September 21, 2024 • 41 mins
On this week's Money Matters, Scott and Pat discuss the importance of starting your year-end financial planning early. From maximizing your 401k and HSA contributions to considering Roth conversions and tax-loss harvesting, they cover key strategies to optimize your financial health before the year ends.
They also take a deep dive into Buffered ETFs with Allworth's Victoria Bogner, a Chartered Financial Analyst and Certified Financial Planner. Victoria explains how buffered ETFs work, their benefits, and the ideal circumstances under which they should be used. Whether you're nearing retirement or a risk-averse investor, you'll find valuable insights on how to incorporate these into your portfolio.
Lastly, Scott and Pat address listener questions about Social Security benefits and estate planning, offering practical advice to ensure you're making the most of your financial resources.
Join Money Matters: Get your most pressing financial questions answered by Allworth's CEOs Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here. You can also be on the air by emailing Scott and Pat at questions@moneymatters.com.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:11):
Would you like an opinion on a financial matter you're dealing with?
Whether it's about retirement, investments, taxes, or 401ks,
Scott Hanson and Pat McClain would like to help you by answering your call to
join Allworth's Money Matters.
Call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.
(00:32):
Welcome to Allworth's Money Matters. Scott Hanson. Pat McLean.
Glad you are with us today as we talk about financial matters.
Myself and my co-host, we're both practicing financial advisors and been doing
this program for a long time. I'm glad you are here with us.
29 years. Talk about financial markets and take your questions, answer your calls.
(00:53):
29 years have we been doing this? 29 years? Yes.
29 years and hopefully another 29 no,
no I'm pretty confident on that one that didn't take long let me think about
it anyway you know it's I was I think all of our listeners are in the United
States and if someone listens overseas you are an American living overseas.
(01:18):
I was talking to a young person it was starting this little business worried
about things I'm like what's the worst that can happen I'm like,
this is the United States.
Nobody goes hungry here. That's right. Unless you're addiction or mental illness. All right, fair.
Give a call for it. Okay, all right.
(01:38):
He's your normal college graduated
kid thinking about starting this business. And if it doesn't work.
I'm like, this is the time in
your life to start something. If it doesn't work, go get a job. You tried.
What's the worst that can happen? Yeah, you tried. Right.
So it's a, you know, and with self-employment
tax, you only pay the self-employment tax if you have income.
(02:00):
If you don't have any income, you don't have a self-employment tax,
unlike some other countries around the globe that have a.
Self-employment tax? Yeah, you don't pay for all those. Anyway, it's.
Did he take the advice? I don't know. Probably not. No, I'm just kidding.
Yeah, it's funny. Okay. So I'm not going to go down that path. No?
(02:22):
No. Now we're all interested now.
Is it offensive? No. So we had an event at our home last night.
And a friend that I hadn't seen, I've known this woman for 30-some years.
Her son was an intern. I didn't get an invite.
It was on foster awareness and trying to encourage people to get more involved in foster youth.
(02:47):
Okay. Would you have liked an invite? No.
I'll send a chat. oh
let me let me remember that when we have the next fundraiser
um anyway i'll send a check if i don't have to i'm
so my her son was
an intern with us and when he was in college between his junior and
(03:08):
senior year in college and he was like this really go-getter guy
and um after the
internship i said someone gave me a good report i
said i don't want to hire him after college like why not
i said he's gonna he's gonna have his own business and
there's no sense us investing in someone for a year or two
and then they leave yeah to try to grow them
(03:29):
because and so i talked what's your son up to oh he's got this great business
does he own his own business good for him and i told her the story and that
i could just tell like this guy he's not he's not some people aren't built to
work for other people no that was clearly this guy um but what it's a it's I
don't know why I started thinking about how great this country was.
It is. All these opportunities we have. It is pretty good.
(03:51):
It is good. Yeah. And my apologies for not inviting you at the event.
Okay. It was quite lovely. We had a catered. Okay. Thank you.
I'm glad I actually didn't, pal.
All right. Let's take some calls. To join the program, love taking your calls.
Questions at moneymatters.com is how you can connect with us.
(04:12):
Let's start off with Pete. Pete, you're with Allworth's Money Matters.
Hello guys. Hi Pete.
I'm just curious, without insider information, how do analysts come up with earnings estimates?
Well, companies have entire departments just to deal with analysts and press.
(04:35):
So the issue is they cannot give information to just one analyst at a time or one person at a time.
It's got to be pretty broad. So, for example, they'll have earnings calls,
and just about anyone can join an earnings call.
Yes. You can join an earnings call. So listen to those earnings calls.
And so when they distribute information, they need to make it publicly available to everyone at once.
(04:59):
Now, it might be that they stick it up on their website somewhere,
but yet they have more in-depth conversations with these analysts.
And sometimes they're providing really in-depth guidance, and sometimes they're not.
So some companies choose not to actually provide much guidance at all.
Because they're like, this is getting in the way of us running a good business.
(05:22):
So if the stock goes up on a day-to-day basis, who cares, right?
Or goes down, no one cares. That's some companies' view.
But there's lots of information. One of it is they look at their competitors.
Yeah, oftentimes analysts specialize in industries. That's right.
So they'll specialize in an industry, so they know the industry really well.
So they have a pretty good idea of what's – well, they have some idea.
(05:46):
They were guessing still in the future.
Have a good idea of what's going on in that industry, who are the players in
that industry, What kind of profit margins are in that industry?
What's the future outlook? What happened to cost of goods that are inputs in that industry?
They even go as far as using satellite imagery in shopping centers to actually
look at how many cars are in the parking lot.
(06:08):
So if I'm running a Kohl's, I might, as an analyst, subscribe to a service that
actually keeps me up to date of how many cars are in that parking lot of Kohl's at any point in time.
And I could take that sales data by taking those numbers and working backwards
to try to get to estimates.
(06:29):
But they will glean information anywhere they think it's helpful.
Okay. No, I appreciate it. I was just curious how they did that. Yeah. Why do you care?
I mean, I don't even think about analysts.
No, I was just curious. Yes, yes. And some analysts are better than others.
(06:53):
But what actually, but the dangerous thing about analysts is you'll see some
analysts that are actually employed by firms that are underwriting a stock or
taking large positions, and they're pumping something that isn't necessarily true.
Pat, I mean, it's not as common as... A lot of regulations have increased the
(07:14):
last 20, 30 years to try to make a level playing field.
But to your point, Pat, let's say someone's an analyst for Merrill Lynch.
Okay. And Merrill Lynch does big business with the company that they are analyzing. XYZ.
Right? So maybe they help do investment banking business with them.
(07:34):
Or bond underwriting or debt, right?
And so let's say, as an example only, Merrill has a buy on that stock.
Their analysts say, this is a buy, right? Now, the analysts,
I'm sure they're trying to be as objective as they can.
But the structure is such that if they move the stock to a sell or do a hold
(08:00):
that it wouldn't be uncommon for CFO or someone's in the finance company to
say, screw you guys. I'm taking our business. Yeah.
What are you, what are you doing to me here? You're, you're not helping my stock price.
But that's not what he asked. That's just how it works.
It's not supposed to work that way. And any analyst would say,
no, I'm a completely objective. Did we not? Well, thank you for the call.
(08:23):
Anyway, But, Scott, did we not see that the underwriting firms that were rating
bonds, you know, Fitch and— That was a while back, yes. Yeah.
That they were completely manipulated. Well, the problem on a lot of these underwriters
is the companies will pay, particularly on the fixed income side.
They pay to underwrite it, yes. They pay to get a rating.
(08:44):
Yes. Those are the bad things about investing is some things are not as visible.
And by the way, every time there's a crisis, it gets a little bit better.
But at the same time, they do things like allowing companies that are unregistered
or people that don't are considered registered investors.
(09:07):
There's a name for accredited investors, accredited investors invest in things
that they shouldn't like this crowdfunding stuff is just crazy. It just makes no sense.
That I could go out there and get crowdfunding to raise $10 million, right?
For a thing that is an igloo cooler with a speaker in it, and all of a sudden
(09:28):
I've raised $10 million.
Makes no sense. It's just ripe for manipulation and fraud.
Well, I think an analyst role— I went way off on a rant there, didn't I?
Yeah, I know. I didn't want to go down that rabbit hole with you. but i was trying to
visualize the cooler with the speaker i don't
(09:49):
have one of those and i'm thinking
i need one more thing in my life and there i've now discovered the one thing
i i would like and don't know oh it's a little thing i'm i'm working on you'll
see me on shark tank here in a couple weeks okay um but i mean i think with
with the flow of information today like Like, unless you,
(10:12):
I mean, here, what are you going to, like, these analysts, what are they doing anymore?
Like, most professional managers,
investment managers cannot outperform their own index that they're.
Well, this is an area that they actually think that AI will have a major impact
because it's much better at gathering information and distilling it than an analyst.
(10:33):
And it won't have the same kind of bias that you just brought up.
Right. right it's still
a guess on the future it is but nobody really
knows what no one knows and no one knows who's
going to be the winners and who's going to be the losers you know it's interesting i was
looking at um chevron the other day i just
read an article about all the companies that are leaving i've left california the
(10:54):
last decade right they were one and they're prominent one and um
they've been around forever there was someone who
called our program a few years ago that had a large they'd inherited
they had a large position in chevron i just
remember said said you need to diversify i don't care what happens to them um but
the stock has not done well the last few years chevron as other oil companies
(11:14):
have done much better um and they've and it was just one of those reminders
to me of i don't care what the market leader is oh at any point in time the
market leader is not going to be the market leader forever ask intel.
Ask any of the railroad companies that were in the Dow.
(11:38):
Which used to comprise nine of the 11 stocks, right? We're all railroad. We're all railroad.
And it's Amazon today or it's NVIDIA, but it will not be that way 20 years from now.
It will be a company that we have never heard of.
Well, who heard of NVIDIA 20 years ago? It was around. I know.
(12:00):
It just wasn't that popular. Or Amazon.
Yeah. It's just one of those things I think people need to be cognizant of.
Keep reminding yourself.
All right. Let's continue on. We're talking with Jerry. Jerry,
you're with All Worth's Money Matters. Good morning. Hello, Jerry.
How are you guys? Good. I'm not as much energy as you.
(12:24):
But we'll get by. What can we do to help?
Good. Well, I have a question. I'm here in California,
and I have a son, and I have rental properties, and I want to know what's the
best way when I transition and he gets this rental property for him to either
(12:46):
avoid or minimize inheritance taxes.
Okay. Well, let's talk about the rules today. When are you going to die?
Correct. But soon, we're pretty clear. Yes. I'm 65.
I'm negotiating right now with the guy upstairs for 20 more years right now. Okay.
We're in negotiations with that right now. Odds are you have a long time to go.
(13:07):
And the reason we say that almost flippantly is because the estate exemption
amount, the amount that is exempt from tax, expires at the end of 2025.
The current number expires at the end of 2025. And it goes back down to about $6 million.
(13:29):
About $6 million. And right now it's about $14 million per person.
Wow. About that. But it was only a temporary, which is the way Congress uses
these things when they do tax cuts that increase the deficit,
increase the deficit. They don't make them permanent.
And that way they can get away with it. But it depends on who ends up in office
(13:50):
next year and what the makeup of our political system looks like.
Because right now it's this.
So it's currently set to expire the 14 million, which is an index for inflation.
Why you said it's about that will revert back to
a previous number which is a five million that's indexed for
inflation so it's going to be roughly six million today but there's also proposals
(14:12):
i just read one yesterday um with uh a chance that they're going to start taxing
the gain unrealized gain on inheritance for estates above some value oh god which by the way.
Which by the way makes perfect sense to me what do you mean it makes sense to
(14:34):
you that either you have the capital gain or the exemption but not both.
Oh, okay. I mean, from a rational standpoint. Correct.
From a purely rational standpoint would take out the rate of inflation on a
capital gain and only tax on a true gain.
Okay. All right. Okay. We could do a whole program on rational.
(14:57):
I mean, thank you, Scott. That makes sense. Because otherwise you increase inflation
and suddenly the debt's much less. And also you get higher tax revenues off capital gains.
So, but that's, let's, let's just answer your question, Jerry.
What are the values? What is the value of these rentals?
Right now, probably about three mils.
(15:17):
Okay. So under current tax code, if you die, you receive, are you married?
No. Okay. If you die, you receive a step up in basis.
Your son does. Correct. Your son, which means there's no taxes.
Just like he paid three million bucks for his property.
And there's no taxes. So I'll give you an example where this is really kind of important.
(15:41):
I was bicycle riding with a friend of mine, and his father— Pat's showing off
two things, one, that he's exercising, and two, that he has a friend. That's great.
I should say I was bicycle riding with my friend, singular,
and his father's in his late 80s and has a bunch of rental properties in the
(16:03):
San Francisco Bay Area that he has collected over the years.
And it's worth quite a bit now. Okay. Worth a lot of money. That wouldn't have
been so much if it was in Detroit.
Yes. It just happened to be that they're in the Bay Area.
Right. Because this is where this Greek immigrant landed in the U.S. Great, great.
Good for him. No kidding. And by the way, he said, if you talk to my dad,
(16:26):
you'd think he was the poorest man you ever met, which is like exactly.
So he was- They're like me. I don't buy anything. I just leave it all for him.
Right? That's why you have money.
Yeah. So we talked about it, and I said, he's talking about selling them.
I'm like, you've got to really sit down and think about this. Because selling them.
(16:50):
Because when the minute you're- The capital gains. The capital gains.
But then he's talking about fire insurance and these things.
And I'm like, well, maybe you do a structured sale to someone so that you can
recognize some of the game, push it off. There's all these kinds of different
things. Balloon payment.
Correct. Triggered at his death. Correct. I don't know if you can quite do that, but yeah. Correct.
(17:10):
So in your situation right now, if you plan on holding these to death, don't worry about it.
Okay. Now, under Prop 13, what we would expect, because they're rentals,
under Prop 13 in the state of California, that there will be an increase in property taxes on this.
(17:31):
Okay. Okay. Okay, so that is expected. Okay.
And is your goal here is to make sure that your son has money in retirement? Or what is...
Because you're relatively young to say, I'm 65 and I want to make sure your
number one objective is to make sure you didn't pay capital gain taxes on this.
And you're asking God for 25 more years.
Right, right, right, right. So, and my goal is really. You'll be 90. How old will he be?
(17:56):
He's 28 right now. Okay. He's still relatively young.
So, yeah, totally relatively young. So, I'm trying to ensure that he won't lose
anything if he has to pay a whole lot of money out.
That's what I'm trying to. Okay. Okay, well, right now, I wouldn't do any other
advanced planning than having just a basic living trust set up.
That's what I have, and I have that right now.
(18:19):
Because if you transfer these into some sort of irrevocable trust to try to
preserve this exemption for the fear that it's going to go below $3 million,
then whatever gain happens going forward, that will be— It happens in his.
Actually, the cost base is going to transfer over to the trust,
and all that gain would be taxed one day. So under current tax law,
(18:41):
you're perfect. Yeah. Okay.
We're not attorneys, so consulted. Yes.
Okay. And what kind of an attorney? Like a tax attorney? State planning.
State planning. But you have a trust, correct?
I have a trust. How up to date is the trust?
I just updated it about four months ago. You don't need to do anything.
You're perfect. Why didn't you, didn't your attorney have these conversations with you at that time?
(19:05):
Um, somewhat, but not a lot. Okay. Oh, all right.
No, you're fine. A good attorney usually talks through these things,
trying to figure out what you're trying to accomplish. I'm just going to say no. Okay. Okay.
All you need is a basic trust. Call us back in January.
No, call us back January of 2020.
Call us in January of 2026, God willing. That's what I'm going to do.
(19:30):
That's what I'm going to do. I'm going to reach out to you guys for sure.
Okay. I appreciate the call.
All right. right thank you let's talk now with michael michael you're with all this money matters,
thank you glad to hear from you thank you my question is kind of short and simple
i think um i'm going to turn 70 in january like four months from now and my ssa.gov tells me that my,
(19:55):
payment will be four thousand nine hundred and seventy seven dollars at 70 years
old okay and And the maximum for Social Security is $4,873.
So my question is, how does that work? Should I be applying for it right now
instead of waiting for another four months since I'm already past the maximum?
(20:17):
So, Pat, what is the maximum at full retirement age today? I don't know the
number off the top of my head. I don't know. Four, eight, seven, three.
That's for normal retirement age.
No, that's for 70 years old.
I don't well i don't know the answer to this if in fact what
you are saying is true then you should take
it today yeah that's what i'm wondering yes
(20:40):
yes but i don't know whether it's true or not well if
one is factored in an inflation adjustment and the other one has not
yet that's the other thing that would be my guess but but it's well do you need
the money no what's your overall net worth about 25 million okay and um this
is a different aside um take it take it now you should have taken it a couple years ago,
(21:05):
And the reason is... Well, we don't know. It's irrelevant now. Years ago, either.
Well, my fear is that we've talked about this on the show. We're not going to
talk about it again. It's legislative risk. I take it.
All right. And how much is your income?
Just about $1.1 million a year. Are you married? Yes. And children?
(21:29):
All in their 40s. I assume that your trust is up to date.
Never had one. Okay. So look, okay. Michael.
Yes. We need, you need, you need, you need to do a number of things, right?
So if this $25 million is a real number, which I believe it to be,
(21:52):
then you should be worried about the estate tax exclusion going, reverting back.
In fact, I would make the argument that you should contact an estate planning
attorney attorney today. And are you gifting money to these children?
Yes. How much are you gifting a year? I think it's 18,000 for this year in person.
(22:14):
And you and your spouse are gifting to each one of the children and or their spouses?
Yes. And their grandchildren?
No, not the grandchildren. And is your plan, let's say if you and your wife
both passed away today, is the plan for these, all these assets to go to your family?
Do you, or do you plan on having it all go to charity or the,
I mean, what's your what would your hope be?
No, I've been given the cherry all along. It would go to the family. OK, OK.
(22:38):
So so there's a major tax change that could. Well, it's it's structured now.
Well, I think we'll have a little more clarity after the election.
Yeah, it's twenty five million dollars, Scott.
He's so close to the exclusion. There's some good planning. The answer to the
question is take the Social Security today.
(22:58):
Take all of that money that you're getting in Social Security and give it to
an estate planning attorney to actually do the real work.
It's going to cost you 10 or 15, 20 grand. For a good estate.
For a good estate planning attorney.
But there's a number of things you can do. if your goal
is to make sure that this 25 million gets past your your children the
(23:19):
estate exemption is currently about 14 million dollars per so you're fine if
both you and your wife died today but that's set to sunset expire at the end
of 2025 which is just and revert back to six million dollars a person so that's
12 million anything above that's going to be taxed at roughly 50 50%.
So the planning you should be doing is to actually figure out what assets you
(23:45):
should be getting out of your estate while this estate exemption is high.
This is what you should be doing. If you were at $10 million,
I'd say, eh, it doesn't matter.
$15 million, eh. But anything over $20 million, you need to be aggressive about it right now.
Right? Right. And I had a conversation with my little brother last night who
(24:07):
called one of their neighbors is suffering from Alzheimer's and it's progressing really quick.
He said to me, well, they need an attorney that will come to their home.
And how much do they charge? And I said, you probably don't want an attorney
that would come to their house.
Unless they have an existing relationship with the attorney.
(24:29):
And you probably shouldn't be worrying about getting the cheapest attorney.
That's correct, right? I agree with that. But I'm glad you called.
I am so glad you called because of the Social Security.
You need to take the Social Security, but you have this money for a reason.
I'm sure you weren't born with $25 million.
(24:50):
No, sir. Bone was zero. That's right. And I'm sure you didn't inherit this,
did you? I have not. My parents are still alive. Okay.
Wow. Wow.
So are you named as a beneficiary in their estate?
My dad is one who will not talk about any of that, so I really have no idea. He's 94 and my mom is 92.
(25:14):
Your estate planning, if they have any network. You probably don't want to take
any. You might not want to take any.
Which means either you have a conversation with your parents now or you disclaim.
Right. So the first step is, yeah, the first step for you to do is and I wouldn't wait.
I mean, I would not wait. And the reason I wouldn't wait is because the attorneys
(25:37):
are waiting because they know that an estate planning attorney is going to be
so busy next year. You will not be able to find a decent one.
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(25:59):
They just, because of this change. Well, it's two issues. It's not just the state.
I think the real bottleneck is going to be in appraisers, whether it's property or businesses.
Like you've got a family business and you're transferring 40% of the stock to
your children. What's that valued at?
Well, you need to get an appraiser. Excellent point, Scott.
(26:21):
I didn't even think about that. Yeah, so take the Social Security now and do the trust work.
Yeah, I'm glad you called, Michael. Wish you well. I'm glad he called too. Yeah.
Isn't it? It's a weird thing when people call and say, I've got a quick— Oftentimes
it's a question that's— They never ask about.
(26:43):
Well, the question was not even around the edges.
Edges i mean there's not even an edge there right like three or
four months and he just wants i mean the reason he's got the 25 million he's
been very frugal over the years and wants to maximize every
penny yes you could tell in the nature of
the call and our concern is uh there you might be paying millions of dollars
(27:05):
in estate taxes that you can avoid if you do some planning that's right yeah
and especially with a gentleman like him you you know that you could move 10
million dollars out of his estate and he'll suffer because he's afraid he's
going to run out of money,
but his lifestyle won't suffer. Yeah.
Well, Pat, a few weeks back, we had a caller reach out to the show and asked
(27:28):
about factor, I'm sorry, buffered ETFs. Yes.
And we got a couple of responses, both internally and externally,
like, hey guys, you didn't give us a very complete answer and you sounded a
little negative on them.
And we do use them. Yes, we're a little more agnostic on them.
And so I thought, why don't we have a resident expert come talk about it?
(27:48):
So Victoria Bogner, she's got lots of different- Wait, Scott.
So once again, we fell short.
That's what I'm hearing. I hear it in the morning when I first get up from my
family, come to work, and then due to this communication thing called email throughout the day.
Anyway, Victoria Bogner is joining us. Hi, Victoria. Thanks for taking a few moments.
(28:10):
And Victoria serves on our investment committee. She's also a chartered financial
analyst, a certified financial planner, and et cetera.
And I would say you're like the resident expert of our roughly 500 folks or
so at Allworth on buffered ETFs.
So maybe if you can describe briefly how they work, and then secondly,
how they're used in strategies and what are the kind of ideal circumstances
(28:35):
where they're appropriate? Yeah.
Sure. So, buffer ETFs, they're relatively new on the scene. They really started up in about June 2018.
So, we've seen them through several market cycles at this point.
But they're a type of liquid investment that's designed to provide investors
with some downside protection while still offering some level of participation in market gains.
(29:00):
So, these types of funds, they typically cap the upside potential while providing
a buffer against a specified percentage of losses.
So for example, an ETF might protect against the first 15% of losses in the
market, but in return for that
downside protection, your gains are capped beyond a certain percentage.
(29:21):
And they're able to do this by using another type of investment called options.
And that allows for that balance between risk and return.
And so essentially, all they've done is taken a strategy that's been around
for years and years and years, which is a collaring option to color the risk, and they've.
Institutionalized it and made it available to the mass investor. Fair statement?
(29:45):
Exactly. And it used to be that investors really could only access this through
either indexed annuities or structured notes, which neither of which are liquid.
So this presents a really unique opportunity to invest in the space and still
be able to move out of the strategy if, you know, something occurs and the investor
(30:08):
wants to pivot to doing something different.
How often do you see a client put 100% of their investments in buffered ETFs?
Generally, you don't put 100% in buffer ETFs. I mean, they're essentially a
middle ground between full market exposure and the safety of more conservative investments.
Typically, we see 30% being invested in a buffer ETF strategy because that's
(30:33):
enough to offer downside protection for the entire portfolio without putting
too much of a cap on the upside potential of the portfolio.
So they're useful for more risk-adversive investors, those nearing retirement,
others that want to stay invested in the market, but they're concerned about volatility.
We have the election coming up, so people are thinking, oh, do I really want
(30:57):
to invest in this kind of market?
Of course, we all know as professionals, you can't time the market,
so this allows investors to participate in what market growth there still is
there while limiting the potential losses they might face during downturns.
So let's walk through the mechanics if we could real quickly.
So it's buffered. It's not offering 100% downside protection.
(31:20):
So if I've got a buffered ETF and using the example, you know,
you can use them at 10%, 15%, 20%, whatever the number is.
But let's use the 15% that you – so let's say I have buffered ETF in the S&P 500.
Once it hits the 15%, so let's say the market falls, the S&P 500 falls 30%.
(31:43):
You put a million bucks in it.
What does my portfolio look like at the end of that?
Sure. So this is targeting a rolling 12-month period generally.
That's what these buffer ETFs are covering.
So if you were in the S&P 500 in 2022, great example. example,
stock market fell by 20% by the end of the year.
(32:06):
The S&P 500 was down 19.44%. Our buffer ETF strategy was down four and a half.
So at the end of that 12-month period, we were able to buffer 15% of that loss.
And if you remember, bonds were also completely trampled in 2022.
So they offered no diversification against risk.
(32:28):
So these These buffer ETFs really offer more diversification in the portfolio
beyond just your traditional equities and bonds.
So let's do the opposite. So the market's up.
Right. Right. Because there's a cost to everything. There's no free lunch.
Unless you go to an index annuity seminar, in which case you'll get a free lunch.
(32:49):
But there is a cost to that. Your lifetime savings locked up for the next decade.
And you have to sit through that presentation. So let's say the market's up 30% on the S&P 500.
What kind of returns would I expect on my buffered ETF S&P 500, 15%?
You're right. There is no free lunch. So at being able to have the downside
(33:12):
risk mitigated, you're capping yourself on the upside.
However, we have an actual buffer ETF strategy here at Allworth.
And what we do is we make tactical trades to adjust the portfolio in response to market conditions.
So if you're in a buffer ETF and it's close to reaching its cap,
(33:32):
so let's say you're in an S&P 500 buffer ETF, the cap is 15%.
The market has gone up 15%. So that buffer ETF is up, say, 10% at that moment in time.
We can sell that ETF to capture that gain and buy a fresh buffer ETF with a higher cap.
So that's the beauty of doing a more tactical strategy around these and the
(33:56):
power of their liquidity, we're able to lock step in a rising market to reset
those caps and buffers as we go.
So our goal really is to be able to provide better risk-adjusted returns than
just your typical 60-40 portfolio.
So we're trying to do better on the upside than a moderate portfolio and mitigate
(34:19):
more downside risk at the same time.
So if I'm an aggressive investor, investor. Am I interested in these?
No. If you're an aggressive investor, you want to get all the reward for all
this. Or a younger investor.
Or a younger investor, right? Someone with a long time horizon.
This is really more appropriate for those risk-adverse investors that maybe
they're in cash, but they really shouldn't be.
(34:40):
They're afraid of investing at high stock market valuations.
They're very emotional.
This helps with peace of mind. It takes the emotion out of decision-making.
It makes your ride in the market much more 45 miles an hour.
But there are those young, aggressive investors that want to go 80 miles an
hour, and this isn't the right strategy for them.
(35:02):
If I had a choice, would I do it in an IRA or outside of an IRA?
Definitely an IRA if you're using the Allworth strategy, because since we're
buying and selling these ETFs as we go along throughout the year,
we're generating a lot of capital gains, which is good.
If you have gains and you're paying taxes, that means you made money.
But ideally, you want to do this in a tax-deferred or a tax-free account like a Roth or an IRA.
(35:27):
If you have that option available. If you have that option. Yes.
Awesome. And Victoria, so just for the listeners, tell us how you joined Allworth.
Because I got to tell you, the first time I met you, I was like,
wow, we need to work with this person.
So how did you join Allworth? And where's your office and what do you do with
(35:51):
Allworth? I'm kind of curious myself.
Yeah. If you have one kids or five. I forget.
My firm joined Allworth in April of 2023.
So I was the CEO of a firm here in Lawrence, Kansas, called McDaniel Knutson Financial Partners.
(36:12):
And we had gotten to that point where we needed to reach that next level.
We had maxed out our capacity.
So we were either going to have to hire a bunch more people to get to that next
level or join a firm that had already invented that wheel.
So either we were going to have to reinvent our own wheel or just bolt on to somebody else's wheel.
(36:35):
And when we learned about Allworth and the culture and how they really care
about clients and put them first, we knew that that was who we wanted to hitch our wagon to.
So we decided to join Allworth last year. It has been a wonderful experience.
I joined the investment committee and I'm also in charge of client experience
(36:56):
here at Allworth, which has been a fun role.
Awesome. And thank you for joining us. I remember sitting in the conference
room, having conversations with your firm and I'm like, let's just see how good we can work together.
Together, and it has succeeded my expectations.
So thank you, and thanks to your whole team out there, Lawrence. Oh, absolutely.
(37:19):
We appreciate all of you as well. Yeah, thanks for joining us today, Victoria.
I appreciate it. You know, it's interesting, but I think for our growth,
for the company's growth, our number one objective is to serve our existing clients.
One of the things I love about our fee-based model, it aligns our interest to our existing clients.
That's our number one goal, serve our existing clients.
But as an organization, we want to continue to grow. There's a lot of people out there.
(37:40):
And we found the best way to get talent is through these mergers of finding
other firms, smaller firms, and having them merge in with us.
Because they're people that aren't out looking for a job.
Victoria certainly wasn't looking for a job. No, no. She was the CEO of a quite
successful firm to begin with. Yes.
But it's been a phenomenal way for us to get talent. Oh, it really is.
(38:01):
With some of our best advisors.
And they hit growth levels that were hard to overcome. And fortunately,
we were at that space that – and it's additive every time. Most of the time.
You should say every time. Most of the time.
Hey, before we, we don't really, we're not going to take another call today.
(38:21):
But before this show, Scott and I normally have a conversation like,
what should we talk about?
And seriously, it's like, what do you want to talk about? And it's September.
And this is, right, almost October.
It is where you should actually start leaning into your year-end plan. For sure.
(38:41):
Roth conversions. i said i had a um i sent a detailed uh letter to my cpa email
letter email uh just two weeks ago saying these things because it's i've got
one quarter left in the year.
Um i had some tax questions because once
december 31st is gone too late yeah
(39:02):
um so there are things like um are
you maximizing your hsa i did a
little audit on myself a couple weeks ago 401k how'd you
you do by the way i was slightly i didn't i hadn't adjusted my
hsa for the higher limits for this year and so
i had had about a thousand bucks i needed to make up oh very good
so like but once december 31st is gone you lose those opportunities so are you
(39:26):
maximizing your 401k are you maximizing your hsa do we need to is is there a
roth conversion that we need to consider should i harvest some losses now should
i wait till the end of the year should i do both probably both Both.
Probably both. I mean, there's some other things to consider tax-wise.
If you're gifting, it takes place in the calendar year, right?
(39:49):
Because invariably, Pat, we talk to people the following year,
and they miss opportunities.
All the time. And one of them, if you're self-employed and have no employees—.
You can set up a solo K plan, super easy to set up.
Think of it like a private 401K without all the regulatory burdens that come with this. Super easy.
(40:11):
And you've got until the time you file your taxes to fund it next year.
So you can establish this, and you can put a ton of money into these solo Ks.
You can put, what, about $60,000 and something like that.
Yes, depending upon your income. Yeah, but you can put 100% of your income up
to $60,000, either pre-tax or Roth solo K. Or both.
(40:33):
Or to the maximum dollar amount. That's right. But you have to have them set up by December 31st.
If you don't have it set up in this calendar year, you can't.
But if you set it up, you've got until October 15th of next year to fund it.
But even then, you don't have to fund it by October.
If you don't have the money, you just don't fund it. That's correct.
Yes, yes, yes. But it's easy. There's just a number of things that need to be.
(40:55):
So take a couple minutes. Look at your situation. Those are a few ideas or circle
back with your financial advisor.
Hopefully you have a somewhat decent tax preparer. Hopefully.
Or you know what you're doing when you're filing your taxes.
And before we go, as always, if you would be so kind as to leave a review or
(41:17):
rating on our podcast. Yeah, we would appreciate it. An appropriate vehicle. Yeah.
Thanks for joining us. It's been Scott Hanson and Pat McClain of Allworth's Money Matters.
This program has been brought to you by Allworth Financial, a registered investment advisory firm.
Any ideas presented during this program are not intended to provide specific financial advice.
You should consult your own financial advisor, tax consultant,
(41:39):
or estate planning attorney to conduct your own due diligence.
Would you like an opinion on a financial matter you're dealing with?
Whether it's about retirement, investments, taxes, or 401ks,
Scott Hanson and Pat McClain would like to help you by answering your call to
join Allworth's Money Matters.
Call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.
(00:32):
Welcome to Allworth's Money Matters. Scott Hanson. Pat McLean.
Glad you are with us today as we talk about financial matters.
Myself and my co-host, we're both practicing financial advisors and been doing
this program for a long time. I'm glad you are here with us.
29 years. Talk about financial markets and take your questions, answer your calls.
(00:53):
29 years have we been doing this? 29 years? Yes.
29 years and hopefully another 29 no,
no I'm pretty confident on that one that didn't take long let me think about
it anyway you know it's I was I think all of our listeners are in the United
States and if someone listens overseas you are an American living overseas.
(01:18):
I was talking to a young person it was starting this little business worried
about things I'm like what's the worst that can happen I'm like,
this is the United States.
Nobody goes hungry here. That's right. Unless you're addiction or mental illness. All right, fair.
Give a call for it. Okay, all right.
(01:38):
He's your normal college graduated
kid thinking about starting this business. And if it doesn't work.
I'm like, this is the time in
your life to start something. If it doesn't work, go get a job. You tried.
What's the worst that can happen? Yeah, you tried. Right.
So it's a, you know, and with self-employment
tax, you only pay the self-employment tax if you have income.
(02:00):
If you don't have any income, you don't have a self-employment tax,
unlike some other countries around the globe that have a.
Self-employment tax? Yeah, you don't pay for all those. Anyway, it's.
Did he take the advice? I don't know. Probably not. No, I'm just kidding.
Yeah, it's funny. Okay. So I'm not going to go down that path. No?
(02:22):
No. Now we're all interested now.
Is it offensive? No. So we had an event at our home last night.
And a friend that I hadn't seen, I've known this woman for 30-some years.
Her son was an intern. I didn't get an invite.
It was on foster awareness and trying to encourage people to get more involved in foster youth.
(02:47):
Okay. Would you have liked an invite? No.
I'll send a chat. oh
let me let me remember that when we have the next fundraiser
um anyway i'll send a check if i don't have to i'm
so my her son was
an intern with us and when he was in college between his junior and
(03:08):
senior year in college and he was like this really go-getter guy
and um after the
internship i said someone gave me a good report i
said i don't want to hire him after college like why not
i said he's gonna he's gonna have his own business and
there's no sense us investing in someone for a year or two
and then they leave yeah to try to grow them
(03:29):
because and so i talked what's your son up to oh he's got this great business
does he own his own business good for him and i told her the story and that
i could just tell like this guy he's not he's not some people aren't built to
work for other people no that was clearly this guy um but what it's a it's I
don't know why I started thinking about how great this country was.
It is. All these opportunities we have. It is pretty good.
(03:51):
It is good. Yeah. And my apologies for not inviting you at the event.
Okay. It was quite lovely. We had a catered. Okay. Thank you.
I'm glad I actually didn't, pal.
All right. Let's take some calls. To join the program, love taking your calls.
Questions at moneymatters.com is how you can connect with us.
(04:12):
Let's start off with Pete. Pete, you're with Allworth's Money Matters.
Hello guys. Hi Pete.
I'm just curious, without insider information, how do analysts come up with earnings estimates?
Well, companies have entire departments just to deal with analysts and press.
(04:35):
So the issue is they cannot give information to just one analyst at a time or one person at a time.
It's got to be pretty broad. So, for example, they'll have earnings calls,
and just about anyone can join an earnings call.
Yes. You can join an earnings call. So listen to those earnings calls.
And so when they distribute information, they need to make it publicly available to everyone at once.
(04:59):
Now, it might be that they stick it up on their website somewhere,
but yet they have more in-depth conversations with these analysts.
And sometimes they're providing really in-depth guidance, and sometimes they're not.
So some companies choose not to actually provide much guidance at all.
Because they're like, this is getting in the way of us running a good business.
(05:22):
So if the stock goes up on a day-to-day basis, who cares, right?
Or goes down, no one cares. That's some companies' view.
But there's lots of information. One of it is they look at their competitors.
Yeah, oftentimes analysts specialize in industries. That's right.
So they'll specialize in an industry, so they know the industry really well.
So they have a pretty good idea of what's – well, they have some idea.
(05:46):
They were guessing still in the future.
Have a good idea of what's going on in that industry, who are the players in
that industry, What kind of profit margins are in that industry?
What's the future outlook? What happened to cost of goods that are inputs in that industry?
They even go as far as using satellite imagery in shopping centers to actually
look at how many cars are in the parking lot.
(06:08):
So if I'm running a Kohl's, I might, as an analyst, subscribe to a service that
actually keeps me up to date of how many cars are in that parking lot of Kohl's at any point in time.
And I could take that sales data by taking those numbers and working backwards
to try to get to estimates.
(06:29):
But they will glean information anywhere they think it's helpful.
Okay. No, I appreciate it. I was just curious how they did that. Yeah. Why do you care?
I mean, I don't even think about analysts.
No, I was just curious. Yes, yes. And some analysts are better than others.
(06:53):
But what actually, but the dangerous thing about analysts is you'll see some
analysts that are actually employed by firms that are underwriting a stock or
taking large positions, and they're pumping something that isn't necessarily true.
Pat, I mean, it's not as common as... A lot of regulations have increased the
(07:14):
last 20, 30 years to try to make a level playing field.
But to your point, Pat, let's say someone's an analyst for Merrill Lynch.
Okay. And Merrill Lynch does big business with the company that they are analyzing. XYZ.
Right? So maybe they help do investment banking business with them.
(07:34):
Or bond underwriting or debt, right?
And so let's say, as an example only, Merrill has a buy on that stock.
Their analysts say, this is a buy, right? Now, the analysts,
I'm sure they're trying to be as objective as they can.
But the structure is such that if they move the stock to a sell or do a hold
(08:00):
that it wouldn't be uncommon for CFO or someone's in the finance company to
say, screw you guys. I'm taking our business. Yeah.
What are you, what are you doing to me here? You're, you're not helping my stock price.
But that's not what he asked. That's just how it works.
It's not supposed to work that way. And any analyst would say,
no, I'm a completely objective. Did we not? Well, thank you for the call.
(08:23):
Anyway, But, Scott, did we not see that the underwriting firms that were rating
bonds, you know, Fitch and— That was a while back, yes. Yeah.
That they were completely manipulated. Well, the problem on a lot of these underwriters
is the companies will pay, particularly on the fixed income side.
They pay to underwrite it, yes. They pay to get a rating.
(08:44):
Yes. Those are the bad things about investing is some things are not as visible.
And by the way, every time there's a crisis, it gets a little bit better.
But at the same time, they do things like allowing companies that are unregistered
or people that don't are considered registered investors.
(09:07):
There's a name for accredited investors, accredited investors invest in things
that they shouldn't like this crowdfunding stuff is just crazy. It just makes no sense.
That I could go out there and get crowdfunding to raise $10 million, right?
For a thing that is an igloo cooler with a speaker in it, and all of a sudden
(09:28):
I've raised $10 million.
Makes no sense. It's just ripe for manipulation and fraud.
Well, I think an analyst role— I went way off on a rant there, didn't I?
Yeah, I know. I didn't want to go down that rabbit hole with you. but i was trying to
visualize the cooler with the speaker i don't
(09:49):
have one of those and i'm thinking
i need one more thing in my life and there i've now discovered the one thing
i i would like and don't know oh it's a little thing i'm i'm working on you'll
see me on shark tank here in a couple weeks okay um but i mean i think with
with the flow of information today like Like, unless you,
(10:12):
I mean, here, what are you going to, like, these analysts, what are they doing anymore?
Like, most professional managers,
investment managers cannot outperform their own index that they're.
Well, this is an area that they actually think that AI will have a major impact
because it's much better at gathering information and distilling it than an analyst.
(10:33):
And it won't have the same kind of bias that you just brought up.
Right. right it's still
a guess on the future it is but nobody really
knows what no one knows and no one knows who's
going to be the winners and who's going to be the losers you know it's interesting i was
looking at um chevron the other day i just
read an article about all the companies that are leaving i've left california the
(10:54):
last decade right they were one and they're prominent one and um
they've been around forever there was someone who
called our program a few years ago that had a large they'd inherited
they had a large position in chevron i just
remember said said you need to diversify i don't care what happens to them um but
the stock has not done well the last few years chevron as other oil companies
(11:14):
have done much better um and they've and it was just one of those reminders
to me of i don't care what the market leader is oh at any point in time the
market leader is not going to be the market leader forever ask intel.
Ask any of the railroad companies that were in the Dow.
(11:38):
Which used to comprise nine of the 11 stocks, right? We're all railroad. We're all railroad.
And it's Amazon today or it's NVIDIA, but it will not be that way 20 years from now.
It will be a company that we have never heard of.
Well, who heard of NVIDIA 20 years ago? It was around. I know.
(12:00):
It just wasn't that popular. Or Amazon.
Yeah. It's just one of those things I think people need to be cognizant of.
Keep reminding yourself.
All right. Let's continue on. We're talking with Jerry. Jerry,
you're with All Worth's Money Matters. Good morning. Hello, Jerry.
How are you guys? Good. I'm not as much energy as you.
(12:24):
But we'll get by. What can we do to help?
Good. Well, I have a question. I'm here in California,
and I have a son, and I have rental properties, and I want to know what's the
best way when I transition and he gets this rental property for him to either
(12:46):
avoid or minimize inheritance taxes.
Okay. Well, let's talk about the rules today. When are you going to die?
Correct. But soon, we're pretty clear. Yes. I'm 65.
I'm negotiating right now with the guy upstairs for 20 more years right now. Okay.
We're in negotiations with that right now. Odds are you have a long time to go.
(13:07):
And the reason we say that almost flippantly is because the estate exemption
amount, the amount that is exempt from tax, expires at the end of 2025.
The current number expires at the end of 2025. And it goes back down to about $6 million.
(13:29):
About $6 million. And right now it's about $14 million per person.
Wow. About that. But it was only a temporary, which is the way Congress uses
these things when they do tax cuts that increase the deficit,
increase the deficit. They don't make them permanent.
And that way they can get away with it. But it depends on who ends up in office
(13:50):
next year and what the makeup of our political system looks like.
Because right now it's this.
So it's currently set to expire the 14 million, which is an index for inflation.
Why you said it's about that will revert back to
a previous number which is a five million that's indexed for
inflation so it's going to be roughly six million today but there's also proposals
(14:12):
i just read one yesterday um with uh a chance that they're going to start taxing
the gain unrealized gain on inheritance for estates above some value oh god which by the way.
Which by the way makes perfect sense to me what do you mean it makes sense to
(14:34):
you that either you have the capital gain or the exemption but not both.
Oh, okay. I mean, from a rational standpoint. Correct.
From a purely rational standpoint would take out the rate of inflation on a
capital gain and only tax on a true gain.
Okay. All right. Okay. We could do a whole program on rational.
(14:57):
I mean, thank you, Scott. That makes sense. Because otherwise you increase inflation
and suddenly the debt's much less. And also you get higher tax revenues off capital gains.
So, but that's, let's, let's just answer your question, Jerry.
What are the values? What is the value of these rentals?
Right now, probably about three mils.
(15:17):
Okay. So under current tax code, if you die, you receive, are you married?
No. Okay. If you die, you receive a step up in basis.
Your son does. Correct. Your son, which means there's no taxes.
Just like he paid three million bucks for his property.
And there's no taxes. So I'll give you an example where this is really kind of important.
(15:41):
I was bicycle riding with a friend of mine, and his father— Pat's showing off
two things, one, that he's exercising, and two, that he has a friend. That's great.
I should say I was bicycle riding with my friend, singular,
and his father's in his late 80s and has a bunch of rental properties in the
(16:03):
San Francisco Bay Area that he has collected over the years.
And it's worth quite a bit now. Okay. Worth a lot of money. That wouldn't have
been so much if it was in Detroit.
Yes. It just happened to be that they're in the Bay Area.
Right. Because this is where this Greek immigrant landed in the U.S. Great, great.
Good for him. No kidding. And by the way, he said, if you talk to my dad,
(16:26):
you'd think he was the poorest man you ever met, which is like exactly.
So he was- They're like me. I don't buy anything. I just leave it all for him.
Right? That's why you have money.
Yeah. So we talked about it, and I said, he's talking about selling them.
I'm like, you've got to really sit down and think about this. Because selling them.
(16:50):
Because when the minute you're- The capital gains. The capital gains.
But then he's talking about fire insurance and these things.
And I'm like, well, maybe you do a structured sale to someone so that you can
recognize some of the game, push it off. There's all these kinds of different
things. Balloon payment.
Correct. Triggered at his death. Correct. I don't know if you can quite do that, but yeah. Correct.
(17:10):
So in your situation right now, if you plan on holding these to death, don't worry about it.
Okay. Now, under Prop 13, what we would expect, because they're rentals,
under Prop 13 in the state of California, that there will be an increase in property taxes on this.
(17:31):
Okay. Okay. Okay, so that is expected. Okay.
And is your goal here is to make sure that your son has money in retirement? Or what is...
Because you're relatively young to say, I'm 65 and I want to make sure your
number one objective is to make sure you didn't pay capital gain taxes on this.
And you're asking God for 25 more years.
Right, right, right, right. So, and my goal is really. You'll be 90. How old will he be?
(17:56):
He's 28 right now. Okay. He's still relatively young.
So, yeah, totally relatively young. So, I'm trying to ensure that he won't lose
anything if he has to pay a whole lot of money out.
That's what I'm trying to. Okay. Okay, well, right now, I wouldn't do any other
advanced planning than having just a basic living trust set up.
That's what I have, and I have that right now.
(18:19):
Because if you transfer these into some sort of irrevocable trust to try to
preserve this exemption for the fear that it's going to go below $3 million,
then whatever gain happens going forward, that will be— It happens in his.
Actually, the cost base is going to transfer over to the trust,
and all that gain would be taxed one day. So under current tax law,
(18:41):
you're perfect. Yeah. Okay.
We're not attorneys, so consulted. Yes.
Okay. And what kind of an attorney? Like a tax attorney? State planning.
State planning. But you have a trust, correct?
I have a trust. How up to date is the trust?
I just updated it about four months ago. You don't need to do anything.
You're perfect. Why didn't you, didn't your attorney have these conversations with you at that time?
(19:05):
Um, somewhat, but not a lot. Okay. Oh, all right.
No, you're fine. A good attorney usually talks through these things,
trying to figure out what you're trying to accomplish. I'm just going to say no. Okay. Okay.
All you need is a basic trust. Call us back in January.
No, call us back January of 2020.
Call us in January of 2026, God willing. That's what I'm going to do.
(19:30):
That's what I'm going to do. I'm going to reach out to you guys for sure.
Okay. I appreciate the call.
All right. right thank you let's talk now with michael michael you're with all this money matters,
thank you glad to hear from you thank you my question is kind of short and simple
i think um i'm going to turn 70 in january like four months from now and my ssa.gov tells me that my,
(19:55):
payment will be four thousand nine hundred and seventy seven dollars at 70 years
old okay and And the maximum for Social Security is $4,873.
So my question is, how does that work? Should I be applying for it right now
instead of waiting for another four months since I'm already past the maximum?
(20:17):
So, Pat, what is the maximum at full retirement age today? I don't know the
number off the top of my head. I don't know. Four, eight, seven, three.
That's for normal retirement age.
No, that's for 70 years old.
I don't well i don't know the answer to this if in fact what
you are saying is true then you should take
it today yeah that's what i'm wondering yes
(20:40):
yes but i don't know whether it's true or not well if
one is factored in an inflation adjustment and the other one has not
yet that's the other thing that would be my guess but but it's well do you need
the money no what's your overall net worth about 25 million okay and um this
is a different aside um take it take it now you should have taken it a couple years ago,
(21:05):
And the reason is... Well, we don't know. It's irrelevant now. Years ago, either.
Well, my fear is that we've talked about this on the show. We're not going to
talk about it again. It's legislative risk. I take it.
All right. And how much is your income?
Just about $1.1 million a year. Are you married? Yes. And children?
(21:29):
All in their 40s. I assume that your trust is up to date.
Never had one. Okay. So look, okay. Michael.
Yes. We need, you need, you need, you need to do a number of things, right?
So if this $25 million is a real number, which I believe it to be,
(21:52):
then you should be worried about the estate tax exclusion going, reverting back.
In fact, I would make the argument that you should contact an estate planning
attorney attorney today. And are you gifting money to these children?
Yes. How much are you gifting a year? I think it's 18,000 for this year in person.
(22:14):
And you and your spouse are gifting to each one of the children and or their spouses?
Yes. And their grandchildren?
No, not the grandchildren. And is your plan, let's say if you and your wife
both passed away today, is the plan for these, all these assets to go to your family?
Do you, or do you plan on having it all go to charity or the,
I mean, what's your what would your hope be?
No, I've been given the cherry all along. It would go to the family. OK, OK.
(22:38):
So so there's a major tax change that could. Well, it's it's structured now.
Well, I think we'll have a little more clarity after the election.
Yeah, it's twenty five million dollars, Scott.
He's so close to the exclusion. There's some good planning. The answer to the
question is take the Social Security today.
(22:58):
Take all of that money that you're getting in Social Security and give it to
an estate planning attorney to actually do the real work.
It's going to cost you 10 or 15, 20 grand. For a good estate.
For a good estate planning attorney.
But there's a number of things you can do. if your goal
is to make sure that this 25 million gets past your your children the
(23:19):
estate exemption is currently about 14 million dollars per so you're fine if
both you and your wife died today but that's set to sunset expire at the end
of 2025 which is just and revert back to six million dollars a person so that's
12 million anything above that's going to be taxed at roughly 50 50%.
So the planning you should be doing is to actually figure out what assets you
(23:45):
should be getting out of your estate while this estate exemption is high.
This is what you should be doing. If you were at $10 million,
I'd say, eh, it doesn't matter.
$15 million, eh. But anything over $20 million, you need to be aggressive about it right now.
Right? Right. And I had a conversation with my little brother last night who
(24:07):
called one of their neighbors is suffering from Alzheimer's and it's progressing really quick.
He said to me, well, they need an attorney that will come to their home.
And how much do they charge? And I said, you probably don't want an attorney
that would come to their house.
Unless they have an existing relationship with the attorney.
(24:29):
And you probably shouldn't be worrying about getting the cheapest attorney.
That's correct, right? I agree with that. But I'm glad you called.
I am so glad you called because of the Social Security.
You need to take the Social Security, but you have this money for a reason.
I'm sure you weren't born with $25 million.
(24:50):
No, sir. Bone was zero. That's right. And I'm sure you didn't inherit this,
did you? I have not. My parents are still alive. Okay.
Wow. Wow.
So are you named as a beneficiary in their estate?
My dad is one who will not talk about any of that, so I really have no idea. He's 94 and my mom is 92.
(25:14):
Your estate planning, if they have any network. You probably don't want to take
any. You might not want to take any.
Which means either you have a conversation with your parents now or you disclaim.
Right. So the first step is, yeah, the first step for you to do is and I wouldn't wait.
I mean, I would not wait. And the reason I wouldn't wait is because the attorneys
(25:37):
are waiting because they know that an estate planning attorney is going to be
so busy next year. You will not be able to find a decent one.
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radio to listen to the Money Matters podcast.
(25:59):
They just, because of this change. Well, it's two issues. It's not just the state.
I think the real bottleneck is going to be in appraisers, whether it's property or businesses.
Like you've got a family business and you're transferring 40% of the stock to
your children. What's that valued at?
Well, you need to get an appraiser. Excellent point, Scott.
(26:21):
I didn't even think about that. Yeah, so take the Social Security now and do the trust work.
Yeah, I'm glad you called, Michael. Wish you well. I'm glad he called too. Yeah.
Isn't it? It's a weird thing when people call and say, I've got a quick— Oftentimes
it's a question that's— They never ask about.
(26:43):
Well, the question was not even around the edges.
Edges i mean there's not even an edge there right like three or
four months and he just wants i mean the reason he's got the 25 million he's
been very frugal over the years and wants to maximize every
penny yes you could tell in the nature of
the call and our concern is uh there you might be paying millions of dollars
(27:05):
in estate taxes that you can avoid if you do some planning that's right yeah
and especially with a gentleman like him you you know that you could move 10
million dollars out of his estate and he'll suffer because he's afraid he's
going to run out of money,
but his lifestyle won't suffer. Yeah.
Well, Pat, a few weeks back, we had a caller reach out to the show and asked
(27:28):
about factor, I'm sorry, buffered ETFs. Yes.
And we got a couple of responses, both internally and externally,
like, hey guys, you didn't give us a very complete answer and you sounded a
little negative on them.
And we do use them. Yes, we're a little more agnostic on them.
And so I thought, why don't we have a resident expert come talk about it?
(27:48):
So Victoria Bogner, she's got lots of different- Wait, Scott.
So once again, we fell short.
That's what I'm hearing. I hear it in the morning when I first get up from my
family, come to work, and then due to this communication thing called email throughout the day.
Anyway, Victoria Bogner is joining us. Hi, Victoria. Thanks for taking a few moments.
(28:10):
And Victoria serves on our investment committee. She's also a chartered financial
analyst, a certified financial planner, and et cetera.
And I would say you're like the resident expert of our roughly 500 folks or
so at Allworth on buffered ETFs.
So maybe if you can describe briefly how they work, and then secondly,
how they're used in strategies and what are the kind of ideal circumstances
(28:35):
where they're appropriate? Yeah.
Sure. So, buffer ETFs, they're relatively new on the scene. They really started up in about June 2018.
So, we've seen them through several market cycles at this point.
But they're a type of liquid investment that's designed to provide investors
with some downside protection while still offering some level of participation in market gains.
(29:00):
So, these types of funds, they typically cap the upside potential while providing
a buffer against a specified percentage of losses.
So for example, an ETF might protect against the first 15% of losses in the
market, but in return for that
downside protection, your gains are capped beyond a certain percentage.
(29:21):
And they're able to do this by using another type of investment called options.
And that allows for that balance between risk and return.
And so essentially, all they've done is taken a strategy that's been around
for years and years and years, which is a collaring option to color the risk, and they've.
Institutionalized it and made it available to the mass investor. Fair statement?
(29:45):
Exactly. And it used to be that investors really could only access this through
either indexed annuities or structured notes, which neither of which are liquid.
So this presents a really unique opportunity to invest in the space and still
be able to move out of the strategy if, you know, something occurs and the investor
(30:08):
wants to pivot to doing something different.
How often do you see a client put 100% of their investments in buffered ETFs?
Generally, you don't put 100% in buffer ETFs. I mean, they're essentially a
middle ground between full market exposure and the safety of more conservative investments.
Typically, we see 30% being invested in a buffer ETF strategy because that's
(30:33):
enough to offer downside protection for the entire portfolio without putting
too much of a cap on the upside potential of the portfolio.
So they're useful for more risk-adversive investors, those nearing retirement,
others that want to stay invested in the market, but they're concerned about volatility.
We have the election coming up, so people are thinking, oh, do I really want
(30:57):
to invest in this kind of market?
Of course, we all know as professionals, you can't time the market,
so this allows investors to participate in what market growth there still is
there while limiting the potential losses they might face during downturns.
So let's walk through the mechanics if we could real quickly.
So it's buffered. It's not offering 100% downside protection.
(31:20):
So if I've got a buffered ETF and using the example, you know,
you can use them at 10%, 15%, 20%, whatever the number is.
But let's use the 15% that you – so let's say I have buffered ETF in the S&P 500.
Once it hits the 15%, so let's say the market falls, the S&P 500 falls 30%.
(31:43):
You put a million bucks in it.
What does my portfolio look like at the end of that?
Sure. So this is targeting a rolling 12-month period generally.
That's what these buffer ETFs are covering.
So if you were in the S&P 500 in 2022, great example. example,
stock market fell by 20% by the end of the year.
(32:06):
The S&P 500 was down 19.44%. Our buffer ETF strategy was down four and a half.
So at the end of that 12-month period, we were able to buffer 15% of that loss.
And if you remember, bonds were also completely trampled in 2022.
So they offered no diversification against risk.
(32:28):
So these These buffer ETFs really offer more diversification in the portfolio
beyond just your traditional equities and bonds.
So let's do the opposite. So the market's up.
Right. Right. Because there's a cost to everything. There's no free lunch.
Unless you go to an index annuity seminar, in which case you'll get a free lunch.
(32:49):
But there is a cost to that. Your lifetime savings locked up for the next decade.
And you have to sit through that presentation. So let's say the market's up 30% on the S&P 500.
What kind of returns would I expect on my buffered ETF S&P 500, 15%?
You're right. There is no free lunch. So at being able to have the downside
(33:12):
risk mitigated, you're capping yourself on the upside.
However, we have an actual buffer ETF strategy here at Allworth.
And what we do is we make tactical trades to adjust the portfolio in response to market conditions.
So if you're in a buffer ETF and it's close to reaching its cap,
(33:32):
so let's say you're in an S&P 500 buffer ETF, the cap is 15%.
The market has gone up 15%. So that buffer ETF is up, say, 10% at that moment in time.
We can sell that ETF to capture that gain and buy a fresh buffer ETF with a higher cap.
So that's the beauty of doing a more tactical strategy around these and the
(33:56):
power of their liquidity, we're able to lock step in a rising market to reset
those caps and buffers as we go.
So our goal really is to be able to provide better risk-adjusted returns than
just your typical 60-40 portfolio.
So we're trying to do better on the upside than a moderate portfolio and mitigate
(34:19):
more downside risk at the same time.
So if I'm an aggressive investor, investor. Am I interested in these?
No. If you're an aggressive investor, you want to get all the reward for all
this. Or a younger investor.
Or a younger investor, right? Someone with a long time horizon.
This is really more appropriate for those risk-adverse investors that maybe
they're in cash, but they really shouldn't be.
(34:40):
They're afraid of investing at high stock market valuations.
They're very emotional.
This helps with peace of mind. It takes the emotion out of decision-making.
It makes your ride in the market much more 45 miles an hour.
But there are those young, aggressive investors that want to go 80 miles an
hour, and this isn't the right strategy for them.
(35:02):
If I had a choice, would I do it in an IRA or outside of an IRA?
Definitely an IRA if you're using the Allworth strategy, because since we're
buying and selling these ETFs as we go along throughout the year,
we're generating a lot of capital gains, which is good.
If you have gains and you're paying taxes, that means you made money.
But ideally, you want to do this in a tax-deferred or a tax-free account like a Roth or an IRA.
(35:27):
If you have that option available. If you have that option. Yes.
Awesome. And Victoria, so just for the listeners, tell us how you joined Allworth.
Because I got to tell you, the first time I met you, I was like,
wow, we need to work with this person.
So how did you join Allworth? And where's your office and what do you do with
(35:51):
Allworth? I'm kind of curious myself.
Yeah. If you have one kids or five. I forget.
My firm joined Allworth in April of 2023.
So I was the CEO of a firm here in Lawrence, Kansas, called McDaniel Knutson Financial Partners.
(36:12):
And we had gotten to that point where we needed to reach that next level.
We had maxed out our capacity.
So we were either going to have to hire a bunch more people to get to that next
level or join a firm that had already invented that wheel.
So either we were going to have to reinvent our own wheel or just bolt on to somebody else's wheel.
(36:35):
And when we learned about Allworth and the culture and how they really care
about clients and put them first, we knew that that was who we wanted to hitch our wagon to.
So we decided to join Allworth last year. It has been a wonderful experience.
I joined the investment committee and I'm also in charge of client experience
(36:56):
here at Allworth, which has been a fun role.
Awesome. And thank you for joining us. I remember sitting in the conference
room, having conversations with your firm and I'm like, let's just see how good we can work together.
Together, and it has succeeded my expectations.
So thank you, and thanks to your whole team out there, Lawrence. Oh, absolutely.
(37:19):
We appreciate all of you as well. Yeah, thanks for joining us today, Victoria.
I appreciate it. You know, it's interesting, but I think for our growth,
for the company's growth, our number one objective is to serve our existing clients.
One of the things I love about our fee-based model, it aligns our interest to our existing clients.
That's our number one goal, serve our existing clients.
But as an organization, we want to continue to grow. There's a lot of people out there.
(37:40):
And we found the best way to get talent is through these mergers of finding
other firms, smaller firms, and having them merge in with us.
Because they're people that aren't out looking for a job.
Victoria certainly wasn't looking for a job. No, no. She was the CEO of a quite
successful firm to begin with. Yes.
But it's been a phenomenal way for us to get talent. Oh, it really is.
(38:01):
With some of our best advisors.
And they hit growth levels that were hard to overcome. And fortunately,
we were at that space that – and it's additive every time. Most of the time.
You should say every time. Most of the time.
Hey, before we, we don't really, we're not going to take another call today.
(38:21):
But before this show, Scott and I normally have a conversation like,
what should we talk about?
And seriously, it's like, what do you want to talk about? And it's September.
And this is, right, almost October.
It is where you should actually start leaning into your year-end plan. For sure.
(38:41):
Roth conversions. i said i had a um i sent a detailed uh letter to my cpa email
letter email uh just two weeks ago saying these things because it's i've got
one quarter left in the year.
Um i had some tax questions because once
december 31st is gone too late yeah
(39:02):
um so there are things like um are
you maximizing your hsa i did a
little audit on myself a couple weeks ago 401k how'd you
you do by the way i was slightly i didn't i hadn't adjusted my
hsa for the higher limits for this year and so
i had had about a thousand bucks i needed to make up oh very good
so like but once december 31st is gone you lose those opportunities so are you
(39:26):
maximizing your 401k are you maximizing your hsa do we need to is is there a
roth conversion that we need to consider should i harvest some losses now should
i wait till the end of the year should i do both probably both Both.
Probably both. I mean, there's some other things to consider tax-wise.
If you're gifting, it takes place in the calendar year, right?
(39:49):
Because invariably, Pat, we talk to people the following year,
and they miss opportunities.
All the time. And one of them, if you're self-employed and have no employees—.
You can set up a solo K plan, super easy to set up.
Think of it like a private 401K without all the regulatory burdens that come with this. Super easy.
(40:11):
And you've got until the time you file your taxes to fund it next year.
So you can establish this, and you can put a ton of money into these solo Ks.
You can put, what, about $60,000 and something like that.
Yes, depending upon your income. Yeah, but you can put 100% of your income up
to $60,000, either pre-tax or Roth solo K. Or both.
(40:33):
Or to the maximum dollar amount. That's right. But you have to have them set up by December 31st.
If you don't have it set up in this calendar year, you can't.
But if you set it up, you've got until October 15th of next year to fund it.
But even then, you don't have to fund it by October.
If you don't have the money, you just don't fund it. That's correct.
Yes, yes, yes. But it's easy. There's just a number of things that need to be.
(40:55):
So take a couple minutes. Look at your situation. Those are a few ideas or circle
back with your financial advisor.
Hopefully you have a somewhat decent tax preparer. Hopefully.
Or you know what you're doing when you're filing your taxes.
And before we go, as always, if you would be so kind as to leave a review or
(41:17):
rating on our podcast. Yeah, we would appreciate it. An appropriate vehicle. Yeah.
Thanks for joining us. It's been Scott Hanson and Pat McClain of Allworth's Money Matters.
This program has been brought to you by Allworth Financial, a registered investment advisory firm.
Any ideas presented during this program are not intended to provide specific financial advice.
You should consult your own financial advisor, tax consultant,
(41:39):
or estate planning attorney to conduct your own due diligence.
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