Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to the hidden world of wealth, where secrets of
the affluent become accessible to you. You are listening to
Your Money Matters, the most provocative financial radio show on
the airwaves. You are about to start your educational journey
here on Your Money Matters with your host, Drew Prescott,
(00:22):
President of Prescott Private Wealth and Chartered retirement Planning Counselor.
Drew will unlock the complexities of the financial landscape with straightforward,
powerful insights. Whether you're planning for retirement, managing in a state,
or looking to grow your wealth. Consider this your exclusive invitation.
Turn up the volume, lean in closer. Let's navigate the
(00:45):
hidden paths of prosperity together. Your financial enlightenment begins now.
Securities all produce a terror Financial Specialists LLC Member fen
the SIPC reservices offered through Setara Investment Advisors LLC so
TERA firms are under separate ownership from any other named entity.
(01:06):
Four five to one, WHO six Street, Troy, New York
one two one eight zero.
Speaker 2 (01:19):
About Welcome back, everybody to your Money Matters. I'm your host,
Drew Prescott, Chartered retirement planning counselor and accredited wealth management advisor.
(01:43):
Here at Prescott Private Wealth located at four point fifty one,
Who's extreme in Troy, New York. The phone number here
is five one eight two zero three one nine eight three. Again,
that's five one eight two zero three one nine eight three.
And for those of you who are sitting at home,
or maybe you're sitting in your car listening, enjoying your
heated seat because you don't quite want to go inside yet, Well,
(02:05):
if you got your phone there, pull up our website
PRESCOTTPW dot com. You can take a look at our team.
Also look at some of the media that I have
posted there for you, a lot of great resources. So
I am just glad that you've decided to commit some
of your time on this beautiful Sunday to listening to
(02:28):
my radio program. And this is the show where we
break down the latest financial trends, market shifts, and policy
changes that impact your hard earned money. And again I'm
Drew Prescott, and today we've got a jam packed show
discussing major headlines that are shaping the financial landscape this week,
(02:50):
from federal reserve decisions to market volatility and the latest
economic policies from the Trump administration. And yes, you guessed it.
We are going to pick up where we left off
with the TSP. For those of you who listened last
week at the very beginning of the show, if you noticed,
(03:11):
and by the way, it was an accident, but those
were the velvety tones of Drew Prescott singing karaoke. So
if you were listening and you didn't hear the intro,
I had a screw up. I actually put in a
recording that I did for a karaoke thing one time,
(03:33):
and oh my goodness, if you could have only seen
my face when I realized what was going on as
my show had aired, I think all of the blood
had left my body and I let out a big
oh my gosh, Dace, I can't believe what just happened.
(03:55):
In my entire family was dying laughing, and it was
really I said, hey, listen, if nothing else, I gave
you guys something great to remember me by. Right, What
an embarrassing and humbling experience. So for those of you
who did catch it, yes, that was me. For those
of you who didn't guess what too late, we already
(04:15):
fixed it. So anyways, it was hilarious. I was dying
laugh and all it was a thing of beauty really.
So anyways, thank you again for tuning in, and for
those of you who are new, welcome and glad to
have you join me. For those of you who listen
every week, well I'm glad to have you back so thankfully.
(04:39):
As I was telling everybody what had happened, you know,
I started, I'm one that likes to make fun of myself,
so I send it out to a couple of people
to get some laughs, and even Zach Harris, the producer
of the show here, and they're all kind, and they
all said, you know something, it wasn't that bad, to
(04:59):
be honest with you. You know, if somebody wasn't a
George Straight fan, they probably wouldn't even recognize what had happened.
So anyways, maybe you're in that camp and maybe it
wasn't that bad, but nonetheless it was awfully humiliating for me.
So let's get started here. Last week, if you did listen,
like I said, we covered the New York State deferred compensation.
(05:21):
We really unpacked that in great detail, and I wanted
to do that. That's something that's very important to me
because locally, we have a tremendous amount of state employees
in addition to federal employees. And today we're going to
change gears towards the end of the show, and I'm
going to discuss the thrift savings plan kind of give
(05:42):
you an overview of the plan, how it works, in
addition to the ability to do what's called an in
service rollover. So you're gonna want to hang in there.
But before we get down that path, let's just get
started with this week's market overview. And for those of
you who were paying attention, you know, we saw that
Wall Street experienced some significant fluctuations, and really it was
(06:06):
as the investors started to grapple with the combination of
corporate earnings, federal reserve policy statements, in addition to newly
imposed tariffs by the Trump administration. And what we saw
as a result was that the Dow Jones Industrial average
closed the week down two point three percent, the S
(06:26):
and P five hundred dipped by one point eight percent,
and the NASDAC composite was down about one and a
half percent, which really wasn't wasn't a bad wasn't a
bad number considering how things started out. But you know,
for those of you who were paying attention, when you
(06:47):
see these opportunities. And now when I say that, the
same companies that we saw get beat up so bad
in one day pretty much recovered by week's end. So
that was an opportunity to buy for some of you. Okay,
(07:09):
So here at Prescott Private Wealth, we believe that the
market is a fair value. It always represents a fair value,
and so those things don't scare us, especially for the
long term investor. We don't try to time the market. Really,
we believe that time in the market is much more important.
(07:30):
And that being said, let's just take a look at
what led to some of the market's downturn, and that
was really it was in response to we saw the
news here with artificial intelligence where China's company deep Seek
(07:53):
said that they were producing really just incredible results at
a fraction of the cost of what the US companies
were showing. Now, I got to tell you, I've been
following China long enough to know that I actually don't
(08:16):
buy into ninety nine zero point nine percent of what
they say. The way that they do accounting is very
misleading in a lot of ways. Additionally, let's not forget
you know, we're at a war with them, not only
just a trade war, but we've got a lot of
(08:38):
different ways in which we're competing with them, so they
tend to play a little bit dirty. That being said,
we also had some new tariffs on imports from Canada, Mexico,
and China, and investors are really concerned about the potential
retaliatory measures from these trading partners, which in some people's mind,
(09:02):
it could disrupt supply chains and it could drive up
the cost for consumers. Meanwhile, energy stocks saw some relief
as the oil prices climbed on expectations of reduced imports
due to trade restrictions. And then if we take a
look at the bond market here, we saw that the
tenure treasury yield edged higher, which reached four point two percent.
(09:27):
Now that signaled increased concerns over inflation as businesses anticipate
rising costs. Here now, also one thing that I always
like to take a look at is the VIX, which
is our volatility index. That spiked to twenty one, and
that was reflecting basically a growing uncertainty that's amongst investors
(09:49):
right now. And the Federal Reserve held its first policy
meeting of twenty twenty five this past week, so as expected,
the Central Bank kept in strait's steady at five point
twenty five percent. Now, Federal Chair Jerome Powell signaled a
cautious stance regarding future rate cuts and he was and
(10:12):
he cited that persistent inflation concerns and potential economic disruptions
from policy trade shifts could play a factor. Now in
his post meeting remarks, this is this is something that
should be noted that Powell said that while inflation has
cooled from its peak in twenty twenty two, there's rising
(10:35):
costs due to new tariffs that he believes could take effect,
which could, he said, in his words, could lead to
an uptick in prices, which could complicate the Fed's efforts
to maintain stable economic growth. So the Fed also emphasized
its continued focus on the labor market conditions in addition
(10:56):
to wage growth, and leaning into them as as the
key indicators for future monetary policy decisions. So that as
a backdrop, let's look at major market movers and the
economic activities. And there's really several key events this week
that played a role, I would say in shaping the
(11:19):
market's performance. First would be the tech sector earnings. Well,
we saw that Apple and Microsoft both reported earnings that
exceeded the expectations, but the forward guidance remained cautious due
to global economic uncertainty. And then we saw that semiconductor
stocks fell as analysts warned about potential disruption in the
(11:42):
supply chains stemming from tariffs on China. Now, if we
look at our retail and consumer goods, we saw the
retailers saw mixed results, with discount stores like the Walmarts
of the world and others seeing gains due to budget
conscious consumers, while luxury brands we saw them start to
(12:06):
struggle with some slower sales. And we also saw that
consumer sentiments fell to its lowest level in six months.
Now that reflects that there's concerns about rising costs in
addition to economic uncertainty. So we'll keep an eye on those.
As you know, and as I talk about retail, consumer
(12:27):
goods is a nice indicator to understand the economy inside
of the home. Okay, Now, if we turn our attention
to energy and commodities, what you'll what you would have
seen was that oil prices surged above eighty five dollars
per barrel. So analysts are attributing that rise to the
(12:48):
potential supply disruptions due to trade policies and geopolitical concerns.
We also saw that gold prices also climbed as investors
sought safe haven assets midst market volatility. Now, what are
we seeing coming from the White House here? Well, Trump's
administration is bringing in new economic policies. And so if
(13:11):
you're watching any of the money shows on CNBC, Fox Business, Bloomberg,
any of those on television, what you would see is
that President Trump has introduced several major economic and tax
policies in the past week, and they're all reinforcing his
(13:33):
America First agenda. Now, these policies, the ships have been
met with some mixed reactions from economists additionally some businesses
and investors. So I want to break down the key
measures here. First, let's talk about tariffs and tariffs on
(13:53):
key trading partners. Now, effective February first, of twenty twenty five,
new tariffs have been imposed on imports, and we'll talk
about three countries here. So with Canada and Mexico, there's
a twenty five percent tariff. On Chinese imports, there's a
(14:14):
ten percent tariff. So the administration is arguing that these
measures will boost domestic production and also generate revenue for
the US government. Now, also it's to be noted that
industries that rely on imported materials and goods have raised
(14:35):
concerns about increased costs and potential retaliation. So we've seen
some economists warned that the tariffs could lead the higher
prices for consumers, particularly on goods such as automobiles, electronics,
and agricultural products. And the markets responded negatively to the news,
with manufacturing and tech stocks seeing declines. Now, if you
(15:00):
go a little bit further into this and do some
additional reading on your own time, I would encourage you
to look into how Trump is using these tariffs. Okay, Now,
a lot of people out there are saying that they're
all good. Some people are saying that they're all bad.
(15:22):
I think that if you see the fervor in which
this administration is pushing these, coupled with the desire to
eliminate the internal revenue system, this could be very beneficial
on a tremendous scale, because if we are paying I mean,
(15:48):
our dollars already taxed to a level that nobody truly knows.
There's assumptions out there that if you're a high income
earner and you're in the top tax bracket that your
dollars actually taxed somewhere north of eighty percent, which is scary.
That's and you hear that Trump has been mentioning how
(16:14):
it was an amendment to our constitution to allow taxation,
and frankly, if you look at the history, this was
only supposed to be a short term taxation, and it
was to pay back the debt that was accumulated for war. Well,
you know, just like anything once it passes, it just
kind of continues to grow legs. So the tariffs are
(16:39):
a bargaining chip, but they can also be a way
to make our nation very wealthy again and to eliminate
our deficit. And this could be a very advantageous thing
for the country if performed properly. So you know, we
got to keep an eye on this. And like I said,
(16:59):
you know, President Trump is advocating for some major changes
in taxation, including eliminating federal taxes on tips, over time
social Security benefits right now at this time, but even
further down the road potentially an elimination of income taxation
as well. Overall, but for those of you who receive tips,
(17:22):
who get over time pay and social security benefits. This
is going to be very advantageous to you, which means
you will have more money in your pocket, which means
more disposable income, which means more money to spend at
local businesses to get additional services like going to the
(17:45):
hair salon, the nail salon, massages, all these different things
that are for personal care that are all at a
small business level, which stimulate the economy. So we're going
to have to see how all this plays out. But
it looks as though we could be heading in a
very beneficial direction for you as a taxpayer. In addition
(18:10):
to that, it will couple with or trickle down however
you want to say it to corporations and businesses. So
we'll have to see how this all unfolds. Now, the
US has officially withdrawn from OECD, which is a global
tax deal which actually the goal was to impose a
(18:35):
fifteen percent minimum corporate tax rate on multinational companies. So
what did this move do well? This move is really
seen as an effort to maintain America's competitive edge in
global business. However, it has sparked concerns among international allies
(18:57):
and some countries who may retaliate with new taxes on
US firms operating abroad. So again, this is just a great,
big chess game that we're witnessing. And frankly, we have
tremendous business minds in this administration, and I trust them
(19:19):
wholly that they will do a wonderful job accomplishing what
they've set out to do. Now, Trump's pick for a
Treasury secretary, which was a former hedge fund manager. His
name is Scott Bissent, and he has been confirmed. Now,
bacent is expected to focus on extending the twenty seventeen
(19:42):
Tax Cuts and Jobs Act. I'm not going to unpack
that for you today. I covered that on several shows
and the danger of that expiring. So the goal here
is very clear to extend that. That's a beautiful thing. Also,
he is going to focus on reducing federal spending and
(20:03):
addressing the national debt. Now, Bissent has also been vocal
in supporting tariffs as a means of bolstering US's revenue
and manufacturing, which aligns closely with Trump's economic strategy. Now,
on January twentieth, President Trump signed some executive orders, and
(20:26):
one of them was the America First Trade Policy, which
was directed towards federal agencies to number one, investigate the
root cause of US trade deficits, two assess the feasibility
of an external revenue service to collect tariffs and duties,
(20:48):
and three to review unfair trade practices by foreign countries. Now,
this move really aims to strengthen America's negotiating position in
trade deals and to ensure that US businesses are not
disadvantaged by international tax policies. So, with all of this said,
(21:12):
what does this mean for you? Let me see if
I can share with you some ideas here. Okay, So
with tariffs in place and new economic policies that are
taping taking shape here, here's what consumers and investors should
watch for. Keep an eye on higher costs on imported
(21:34):
goods that could lead to inflationary pressures. Two, We're likely
going to see some short term market volatility continue as
businesses start to adjust to new trade policies. Also, the
potential tax savings for workers if tipped, if they receive
(21:57):
over time, or those of you who are social secure
already eligible, you could find some financial relief. And last
thing I want to point out to you is the
strength of the US dollar. We may see a little
fluctuation here based upon trade relationships and investors' confidence. Nonetheless,
(22:18):
it's my personal belief that these will be short term
hiccups and that long term it's going to work out
to be very advantageous for us. So as we move
further into twenty twenty five, the economic policies they're going
to continue to play a crucial role in shaping the
(22:40):
market conditions, and as an investor, you should really remain
cautious and stay informed on legislative developments that could impact
your portfolio. This is a fantastic time to set an
appointment and get together with me. For those of you
who just tuned in, you're listening to your money matters.
I'm your host, Drew Prescott, Chartered Retirement Planning counselor, Accredited
(23:05):
Wealth Management Advisor and wealth Advisor Prescott Private Wealth, located
four fifty one Who's Ex Street in Troy, New York.
The phone number here is five one eight two zero
three one nine eight three again five one eight two
zero three one nine eight three. Take a look at
us online Prescott PW dot com, and UH love to
(23:25):
get together with you. As I was saying, this is
a fantastic time to review your portfolios to make sure
that they're aligned with what the forecast of this year is,
what the opportunities and what the challenges could be, uh
as we see it with the new administration. And let
(23:48):
me just share something with you here. Sometimes you hear
some subtle knocks from me on mutual funds, and today
I want to unpack for you why that is. So
I want to share with you two things today which
are going to be incredibly beneficial to you. Okay, Now,
(24:12):
if you want to see if this applies to you,
I would say, pull up your statement or go grab
a copy of your statement, which whichever is easiest for
you here, and I'll tell you exactly how you're going
to find out if what I'm sharing with you applies
(24:33):
to you. Okay, so let's get started here. Feel free
to go and get yourself a cup of coffee, get
that statement, and well, while you do that, I am
going to I'm just going to delay just a little
bit here to get you some time to gather that.
(24:55):
And then I want to share with you how you're
going to know if you have mutual funds and what
type of mutual funds you have. Okay, So let's jump
in here. So if you have your statement, or if
you can pull up an app on your phone and
you want to look at your holdings, go to positions,
go to holdings, whatever they're titled. And when you look
at these and you see in mutual funds when they're listed,
(25:19):
look at your ticker symbol or your the symbol for
your holding.
Speaker 1 (25:24):
Here.
Speaker 2 (25:24):
Mutual funds are five letters ending in an X. Okay,
So if you have five letters and it ends in
an X, you have a mutual fund. If you have
three to five letters, then you know you and it's
a fund, then you you're gonna have a ETF. And
(25:49):
stocks are always one to five letters, and that really
depends upon if they're in the New York Stock Exchange
or Nasdaq. Okay, so again we're talking about mutual funds.
So let's focus on those holdings that you have there
that are five letters and that end with an X,
(26:11):
and that's where we're going to camp out for a
little bit and we're going to talk about why mutual
funds lose their appeal beyond two hundred and fifty thousand
dollars worth of holdings. And for those of you who
just tuned in, you're listening to your money matters. I'm
Drew Prescott, chartered Retirement Planning counselor, accredited Wealth management advisor
(26:31):
and wealth advisor here at Prescott Private Wealth located four
to fifty one, who's Extreme Inturn, New York PRESCOTTPW dot com.
So today we're diving into an important topic and that
is again why mutual funds lose their appeal beyond two
hundred and fifty thousand dollars. So, if you've been investing
in mutual funds and your portfolio has grown beyond this threshold,
(26:56):
it's time to reevaluate whether you are are still in
the best option for yourself. Now, mutual funds are great
for getting started, but as your investments grow, there are
certainly better alternatives to optimize wealth accumulation, your tax efficiency,
(27:18):
in addition to your flexibility. Now, many investors don't realize
that what works well for accumulating wealth early on may
not be the best strategy for maintaining and growing it
as your portfolio reaches higher thresholds. Now, mutual funds provide
a broad market exposure, which is beneficial, but they also
(27:42):
come with hidden inefficiencies that can erod returns over time.
So if you're not proactive in reassessing your strategy, you
may be leaving significant money on the table. So stay
tuned because by the end of the show, you're going
to have action steps to take your portfolio to the
(28:02):
next level. And if you want individualized assistance or you
want to discuss this strategy, visit PRESCOTTPW dot com. Halfway
down the page. You can uh schedule a time with us,
or you can call five one eight two zero three
one nine eight three Extension one oh five and ask
(28:24):
for Jessica and she'll set up a time for us
to meet. And at Prescott Private Wealth, you meet with me, okay.
You're not going to meet with a junior representative or
one of my team members. You're gonna meet with me personally, okay.
So let's get started with the benefits of mutual funds
for beginners. Well, mutual funds really offer a simplified, hands
(28:49):
off approach to new investors. So let's break down why
they are so appealing to those who are first starting out. Well,
one of the benefits is automatic versification. Now with a
single investment, a mutual fund provides exposure to multiple asset classes,
in companies, which is a good thing right because diversification
(29:13):
lowers risk and it prevents your portfolio from suffering due
to poor performance of a single stock. Now, for investors
without the time or knowledge to research individual stocks, this
built in diversification is a major advantage. Additionally, it has
(29:34):
professional management, so a dedicated fund manager selects and monitors investments,
taking the burden off of individual investors. Now, this expertise
is really valuable for those who are unfamiliar with market
trends and those who do not understand financial statements or
economic cycles. However, while professional management is beneficial, it's important
(30:01):
to recognize that actively managed mutual funds often fail to
outperform the market over the long term, primarily due to
high fees and inefficiencies. Now, where they're also beneficial to
a new investor is the ease of use. Now, mutual
(30:22):
funds require little effort from you as the investor, because
they allow automatic contributions, they offer reinvestments of dividends, and
they are widely available inside of retirement accounts like four
oh one ks and iras. So for busy professionals who
want to have a set it and forget it approach,
(30:43):
mutual funds provide that convenience. However, as mutual fund portfolio
values increase, a more active and strategic approach is often
going to yield better results for you. So another piece
that is nice for someone just starting out is dollar
(31:05):
cost averaging. Now, mutual funds allow for what we call
systematic investing, and it makes it easier to take advantage
of dollar cost averaging, and investors can regularly contribute, smoothing
out kind of the effects of market volatility over time.
And this is especially useful in the early stages of
(31:25):
investing when the goal is steady accumulation more so than
maximizing returns. So, as I always say to people, when
you're getting started, you have the hardest job out of
a relationship with a financial advisor. The hardest piece is
to save continuously. Now that requires discipline from you. Now
(31:53):
as you're getting started out, Like I said, in the
early stages, regular contributions is really significantly more valuable then
rate of return. So if you're just starting out and
you're looking for a simple investment approach, mutual funds may
(32:13):
work for you. But if your portfolio has grown to
over two hundred and fifty thousand dollars or more. It's
time that you explore a more efficient strategy. So reach
out to me at Prescott Private Wealth or call five
one eight two zero three one nine eighty three or
Prescott PW dot com and let's discuss your options for you. Now,
(32:37):
once you, as an investor, accumulate some significant assets, mutual
funds at that point begin to take several or really
I should say not take, but they have several drawbacks.
And here's why high net worth investors should always consider
other options. Number One, high expense ratios, because mutual funds
(33:03):
often carry expense ratios ranging anywhere from point five percent
to two percent, which eats into your returns. Now. ETFs,
in contrast, typically charge less than point one zero percent
in fees. So let me give you an example. Let's
(33:24):
say an investor has two hundred and fifty thousand dollars
in a mutual fund portfolio with a one and a
half percent fee. That means that you're paying thirty seven
fifty annually three thousand, seven hundred and fifty dollars annually. Okay,
if that same amount we're invested into an ETF with
(33:45):
point one percent expense ratio, then you would only pay
two hundred and fifty dollars, So that's a savings of
thirty five hundred dollars per year. So over a twenty
year period, assuming an eight percent rate of return, these
costs could compound into six figures of lost wealth. Now
(34:07):
let's take it a step further. Now, that doesn't tell
the entire story. Mutual funds distribute capital gains to shareholders
regardless of whether they sell their shares or not, and
it triggers a tax liability. And ETFs they're structured differently
(34:29):
and they minimize these taxable events, making them more tax efficient,
and the same thing with individual stocks. So for high
income investors, avoiding unnecessary capital gains distributions can significantly enhance
after tax returns. Now, this is especially relevant for those
(34:52):
in higher tax brackets, where long term capital gains taxes
can be a substantial bite out of investment earnings. And
those are a couple of issues that I have with
mutual funds. But let's take it a little bit further. So,
unlike stocks and ETFs, mutual funds only trade at the
(35:14):
end of the day. So this lack of inter day
trading flexibility can really be a disadvantage especially in volatile
markets where timely transactions are crucial. So if a major
market event occurs mid day, mutual fund investors must wait
until the market closes to make adjustments, and that could
(35:37):
lead to some significant missed opportunities or some unnecessary losses. Additionally,
in mutual funds, when other investors panic and sell, the fund,
managers for mutual funds may be forced to liquidate holdings
at an inopportune time, and this hurts, and it really
(36:01):
hurts the remaining investors as the fund value declines due
to these forced sales. Even though you personally are not
the one that felt that way and you're not the
one that pulled the parachute, you still are going to
be impacted by this negative event. And this is particularly
(36:23):
concerning in market downturns because when you want stability, you
want to make sure that it's there, and you don't
want to be penalized because other investors made emotional decisions
and you're a more disciplined investor. So for high net
worth investors looking to reduce fees, increase tax efficiency, and
(36:49):
gain greater control, shifting to ETFs and individual equities makes sense,
and you're if you're interested in learning how to optimize
your investments. Give me a call at Prescott Private Wealth
five point eight two zero three one nine eighty three
or visit PRESCOTTPW dot com. Now, let me share with
(37:13):
you the true cost of holding mutual funds. So to
illustrate the financial impact of fees and inefficiencies, I want
to compare two investors. Investor one holds five hundred thousand
in an actively managed mutual fund with a one and
a half percent expense ratio. So over twenty years, again
(37:37):
assuming that same eight percent annual return, they will have
paid over two hundred thousand dollars in fees, and Investor
B had transitioned to ETFs with a point one percent
expense ratio, so over the same period they pay only
(38:01):
twelve thousand, five hundred in fees, which is a savings
of nearly one hundred and ninety thousand dollars. So how
can that bring you value? Well, let's just put some
pain on the canvas here. Okay, one hundred and ninety
thousand dollars is a tremendous amount of money. Now, we
(38:24):
talked a few weeks back about the cost of healthcare
in financial planning, Well, that could put a tremendous dent
in the financial need for that, so something to be
very cognizant of. All right, now, let me just keep
going down this pathway for you. Here, I'll start to
(38:44):
tie this up so that we can move on to TSPs. So,
if your investment portfolio is over two hundred and fifty
thousand dollars and you still have mutual funds, Now, how
do you know if you have mutual funds? Write this down?
If you're not in a position to look your statement
when you open it up and it says positions or
(39:06):
ticker symbol, Uh, you want to look to see if
you have five letters for a ticker symbol that end
with an X. If you do, you have mutual funds.
If you have mutual funds and you have a financial advisor, already,
if you call that financial advisor, they are going to
(39:30):
double down and tell you that they did the right
thing for you. Okay, Remember, if you have over two
hundred and fifty thousand dollars and you're invested in mutual funds,
I don't care if it's a fee based to count
or not. Get your fanny in here. Let's review your
(39:52):
portfolio and let me show you why there is a
better way for you. Okay five one eight two zero
three one three or Prescott PW dot com. If you're
just tuning in, you're listening to your money matters. I'm
your host, Drew Prescott, President of Prescott Private Wealth, Chartered
Retirement Planning Counselor, and accredited Wealth Management Advisor, and I
(40:16):
just want to thank those of you who are new
listening to the show. I hope you're finding tremendous value
in it. This is a great show with great information
for you that you can apply to your own personal life.
I'm not just some talking head telling you about, you know,
some some silly story and trying to convince you that
(40:43):
I am some fantastic economist. Now, the idea here is
to teach you what I have learned through my career,
where I've seen people make some missteps, and where I've
seen people take some calculated risk that have hate off.
And for those who have not even calculated the risk
(41:05):
and have continued down that pathway. Okay, what I don't
want to happen to you is to be one of
those ignorant people that thinks that they've got it all
together based upon what they've heard friends say, and then
when a good opportunity comes to you that you can
take advantage of it instead of just being defensive and
(41:29):
staying ignorant and saying, well, what it could have should have? Right?
That is that is the worst thing that I ever
hear from people, is what could have should have? Right? No,
I'm equipping you to be able to make these decisions.
So stand up, be disciplined, have your convictions, and make
(41:52):
your decisions. Okay, don't let life hit you in the face.
I want you to attack your financial life for and aggressively,
and I'm here to give you the tools that you
need in order to do that. Now, last week, as
I said, we discussed the New York State deferred compensation,
(42:12):
how to work inside of that, how to work outside
of that, how to work with a financial advisor inside
of the plan. Now this week I'm going to transition
to thrift savings plans. Okay, So for those of you
who are federal employees, the account that you're contributing to
is a TSP or also a thrift savings plan. So
(42:37):
what you need to understand inside of this there's a
lot of components to it. But additionally, I want to
share with you why there is this provision that allows
for rollovers inside of your plan, And the answer to
(42:59):
that is flexibility, compliance, and adapting to a modern workforce.
So imagine that you're approaching retirement and you have retirement
accounts kind of scattered across multiple employers. Well, consolidating these
assets into a single account makes management easier and it
(43:23):
ensures that your investment strategy aligns with your goals. Additionally,
as you get older and you hit the age of
when you are required to take minimum distributions, it's easier
to calculate all in one account than to make sure
that you have all the proper year end values for
these for several accounts here, Okay, that really becomes it
(43:46):
puts a kink in your hose. It's not fun to
deal with, Okay. Now, rollovers enable this flexibility, allowing you
to take control of your financial future by diversifying into
other investment vehicles that may better suit your needs. So
plans like the Thrift Savings Plan and the New York
State Deferred comp they follow strict guidelines under ARISA, which
(44:11):
is the Employee Retirement Income Security Act. In addition to
the Internal Revenue Code so these laws mandate that plans
offer certain flexibilities, including rollovers, to maintain the tax advantage status.
So essentially, rollovers are not just a convenience, but they're
(44:33):
a requirement to keep these plans competitive and compliant. So
employees are more likely to engage with plans that offer
options and features like rollovers or age based in service withdrawals.
They make these plans attractive and that ultimately boost participation
(44:56):
rates and it's helping employees save more money if effectively.
So modern workers who are switching jobs more frequently, they
often leave behind a trail of retirement accounts. Now, rollovers
enhance the portability, and that makes it easier to bring
(45:16):
all of your accounts together in one cohesive strategy. This
also ensures that long term retirement savings remain intact no
matter how many times you change employers. So understanding these
reasons is key to making the most of your plan. Now,
let's just transition into a more focused look at the
(45:38):
TSP rollover provisions here and how they align with broader
retirement security goals. So, first, federal employees participate in a
thrift savings plan and they enjoy a very unique benefit
and it's the ability to perform what we call an
(45:58):
in service rollover, particularly after the age of fifty nine
and a half. Now, this provision wasn't explicitly created to
encourage annuity purchases, but it indirectly supports a broader goal
like providing flexibility retirement income solutions. And here's how. First,
(46:20):
because of the flexibility for participants, with an in service rollover,
you can transfer your TSP funds to an IRA or
another qualified retirement account while you're still employed. So this
opens the door to additional investment options that may not
be available within the TSP, such as sector specific funds
(46:43):
or socially responsible investments. Additionally, the TSP offers limited investment
choices and government sponsored annuity options through met Life, so
rolling over funds allows participants to explore a wider array
of annuity options in addition to investment vehicles from private
(47:06):
financial institutions, and this helps ensure retirement income strategy is
tailored to your specific needs. Now, the federal government has
long supported lifetime income solutions like annuities to address one
of the retiree's biggest fears. That biggest fear is outliving
(47:30):
their savings. So here are three ways that the TSP
aligns with these goals. Number one, to mitigate longevity risk,
So annuities provide guaranteed income for life, which can be
a critical component of a well rounded retirement plan. So
(47:50):
by allowing rollovers, the TSP actually makes it easier for
our participants to access private annuities with features like inflation
protected or joint survivor benefits. Second, the TSP includes an
annuity option as part of its retirement offerings, so while
(48:12):
it's not heavily promoted, this option highlights the importance of
considering guaranteed income streams as part of a retirement strategy. Now,
don't forget these individuals also have a pension, but the
government also believes there should be additional layers of guaranteed
(48:32):
income outside of Social Security. So by allowing rollovers, it
gives participants the freedom to pursue annuities from providers that
offer terms that are better suited to the individual's needs.
And this flexibility underscores the government's broader goal of promoting secure,
(48:55):
sustainable retirement income. So why allow rollovers for annuities. Let's
just delve into why rollovers play such a crucial role
in encouraging annuity purchases. Number One, it promotes private security,
private sector solutions, I should say so rollovers allow participants
(49:20):
to access a broader market of annuity options, often with
a more competitive rate and features than those that are
offered within the TSP. Second, a tax advantage status. By
rolling over funds into an IRA, participants can purchase annuities
without incurring immediate tax liabilities. So this ensures that their
(49:44):
investments remain tax deferred while providing greater financial flexibility. Third,
it expands the retirement planning choices. So, recognizing that the
TSP withdrawal options are limited, rollovers empower participants to customize
their retirement income plans, whether that's through lattering annuities, systematic withdrawals,
(50:09):
or other strategies tailored to those goals. So you can
see there are some benefits to this TSP plan as
it relates to the offering of what we call an
in service rollover. Okay, now, some things that you should
(50:30):
know about your TSP are the following. The TSP plan
has low fees. Now, this plan is often regarded as
one of the most cost effective retirement plans in the US,
and let me explain to you why that is well.
One is because of the expense ratio. Now it's consistently
(50:53):
among the lowest in the industry at point zero six
percent as of twenty twenty four, or another way to
say that would be sixty cents for every one thousand
dollars invested. So this makes it highly attractive for long
term investors as fees significantly impact retirement savings over time.
(51:14):
As we talked about, now, let me share with you,
let's not just say that that's all good. Let me
just unpack a couple pieces here for you. What you
need to understand is that there are five core index
funds inside of this plan. First, the G fund, which
is government securities invested fund, so it's ultra low risk.
(51:36):
The F fund, which is fixed income index, the C fund,
which is common stock index fund or the S and
P five hundred index, the S fund which is small
cap stock index, the I fund, which is international stocks index,
and then lifestyle funds or l funds. And these are
(51:56):
the target date retirement funds that automatic adjust your allocation
over time. So these options that they offer are simple, right,
they're low cost, and they're suitable for investors that are
just seeking diversification and more of a predictable return. So
the government has done a good job with keeping it simple. Okay, Now,
(52:22):
the TSP, the Thrift Savings Plan, is frequently ranked among
the top retirement plans nationwide, and that's due to its
unparalleled load fees and its simplicity and really the focus
on long term savings. So let me just share with
you what the main drawback is. The main drawback here
(52:42):
is the limited number of funds, which may not really
appeal to investors that are seeking more customization or niche
investment options. So if you find yourself desiring more from
your TSP, reach out. The phone number here is five
(53:05):
one eight two zero three one nine eight three PRESCOTTPW
dot com. And even though the TSP is the gold
standard for low cost investing with its simplicity and its
low fees, its ideal for federal employees and service members
that are just seeking a straightforward, high value retirement savings.
(53:29):
But for those of you who are a little bit
more astute or want to have a greater opportunity for
diversification in specific holdings or specific sectors, then we can
exercise your right for this in service rollover. So if
(53:50):
anything that I said here today has resonated with you.
Don't hesitate to reach out PRESCOTTPW dot com. You can
start the pros in the upper right hand corner clicking
on services and then new clients below that you'll see
our fee for schedule or I should say our fee
(54:13):
schedule for services, and I would just encourage you to
reach out. I love to meet new people, love to
have you into the office and have you gather your
documents ahead of time. Let's take you through a full
financial plan. And if you're a New York state employee
a federal employee and you want to see what your
(54:35):
options are whether last week we talked about as a
state employee, you can have another advisor manage the funds
separately from AFAR. We can do some rollover options, a
lot of things you can do here. Nonetheless, love to
talk to you again, you're listening to your money matters.
I'm your host, Drew Prescott, chartered Retirement Planning counselor, Accredited
(54:59):
Wealth Management and the president of Prescott Private Wealth. I
can be heard here every Sunday at eleven AM, Talk
Radio eight ten and one oh three one FM WGY. So.
Thank you so much and we'll look forward to speaking
to you next week. I think next week. Uh, of course,
(55:20):
we'll do some type of a market overview, but I
really want to talk to you about the importance of
how to handle retirement for the rest of your life.
We always talk about accumulating money, but once you get
to that retirement day, how do you start to live
the rest of your life in a way that you
(55:44):
feel confident and you can meet your goals. Well, I'll
have the answers for you next week and I'm going
to teach you about that. So again, thank you so
much for listening. You were listening to your money matters,
and we will see you here next week and until then,
God bless you and God bless your family.
Welcome to the hidden world of wealth, where secrets of
the affluent become accessible to you. You are listening to
Your Money Matters, the most provocative financial radio show on
the airwaves. You are about to start your educational journey
here on Your Money Matters with your host, Drew Prescott,
(00:22):
President of Prescott Private Wealth and Chartered retirement Planning Counselor.
Drew will unlock the complexities of the financial landscape with straightforward,
powerful insights. Whether you're planning for retirement, managing in a state,
or looking to grow your wealth. Consider this your exclusive invitation.
Turn up the volume, lean in closer. Let's navigate the
(00:45):
hidden paths of prosperity together. Your financial enlightenment begins now.
Securities all produce a terror Financial Specialists LLC Member fen
the SIPC reservices offered through Setara Investment Advisors LLC so
TERA firms are under separate ownership from any other named entity.
(01:06):
Four five to one, WHO six Street, Troy, New York
one two one eight zero.
Speaker 2 (01:19):
About Welcome back, everybody to your Money Matters. I'm your host,
Drew Prescott, Chartered retirement planning counselor and accredited wealth management advisor.
(01:43):
Here at Prescott Private Wealth located at four point fifty one,
Who's extreme in Troy, New York. The phone number here
is five one eight two zero three one nine eight three. Again,
that's five one eight two zero three one nine eight three.
And for those of you who are sitting at home,
or maybe you're sitting in your car listening, enjoying your
heated seat because you don't quite want to go inside yet, Well,
(02:05):
if you got your phone there, pull up our website
PRESCOTTPW dot com. You can take a look at our team.
Also look at some of the media that I have
posted there for you, a lot of great resources. So
I am just glad that you've decided to commit some
of your time on this beautiful Sunday to listening to
(02:28):
my radio program. And this is the show where we
break down the latest financial trends, market shifts, and policy
changes that impact your hard earned money. And again I'm
Drew Prescott, and today we've got a jam packed show
discussing major headlines that are shaping the financial landscape this week,
(02:50):
from federal reserve decisions to market volatility and the latest
economic policies from the Trump administration. And yes, you guessed it.
We are going to pick up where we left off
with the TSP. For those of you who listened last
week at the very beginning of the show, if you noticed,
(03:11):
and by the way, it was an accident, but those
were the velvety tones of Drew Prescott singing karaoke. So
if you were listening and you didn't hear the intro,
I had a screw up. I actually put in a
recording that I did for a karaoke thing one time,
(03:33):
and oh my goodness, if you could have only seen
my face when I realized what was going on as
my show had aired, I think all of the blood
had left my body and I let out a big
oh my gosh, Dace, I can't believe what just happened.
(03:55):
In my entire family was dying laughing, and it was
really I said, hey, listen, if nothing else, I gave
you guys something great to remember me by. Right, What
an embarrassing and humbling experience. So for those of you
who did catch it, yes, that was me. For those
of you who didn't guess what too late, we already
(04:15):
fixed it. So anyways, it was hilarious. I was dying
laugh and all it was a thing of beauty really.
So anyways, thank you again for tuning in, and for
those of you who are new, welcome and glad to
have you join me. For those of you who listen
every week, well I'm glad to have you back so thankfully.
(04:39):
As I was telling everybody what had happened, you know,
I started, I'm one that likes to make fun of myself,
so I send it out to a couple of people
to get some laughs, and even Zach Harris, the producer
of the show here, and they're all kind, and they
all said, you know something, it wasn't that bad, to
(04:59):
be honest with you. You know, if somebody wasn't a
George Straight fan, they probably wouldn't even recognize what had happened.
So anyways, maybe you're in that camp and maybe it
wasn't that bad, but nonetheless it was awfully humiliating for me.
So let's get started here. Last week, if you did listen,
like I said, we covered the New York State deferred compensation.
(05:21):
We really unpacked that in great detail, and I wanted
to do that. That's something that's very important to me
because locally, we have a tremendous amount of state employees
in addition to federal employees. And today we're going to
change gears towards the end of the show, and I'm
going to discuss the thrift savings plan kind of give
(05:42):
you an overview of the plan, how it works, in
addition to the ability to do what's called an in
service rollover. So you're gonna want to hang in there.
But before we get down that path, let's just get
started with this week's market overview. And for those of
you who were paying attention, you know, we saw that
Wall Street experienced some significant fluctuations, and really it was
(06:06):
as the investors started to grapple with the combination of
corporate earnings, federal reserve policy statements, in addition to newly
imposed tariffs by the Trump administration. And what we saw
as a result was that the Dow Jones Industrial average
closed the week down two point three percent, the S
(06:26):
and P five hundred dipped by one point eight percent,
and the NASDAC composite was down about one and a
half percent, which really wasn't wasn't a bad wasn't a
bad number considering how things started out. But you know,
for those of you who were paying attention, when you
(06:47):
see these opportunities. And now when I say that, the
same companies that we saw get beat up so bad
in one day pretty much recovered by week's end. So
that was an opportunity to buy for some of you. Okay,
(07:09):
So here at Prescott Private Wealth, we believe that the
market is a fair value. It always represents a fair value,
and so those things don't scare us, especially for the
long term investor. We don't try to time the market. Really,
we believe that time in the market is much more important.
(07:30):
And that being said, let's just take a look at
what led to some of the market's downturn, and that
was really it was in response to we saw the
news here with artificial intelligence where China's company deep Seek
(07:53):
said that they were producing really just incredible results at
a fraction of the cost of what the US companies
were showing. Now, I got to tell you, I've been
following China long enough to know that I actually don't
(08:16):
buy into ninety nine zero point nine percent of what
they say. The way that they do accounting is very
misleading in a lot of ways. Additionally, let's not forget
you know, we're at a war with them, not only
just a trade war, but we've got a lot of
(08:38):
different ways in which we're competing with them, so they
tend to play a little bit dirty. That being said,
we also had some new tariffs on imports from Canada, Mexico,
and China, and investors are really concerned about the potential
retaliatory measures from these trading partners, which in some people's mind,
(09:02):
it could disrupt supply chains and it could drive up
the cost for consumers. Meanwhile, energy stocks saw some relief
as the oil prices climbed on expectations of reduced imports
due to trade restrictions. And then if we take a
look at the bond market here, we saw that the
tenure treasury yield edged higher, which reached four point two percent.
(09:27):
Now that signaled increased concerns over inflation as businesses anticipate
rising costs. Here now, also one thing that I always
like to take a look at is the VIX, which
is our volatility index. That spiked to twenty one, and
that was reflecting basically a growing uncertainty that's amongst investors
(09:49):
right now. And the Federal Reserve held its first policy
meeting of twenty twenty five this past week, so as expected,
the Central Bank kept in strait's steady at five point
twenty five percent. Now, Federal Chair Jerome Powell signaled a
cautious stance regarding future rate cuts and he was and
(10:12):
he cited that persistent inflation concerns and potential economic disruptions
from policy trade shifts could play a factor. Now in
his post meeting remarks, this is this is something that
should be noted that Powell said that while inflation has
cooled from its peak in twenty twenty two, there's rising
(10:35):
costs due to new tariffs that he believes could take effect,
which could, he said, in his words, could lead to
an uptick in prices, which could complicate the Fed's efforts
to maintain stable economic growth. So the Fed also emphasized
its continued focus on the labor market conditions in addition
(10:56):
to wage growth, and leaning into them as as the
key indicators for future monetary policy decisions. So that as
a backdrop, let's look at major market movers and the
economic activities. And there's really several key events this week
that played a role, I would say in shaping the
(11:19):
market's performance. First would be the tech sector earnings. Well,
we saw that Apple and Microsoft both reported earnings that
exceeded the expectations, but the forward guidance remained cautious due
to global economic uncertainty. And then we saw that semiconductor
stocks fell as analysts warned about potential disruption in the
(11:42):
supply chains stemming from tariffs on China. Now, if we
look at our retail and consumer goods, we saw the
retailers saw mixed results, with discount stores like the Walmarts
of the world and others seeing gains due to budget
conscious consumers, while luxury brands we saw them start to
(12:06):
struggle with some slower sales. And we also saw that
consumer sentiments fell to its lowest level in six months.
Now that reflects that there's concerns about rising costs in
addition to economic uncertainty. So we'll keep an eye on those.
As you know, and as I talk about retail, consumer
(12:27):
goods is a nice indicator to understand the economy inside
of the home. Okay, Now, if we turn our attention
to energy and commodities, what you'll what you would have
seen was that oil prices surged above eighty five dollars
per barrel. So analysts are attributing that rise to the
(12:48):
potential supply disruptions due to trade policies and geopolitical concerns.
We also saw that gold prices also climbed as investors
sought safe haven assets midst market volatility. Now, what are
we seeing coming from the White House here? Well, Trump's
administration is bringing in new economic policies. And so if
(13:11):
you're watching any of the money shows on CNBC, Fox Business, Bloomberg,
any of those on television, what you would see is
that President Trump has introduced several major economic and tax
policies in the past week, and they're all reinforcing his
(13:33):
America First agenda. Now, these policies, the ships have been
met with some mixed reactions from economists additionally some businesses
and investors. So I want to break down the key
measures here. First, let's talk about tariffs and tariffs on
(13:53):
key trading partners. Now, effective February first, of twenty twenty five,
new tariffs have been imposed on imports, and we'll talk
about three countries here. So with Canada and Mexico, there's
a twenty five percent tariff. On Chinese imports, there's a
(14:14):
ten percent tariff. So the administration is arguing that these
measures will boost domestic production and also generate revenue for
the US government. Now, also it's to be noted that
industries that rely on imported materials and goods have raised
(14:35):
concerns about increased costs and potential retaliation. So we've seen
some economists warned that the tariffs could lead the higher
prices for consumers, particularly on goods such as automobiles, electronics,
and agricultural products. And the markets responded negatively to the news,
with manufacturing and tech stocks seeing declines. Now, if you
(15:00):
go a little bit further into this and do some
additional reading on your own time, I would encourage you
to look into how Trump is using these tariffs. Okay, Now,
a lot of people out there are saying that they're
all good. Some people are saying that they're all bad.
(15:22):
I think that if you see the fervor in which
this administration is pushing these, coupled with the desire to
eliminate the internal revenue system, this could be very beneficial
on a tremendous scale, because if we are paying I mean,
(15:48):
our dollars already taxed to a level that nobody truly knows.
There's assumptions out there that if you're a high income
earner and you're in the top tax bracket that your
dollars actually taxed somewhere north of eighty percent, which is scary.
That's and you hear that Trump has been mentioning how
(16:14):
it was an amendment to our constitution to allow taxation,
and frankly, if you look at the history, this was
only supposed to be a short term taxation, and it
was to pay back the debt that was accumulated for war. Well,
you know, just like anything once it passes, it just
kind of continues to grow legs. So the tariffs are
(16:39):
a bargaining chip, but they can also be a way
to make our nation very wealthy again and to eliminate
our deficit. And this could be a very advantageous thing
for the country if performed properly. So you know, we
got to keep an eye on this. And like I said,
(16:59):
you know, President Trump is advocating for some major changes
in taxation, including eliminating federal taxes on tips, over time
social Security benefits right now at this time, but even
further down the road potentially an elimination of income taxation
as well. Overall, but for those of you who receive tips,
(17:22):
who get over time pay and social security benefits. This
is going to be very advantageous to you, which means
you will have more money in your pocket, which means
more disposable income, which means more money to spend at
local businesses to get additional services like going to the
(17:45):
hair salon, the nail salon, massages, all these different things
that are for personal care that are all at a
small business level, which stimulate the economy. So we're going
to have to see how all this plays out. But
it looks as though we could be heading in a
very beneficial direction for you as a taxpayer. In addition
(18:10):
to that, it will couple with or trickle down however
you want to say it to corporations and businesses. So
we'll have to see how this all unfolds. Now, the
US has officially withdrawn from OECD, which is a global
tax deal which actually the goal was to impose a
(18:35):
fifteen percent minimum corporate tax rate on multinational companies. So
what did this move do well? This move is really
seen as an effort to maintain America's competitive edge in
global business. However, it has sparked concerns among international allies
(18:57):
and some countries who may retaliate with new taxes on
US firms operating abroad. So again, this is just a great,
big chess game that we're witnessing. And frankly, we have
tremendous business minds in this administration, and I trust them
(19:19):
wholly that they will do a wonderful job accomplishing what
they've set out to do. Now, Trump's pick for a
Treasury secretary, which was a former hedge fund manager. His
name is Scott Bissent, and he has been confirmed. Now,
bacent is expected to focus on extending the twenty seventeen
(19:42):
Tax Cuts and Jobs Act. I'm not going to unpack
that for you today. I covered that on several shows
and the danger of that expiring. So the goal here
is very clear to extend that. That's a beautiful thing. Also,
he is going to focus on reducing federal spending and
(20:03):
addressing the national debt. Now, Bissent has also been vocal
in supporting tariffs as a means of bolstering US's revenue
and manufacturing, which aligns closely with Trump's economic strategy. Now,
on January twentieth, President Trump signed some executive orders, and
(20:26):
one of them was the America First Trade Policy, which
was directed towards federal agencies to number one, investigate the
root cause of US trade deficits, two assess the feasibility
of an external revenue service to collect tariffs and duties,
(20:48):
and three to review unfair trade practices by foreign countries. Now,
this move really aims to strengthen America's negotiating position in
trade deals and to ensure that US businesses are not
disadvantaged by international tax policies. So, with all of this said,
(21:12):
what does this mean for you? Let me see if
I can share with you some ideas here. Okay, So
with tariffs in place and new economic policies that are
taping taking shape here, here's what consumers and investors should
watch for. Keep an eye on higher costs on imported
(21:34):
goods that could lead to inflationary pressures. Two, We're likely
going to see some short term market volatility continue as
businesses start to adjust to new trade policies. Also, the
potential tax savings for workers if tipped, if they receive
(21:57):
over time, or those of you who are social secure
already eligible, you could find some financial relief. And last
thing I want to point out to you is the
strength of the US dollar. We may see a little
fluctuation here based upon trade relationships and investors' confidence. Nonetheless,
(22:18):
it's my personal belief that these will be short term
hiccups and that long term it's going to work out
to be very advantageous for us. So as we move
further into twenty twenty five, the economic policies they're going
to continue to play a crucial role in shaping the
(22:40):
market conditions, and as an investor, you should really remain
cautious and stay informed on legislative developments that could impact
your portfolio. This is a fantastic time to set an
appointment and get together with me. For those of you
who just tuned in, you're listening to your money matters.
I'm your host, Drew Prescott, Chartered Retirement Planning counselor, Accredited
(23:05):
Wealth Management Advisor and wealth Advisor Prescott Private Wealth, located
four fifty one Who's Ex Street in Troy, New York.
The phone number here is five one eight two zero
three one nine eight three again five one eight two
zero three one nine eight three. Take a look at
us online Prescott PW dot com, and UH love to
(23:25):
get together with you. As I was saying, this is
a fantastic time to review your portfolios to make sure
that they're aligned with what the forecast of this year is,
what the opportunities and what the challenges could be, uh
as we see it with the new administration. And let
(23:48):
me just share something with you here. Sometimes you hear
some subtle knocks from me on mutual funds, and today
I want to unpack for you why that is. So
I want to share with you two things today which
are going to be incredibly beneficial to you. Okay, Now,
(24:12):
if you want to see if this applies to you,
I would say, pull up your statement or go grab
a copy of your statement, which whichever is easiest for
you here, and I'll tell you exactly how you're going
to find out if what I'm sharing with you applies
(24:33):
to you. Okay, so let's get started here. Feel free
to go and get yourself a cup of coffee, get
that statement, and well, while you do that, I am
going to I'm just going to delay just a little
bit here to get you some time to gather that.
(24:55):
And then I want to share with you how you're
going to know if you have mutual funds and what
type of mutual funds you have. Okay, So let's jump
in here. So if you have your statement, or if
you can pull up an app on your phone and
you want to look at your holdings, go to positions,
go to holdings, whatever they're titled. And when you look
at these and you see in mutual funds when they're listed,
(25:19):
look at your ticker symbol or your the symbol for
your holding.
Speaker 1 (25:24):
Here.
Speaker 2 (25:24):
Mutual funds are five letters ending in an X. Okay,
So if you have five letters and it ends in
an X, you have a mutual fund. If you have
three to five letters, then you know you and it's
a fund, then you you're gonna have a ETF. And
(25:49):
stocks are always one to five letters, and that really
depends upon if they're in the New York Stock Exchange
or Nasdaq. Okay, so again we're talking about mutual funds.
So let's focus on those holdings that you have there
that are five letters and that end with an X,
(26:11):
and that's where we're going to camp out for a
little bit and we're going to talk about why mutual
funds lose their appeal beyond two hundred and fifty thousand
dollars worth of holdings. And for those of you who
just tuned in, you're listening to your money matters. I'm
Drew Prescott, chartered Retirement Planning counselor, accredited Wealth management advisor
(26:31):
and wealth advisor here at Prescott Private Wealth located four
to fifty one, who's Extreme Inturn, New York PRESCOTTPW dot com.
So today we're diving into an important topic and that
is again why mutual funds lose their appeal beyond two
hundred and fifty thousand dollars. So, if you've been investing
in mutual funds and your portfolio has grown beyond this threshold,
(26:56):
it's time to reevaluate whether you are are still in
the best option for yourself. Now, mutual funds are great
for getting started, but as your investments grow, there are
certainly better alternatives to optimize wealth accumulation, your tax efficiency,
(27:18):
in addition to your flexibility. Now, many investors don't realize
that what works well for accumulating wealth early on may
not be the best strategy for maintaining and growing it
as your portfolio reaches higher thresholds. Now, mutual funds provide
a broad market exposure, which is beneficial, but they also
(27:42):
come with hidden inefficiencies that can erod returns over time.
So if you're not proactive in reassessing your strategy, you
may be leaving significant money on the table. So stay
tuned because by the end of the show, you're going
to have action steps to take your portfolio to the
(28:02):
next level. And if you want individualized assistance or you
want to discuss this strategy, visit PRESCOTTPW dot com. Halfway
down the page. You can uh schedule a time with us,
or you can call five one eight two zero three
one nine eight three Extension one oh five and ask
(28:24):
for Jessica and she'll set up a time for us
to meet. And at Prescott Private Wealth, you meet with me, okay.
You're not going to meet with a junior representative or
one of my team members. You're gonna meet with me personally, okay.
So let's get started with the benefits of mutual funds
for beginners. Well, mutual funds really offer a simplified, hands
(28:49):
off approach to new investors. So let's break down why
they are so appealing to those who are first starting out. Well,
one of the benefits is automatic versification. Now with a
single investment, a mutual fund provides exposure to multiple asset classes,
in companies, which is a good thing right because diversification
(29:13):
lowers risk and it prevents your portfolio from suffering due
to poor performance of a single stock. Now, for investors
without the time or knowledge to research individual stocks, this
built in diversification is a major advantage. Additionally, it has
(29:34):
professional management, so a dedicated fund manager selects and monitors investments,
taking the burden off of individual investors. Now, this expertise
is really valuable for those who are unfamiliar with market
trends and those who do not understand financial statements or
economic cycles. However, while professional management is beneficial, it's important
(30:01):
to recognize that actively managed mutual funds often fail to
outperform the market over the long term, primarily due to
high fees and inefficiencies. Now, where they're also beneficial to
a new investor is the ease of use. Now, mutual
(30:22):
funds require little effort from you as the investor, because
they allow automatic contributions, they offer reinvestments of dividends, and
they are widely available inside of retirement accounts like four
oh one ks and iras. So for busy professionals who
want to have a set it and forget it approach,
(30:43):
mutual funds provide that convenience. However, as mutual fund portfolio
values increase, a more active and strategic approach is often
going to yield better results for you. So another piece
that is nice for someone just starting out is dollar
(31:05):
cost averaging. Now, mutual funds allow for what we call
systematic investing, and it makes it easier to take advantage
of dollar cost averaging, and investors can regularly contribute, smoothing
out kind of the effects of market volatility over time.
And this is especially useful in the early stages of
(31:25):
investing when the goal is steady accumulation more so than
maximizing returns. So, as I always say to people, when
you're getting started, you have the hardest job out of
a relationship with a financial advisor. The hardest piece is
to save continuously. Now that requires discipline from you. Now
(31:53):
as you're getting started out, Like I said, in the
early stages, regular contributions is really significantly more valuable then
rate of return. So if you're just starting out and
you're looking for a simple investment approach, mutual funds may
(32:13):
work for you. But if your portfolio has grown to
over two hundred and fifty thousand dollars or more. It's
time that you explore a more efficient strategy. So reach
out to me at Prescott Private Wealth or call five
one eight two zero three one nine eighty three or
Prescott PW dot com and let's discuss your options for you. Now,
(32:37):
once you, as an investor, accumulate some significant assets, mutual
funds at that point begin to take several or really
I should say not take, but they have several drawbacks.
And here's why high net worth investors should always consider
other options. Number One, high expense ratios, because mutual funds
(33:03):
often carry expense ratios ranging anywhere from point five percent
to two percent, which eats into your returns. Now. ETFs,
in contrast, typically charge less than point one zero percent
in fees. So let me give you an example. Let's
(33:24):
say an investor has two hundred and fifty thousand dollars
in a mutual fund portfolio with a one and a
half percent fee. That means that you're paying thirty seven
fifty annually three thousand, seven hundred and fifty dollars annually. Okay,
if that same amount we're invested into an ETF with
(33:45):
point one percent expense ratio, then you would only pay
two hundred and fifty dollars, So that's a savings of
thirty five hundred dollars per year. So over a twenty
year period, assuming an eight percent rate of return, these
costs could compound into six figures of lost wealth. Now
(34:07):
let's take it a step further. Now, that doesn't tell
the entire story. Mutual funds distribute capital gains to shareholders
regardless of whether they sell their shares or not, and
it triggers a tax liability. And ETFs they're structured differently
(34:29):
and they minimize these taxable events, making them more tax efficient,
and the same thing with individual stocks. So for high
income investors, avoiding unnecessary capital gains distributions can significantly enhance
after tax returns. Now, this is especially relevant for those
(34:52):
in higher tax brackets, where long term capital gains taxes
can be a substantial bite out of investment earnings. And
those are a couple of issues that I have with
mutual funds. But let's take it a little bit further. So,
unlike stocks and ETFs, mutual funds only trade at the
(35:14):
end of the day. So this lack of inter day
trading flexibility can really be a disadvantage especially in volatile
markets where timely transactions are crucial. So if a major
market event occurs mid day, mutual fund investors must wait
until the market closes to make adjustments, and that could
(35:37):
lead to some significant missed opportunities or some unnecessary losses. Additionally,
in mutual funds, when other investors panic and sell, the fund,
managers for mutual funds may be forced to liquidate holdings
at an inopportune time, and this hurts, and it really
(36:01):
hurts the remaining investors as the fund value declines due
to these forced sales. Even though you personally are not
the one that felt that way and you're not the
one that pulled the parachute, you still are going to
be impacted by this negative event. And this is particularly
(36:23):
concerning in market downturns because when you want stability, you
want to make sure that it's there, and you don't
want to be penalized because other investors made emotional decisions
and you're a more disciplined investor. So for high net
worth investors looking to reduce fees, increase tax efficiency, and
(36:49):
gain greater control, shifting to ETFs and individual equities makes sense,
and you're if you're interested in learning how to optimize
your investments. Give me a call at Prescott Private Wealth
five point eight two zero three one nine eighty three
or visit PRESCOTTPW dot com. Now, let me share with
(37:13):
you the true cost of holding mutual funds. So to
illustrate the financial impact of fees and inefficiencies, I want
to compare two investors. Investor one holds five hundred thousand
in an actively managed mutual fund with a one and
a half percent expense ratio. So over twenty years, again
(37:37):
assuming that same eight percent annual return, they will have
paid over two hundred thousand dollars in fees, and Investor
B had transitioned to ETFs with a point one percent
expense ratio, so over the same period they pay only
(38:01):
twelve thousand, five hundred in fees, which is a savings
of nearly one hundred and ninety thousand dollars. So how
can that bring you value? Well, let's just put some
pain on the canvas here. Okay, one hundred and ninety
thousand dollars is a tremendous amount of money. Now, we
(38:24):
talked a few weeks back about the cost of healthcare
in financial planning, Well, that could put a tremendous dent
in the financial need for that, so something to be
very cognizant of. All right, now, let me just keep
going down this pathway for you. Here, I'll start to
(38:44):
tie this up so that we can move on to TSPs. So,
if your investment portfolio is over two hundred and fifty
thousand dollars and you still have mutual funds, Now, how
do you know if you have mutual funds? Write this down?
If you're not in a position to look your statement
when you open it up and it says positions or
(39:06):
ticker symbol, Uh, you want to look to see if
you have five letters for a ticker symbol that end
with an X. If you do, you have mutual funds.
If you have mutual funds and you have a financial advisor, already,
if you call that financial advisor, they are going to
(39:30):
double down and tell you that they did the right
thing for you. Okay, Remember, if you have over two
hundred and fifty thousand dollars and you're invested in mutual funds,
I don't care if it's a fee based to count
or not. Get your fanny in here. Let's review your
(39:52):
portfolio and let me show you why there is a
better way for you. Okay five one eight two zero
three one three or Prescott PW dot com. If you're
just tuning in, you're listening to your money matters. I'm
your host, Drew Prescott, President of Prescott Private Wealth, Chartered
Retirement Planning Counselor, and accredited Wealth Management Advisor, and I
(40:16):
just want to thank those of you who are new
listening to the show. I hope you're finding tremendous value
in it. This is a great show with great information
for you that you can apply to your own personal life.
I'm not just some talking head telling you about, you know,
some some silly story and trying to convince you that
(40:43):
I am some fantastic economist. Now, the idea here is
to teach you what I have learned through my career,
where I've seen people make some missteps, and where I've
seen people take some calculated risk that have hate off.
And for those who have not even calculated the risk
(41:05):
and have continued down that pathway. Okay, what I don't
want to happen to you is to be one of
those ignorant people that thinks that they've got it all
together based upon what they've heard friends say, and then
when a good opportunity comes to you that you can
take advantage of it instead of just being defensive and
(41:29):
staying ignorant and saying, well, what it could have should have? Right?
That is that is the worst thing that I ever
hear from people, is what could have should have? Right? No,
I'm equipping you to be able to make these decisions.
So stand up, be disciplined, have your convictions, and make
(41:52):
your decisions. Okay, don't let life hit you in the face.
I want you to attack your financial life for and aggressively,
and I'm here to give you the tools that you
need in order to do that. Now, last week, as
I said, we discussed the New York State deferred compensation,
(42:12):
how to work inside of that, how to work outside
of that, how to work with a financial advisor inside
of the plan. Now this week I'm going to transition
to thrift savings plans. Okay, So for those of you
who are federal employees, the account that you're contributing to
is a TSP or also a thrift savings plan. So
(42:37):
what you need to understand inside of this there's a
lot of components to it. But additionally, I want to
share with you why there is this provision that allows
for rollovers inside of your plan, And the answer to
(42:59):
that is flexibility, compliance, and adapting to a modern workforce.
So imagine that you're approaching retirement and you have retirement
accounts kind of scattered across multiple employers. Well, consolidating these
assets into a single account makes management easier and it
(43:23):
ensures that your investment strategy aligns with your goals. Additionally,
as you get older and you hit the age of
when you are required to take minimum distributions, it's easier
to calculate all in one account than to make sure
that you have all the proper year end values for
these for several accounts here, Okay, that really becomes it
(43:46):
puts a kink in your hose. It's not fun to
deal with, Okay. Now, rollovers enable this flexibility, allowing you
to take control of your financial future by diversifying into
other investment vehicles that may better suit your needs. So
plans like the Thrift Savings Plan and the New York
State Deferred comp they follow strict guidelines under ARISA, which
(44:11):
is the Employee Retirement Income Security Act. In addition to
the Internal Revenue Code so these laws mandate that plans
offer certain flexibilities, including rollovers, to maintain the tax advantage status.
So essentially, rollovers are not just a convenience, but they're
(44:33):
a requirement to keep these plans competitive and compliant. So
employees are more likely to engage with plans that offer
options and features like rollovers or age based in service withdrawals.
They make these plans attractive and that ultimately boost participation
(44:56):
rates and it's helping employees save more money if effectively.
So modern workers who are switching jobs more frequently, they
often leave behind a trail of retirement accounts. Now, rollovers
enhance the portability, and that makes it easier to bring
(45:16):
all of your accounts together in one cohesive strategy. This
also ensures that long term retirement savings remain intact no
matter how many times you change employers. So understanding these
reasons is key to making the most of your plan. Now,
let's just transition into a more focused look at the
(45:38):
TSP rollover provisions here and how they align with broader
retirement security goals. So, first, federal employees participate in a
thrift savings plan and they enjoy a very unique benefit
and it's the ability to perform what we call an
(45:58):
in service rollover, particularly after the age of fifty nine
and a half. Now, this provision wasn't explicitly created to
encourage annuity purchases, but it indirectly supports a broader goal
like providing flexibility retirement income solutions. And here's how. First,
(46:20):
because of the flexibility for participants, with an in service rollover,
you can transfer your TSP funds to an IRA or
another qualified retirement account while you're still employed. So this
opens the door to additional investment options that may not
be available within the TSP, such as sector specific funds
(46:43):
or socially responsible investments. Additionally, the TSP offers limited investment
choices and government sponsored annuity options through met Life, so
rolling over funds allows participants to explore a wider array
of annuity options in addition to investment vehicles from private
(47:06):
financial institutions, and this helps ensure retirement income strategy is
tailored to your specific needs. Now, the federal government has
long supported lifetime income solutions like annuities to address one
of the retiree's biggest fears. That biggest fear is outliving
(47:30):
their savings. So here are three ways that the TSP
aligns with these goals. Number one, to mitigate longevity risk,
So annuities provide guaranteed income for life, which can be
a critical component of a well rounded retirement plan. So
(47:50):
by allowing rollovers, the TSP actually makes it easier for
our participants to access private annuities with features like inflation
protected or joint survivor benefits. Second, the TSP includes an
annuity option as part of its retirement offerings, so while
(48:12):
it's not heavily promoted, this option highlights the importance of
considering guaranteed income streams as part of a retirement strategy. Now,
don't forget these individuals also have a pension, but the
government also believes there should be additional layers of guaranteed
(48:32):
income outside of Social Security. So by allowing rollovers, it
gives participants the freedom to pursue annuities from providers that
offer terms that are better suited to the individual's needs.
And this flexibility underscores the government's broader goal of promoting secure,
(48:55):
sustainable retirement income. So why allow rollovers for annuities. Let's
just delve into why rollovers play such a crucial role
in encouraging annuity purchases. Number One, it promotes private security,
private sector solutions, I should say so rollovers allow participants
(49:20):
to access a broader market of annuity options, often with
a more competitive rate and features than those that are
offered within the TSP. Second, a tax advantage status. By
rolling over funds into an IRA, participants can purchase annuities
without incurring immediate tax liabilities. So this ensures that their
(49:44):
investments remain tax deferred while providing greater financial flexibility. Third,
it expands the retirement planning choices. So, recognizing that the
TSP withdrawal options are limited, rollovers empower participants to customize
their retirement income plans, whether that's through lattering annuities, systematic withdrawals,
(50:09):
or other strategies tailored to those goals. So you can
see there are some benefits to this TSP plan as
it relates to the offering of what we call an
in service rollover. Okay, now, some things that you should
(50:30):
know about your TSP are the following. The TSP plan
has low fees. Now, this plan is often regarded as
one of the most cost effective retirement plans in the US,
and let me explain to you why that is well.
One is because of the expense ratio. Now it's consistently
(50:53):
among the lowest in the industry at point zero six
percent as of twenty twenty four, or another way to
say that would be sixty cents for every one thousand
dollars invested. So this makes it highly attractive for long
term investors as fees significantly impact retirement savings over time.
(51:14):
As we talked about, now, let me share with you,
let's not just say that that's all good. Let me
just unpack a couple pieces here for you. What you
need to understand is that there are five core index
funds inside of this plan. First, the G fund, which
is government securities invested fund, so it's ultra low risk.
(51:36):
The F fund, which is fixed income index, the C fund,
which is common stock index fund or the S and
P five hundred index, the S fund which is small
cap stock index, the I fund, which is international stocks index,
and then lifestyle funds or l funds. And these are
(51:56):
the target date retirement funds that automatic adjust your allocation
over time. So these options that they offer are simple, right,
they're low cost, and they're suitable for investors that are
just seeking diversification and more of a predictable return. So
the government has done a good job with keeping it simple. Okay, Now,
(52:22):
the TSP, the Thrift Savings Plan, is frequently ranked among
the top retirement plans nationwide, and that's due to its
unparalleled load fees and its simplicity and really the focus
on long term savings. So let me just share with
you what the main drawback is. The main drawback here
(52:42):
is the limited number of funds, which may not really
appeal to investors that are seeking more customization or niche
investment options. So if you find yourself desiring more from
your TSP, reach out. The phone number here is five
(53:05):
one eight two zero three one nine eight three PRESCOTTPW
dot com. And even though the TSP is the gold
standard for low cost investing with its simplicity and its
low fees, its ideal for federal employees and service members
that are just seeking a straightforward, high value retirement savings.
(53:29):
But for those of you who are a little bit
more astute or want to have a greater opportunity for
diversification in specific holdings or specific sectors, then we can
exercise your right for this in service rollover. So if
(53:50):
anything that I said here today has resonated with you.
Don't hesitate to reach out PRESCOTTPW dot com. You can
start the pros in the upper right hand corner clicking
on services and then new clients below that you'll see
our fee for schedule or I should say our fee
(54:13):
schedule for services, and I would just encourage you to
reach out. I love to meet new people, love to
have you into the office and have you gather your
documents ahead of time. Let's take you through a full
financial plan. And if you're a New York state employee
a federal employee and you want to see what your
(54:35):
options are whether last week we talked about as a
state employee, you can have another advisor manage the funds
separately from AFAR. We can do some rollover options, a
lot of things you can do here. Nonetheless, love to
talk to you again, you're listening to your money matters.
I'm your host, Drew Prescott, chartered Retirement Planning counselor, Accredited
(54:59):
Wealth Management and the president of Prescott Private Wealth. I
can be heard here every Sunday at eleven AM, Talk
Radio eight ten and one oh three one FM WGY. So.
Thank you so much and we'll look forward to speaking
to you next week. I think next week. Uh, of course,
(55:20):
we'll do some type of a market overview, but I
really want to talk to you about the importance of
how to handle retirement for the rest of your life.
We always talk about accumulating money, but once you get
to that retirement day, how do you start to live
the rest of your life in a way that you
(55:44):
feel confident and you can meet your goals. Well, I'll
have the answers for you next week and I'm going
to teach you about that. So again, thank you so
much for listening. You were listening to your money matters,
and we will see you here next week and until then,
God bless you and God bless your family.
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