Simply Money

Episode Transcript

(00:06):
Tonight thinking about throwing some money intothat hot stock. Why you may have
already missed out on its gains.Yes, just another reason why we would
say you shouldn't try to time themarket. You're listening to simply money presented
by all Worth Financial, I meanWagner along with Steve Ruby, we spend
a lot of time talking about thesestocks. We are not alone. Lots
of other I mean every financial outlettalks about them. We talk about them

(00:30):
from the perspective of why we havesuch huge market swings. Right There's there're
seven stocks they call them the MagnificentSeven right now, huge mostly tech companies
in as they go, so doesthe market go. But if you're looking
at any one of these individual stocksand thinking, gosh, yeah, these
stocks are doing really well. I'mgoing to throw some money at this particular

(00:51):
company right now, pause and listenbefore you do that, Yeah, it
could be a little challenging if you'rehaving a conversation with folks you know,
friends, family, and you've saidon the sidelines and you've watched gains pass
you by while they brag about havingyou know, X amount of shares of
some hot stock that have just treatedthem very very well, and then you
decide, you know, I'm notgoing to sit on the sidelines anymore.

(01:15):
It's time for me to buy it. I'm going to grab some Navidia because
it's only going to keep going up, up, up. You're likely going
to feel all kinds of pride inthat company when you hold it. Maybe
a little bit of homework about it. You saw that the stock price has
gone up, and that's what yourhomework really involved, and you just want
to be able to join in onthat conversation. Obviously, you're not alone
in a situation like this. That'sthat's fomo feared by by Greek fear of

(01:38):
missing out. I think that's anexcellent point because just as you are likely
starting to think, wait a second, maybe I should jump in on this,
lots of other people are having thesame thought at the same time.
Right, It's not just your groupof friends that's talking about Apple or Nvidia
or Tesla, Meta name your company. It's not just happening at your table

(02:00):
or your kids baseball game. It'shappening in baseball diamonds across the country.
It's happening at restaurants and cookouts acrossthe country. So as you're thinking about
jumping in, so are others,and that drives up the price of that
stock more and more and more.Right, so by the time you jump
in, thinking Okay, everyone elsehas been talking about these games, now

(02:21):
they're mine. Well, it doesn'talways go that way. Yeah, if
you think you're the cool kid nowbecause you bought in, imagine if you
have done so about fifteen years agowhen people had never heard of that particular
stock. So, you know,we've done some research. We've seen some
research. According to our friends atDimensional Funds Advisors, fast growing stops the
stocks that they stop outperforming after becomingone of the ten largest stocks in the

(02:46):
US. On average, companies thatoutperform the market on the way up failed
to then outperform in the years aftermaking the top ten. So if you
look at the data shows from nineteentwenty seven to twenty twenty three, the
average return of a company ten yearsbefore it hit the top ten list was
eleven point six percent five years beforehitting the top ten, twenty percent three

(03:09):
years before joining the top ten twentyseven point two. What happens about after
you reached that top ten list.Well, we want to start the withy
talking about the numbers that you justthrew out there, because you can see
how interest in these companies would bebuilding, right ten years out of ten
percent, three years out from beingone of the top ten best stocks in

(03:29):
the country, a hottest stocks inthe country, close to a thirty percent
return. If you think people's eyeballsaren't going to be on that company at
that point, you were wrong,right, So now everyone's paying attention.
It's like, you know, youthink of Amazon right right now, you
can think of a thousand ways anda million different people who use Amazon on
a daily basis. Right, Howit's changed literally the scope of American life.

(03:53):
When Amazon came to the market,it came to the market as an
online bookstore. People weren't t talkingabout that. I don't know, maybe
someone who lived who knew someone maybewas buying the stock, but there wasn't
this huge buzz around it, right, Okay, great, an online bookstore
sounds lovely. And as then Amazongrew, it continued to morph into what

(04:16):
it has become today. And thenit becomes this disruptor and in other sectors
and you look at that and youthink, okay, I should be a
part of it. Well, thetime to be a part of it was
when it was the online bookstore.Right, that's when you're going to see
the growth. And I think that'swhat we really want you to understand today
is by the time everyone's talking aboutthe stock, the trajectory of growth is

(04:40):
usually behind it, like nine timesout of ten, the growth has already
happened. So you're jumping on board. And to your point, Steve,
what you were saying is, Okay, you have all this like astronomical growth,
and then it becomes sort of thistop ten list once it hits there.
Okay, three years later, averagereturn half a percent, five years

(05:00):
later, down almost a percent.Ten years later, top ten companies down
a percent and a half. Right, It's like the closer it gets to
the top, the more those returnsare. And then on the other side
it starts to fall, fall,fall. You never know when that day
is going to come, but oftenit's going to likely be on the day

(05:21):
that you're buying or the day after. Yeah, that's a great point.
You don't know when that day isgoing to come because by the time there's
been all the buzz and the newshas reached your doorstep, it's possible that
that new hot company has already seenits best gains. Of course, that's
not always going to be the case. But when you hear these stories about
people who are you know, megamillionaires over a short period of time,

(05:45):
it's not because they bought the stockthe first time you heard about it.
It's because they bought it when youhadn't heard of it. Oftentimes, these
are individuals who worked for a companywhen it was on the ground floor,
before we saw all those massive gains. Those are the ones that actually are
becoming the millionaires seemingly overnight because theywere on at the ground floor before the

(06:09):
stock became known and before it startedto grow grow growth. You're listening to
simply Money presented by all Worth FinancialI Memi Wagner along with Steve Ruby.
If you are thinking about throwing lotsof money into whatever hot company, hot
stock you've been looking at and researching, we would say, glad you're listening
tonight. We hope you take thisperspective to heart. We always look at

(06:30):
historical perspective to try to bring you, you know, just a different way
of looking at things. And wewere saying, hey, if you're looking
at buying this huge company, mostof the gains at least history shows us
are likely behind it by the timeeveryone's talking about it. And then on
the other side of that, there'snot huge gains. In fact, a
lot of times it's lost. AndI also think about many times when we

(06:55):
focus on these sort of get richquick, figure out what the next big
stock is and buy in. Whatyou're missing is the odds of you figuring
out what the next big thing areincredibly swill right, And unless you work
for the company, you've heard ofthe company something like that. It's it's
it's finding a diamond in the rough, a needle in the haystack. But

(07:15):
if you were to buy the Sand P five hundred right, one of
these large indexes that tracks a numberof companies, well, you may not
have personal information, you may notbe able to figure out which one the
needle is, but you've bought thehaystack that has the needle in it.
Yeah, it doesn't matter if youknow what it is, it'll figure itself
out over time. And even then, when we're talking about funds and buying

(07:40):
a fund buying the haystack, essentially, research does show that most funds ranked
in the top twenty five percent basedon five year returns didn't actually remain in
the top twenty five percent for thenext five years. So this is important
because we don't just want to haveone index. I'll have folks in my
office come in and say, whydon't I just buy the S and P
five hundred. Well, because youonly then own the five hundred largest company

(08:03):
stocks in the United States. It'snot as diversified as you might think it
is. Even then, it's marketcap weighted, so the largest companies inside
the S and P five hundred indexare going to be what actually controls most
of the underlying performance of that index. What you want to have is an
opportunity where you have multiple haystacks,owning multiple indices across multiple different asset classes

(08:26):
large cap, small, camp,mid cap, international, And when you
have that, you're going to havethe opportunity to capitalize on some of these
companies that haven't grown yet. Owningone index is not good enough. In
my opinion, I like to owna lot and would typically recommend that folks
do so to not fall victim tomaking decisions based on past performance, which

(08:48):
is really easy to do. Ithink you hit the needle on the head
right there. Because so many peoplelook at oh gosh, this has been
doing so great lately, and therecency bias that it takes place there is
what has already been happening is goingto continue to happen, and that's just
really not the case. I mean, there's only so long of a runway

(09:09):
for a lot of these companies tocontinue growth at these you know, huge
proportions that maybe you've been seeing inrecent years. Would love to have a
crystal ball to be able to say, Okay, well this one is the
one that's continuing going to continue togrow at this rate. But you know,
you look at the doll Jones IndustrialAverage, right, these thirty big
companies. It was several several yearsago, I think it was like twenty

(09:31):
eighteen, twenty twenty something around them. General Electric fell out. They had
been in that index for over onehundred years, like one of the originals.
There at no point during that decadeof being on there could anyone have
foreseen things were not going to gowell for this company in the future.
We happen to know this company maybebetter than many others because there's so many

(09:54):
who live here right who has workedfor g Aircraft and worked for GE.
Through the years, I had plentyof difficult conversations with other people who are
working for GE or who had recentlyretired, who just wanted to hold so
tight to that stock because they lovedthat company, they believed in the company,
and they just had this bias thatit was going to continue to do

(10:16):
well and grow well. We've seenthe reality of that. It's been anything
but that. Yeah, once upona time, I actually did customer service
for the GE four oh one Kplan, and to see what happened there
to so many folks was very challenging, and speaking of four to one K
so a lot of people that I'vecome across over the span of my career.
When you get a new four toone K, the investment lineup is

(10:37):
going to be decided upon by youremployer at that point, and I'll try
to better understand how people made decisionswith their investments and their four to one
K. All too often people say, well, I picked the ones that
had the best returns, And thatscares me because what had the best returns
now means it can just is easilyflip on its head and have the worst
returns at some point in the nearfuture. So sitting down and working with

(11:00):
the fiduciary financial planner to understand therisk that you need to take and that
you can afford to take, andthat you're comfortable taking is a great way
to make sure that you have theproper investment mix, remain diversified and not
oversaturated. In one particular investment,someone reached out to me recently and said,
I've been socking away single mom,been socking away money into my four
oh one K. I feel likeit should have grown more by now,

(11:22):
and I can't figure out why.And I'm like, well, let's look
at what you're invested in. Butpart of it could be you chose what's
in that four oh one k basedon past performance and then it didn't go
so well right once you started puttingyour money in. Here's the all Worth
advice. Rather than loading up ona handful of stocks that everyone's talking about
that have dominated the headlines and themarket, we would say owning many companies

(11:45):
through mutual funds or ETFs is abetter way to go. This diversified approach
can not only help reduce your risk, it can position you to potentially capture
the returns of future top performing companies. Without having to figure out in advance
exactly which ones are coming up.Next. We're taking a look at what
it means to be financially successful.What does it mean to you? You're
listening to Simply Money, presented byall Worth Financial. Here in fifty five

(12:09):
KRC the talk station. You're listeningto Simply Money presented by all Worth Financial,
I Memi Wagner along with Steve Ruby. If you can't listen to our
show every night, you do nothave to miss a thing. We have
a daily podcast for you. Justsearch Simply Money on the iHeart app or
wherever you find your podcast, andthen you can listen whenever it's convenient for

(12:30):
you. Straight ahead, six fortythree, we're tackling something called personalized indexing.
Is this a strategy that could makesense for you? We'll get into
that. Okay, imagine this one. You own Berkshire Hathaway stock, right,
you check how it's doing and yousee it's down ninety nine percent.

(12:50):
You think there are number glitches orissues in this stock market. You'd be
wrong, And here's an example ofthat. Yeah, this was extremely shocking
for a lot of people because WorkshireClass A stock is about six hundred and
twenty seven thousand dollars per share.That's actually share on Friday, Yeah,
one share is six hundred and twentyseven thousand dollars. Monday morning, nine

(13:11):
forty eight five am, a sharewas one hundred and eighty five dollars and
ten cents. The glitch did extendto Chipotle and Abbot Labs, but those
share prices are not the same classa Berkshire at six hundred and twenty seven
thousand. Yeah. In fact,at that point that the glitch was realized,
the New York Stock Exchange actually haltedtrading to say, we need to

(13:33):
figure out what's going on here.I'm sure there were many people who,
realizing this is the deal of acentury, tried to jump in. And
if you're like, oh, Icannot believe I missed this window, well
doesn't matter. Officials at two WallStreet trading firms are saying, anyone who
bought it during this window trying totake advantage of this glitch, probably those

(13:56):
orders will not go through. No, that's not going to happen. There's
no way these people are going tobe able to keep what they bought.
At that point, it was aglitch, and they fixed it by eleven
am. Yeah, but interesting hourof trading. A little disappointed about it.
What does financial success look like toyou? Right if you are asked
this question? Well, a bunchof people were in some recent research,

(14:18):
and interestingly enough, the top answerdidn't involve having a certain amount of money.
Yeah. So our friends at bankradasked twenty four hundred adults the same
question, and six intent said theywould need to be living comfortably in order
to consider themselves financially successful. Interestingenough. You know, I kind of
feel that living comfortably means that youneed to have some level of financial freedom,

(14:39):
which I obviously involves money. Fourand ten said that success means being
financially prepared for the future, notneeding to worry about money in the future,
and living debt free. You know, we also, we've looked at
so much research through the years.It shows the number one concern that people
close to retirement and in retirement haveabout their money is outliving it. Right.

(15:01):
So these are people who I wouldeven take one step further and say
they likely have a financial plan inplace so that they don't necessarily need to
worry about money or outliving it.And they also know that they're probably not
going to have to take on alot of debt at any point. They're
living debt free. So these arepeople who have kind of proactively taken a

(15:22):
number of steps throughout the years.They may not be multimillionaires, they may
not even be millionaires, but theyknow what they need to live on,
they know what they need to have. They feel like they're invested properly,
taking the right amount of risk,and as the results of that that looks
like financial success, they're living comfortably. Yeah. I feel like those are

(15:43):
very grounded answers, as opposed tosomebody saying I need enough money to quit
working right now. I want tobe a millionaire, I want to own
business. You know that these arein some sense more achievable goals. And
because these definitions of success appear alittle bit more grounded, it doesn't mean
all Americans are feeling like their visionof success is achievable. That's the problem.

(16:04):
Just one in ten adults with theidea of what financial success looks like
for them say they've already achieved thatvision, and if a disconnect there,
Yeah, there's a huge disconnect.Three in ten think they will never achieve
their own vision of financial success.That is a big gap. And if
you're wondering, okay, well,then what do these people think they need

(16:26):
to get there? Will? Halfof them say they need to make more
money. Another half says they needto grow their savings. More than a
third said, you know, I'mjust dying in this debt, right,
I feel like I need to paydown this debt. Three inten feel like
they need to invest more. It'slike they know what they need to do,
but I wonder why they're not doingit? Then because it's hard something

(16:48):
exactly. I mean, people don'tlike to do hard things. You know,
you sit down with the financial advisorthe first time in your life,
can feel a little bit uncomfortable topull back the curtain and disclose where you
are. If you have debts,for example, some people can be they
can feel a little ashamed of it, but it's totally normal when you're in
the accumulation phase of retirement planning.Let's say that you're a household with two
working cup you know, two workingfamily members, and you have children,

(17:12):
and you're saving for college and payingdown a mortgage and trying to figure out,
you know, how much you canafford to save for retirement while you
have a home equity line of creditto pay off that there's a lot of
balance there and finding out where thatnext dollar should go can be very intimidating
and challenging. But progress towards achievingwhatever your goals are shouldn't feel like a

(17:33):
sprint. It's okay to take littlebaby steps to get where you need to
be, especially if you have timeon your side to close gaps between where
you are and where you need tobe by the time it comes time to
retire. As you are listening tonight, I think it's one thing to hear
these numbers and understand them, andthen I would say, though, take
it another step and ask yourself,what does financial success look like to me?

(17:56):
Think about that right, define itfor yourself, and if you're not
there, ask yourself what does ittake to get there. I like the
point that you made. It's nota sprint. I'm a sprinter. I
was a sprinter in high school.I don't like long like I just like
I just want to get it done. I want to do everything you need
to do now. I also,though, understand that when it comes to

(18:18):
financial independence, when it comes tomy money, when it comes to retirement.
It's never going to be a sprint. It's always going to be a
marathon, which I think makes itthat much more doable because you don't have
to be there in ten seconds,right, You've got a longer amount of
time. And I think the keyis taking the steps, the training right,

(18:41):
educating yourself, doing what you needto do to be able to cross
that finish line. I'm sad forthe people who are answering the survey and
saying, here's my definition or here'smy finish line, but I'm never going
to get there if you have thatviewpoint to you know, I talk about
it a lot. I want tomake sure that my daughter has a better
upbringing and I had more opportunities thanI had, so you know, you

(19:02):
can always educate your children and grandchildren. Because if you put just one hundred
dollars a month in retirement account overa span of forty five years, that
that'll typically make you a millionaire investingwith those dollars. You can become a
millionaire just by saving one hundred dollarsper month. And then you know,
it's a feutile exercise to compare yourselfto others. A lot of people come
into my office ask hey, howam I doing compared to other people?

(19:23):
And I'll say it doesn't matter becauseyour individual financial situation, needs and goals
is different than anyone else's. Soliving within your means is a great way
to make sure that your money lastslonger than you do. Here's the all
Worth Advice. The fiduciary financial procan partner with you to help you figure
out whatever your definition of financial successesand help you get there kind of GIMNAXX.

(19:47):
We're revealing who should buy long termcare insurance and who should not.
You're listening to Simply Money presented byall Worth Financial here in fifty five KRC
the talk station. You're listening toSimply Money presented by all Worth Financial.
I mean me Wagner along with SteveRuby. Years ago, when my grandpa

(20:07):
Hubert Wagner turned about eighty six,he was diagnosed with Parkinson's. He and
my grandma had saved and lived very, very frugal lives for years and years
and years. They had come upwith a pretty good nest egg. But
once that diagnosis happened, he neededskilled care and they quickly ran through a
lot of the resources that they hadsaved up for themselves. Wish we had
bought a long term care policy forthem, never even thought about it.

(20:30):
Joining us tonight is our state planningexpert for the law firm of Wood and
Lamping, Mark Rekman Mark. Thisis probably a story you have heard and
seen play out many, many timesover and over, Amy, and I've
been in this business about forty fiveyears. Long term care insurance really wasn't
an option, probably for your grandparents. So long term care insurance really is

(20:53):
a product of the eighties and sofor had really just been available for the
last oh, I don't know,say thirty five forty years before that,
people just weren't it wasn't available.So obviously there's a lot of folks that
we work with that end up needinglong term care care in a nursing home
or at home one way or another. How are are folks paying for this

(21:17):
if they don't have a long termcare policy. Well, that's a great
question, Steven, and you're right, most of us, at some point
in our lives are going to needlong term care. Most of us are
going to need short term care,intermediate care, but many, many of
us are going to need long termcare. At some point in our lives.
And they're really three ways that's paidfor. One is through private pay

(21:40):
in other words, we pay outof pocket. One is through Medicare,
which pays very very small amount,only a very short term amount. And
then Medicaid and Medicaid is a statewelfare program. There are fifty of them,
because we have fifty states. Ofcourse, each state program is a
little different, but they're a lotof overlap and it's almost all funded with

(22:02):
federal money. You know, Mark, One of the things that I have
seen through the years in this longterm care insurance space is and you mentioned
it's a relatively new product, right, maybe three four decades old. Initially
lots of companies were in and thenI think many of them realized they were
kind of losing their shirts. Imean, is it is incredibly expensive to
the tune of over one hundred thousanddollars a year for many people to spend

(22:26):
one year in one of these facilities, and so there's less and less competition
in this space. So what isthe reality for those who are looking at
long term care insurance right now andwhat's the sweet spot for starting to shop
around for that? I think thebest way to answer that, Amy is
to say that long term care isexpensive, And everything I read in the

(22:48):
last fifteen years is yes. Theinsurance companies miss they missed the boat on
judging what their outlet would be.Most of them underpriced the product, and
most of them are out of thatbusiness. So we're down to a relatively
small number of companies that sell thisproduct, and this product as expensive.
But let's back up just a bit, Amy, because Steve asked earlier about

(23:10):
how you go about paying for thesethings. And if you have enough money
that you can afford to pay onehundred and twenty to one hundred and forty
thousand dollars a year for your care, you don't need long term care insurance.
And the other end of the spectrum, if you have no money,
then you're going to qualify for governmentassistance. And so those people they cannot

(23:32):
afford long term care insurance, andquite frankly, they probably don't really need
it because they've got the government programavailable to them. It's everybody in between
that we're really talking about today.Those are the people who have some savings
but not enough to cover two,three or four years in a nursing home.
And those are the folks who shouldbe looking at long term care insurance.

(23:53):
Now, long term care insurance paysfor in home care if it's in
covered the policy, intermediate care,and what we call skilled care. Skilled
care is the term that used inthe industry to find a high level of
care. What we're talking about isnursing home care. That's the one that's
really expensive and that's the one thatcoverage really needs to include. Not all

(24:17):
policies cover all three. You haveto be careful about what coverage you're buying
when you price your policy. What'sreally important is the long term care component.
I like in home care component aswell, but that does drive up
the premium. It sure does.And keep in mind that there's a lot
of folks out there that think andhave the misconception that Medicare is going to

(24:38):
carry them through long term care,and that is just not the case.
You touched on it. Medicare coversup to one hundred days of skilled nursing
care per illness, but you're noteven usually seeing that full hundred days.
Oftentimes it's less. I repeat,Medicare does not cover long term care.
That's what we're talking about this todaybecause if you're in that sweet spot where

(24:59):
you have, you know, bea couple of million dollars seven million dollars
at the end of your plan,after you've built a financial plan, then
that's where you need protection because youdon't want to completely run out of money
if you're self ensuring and paying outa pocket. That's where if you have
a lot of money at the endof your plan and you're at a position
where you can essentially pay those annualcosts to yourself well. And I would

(25:21):
add to that Steve that it alsodepends that whether or not you're a good
candidate for long term per insurance alsodepends on your income. For example,
if you have a good pension,if for example, you're a school teacher,
and school teachers generally have pretty goodat least the ones who are in
the state insurance program have fairly goodretirement plans. There are other retirement plans.

(25:42):
If you've got a strong retirement income, those people can afford some of
this long term care expense. Ifyou have no significant pension, then of
course you're really exposed. The keyis to find the people who are in
that middle brand, and these arepeople who it depends in part on whether

(26:03):
or not they're married, It dependson whether or not they have children,
depends on what their long term objectiveis. You know, some people say,
I'm perfectly okay with running out ofmoney at the end of my life.
There's an old joke in my business, the perfect estate plan is when
the check to the undertaker bounces.Not exactly a funny joke, but it
is. It represents one strategy.Most people, however, don't want to

(26:29):
take that risk because you just can'tplan that carefully. I'd like to think
it's a funny joke because I say, in this business too, yeah,
exactly. So you know, whetheror not you can self ensure depends on
what your retirement income is. Andas you said, Steve, how much
money you have in the bank,if you've got the resources to pay privately,
and that's going to take a goodone hundred and twenty to one hundred

(26:52):
and forty thousand dollars a year today, I don't know what's going to cost
thirty forty years from now more thandouble. You would think so, wouldn't
it, because healthcare does go upfaster than the rate of inflation. Mark.
I think you make some excellent pointshere so many factors to consider.
I'll throw another one out there.Your family's health history, right, there's

(27:12):
a strong health history of some issues, especially when you get up there and
age. Definitely worth considering it.I think really the key here is having
the conversation and making sure that oneway or another you can have this covered.
Great advice as always from our estateplanning expert, Mark Grekman from the
law firm of Wood and Lamping.You're listening to Simply Money presented by all

(27:33):
Worth Financial here in fifty five KRCthe talk station. You're listening to Simply
Money presented by all Worth Financial.Immi Wagner along with Steve Ruby. Do
you have a financial question keeping youup at night? You and your spouse
are not on the same page aboutWe can help you figure it out.
There's a red button you can clickon while you're listening to the show.
It's right there on the iHeart operacord. Your question and it's coming straight to

(27:57):
us and straight ahead. Do youever check your credit report? Is there
an air on there that could becosting you. We're going to get into
that in a few minutes, butfor now, we want to talk about
an investing strategy that maybe you've heardabout or read about. It's something that
historically only wealthy investors have used,but it might be something that's available to

(28:21):
you now. It's called direct indexing. Yeah, so direct indexing rather than
traditional index investing, which means buyinga passive fund that seeks to track this
is just track now outperform a particularmarket, which is its benchmark index.
Direct indexing, by contrast, involvesbuying most, if not all, of

(28:41):
the individual stocks that actually make upthat index and then adding to or subtracting
from that list of securities and rewaitingsome of the underlying components depending on your
investing in tax goals, which atthe end of the day, it does
give you more control over your investments. To be honest, it gives me
a little bit of a headache whenI think about buying that many individual securities

(29:07):
in thinking through them. But yeah, there's definitely some benefits of these.
A couple of the benefits are,first of all, if you go into
investing and you like to align yourvalues to that right. I worked with
an investor several years ago who said, not a dime of my money is
ever going to fund the tobacco industry. I don't believe in that, okay,
So then you look at which companiesare saying the S and P five

(29:32):
hundred that are tobacco companies and youdon't invest in those. Or what if
you own a lot of individual stockalready in a company. Maybe you live
here and it's Procter and Gamble stock, or you jumped in on Apple years
ago, whatever it is, youhave ten percent of your entire portfolio and
that individual stock, Well, thenif you were to then purchase shares of

(29:56):
it right inside an index fund,you're going to be over in that individual
company. So if you're going tobuy individual companies, then you can say,
well, I don't need any moreof that particular stock. I already
have that. So you can bereally picky and choosy about which stocks are
going into it with relatively kind ofthe same results of tracking an index.

(30:17):
There's also an opportunity to help withtaxation of your investments. So if you've
owned mutual funds in the past andthere are index mutual funds, they are
subjects to what are called regular taxabledistributions. And this is this happens even
if you don't sell share so there'sconfusion about this sometimes for mutual fundholders that
they'll call their broken and be like, hey, why am I getting capital
gains in my account right now?This doesn't make any sense. I haven't

(30:38):
sold anything, but those earnings flowthrough the mutual fund itself into your account,
creating a tax hit. When youdirectly own the individual securities that make
up that index, via directs indexing, you can actually control when individual shares
are sold, which means you cando some tax sauce harvesting. If some

(31:03):
of the investments have gone up andsome have gone down, you can sell
some of the ones that are downto offset some of the gains, and
the ones that are up you cantime that to reduce hefty tax bills.
It's an opportunity to strategically sell withinthat index. I want to be clear
here, right as you are sayingyou can do this and you can do
that would take all of your time. Right if you were looking at these

(31:26):
individual stocks and saying, okay,I need to rebalance, I'm overweighted in
this one. I'm going to sellthis position at a gain. So I'm
going to sell this position at aloss. Right, that's a lot to
think through. The average investor,you never have time to sleep if this
is what you were doing. Sowhen you say you can do this,
it's likely you are working hopefully witha fiduciary financial professional who together you've decided

(31:52):
this is a smart strategy for you, and that person is actually the one
sort of executing this, not you. You literally would never sleep. To
be clear, I don't think I'veever heard of any individual investor doing this
on their own. I'm sure theyexist, but it's prohibitively time consuming to

(32:12):
do direct indexing, which is whythis is typically reserved for people that have
financial advisors helping them with this process, and historically it's been out of reach
for many people that weren't ultra highnet worth. But there are a lot
of firms that do offer this atcertain price points, making it a little

(32:34):
bit more accessible for investors in thisday and age, and it can come
with its benefits now as far asthe cons obviously higher costs than if you
were to just do an index fundby itself, and an ETF index fund
is different than a mutual fund indexfund. A mutual fund is going to
have those pass through taxation, whereasan ETF doesn't do that. However,
it's not going to give you thesame flexibility as opposed to direct indexing.

(32:59):
Where As you were talking about youare able to exclude certain investments if you're
over concentrated or don't want to supporta particular industry such as tobacco. Well,
and when you look at the costof some of the individual shares of
these stocks, if you're going tobuy write all five hundred or close to

(33:20):
five hundred of what makes up theS and P five, that's a pretty
penny, right, That's going tocost you a lot of money, way
more than just a fractional share necessarilythat you would be buying potentially in an
ETF for a mutual fund. Sojust to be able to do this is
going to be somewhat more expensive.And I want to be clear too,
Steve, because I remember when Ifirst in my maybe late twenties, started

(33:44):
to have a little bit of money, when I would hear that someone was
talking about some kind of investing strategy, I would think, should I do
that? I want to be clearthat because you can do this does not
mean that you should do this.We're not talking about this because we think
this is a great strategy for alot of people. We're talking about this
because if you've come across this andwondered about it, we want to make

(34:07):
sure that you understand the pros andcons. I would say, for the
majority of people, this is notsomething you need to be thinking about,
or worrying about or even researching atthis point. Yeah. I mean honestly,
as some of this is going tocome with higher minimums tens of thousands,
hundreds of thousands of dollars even youget started. But for those that
are looking to at a level ofdiversification across their entire portfolio and they have

(34:28):
the means to do so, therecan be some appealing factors around direct indexing
that obviously advisory firms are taking noticeto because they're making it available to the
folks that want them. Here's theall Worth advice. This is just a
perfect example of where we would sayyou need to work with a fiduciary financial
pro to figure out whether this strategyactually makes sense for you. Coming up

(34:52):
next, are there airrs on yourcredit report? What you need to know
about that, what you can doabout them? If you're listening to simply
money presented by Worth Financial Here onfifty five KRC, the talk station you're
listening to. Simply when you're presentedby all Worth Financial, I mean Wagner
along with Steve Ruby. I probablyhave an unhealthy relationship with my credit score

(35:17):
and my credit report. I do. I really check it all the time.
I make a lot of financial decisionsthrough the lens of how it will
impact that report. I'm not sayingyou have to take it to that level,
but I do think what you haveto understand is what's on that credit
report affects your credit score, andyour credit score is going to make the
difference in potentially tens of thousands ofdollars either in your pocket or that you

(35:43):
will owe in the form of loansover the course of your lifetime. Hence
religiously checking your credit score. Iguess, have you ever found an error
on yours? I have. Ihave. In fact, several years ago,
I got a bill. It wasa medical bill that was grossly like
overdue, like months overdue for ahospital somewhere in California, and somehow it

(36:07):
had my daughter's name on it,and I was like, well, we
live in Kentucky. She is notgetting treatment for this particular thing. In
the State of California right now.When they were coding it, they had
put in the wrong number and broughtup our particular accounts information instead of that
person's. Luckily got the bill checkedthe credit report it was on there,

(36:27):
and I was able to get itfixed. So you're not alone in this.
And that's rough. That's miserable comingacross something like that, but too.
Yeah, consumer groups, Consumer Reports, and Work Money. They invited
more than forty three hundred volunteers tocheck the credit reports for accuracy as kind
of an audit or performance review ofa three major credit agencies, which again
are Equifax, Experience, and TransUnion. One quarter of the people that went

(36:51):
through this volunteer audit, essentially theywere unable to access their credit reports.
Obviously, these are supposed to beavailable to all. Among those who read
the report, forty four percent founderrors. Almost half of people and then
half of those about twenty five percentin total were potentially damaging to the consumer's
credit. Amazing. Yeah, Sowhat do you do, right? You

(37:13):
review your credit reports and if thereis an error, you report it.
You can reach out to the companyspecifically that's putting that error on there ask
them to change it. And ifthey don't, then you have to file
a complaint with the Consumer Financial ProtectionBureau. It's annoying, it's a pain,
it is a process, but itis worth your time because I'm telling

(37:35):
you these errors can cost you bigtime. And remember we check on annualcreditreport
dot com. That's where you're ableto access these agencies to view your credit
report, assuming that you're able tobecause the findings of this study was a
little bit alarming, but that's whereyou go to check it. And if
you find errors, make sure thatyou are reporting them because you can save
real money or get affected in anegative way that costs you money by not

(37:59):
acting on this information. Yeah,it definitely makes a difference. Thanks for
listening. You've been listening to SimplyMoney and presented by all Worth Financial here
on fifty five KRC, the talkstation