Simply Money

Episode Transcript

Speaker 1 (00:03):
Tonight, Shu, it has been a long week. How are
you feeling right now? You know, maybe one of the
best things that we can do is to put what
we've all been through as investors into a little perspective,
and I would say we might have a slightly different
way for looking about looking at this week. We'll share
it with you. You're listening to Simply Money presented by
all Worth Financial. I Meani Wagner along with Bob Spahndseller.

(00:26):
We've talked a lot tariffs, stock market, the economy over
and over this week to hopefully to give you some
really important long term perspective. Tonight, though, we're gonna flip
that upside down and say, let's put this in terms
of stuff you do day in and day out, into
the context of everyday life.

Speaker 2 (00:48):
All right. The first analogy we'll use is an airline flight.
You know, when we experience airline or airplane turbulence. You know,
have you ever been on a flight where everything's sailing
along and then all the sudden you hit some turbulence.
The plane starts shaking, drink spill. But here's the thing.
If you're still thirty thousand feet up in the air
and you're on your way to your destination. There's nothing

(01:11):
you as a passenger can really do. The pilot doesn't
jump out of the plane, the passengers don't demand to
land the plane immediately, And that's kind of what's going
on now with the market. Volatility is just turbulence, not
a plane crash.

Speaker 1 (01:27):
Yeah, and I think you know too. It's the mindset
that you have during that time. Nobody on that plane
is like, oh, this turbulence is fun. I like the
feeling of my stomach falling out of my body. Right,
nobody feels that way. But oftentimes what you understand as
a traveler is there's no way for these pilots to

(01:47):
avoid every pocket of air, you know, changing air pressure,
or every storm that's coming their way. But that's what
you got to do to get from where you are
right now to where you're going right So that's what
you've got to understand as an investor too. It is
not always smooth, smooth sailing in blue skies. There will

(02:09):
be turbulence. The point is it's not where you are
right now, it's that you got to get through that
turbulence to get to where you're going, and hopefully the
destination on the other side is a pretty good place.

Speaker 2 (02:22):
Yeah, and keeping with that air airplane flight analogy, this
might be a good time to bring up the elephant
in the room, which is the tremendous political eide in
the country right now. So yeah, I'm depending on people's
political bias, which we talk about all the time. You
got to check that at the door or at the
airport gate, if you will. There's probably a lot of

(02:43):
people thinking, hey, I wish the pilot would jump out
of the airplane, meaning President Trump. They would prefer to
put the plane back on auto glide and not have
any turbulence. You know, in the first place. Those are
the people, because of the personal disdain for the current president,
tend to make rass decisions like this. So again, good

(03:05):
reminder to put, as unsettling as it can be, we
gotta leave our politics at the door. As a long
term investor.

Speaker 1 (03:13):
I think that maybe the best point that we could
make right now, because I am I'm talking to a
lot of investors and within thirty seconds right of picking
up that phone of them walking into my office, I
know exactly where you stand politically. I know exactly where
you stand. And it looks like this if you voted
for President Trump, you are saying he is a brilliant negotiator.

(03:35):
He has a longer term strategy here. This is one
hundred years of unfair trade practices that we are trying
to write and I am okay with a little short
term volatility to do that, right. I hear that as
often as I'm also hearing what is he doing? This
is not a dictatorship, you know. So you have to, though,

(03:59):
check what ever your political opinion, your political bias, and
I do, Bob. I was talking to an investor who's
in his eighties and he was saying, listen, I've lived
a long time. I've never seen things as divisive as
they are now. We are a very divided country. But
if you do not check that political baggage when you're
getting on this flight, you're gonna make a decision with

(04:19):
your money based on it, and it could be a
decision that you may not be able to recover well from.

Speaker 2 (04:27):
Yeah, it's kind of like a bunch of people sitting
there watching Let's say Tucky played Tennessee in a basketball game.
You gotta win.

Speaker 1 (04:34):
Go there.

Speaker 2 (04:35):
I'm not going on the winner and loser. I'm just
saying with every single basket that's scored and every single
foul that's called. Half the room is jumping up, cheering
and screaming. The other half is losing their minds, and
we all know reality is somewhere in the middle. It's
a long game. Both teams are doing, you know, the
best they can whatever, and let's just enjoy the basketball

(04:58):
game a little bit without riding on every single call
and basket that's made.

Speaker 1 (05:03):
You're listening to simply Money presented by all Worth Financial.
I mean you Wagner along with Bob Sponsller. I don't know,
maybe it's a little tongue in cheek, but we've been
through a lot, all of us as investors. This week
it has been one of the wilder weeks. And I've
been doing the show for a decade now, it's definitely
one of the wilder weeks than we've seen, so kind
of just putting into perspective what we're actually seeing in

(05:25):
terms of things we're doing every day. I have never
understood this about investors, but when markets go down, the
ability to purchase stocks is on sale. It is actually discounted.
Sometimes it's even rock bottom basement clearance sale. But for
whatever reason, we go running away from the sale out

(05:47):
into the streets. When I am someone and you of
course know this about me, When I'm walking into this store,
I'm going straight to that sale rack. And when markets
are down and there's a buying opportunity, if I do
have money on the sidelines, I'm absolutely taking advantage of that.

Speaker 2 (06:05):
Sure, I mean by low sell high is the easiest
investment advice out there. But unfortunately, when emotions run high,
when stocks are on sale and it looks very dangerous
out there, people are afraid to pull the trigger because
of that recency bias and the assumption that is just

(06:26):
the whole market's going to go worthless. And that's where
you've got to be disciplined. And if you be disciplined,
or don't want to be disciplined, or take the time
as a personal investor doing this yourself, now's a great
time to illustrate the point of how a good fiduciary
advisor can help you through these times. Because I'll tell
you right now, Andy Stout, our chief investment officer, he's

(06:49):
one of the most non emotionally driven people I've ever met. Yeah,
this guy's steady at the wheel. He's just looking at
the data and the charts and acting appropriately and it
serves our clients very well.

Speaker 1 (07:03):
Yeah, here's another example, and I love this one because
it hits so close to home. My home, particularly parenting teenagers.
I've got the youngest one, he's fifteen now, and sometimes
the moodyness, I'm like, but I've been through this before
with my other kids. I know they retreat to their

(07:25):
rooms for a couple of years. They're really critical. You know,
it's not the most fun time to be a parent.
But really on the other end, they kind of come
out as lovely human beings. It's just a period that
we all have to go through. There are normal market cycles.
We call them different things based on the specific circumstances
that are happening during that time. Right now it's tariffs.

(07:48):
But on the other end, there is always a one
hundred percent recovery. Always we are batting a thousand on this.
We've had perfect recoveries every single time. How long does
it take? How far down do we go? I don't know.
It is the same with a teenager. I do not
know from any given day to the next, are we
going to have a good day, are we going to

(08:09):
have a bad day. Is it going to be somewhere
in between? But I signed up for this as a
mom and I am happy, happy to go through these
stages side by side with my kids because they do
understand there is a longer term picture. If I had
to sign up for just being the mom of a teenager,
no thank you. I don't know that they would ever
sign up for that. But I think it's the same
thing as a long term investor. Bob, you've got what

(08:31):
three boys, You've been through it too well.

Speaker 2 (08:35):
You're trying to give serious parenting advice here. I still
want to have a little fun here on a Friday Amy.
Speaking of teenagers, some people would argue that we have
a teenager in the White House. Case in point, are
the president yesterday after taking the putting the ninety day
reprieve on a lot of these tariffs. When's the last
time you had a president of the United States stand

(08:57):
out there in a press conference and say be cool?
And the next thing made me laugh out loud. A
lot of people are being a little too yippie out there,
is what our president said. So you know, you can
imagine how infuriating that makes certain people. We got to
have a little fun with it. But yeah, it's to

(09:18):
your point. You got to walk people through this, help
plan for the long term and not make rash short
term decisions.

Speaker 1 (09:24):
And you know, we often talk about having a map,
or maybe it's GPS nowadays, but that's why you got
a financial plan, that's why you have stress tested your portfolio,
that's why you have made sure you're well diversified and
that your asset allocation is the right thing. Because then
this becomes a detour, This becomes a street closure and

(09:46):
we're finding a way around it. This becomes rerouting, but
it is not where the heck am I on the
map right now? I don't even know which way is up.
I just started putting money into a four O one
K and I really have no plan for it. This
is why you start with that plan, and I think
that plan is critical.

Speaker 2 (10:05):
Yeah, even if you make a little short term mistake
and the GPS says rerouting, rerouting, you still got to
get to your final destination. I mean, that's that's the
end game here, that's mission one. So we this is
a good time to remind folks perfectionism is impossible. We're
never going to be perfect. The clients aren't the advisors

(10:26):
aren't the market. You know, stock pickers aren't good team
of people client advisor money management team can do as
a team is give you a higher way, higher probability
to get safely to that final destination. And that's what
good financial planning is all about.

Speaker 1 (10:47):
Yeah, you got to start with the plan.

Speaker 2 (10:49):
You know.

Speaker 1 (10:50):
We always say you build the boat in calm waters
for the storms. But if you've never built the boat,
even though it's storming right now, it's time to start
building right, figuring things out so that you have a
way to get that long term view on where you're going.
Here's the all Worth advice. Volatility is not the enemy.
In fact, it's the price of admission for long term growth.

(11:10):
Coming up next, warning signs that maybe your portfolio isn't
actually right for you. Does it have too much risk
or maybe not enough. You're listening to Simply Money presented
by all Worth Financial here on fifty five KRC the
talk station. You're listening to Simply Money presented by all
Worth Financial. I Memi Wagner along with Bob Sponseller straight
Ahead six forty three, Separating fact from fiction as it

(11:33):
relates to Wroth accounts. Umbrella insurance, and a whole lot more,
you know, Bob. One of the things I know that
you and I both do and every advisor should be doing,
is kind of a risk tolerance assessment with our clients
when we're working with them, and even times, your risk
tolerance will change over the course of your life as
an investor. But what I often have to kind of

(11:54):
giggle at is when markets are up, right, So we'll
walk through kind of a ten question, you know, exercise,
and at the end of it, I'll say, Okay, this
is this is where you are. You're sixty forty, And
if it's during a time when markets are way up,
they'll say, I mean, maybe that's what this assessment said,
but I actually don't want to be sixty forty. I

(12:15):
want to be ninety percent in the markets right now
because I want my money to take off.

Speaker 2 (12:20):
Yeah, this is you know, and I know we've been
having a little fun and joking around a little bit today,
but this is an extremely serious topic. And this is
what I mean by that. When I do this risk assessment,
you know, profile with my clients, the only the main
reason I'm doing it is thinking about the environment we're
going through right now, because the thing I want to

(12:42):
have an honest and candid discussion with with all of
my clients is I want to know where the guardrails
are up front in advance. Yeah, to keep a client
from making that phone call and saying, take me to cash.
I can't take it anymore to me if if that
phone call ever comes in, I haven't done my job

(13:03):
on the front end. And I know sometimes people think
I'm having those risk assessment meetings are way too long,
but that's why I take the time to do that,
because when clients want to pull that rip chord when
the market goes down, it means we have not had
a thorough enough conversation on the front end and position

(13:24):
their portfolio appropriately. I think it's a critical piece of
what we do as advisors.

Speaker 1 (13:30):
I often use the analogy of what is your goldilocks
point right where you can eat well in retirement but
also sleep well in retirement. And if you are not
sleeping well right now, maybe you haven't hit the mark.
Maybe where you are isn't really your goldilocks point. So
I think, hey, if you are losing sleep, if you

(13:50):
are thinking about selling, you're panicking right now. You cannot
stomach this market volatility. It is not that you need
to one hundred percent remove all of your money out
of the market and stuff it under your mattress. It
is that you need to reassess it and maybe dial
back your stock market exposure.

Speaker 2 (14:10):
Yeah. Andy Stout and I had a good conversation about
this topic very recently and he made a great point
and it's one that I've known, but he reminded me
of this. He said, Bob, that risk assessment questionnaire is
just one point in time. The day you do that,
the market could be way up, it could be way down,

(14:30):
or anything in between, and clients emotions and thoughts on
their true risk tolerance changed daily. It's not a one
time number to your prior point. On melding that risk
tolerance into a financial plan, this is where we got
to be realistic with our clients and say, hey, if
you don't want the volatility, here's what you got to

(14:52):
sacrifice in terms of long term return. And if we
accept that lower volatility and lower long term return, are
we going to be able to get to our final
destination as far as meeting all of your goals. And
that's where it sometimes becomes a balancing act. We got
to make some adjustments on the spending goals and the

(15:13):
needs versus wants to bring all that in alignment so
people can sleep at night. It's a critical piece of
true financial.

Speaker 1 (15:21):
Planning, and I think while we're kind of giving this
blanket advice, I also want to be really cognizant as
I am that this volatility right now feels very different
for two different groups of people. I was talking to
my best friend about this this morning. Right She was like,
you know, we're ten fifteen years away. I'm not even
from retirement. I'm not even paying attention to you know
what's happening in the markets right now. And I said, yes,

(15:43):
because you are lucky enough to still have that paycheck
coming in. For people who are retirement, who have worked
the numbers, who are living off of a plan, who
are regularly taking distributions from what they have built up
through the years, this feels very different. And this is
why it's important to get this risk tolerance rate. On
the flip side, I have seen people who want to

(16:04):
curl up in the fetal position around their investments when
they get to retirement, or certainly once they get to
the first bout of volatility. That they've experienced once they've retired.
And the problem with that, on the flip side is
your other concern is not market volatility. It's the silent
killer of retirement, and that's inflation.

Speaker 2 (16:24):
Yeah, and Amy, I've got a lot of clients that
are in their late seventies to mid to late eighties now.
And the point I want to make there is if
you can meet all of your goals and not have
to deal with all this volatility, and you don't care
if your portfolio doesn't outpace inflation by two to three

(16:45):
percent a year, it's okay. Yeah, I mean, it's okay
to be in very low risk, you know, treasury bills,
treasury bonds, CDs. It's fine as long as we know
that you're going to meet your financial goals. So I
just want to make make sure folks aren't hearing us
say you know, no matter you're and I'm not saying
you're implying this for a moment, by the way, but

(17:06):
I'm just saying, if you know that you've met all
your financial goals and can do that without taking market risk,
it's good. It's fine. Just make sure you've done that analysis.

Speaker 1 (17:17):
Yeah, And I also think, hey, this is a time
to not only know what your actual risk tolerance is,
but how you're really invested. Had someone come into my
office this week, potentially a new client, and had this
whole list of investments, and I mean it was all
over the place, you know, reats in some other part
of the country that they own, I got bonds, treasuries,

(17:40):
They've got individual concentrated positions of stocks. They have, you know,
three or four different I rais. And it's like, how
would you say that overall that you're invested And there
was not an answer for that. It was just like,
I've just kind of like accumulated stuff through the years
in the form of investments. Don't know if I'm over

(18:01):
exposed to the tech sector. I don't know when they're
talking about how the S and P five hundred is
doing right now, how I would even perform in relation
to it, because I can't even get my finger on
the pulse of how I'm invested right now. And I
come across a lot of investors like that.

Speaker 2 (18:18):
Yeah, I think that happens for a couple of reasons. One,
folks can tend to get their assets spread out over
umptyen different financial institutions and quote unquote advisors and folks
like that have a collection of products. Yep, they don't
have a strategy. And you know, I ask roughly the
same question you ask Amy. I just ask an open

(18:41):
ended question, tell me about your overall investment strategy. What
is this thing designed to do? And a lot of
people look at you, you know, with the deer in
a headlights look, and that's when that's when you know
that they really do need an advisor and they need
some help, and thankfully we're able to help them.

Speaker 1 (19:00):
Yeah. And we kind of joked earlier this week about
those who are the frozen fence sitters, right who just
during this time of volatility, you're not exactly sure which
way to go, so you kind of stick your head
in the sand. I would say, hey, listen, if we're
throwing out concepts that you've never thought about before, now's
the time to really address those things. If any of

(19:21):
these things we talked about were kind of pain points
that we touched for you, it's really important as a
long term investor that you do address these things. Here's
the all Worth advice. The goal is a portfolio that
matches your goals, your time horizon, and also your emotional capacity,
not one that swings wildly or sits idle, or that
makes you lose sleep at night. Coming up next, some

(19:43):
investment solutions for those who have a really good nest
egg and want some untraditional diversification in your portfolio. You're
listening to Simply Money presented by all Worth Financial here
on fifty five KRC, the talk station. You're listening to
Simply Money presented by all Worth Financial. I mean you

(20:04):
Wagner along with Bob Spondseller. I think alternative investments are
being talked about more by investors today than maybe in
recent years, and certainly during this time of market volatility.
Right many investors are saying, wait, is there is there
somewhere else where I can put maybe part of this
portfolio that might be heading in a different direction than

(20:26):
the market. So joining us is our chief investment officer,
Andy Stouts with his perspective, How are we looking at
all investments from an all Worth perspective? Andy, I'd love
to hear from you on this.

Speaker 3 (20:38):
So when investors think about their investment mix, it's typically
sixty forty, right, how much do I have in stocks?
Often it's sixty percent? How much do I have in
bonds forty percent. Now, that may not be best for everyone. Now,
certainly it does work for a lot of people. You know,
if your financial plan and your risk talk learns aligned

(21:00):
with that, that's wonderful. Now there are other opportunities out
there though, when you think about in the investment environment,
specifically in alternative assets. So these are things that aren't
really stocks or bonds, and also, and very importantly, they
don't have the same liquidity as stocks and bonds do.
So when you hear about alternative assets, it's not necessarily

(21:22):
a bad thing or necessarily a good thing, but it's
really important to understand the risks because you do have risk,
but with risks come potential benefits above and beyond what
you might be able to get from normal stocks and bonds.

Speaker 2 (21:36):
Andy, when we talk about adding alternative asset classes to
a mix, correct me if I'm wrong here, But isn't
it about all about looking at getting the highest rate
of return per unit of risk from a portfolio, meaning
finding non correlating asset classes that are gonna maybe cushion
volatility while not giving up return. Is that the general

(21:58):
idea here on what we're trying to accomplish for clients
and investors.

Speaker 3 (22:02):
That's exactly right, Bob. So when you're thinking about alternative
assets and the different asset classes they behave differently. So
when you hear alts, just like when you hear stocks,
there's different types of asset classes within alts. Like within
stocks you have maybe technology stocks, financials, healthcare. Within alternative
assets you have things like private equity, private debt, private

(22:25):
real estate, infrastructure, hedge funds. I mean, there's numerous investment
types and when you think about each one, you want
them to add them to a portfolio that's complementary. So
to your point, Bob, you do essentially improve the risk
adjusted rate of return, So you want to get a
higher return for lower level of risk, or you know, conversely,

(22:50):
you just want to have that. Technically it's called a
sharp ratio. But we're not going to get into the
weeds here.

Speaker 2 (22:55):
All right. Well, so getting specific about the current environment
we're in, you know, coming off a period of time
here where when we've talked about this ad nauseum, these
magnificent seven stocks going to the roof over the last
few years and now comprising over thirty percent of the
S and P five hundred and now then pulling back
a little bit, what are some of the alternative asset

(23:17):
strategies that are making sense and you're seeing makes sense
in actual portfolios right now? What are you seeing come
across your desk right now that seems to make a
lot of sense to you.

Speaker 3 (23:30):
There's a few, and probably mean I can honestly make
a case for any of them almost at any point
in time. But when you look at today's environment, you
think about interest rates being at decent levels. Well, yes,
that's absolutely true. Now if you look at the private
and that's good for bonds fixed income, But if you

(23:50):
look at the private credit or private fixed income, if
you want to think about it that way, you're actually
going to be getting higher interest rates. Now, again it
comes with less liquidity, in a little bit more volatility,
but it's also shown to have more upside potential. Now
on the private equity side, that's something where it really
you need to be more comfortable with volatility or upside

(24:13):
and downside risk. So a lot of the private equity
structures and funds that we've been looking at lately, you
see stable returns. Now, these typically you only get a
price once a month at the end of the month,
so you're not seeing that intra month volatility. But with
that said, when you look at it over a period
of time, even during volatile periods like in twenty twenty two,
for instance, many of them have performed better than what

(24:36):
much better than the broad stock and bond markets have done.
So those are some of the ones that we're.

Speaker 1 (24:41):
Looking at, and they appreciate you explaining the trade offs,
right because with any investment rights pros and cons, and
it's really really important to educate yourself on Okay, you
might be able to get a higher return, but there's
going to be a trade off for that, and you know,
to your point, maybe less liquidity, more v utility. I
think when a lot of people hear all investments, knee

(25:04):
jerk reaction nowadays might be cryptocurrency, you know. I think
you know. Joe Strucker, a producer, called me over the weekend.
He had just been at an event where a younger
investor had said, yep, I've got fifty thousand dollars and
it's all in cryptocurrency. Want I get your thoughts on that, right?
That is not what we're necessarily talking about here, not
saying crypto is good or bad, but any of these

(25:27):
kind of alternative investments have a police in your portfolio,
they should not be your entire portfolio, even during times
like right now when markets are volatile.

Speaker 3 (25:37):
When you look at the history of bitcoin, just as
one example of digital assets, what you've seen is that
it goes on these magnificent runs, but then you also
see it followed by years where they decline eighty percent,
pretty much wiping out most of people's investment. Now, if
you have a longer time horizon and a smaller allocation

(26:00):
to your point amy you know, certainly you know, a
little bit of exposure there can make some sense. But
really being diversified across alternative assets is another really smart
move because you don't want to just have all in one,
you know, private equity fund or just one area. You
want to be diversified with infrastructure, with private debt, with
hedge funds. And the one other thing I do want

(26:21):
to mention, just to make sure that we put this
out there, is when you're looking at these alternative asset funds,
they are typically more expensive than other traditional investment types,
so you need to make sure you will fully understand
those expenses. And if you're looking at any sort of
past returns from those funds. Make sure they're net of

(26:42):
all fees, so you understand what the fund has at
least historically delivered. Not that there's any guarantee for the future,
of course, but you've got to remember that.

Speaker 2 (26:50):
It's really important you took the words out of my mouth,
and because some of the big objections I've heard of
these type of asset classes and seeing myself over decades
is they they are more expensive and they can tend
to be less liquid. Can you talk about how liquidity
and expenses have tended to trend in recent years more

(27:11):
in favor of investors, you know, say over the last
three to five years.

Speaker 3 (27:16):
So if you go back five ten years, you might
have heard a two and twenty or even three and twenty.
What that means is that there's 's stick with a
two and twenty, there's a two percent annual management fee
that the investor will get charged and then essentially twenty
percent of the profits. Sometimes there's this high water mark
which means the fund has to be above a certain level.

(27:36):
Sometimes there's not, so you have to really look at
that very closely. Now what we're seeing with a lot
of investments is no longer necessarily a two and twenty.
Now it's more of like a one point two five
and maybe twelve and a half or something like that.
So these alternative assets, they still charge a higher fee.
One point twenty five is higher than which are going
to get on pretty much any ETF that's out there

(27:58):
which is an exchange traded to fund. You might see
average fees around there about anywhere from point oh five
to point five percent, not one point twenty five percent.
So it is higher from that perspective, and you do
have the manageon fees, but those have come down over time,
and again just make sure you fully understand them, because

(28:18):
these investments aren't without risk. But you know, focusing on
maybe some of the bigger name brands that are out
there as opposed to some fly by night fund that
your neighbor is starting up, it might be a better
way to go about it.

Speaker 1 (28:32):
These are the conversations, right that we are having with
some of our investors at all Worth. When it makes sense,
I would say, if this sounds like something that's appealing
to you as an investor, this may not be a
do it yourself proposition. You may want to work with
a professional. Here a fiduciary, just to make sure you're
thinking through all the potential trade offs. Again, alternative assets
can make a lot of sense. You just want to

(28:52):
make sure you're educated on them, as we always appreciate
our Chief investment Officer, Andy Stout spending time to educate
all of us on alternative assets. You're listening to Simply
Money presented by all Worth Financial here on fifty five KRC,
the talk station. You're listening to Simply Money presented by
all Worth Financial. I mean you Wagner along with Bob

(29:13):
spons already you have a financial question. It's just bugging you.
You can't figure it out. Maybe you and your spouse
can't get on the same page with things. We can
help you figure it out. There's a red button you
can click on while you're listening to the show right
there on the iHeart app record your question. It's coming
straight to us, and we're getting straight to fact or fiction,
mister spond seller, fact or fiction. You should always invest

(29:35):
dollars in a rough account before a traditional IRA.

Speaker 2 (29:40):
That's fiction. You know, we never like to use the
word always around here, Amy, because everything needs to be
customized to you know, a client or investor's unique customized
financial plan. So the first thing you want to be
looking at here is what tax bracket are you in now?
And what tax bracket do you expe beck to be in.

(30:00):
You know, when you retire or when you take a
break from working, you know, are you're going to have
a window where you can uh pull some money out
of taxable accounts and pay taxes at a low tax rate.
So for high income high earners, you know, it still
makes sense to do it the old fashioned way and defer, defer,

(30:21):
defer those taxes. So that's why we don't say always
use a wroth first. There's a way to do both though,
and we talk sometimes about this mega backdoor wroth concept.
You know, this is an outstanding opportunity for folks in
a very high income bracket to do both. Do the

(30:42):
pre tax savings and then if you've got some room
left and how much you can put in your company
retirement plan. That's a way to use the after tax
account and then immediately shove it into the wroth part
of your four to one K. That's a beautiful strategy
to shelter you know, taxes long term.

Speaker 1 (30:58):
Yeah, great point, great point, A right fact fiction umbrella
insurance provides coverage for legal fees even if you're not
at fault. This is fact, and this is a great
and very powerful tool.

Speaker 2 (31:11):
Right.

Speaker 1 (31:11):
You can accumulate a lot of wealth, and then anything
can happen if you are coaching one of your kids'
sports teams and something happens to one of the kids.
I look in my backyard and my kids always joke
that I'm a fun sponge, but I see in one
yard behind us that they've got one of those ginormous
place ads next door a trampoline, and I think, oh,
my goodness, if something were to happen, right, lawsuits and

(31:34):
you could lose everything. Umbrella insurance, you know, depending on
what your net worth is, right, you want enough to
cover your net worth. And it's not an expensive type
of insurance, right, but it essentially can be a game
changer if a terrible event happens, right you certainly this
is not an everyday occurrence, but it could happen, and

(31:56):
this is a great way to protect yourself.

Speaker 2 (31:58):
Yeah, this is coverage that I would just put in
the no brainer category. Yes, we all need to have this.

Speaker 1 (32:05):
Agreed factor fiction roth iras have required a minimum distribution
to rmds once you reach the age of seventy two.

Speaker 2 (32:14):
This is fiction, and this is one of the big
reasons why we do ROTH conversions for our clients. You know,
case in points, say you're retiring your early sixties, you've
got till age seventy three until the required minimum distribution
start from your four to one K and our iras,
and you've got that period of time where you might

(32:34):
be in a lower tax bracket. This is where we
could shift some money out of those iras and four
to one ks into roths. Pay taxes now at a
very low tax rate, and that smooth things out so
you're not getting whacked with this big tax bill in
your late seventies and eighties. And then the other beautiful

(32:55):
thing is once that money goes into that ROTH, there
are no rm ds for the rest of your life.

Speaker 1 (33:00):
Yeah, it can be a great tool. And you know,
I think you probably as well as me. I see
a lot of clients coming into my office who have
just taken full advantage of those tax deferred accounts and
so they have significant, significant tax deferred funds. One thing
that we can do if you are retiring maybe a
few years before that RMD age of seventy three, we

(33:22):
can do some wroth conversions in that year to pull
some of those assets out of that tax deferred account
into a wroth account. Then we're going to take advantage
of that tax free growth right in that account and
less endowment to Uncle Sam at the same time. So
that can be a great strategy if you're a higher
income earner once that salary falls off the books, right

(33:42):
once it's no longer coming in. So there's lots of
strategies here that you can really really take advantage of.
Fact or fiction. You can contribute to both a traditional
IRA and a wroth IRA in the same year, but
total contributions across both accounts cannot exceed the annual limit.
And this is an absolute fact, right you can put
money into both accounts where big fans of diversifying the

(34:04):
tax treatment. You just got to pay attention to the
total amount you're contributing to those iras together. It cannot
be more than the maximum that we're allowed in that year. Bob,
I want to give you another one really fast fact
or fiction tax diversification. As we talk about it all
the time, it really only helps in retirement.

Speaker 2 (34:23):
That's fiction. You always want to be looking at your
tax situation, and as your life evolves and your retirement
savings and planning evolves, you always want to be taking
a proactive look at any way that we can minimize
your tax burden. So this is something we do with
our clients every single time every year when we do

(34:45):
an annual review with our clients. It's one of the
big value adds that we can produce for our clients.
You always want to keep your eye on taxes.

Speaker 1 (34:55):
Absolutely. Coming up next, we're taking a trip into Bob's
world of WEALTHESS is a deeper dive into tax loss harvesting.
You're listening to Simply Money presented by all Worth Financial
here on fifty five KRC the tax station. You're listening
to your simply money and presented by all Worth Financial.

(35:17):
I mean you ignore, along with Bob's sponsller, that music
can only mean one thing. We're taking a trip into
Bob's world of wealth. Bob, you want to talk about
tax loss harvesting, which is a fantastic strategy, and I
don't know that all investors fully understand how to take
advantage of this.

Speaker 2 (35:36):
Yeah, Amy, I thought that might be a timely topic
given some of the recent volatility that we've had in
the markets. And we talk about tax smart trading and
tax loss harvesting all the time. What we really haven't
talked about a lot is why would you want to
do this? I mean, when people hear the word tax
losses and harvesting losses, that doesn't sound like a very

(35:58):
pleasant topic.

Speaker 1 (36:00):
So let's talk about Yeah, no, it's.

Speaker 2 (36:02):
Never good to lose. So let's talk about why one
would want to do this. Well, we've got these algorithms
running where you can stay fully invested in and just
swap out one asset in a similar asset class for another,
capture the loss. What would we do with that loss? Well,
a lot of times in diversified client portfolios, folks have

(36:24):
concentrated positions. We talk all the time about proctering hampible
stock ge Kroger, you know stocks that people have held
for years and years and years and never want to
sell any because of the embedded long term capital gains. Well,
if you can have an algorithm running on the rest
of your portfolio where you can harvest some short and

(36:46):
long term capital losses, that allows us, on a tax
free basis to just slice off little bits and pieces
of that appreciated concentrated stock position, and then over time,
over a responsible period of time, help our clients get
the diversification that they need. Another example might be if

(37:07):
folks are going to downsize their house in retirement and
they've lived in that home for years and years and years,
and their embedded long term capital gain is way above
what you can shelter under current tax law, you need
another source of losses to offset that gain. So that's
just two reasons, two examples of why we might want

(37:29):
to have some harvested losses to use later on in
the rest of our financial plan.

Speaker 1 (37:36):
Yeah. I mean those concentrated positions, they can almost hold
someone hostage, right, because it's like, wait a second, now
I'm getting nervous. You know this, I'm my portfolio was
married so much to this one particular stock. I understand
this is there, but how do I get out of
it without blowing up a huge tax bill. Well that's
a great strategy there, you know. And I think another

(37:56):
thing too is, you know I talk to investors all
the time. You want to tire early before fifty nine
and a half, right, So we build up significant assets
and those taxable accounts having that tax mart trading running
in the background. There is also locking in some losses
to where when we start taking distributions from those accounts,
we can be really, really tax efficient in how we
take those distributions and give a ton of flexibility. So

(38:20):
lots of options here, and I think it's important to
understand just you know, as an investor, you can focus
so much on what return you're getting, but you are
fully missing the vote because tax alpha. Being really smart
about how much you're paying to Uncle Sam also has
to be a big part of this equation. Thanks for listening.
You've been listening to Simply Money present them to by

(38:41):
all Worth Financial here in fifty five KRC the talk
station