00:32:33,880 --> 00:32:36,040 Speaker 2: If you trust that they can handle it, then I 667 00:32:36,040 --> 00:32:38,920 Speaker 2: think it's really valuable to understand why it is that 668 00:32:38,960 --> 00:32:40,640 Speaker 2: you are able to live the way that you do, 669 00:32:40,720 --> 00:32:43,320 Speaker 2: what is behind all that, rather than having them assume 670 00:32:43,320 --> 00:32:46,920 Speaker 2: it's just plain easy. So in any case, I hope 671 00:32:46,920 --> 00:32:50,320 Speaker 2: that helps. And big discussions here coming up during the holidays. 672 00:32:50,920 --> 00:32:54,400 Speaker 2: One more here from from Janet down in Fort Thomas. 673 00:32:54,400 --> 00:32:57,080 Speaker 2: Thank you for defending our forts. Down there, Janet and 674 00:32:57,120 --> 00:32:59,760 Speaker 2: her husband are having a discussion about their mortgage. A 675 00:32:59,840 --> 00:33:02,600 Speaker 2: parent wants to just offload the debt, not think about 676 00:33:02,600 --> 00:33:04,640 Speaker 2: it anymore, and she wants to keep those dollars free 677 00:33:04,680 --> 00:33:07,200 Speaker 2: to invest. So how do we think about that in 678 00:33:07,320 --> 00:33:09,840 Speaker 2: terms of financial planning? How do you evaluate that trade off? 679 00:33:09,880 --> 00:33:13,680 Speaker 2: Bob Well, Janet used the word how do we evaluate 680 00:33:13,760 --> 00:33:14,440 Speaker 2: the trade off? 681 00:33:14,680 --> 00:33:19,160 Speaker 1: Logically? And that's always that's always an interesting topic logically, 682 00:33:19,200 --> 00:33:21,960 Speaker 1: because listen, there's a logical way to handle this stuff, 683 00:33:22,000 --> 00:33:25,760 Speaker 1: and there's always an emotional reason why people make any 684 00:33:25,840 --> 00:33:28,640 Speaker 1: kind of decisions. So I tend to look at this 685 00:33:28,760 --> 00:33:30,719 Speaker 1: two ways. One, if you do want to look at 686 00:33:30,720 --> 00:33:33,960 Speaker 1: it logically, look at the after tax rate of return 687 00:33:34,440 --> 00:33:37,680 Speaker 1: that you can expect based on your personal risk tolerance 688 00:33:37,680 --> 00:33:41,880 Speaker 1: you're in your husband on how you invest money, and 689 00:33:41,920 --> 00:33:44,800 Speaker 1: then compare that to your mortgage rate. So you know, 690 00:33:44,840 --> 00:33:48,040 Speaker 1: if you're a growth investor, and even if you're netting 691 00:33:48,080 --> 00:33:51,440 Speaker 1: on average, you know, say seven eight percent a year, 692 00:33:52,600 --> 00:33:54,360 Speaker 1: and you're sitting on a two and a half two 693 00:33:54,440 --> 00:33:57,480 Speaker 1: point seventy five two point eight percent mortgage, you know, 694 00:33:57,560 --> 00:34:00,560 Speaker 1: it doesn't logically make sense to pay that off because 695 00:34:00,560 --> 00:34:05,080 Speaker 1: you're earning more money keeping your money invested. However, if 696 00:34:05,160 --> 00:34:08,920 Speaker 1: the psychological part of this is just causing one spouse 697 00:34:09,000 --> 00:34:13,360 Speaker 1: to lose sleep at night, you know, to keep marital 698 00:34:13,400 --> 00:34:15,879 Speaker 1: harmony and keep peace in the family, it might make 699 00:34:15,960 --> 00:34:18,359 Speaker 1: sense to just knock this thing out. So I think 700 00:34:18,400 --> 00:34:21,399 Speaker 1: it's important to look at it logically from a net 701 00:34:21,520 --> 00:34:25,239 Speaker 1: rate of return standpoint, and then also discuss risk tolerance 702 00:34:25,239 --> 00:34:27,680 Speaker 1: and hopefully you can come up with a good decision together. 703 00:34:28,520 --> 00:34:31,319 Speaker 1: All Right, Wall Street's newest game, lets you bet on 704 00:34:31,520 --> 00:34:35,279 Speaker 1: real world events. Is it investing or just high stakes fun? 705 00:34:35,400 --> 00:34:37,760 Speaker 1: We'll sort all that out next. You're listening to Simply 706 00:34:37,760 --> 00:34:41,160 Speaker 1: Money presented by all Worth Financial on fifty five KRC 707 00:34:41,640 --> 00:34:48,480 Speaker 1: the talk station. You're listening to Simply Money presented by 708 00:34:48,520 --> 00:34:51,640 Speaker 1: all Worth Financial on Bob Spondseller along with Brian James 709 00:34:52,480 --> 00:34:54,880 Speaker 1: Well for decades, if you wanted to place a bet, 710 00:34:54,920 --> 00:34:57,680 Speaker 1: you had to go to Las Vegas flashing lights, free 711 00:34:57,760 --> 00:35:01,320 Speaker 1: drinks in a weekend. You probably don't you're accounting about. 712 00:35:01,560 --> 00:35:04,280 Speaker 1: But now you don't even have to leave the couch. 713 00:35:04,400 --> 00:35:07,520 Speaker 1: Vegas might still have the shows and the buffets, but 714 00:35:07,640 --> 00:35:12,120 Speaker 1: the action, the real betting action, it's all moving online, 715 00:35:12,280 --> 00:35:16,040 Speaker 1: and not just to sports betting sites like draft Kings 716 00:35:16,160 --> 00:35:21,279 Speaker 1: or fan duels. It's actually moving right into Wall Street's neighborhood. Brian, Hey, 717 00:35:21,320 --> 00:35:25,200 Speaker 1: I've seen commercials on this often in recent days, I 718 00:35:25,200 --> 00:35:29,719 Speaker 1: think on interactive brokerages. Running these commercials tell us about 719 00:35:29,719 --> 00:35:33,040 Speaker 1: what's going on, about the opportunity to make bets on 720 00:35:33,080 --> 00:35:34,960 Speaker 1: what's gonna happen next in the economy. 721 00:35:35,200 --> 00:35:37,440 Speaker 2: Well, first off, we're not calling them bets, Bob, that's 722 00:35:37,440 --> 00:35:40,400 Speaker 2: a dirty world. We're calling these prediction markets. Come on, 723 00:35:40,520 --> 00:35:43,080 Speaker 2: get with the times, all right. This is a whole 724 00:35:43,080 --> 00:35:45,040 Speaker 2: new word. I mean, it's betting, it's gambling, just like 725 00:35:45,080 --> 00:35:47,200 Speaker 2: anything else. You're betting on a certain outcome. I think 726 00:35:47,239 --> 00:35:49,400 Speaker 2: it's gonna be a not B and I'm going to 727 00:35:49,440 --> 00:35:51,080 Speaker 2: bet twenty bucks on it. This is a whole new 728 00:35:51,120 --> 00:35:53,839 Speaker 2: world where people are trading contracts on just these real 729 00:35:53,880 --> 00:35:57,239 Speaker 2: world events. Who wins an election, win or if the 730 00:35:57,280 --> 00:35:59,600 Speaker 2: bet is gonna cut rates, how far they're gonna cut rates, 731 00:35:59,719 --> 00:36:01,439 Speaker 2: or even who takes home the super Bowl? That last 732 00:36:01,440 --> 00:36:04,600 Speaker 2: one's pretty common. But these, these, these next, these other 733 00:36:04,600 --> 00:36:06,200 Speaker 2: ones come from just playing the headlines. 734 00:36:06,719 --> 00:36:09,400 Speaker 1: Could this be while why Jerome Powell is not cutting 735 00:36:09,440 --> 00:36:12,960 Speaker 1: interest rates because he's got some futures bets I'd already 736 00:36:12,960 --> 00:36:14,879 Speaker 1: placed that. 737 00:36:14,800 --> 00:36:17,400 Speaker 2: Could very well be bob and And maybe that's something 738 00:36:17,400 --> 00:36:19,080 Speaker 2: that we should have a we should have an election 739 00:36:19,239 --> 00:36:22,680 Speaker 2: or an elected committee investigate to make sure. 740 00:36:22,680 --> 00:36:25,920 Speaker 1: All right, well I digress, Please walk us through what. 741 00:36:25,680 --> 00:36:28,640 Speaker 2: The actual top these are. These aren't technically bets, right, 742 00:36:28,680 --> 00:36:32,000 Speaker 2: this is the the the regulatory bodies don't don't consider 743 00:36:32,040 --> 00:36:35,440 Speaker 2: this gambling. These are financial instruments called event contracts. They 744 00:36:35,480 --> 00:36:36,800 Speaker 2: sounds like bets to me anyway. 745 00:36:37,120 --> 00:36:37,239 Speaker 1: Uh. 746 00:36:37,760 --> 00:36:40,120 Speaker 2: Regularly, these aren't regulated by the gaming boards, but rather 747 00:36:40,120 --> 00:36:43,040 Speaker 2: by the Commodity Futures Trading Commission, which is really the 748 00:36:43,120 --> 00:36:47,600 Speaker 2: closest government body to uh. Since since things like oil, corn, 749 00:36:47,640 --> 00:36:50,239 Speaker 2: and currency futures are really only worth what people think 750 00:36:50,280 --> 00:36:52,560 Speaker 2: they're worth, there aren't they don't have their own profits. 751 00:36:52,600 --> 00:36:54,880 Speaker 2: They don't spit out dividends. They don't create their own products. 752 00:36:55,000 --> 00:36:57,960 Speaker 2: This is as close to these these types of events 753 00:36:57,960 --> 00:37:00,360 Speaker 2: as we can possibly get. Therefore, that's why it's the 754 00:37:00,400 --> 00:37:03,400 Speaker 2: same folks who oversee oil, corn and currency futures are 755 00:37:03,440 --> 00:37:05,640 Speaker 2: the ones who are looking at this. So for example, 756 00:37:05,640 --> 00:37:09,000 Speaker 2: there's there's just how big this is. The Intercontinental Exchange, 757 00:37:09,040 --> 00:37:11,319 Speaker 2: which is which happens you probably never heard of, same 758 00:37:11,320 --> 00:37:13,720 Speaker 2: company that owns the New York Stock Exchange, which probably 759 00:37:13,760 --> 00:37:16,640 Speaker 2: have heard of. They're investing up to two billion dollars 760 00:37:16,680 --> 00:37:20,080 Speaker 2: in a platform called Polymarket, and one you may have 761 00:37:20,160 --> 00:37:22,400 Speaker 2: heard of. Another one out there is Robinhood. Robinhood is 762 00:37:22,400 --> 00:37:26,240 Speaker 2: already pretty popular with the with the smaller investors already 763 00:37:26,280 --> 00:37:29,479 Speaker 2: trading more than four billion of these event contracts. So 764 00:37:29,480 --> 00:37:31,560 Speaker 2: so think of this way. The reason that they're doing this, Well, 765 00:37:31,560 --> 00:37:33,640 Speaker 2: you can open your Robinhood app, buy some stock and 766 00:37:33,719 --> 00:37:36,320 Speaker 2: Apple or whatever other company in the exact same session, 767 00:37:36,680 --> 00:37:38,839 Speaker 2: invest in whether the FED is going to cut rates 768 00:37:38,840 --> 00:37:41,320 Speaker 2: next quarter via these these event type bets. 769 00:37:42,600 --> 00:37:45,880 Speaker 1: Well, look, while the horse has seemingly already left the 770 00:37:45,880 --> 00:37:50,399 Speaker 1: barn here, the Commodities Futures and Trading Commission is still 771 00:37:50,440 --> 00:37:52,719 Speaker 1: trying to figure out how to regulate these things. So 772 00:37:53,080 --> 00:37:56,040 Speaker 1: imagine that let's let's let let's get everybody involved in 773 00:37:56,080 --> 00:38:00,399 Speaker 1: this and then add regulation later. What could possibly go wrong? 774 00:38:00,920 --> 00:38:03,839 Speaker 1: I'm thinking back to the housing crisis, but again one 775 00:38:03,920 --> 00:38:07,759 Speaker 1: company Calshe tried to launch a political event market and 776 00:38:07,800 --> 00:38:12,400 Speaker 1: got stopped cold by regulators. But in terms of the 777 00:38:12,520 --> 00:38:14,440 Speaker 1: risk here, the thing we got to call out is 778 00:38:14,480 --> 00:38:18,600 Speaker 1: liquidity and pricing. These aren't like stocks with billions of 779 00:38:18,640 --> 00:38:23,400 Speaker 1: dollars in daily volume. These are pretty low volume trades 780 00:38:23,440 --> 00:38:27,360 Speaker 1: and positions you can get in and out at bad prices. 781 00:38:27,800 --> 00:38:30,279 Speaker 1: In other words, there's big spreads between the bid and 782 00:38:30,320 --> 00:38:32,879 Speaker 1: mass on these things, and you might not realize that, 783 00:38:33,000 --> 00:38:34,120 Speaker 1: you know, when you get into it. 784 00:38:34,719 --> 00:38:37,960 Speaker 2: Yeah, and remember the taxation is also a question. It's 785 00:38:38,040 --> 00:38:39,680 Speaker 2: unclear how this is going to be tax These are 786 00:38:39,719 --> 00:38:41,480 Speaker 2: short term types of things. I'm gonna bet that the 787 00:38:41,480 --> 00:38:43,680 Speaker 2: Fed's gonna do something this or that next week, and 788 00:38:43,719 --> 00:38:45,359 Speaker 2: that may or may not happen. Well, that's a short 789 00:38:45,440 --> 00:38:47,759 Speaker 2: term hold. And there are plenty of examples where the 790 00:38:47,800 --> 00:38:50,400 Speaker 2: IRS taxes obscure things a little differently than what you expect. 791 00:38:51,000 --> 00:38:53,200 Speaker 1: Here's the all Worth advice. When Wall Street starts to 792 00:38:53,200 --> 00:38:57,320 Speaker 1: look like Vegas. Remember the house usually always wins. Don't 793 00:38:57,400 --> 00:39:00,680 Speaker 1: make your retirement part of the show. Thanks for listening. 794 00:39:00,719 --> 00:39:03,000 Speaker 1: Tonight you've been listening to Simply Money, presented by all 795 00:39:03,000 --> 00:39:06,280 Speaker 1: Worth Financial on fifty five KRC, the talk station