December 2, 2025 • 38 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian dive into the latest economic data with Allworth’s Chief Investment Officer Andy Stout — who explains why the Fed might be flying blind without key data and what that means for interest rates, inflation, and your investments. Plus, find out why a growing number of AI tools are managing portfolios — and whether that's a smart move or a costly mistake, especially for high-net-worth investors. The guys also explore how Baby Boomers amassed $85 trillion in wealth and the critical financial lessons younger generations need to hear. And, what do you do when your spouse wants to gamble on individual stocks — and you don’t? They’ll tackle portfolio complexity, tax inefficiency, and the rising trend of adult kids moving back in with Mom and Dad.
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Episode Transcript
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Speaker 1 (00:05):
Tonight what the latest economic data means for your portfolio,
and whether the Fed's next move could or maybe should,
reshape your thinking and your financial plan. You're listening to
Simply Money, presented about all Worth Financial on Bob Sponseller
along with Brian James. Well, it's hard to believe, but
welcome to December. Hope. Everyone had a great Thanksgiving holiday weekend,
(00:26):
and while many are winding down and prepping for holiday parties,
there's still plenty of activity in the financial world that
we're keeping our eyes on. And to that point, we
want to welcome in tonight all Worse Chief investment Officer
Andy Stout, who joins us. Andy, thanks again as always
for being with us, and I'll just kick it off
(00:47):
on a broad basis here. I mean, for a while
we weren't getting any data. Now the data is starting
to trickle in. You've got data to work with. They're
in your little laboratory that you work on all day
every day. Tell us what's going on here with the economy.
Is the economy softening? You know? I know we got
Beige Book numbers. Give us an update on what the
(01:07):
data is suggesting as far as where we stand in
the economy heading into the last month of the year.
Speaker 2 (01:14):
Well hiding into the last month of the year. In
all honesty, we still don't have actually a good grasp
on the economic data because even though the government's been reopened,
the data that is coming out is still relatively stale,
least the official data you know, from the government. So
when you're thinking about, you know, the labor market data
or consumer inflation or retail sales, which you got last week,
(01:37):
we're still talking September data. So we're not don't even
think like, oh, November decided, what's going on in November.
We don't know because we don't even know what's been
going on in October because the data has not been
available and a lot of the October data is just
not coming back because that's usually or some of it's
collected in real time.
Speaker 1 (01:55):
So with you know, the.
Speaker 2 (01:56):
Government shut down during that, they weren't able to collect
the data. Looking off of the data that we do have,
you know what I would say, the picture is one
that's steady growth.
Speaker 1 (02:08):
But moderating momentum.
Speaker 2 (02:09):
And so when you look at some of the data
we got last week, again relatively stale. We did get
September's retail sales data, and it increased sort of spending
was up point two percent in September. So keep in
mind September was the last month of the third quarter,
and we're obviously at the last month of the fourth
(02:30):
quarter right now, so we're still kind of working through
this data backlog and it's going to catch up, but
unfortunately it's not there yet. So you know, just to
give you an example, BOP the consumer inflation and the
for November and the November Labor market report, they're not
(02:50):
going to come out until December sixteenth and eighteenth, and
then there's also the third quarter GDP. We would usually
have that by now, that's not being released until December
twenty third, So you know, if you want to ask
me how things are, i'd be much more well informed
answer that in a few weeks. But based on the
data that we've gotten, we did get some basebook information
(03:13):
which you just noted a little bit ago. What's interesting
about that it shows anecdotal evidence from like the fed's
twelve major districts. Overall, it really makes a case for
a rate reduction. In December. What it showed was relatively
steady growth but a weakening labor market with a lot
of or more districts noting i'll call it a sluggishness
(03:36):
and hiring and some and also pointed to consumers who
are strained.
Speaker 1 (03:40):
All right, Andy, I know, Brian. I don't want to
keep Brian from jumping into this conversation, but I do
want to go back to this data because when I
watch you know, various people interviewed, including FED governors in
various economies, I get when I sit there and watch
this stuff, I get conflicting ideas about how much real
usable day is coming in. And I want you to
(04:02):
just weigh in on this because one of the among
the many things I admire about you is you you
managed to stay very apolitical, very non biased, and very
right down the middle in looking at facts. And again
we'll use that four letter word data. Here's my question.
A lot of these folks are saying that the private
sector and their contacts and they're able to go out
(04:23):
and look at how the economy is actually doing and
talk to people and get you know, non government data
with which to base their opinions and decisions. Other people say, man,
we really need this government data and without it we're
flying blind. Here, tell will you just you know, for
my benefit and hopefully the others out there listening. What's
(04:45):
reality here? What kind of data are actually people have
been actually getting over the last three, four or five weeks.
And is it useful? I mean it is useful.
Speaker 2 (04:55):
I wantn't say we're flying completely blind or I mean
we're in the dark a little bit. If you want
to use an analogy, maybe you might be able to say,
it's like, it's like me, when I take my glasses off,
I can get a general sense of what's going on,
But do I have a really crisp idea of what's
going on? Not really until I put the glasses on.
And that's what the official government data actually provides.
Speaker 3 (05:12):
That sounds like, that sounds very very scary. A federal
government is running, but it forgot its glasses at home.
Basically is where weed.
Speaker 2 (05:20):
Yeah, and you don't want me driving without my glasses,
and that's.
Speaker 3 (05:23):
Where you're not helping.
Speaker 2 (05:25):
That's what we're asking the FED to do, right, We're
asking the Fed to drive the car when it comes
to monetary policy without its glasses so they can get
a decent idea. Because there is some private market data
out there. There's like ADP, which is the largest for
one of the largest private payroll companies, and they're telling
us what they see with their data. And we do
have some decent data coming out this week from the
ISM or the Institute of Supply Advantage that they're showing
(05:47):
us what from a survey perspective, what they see the
purchasing manager see on the manufacturing sector and the services
SACKER likely to show the manufacturing contracting again for the
November services probably expand services are roughly eighty five percent
of the economy, so that it is more important than
a manufacturing side, at least from a broad economic perspective.
(06:10):
So we do have some data, and some of that
data is good data like the ADP, while it is
a bit sporadic.
Speaker 1 (06:16):
You know, some of the government data, to be honest,
is also sporadic.
Speaker 2 (06:18):
Let's just be real about it. But you know, we
also get that ISM data which is coming out this week,
and that is a powerful tool that the FED will
look like look at when it's setting monetary policy. But yes,
I would absolutely presfer if they were wearing their glasses.
Speaker 3 (06:33):
So let's let's shift if we could, to interest rates. Andy.
There's been a lot of back and forth over the
past several months. You know, months ago it was a
foregone conclusion that we were going to cut again in December,
and you know, have a bunch of rate cuts through
their balance of twenty twenty five. And then when we
went we started flying blind with the data, as we've
already discussed. Then we had a brief period where it
looks like things were slowing down a little bit and
maybe we're not going to get a rate cut at all,
(06:54):
but it seems like the pendulum may have swung back
in the other direction. Can you give us an update
on interest rates?
Speaker 2 (07:00):
Yeah. I mean, if you have been to King's Island
before and got nauseous riding and roller coaster, don't pay
attention to the FED rate environment because you're going to
get that same nausea. So when you think about or
when you see what's been going on there, I mean
described it very well, because you know, heading into the
end of October, right before the FED last meeting, which
is like October thirtieth, twenty nine thirty, they the market
(07:23):
was pricing in one hundred percent chance of a cut
in December. You know when it next meets, which is
December tenth, by the way, So next Wednesday. Now, following
that October meeting, what we saw was that Jera Palell
came out and said, hey, there's no no foe gone
conclusions that we're going to have a rate cut in December.
So Wall Street you just need to you need to
(07:44):
back up a little bit here and just kind of
take it all in. And then you saw some other
data coming out from the or some other FED governors
coming out a little bit hawkish this, which means they
kind of are more worried about infhilation. And then you
saw the BLS come out and say, hey, there's not
going to be an October Jaws report at all, and
the November one isn't coming out until uh, you know,
(08:04):
mid December, after the Fed meets. All of that together
made Wall Street say, whoa, there really might not be
a rate cut. Then on November twentieth, there was just
a twenty five percent chance there would be a rate
cut on December tenth, so ten days ago, roughly, there
was a twenty five percent chance. Well guess what's happened
over the past ten days. Not too much, except we've
(08:26):
seen a little bit of all tilting in the market,
and we saw the Fed's Beige Book come out, which
showed some labor Marho weakness and guess what, now we're
at one hundred percent chance of a cut again on
December tenth. It's just, I mean, it's just it's a
it's a roller coaster ride, is what it is.
Speaker 3 (08:43):
All right.
Speaker 1 (08:44):
So with the market pricing in one hundred percent probability
of a rate cut, you know, this month, obviously the markets,
I think a lot of people weren't even paying attention.
Last week. We had a pretty good week, you know,
in the stock market. Uh. That being said, the Nasdaq
smp of both posted very strong year to date numbers.
International emerging market stocks have out performed even better. But
(09:05):
you know, in some cases by a long shot. When
you and your team look at rebalancing a portfolio going
into the end of the year, is there anything in
particular that folks should be thinking about right now or
should we just stick with the basic you know, blocking
and tackling, as we like to say, don't try to
pick tops and bottoms, just do your responsible rebalancing. And
(09:28):
what does that look like in terms of maybe taking
something something off the top in these tech stocks and
big growth you know, us growth companies and positioning it
into some international stocks.
Speaker 2 (09:39):
Well, what I would say is, probably you want to
start with whatever your target investment mixes based on you
know what rate of return you need to meet your
financial goals, whether it be four percent, six percent, eight percent,
whatever it is, and then that backs into what that
you know investment mixes that you need, and then you
hear about rebalancing, right, and that's you want to avoid
(10:00):
making an emotional decision. This kind of keeps you on target.
One thing that is usually not a good idea is
to do calendar rebalancing, like, oh, it's a new year,
we might as well rebounce back to that. Let's just
say you have a sixty forty sixty forty percent on target,
new calendar year, let's rebalance back. You know, I've done
some studies and there's been lots of other people who
have done these studies, and calendar rebalancing is not really
(10:21):
beneficial for you or whatsoever. If anything, it might actually
hurt you a little bit. Instead, you know, what makes
more sense is to just look at the drift in
your portfolio relative target, and if it drifts too far
low in terms of your stock allocation, you might want
to add risk if it drips too far high, say
you're sixty forty as an example, gets to like sixty
(10:41):
five thirty five, you might want to de risk. What
this actually allows you to do, Bob is instead of
making some sort of emotional decision where you end up
selling at lows and buying at highs. By doing a
discipline rebalancing process, you're instead buying low and selling high.
So your after there's been a sale. So I mean,
(11:01):
think about it. The stock market's really the only market,
if you will, where if things go on sale, people
don't want to buy things. I mean, we're at the
time where like we're looking for sales, we're looking for
things cheaper. H And you know, right now, I understand
the stock market may not be cheap, but there will
come in time when it is. And I would urge
you to make sure that you focus on the overall
investment mix and instead of making an emotional decision, you know,
(11:22):
think about what would you do if it's all you
Black Friday or Cyber Monday. You know, if it's on sale,
that's what you might want to buy. So that's uh,
you know what what you might want to consider, all.
Speaker 1 (11:31):
Right, Andy, to that point, a lot of folks that
we talk to and work with have these target date
retirement funds in their four to one K plans. How
do those funds tend to rebalance? Are a lot of
them calendar based? Or do some of them rebalance the
way you just talked about.
Speaker 2 (11:48):
You'd have to look at the actual plan documents and
the perspectives of those funds, But a lot of them
are calendar based, just because it's kind of like the
check in the box and keeping itself. And I understand
if you don't really have much of a choice, and
you know, in all honesty, at least having some sort
of ass allocated solution like that is better than nothing,
So it's not terrible from that perspective. So if you're
(12:09):
able to do that and that's all you have, that's fine.
But if you're able to maybe be a little bit
more nuanced and looking for other opportunities, there are ways
which you know might be more beneficial.
Speaker 1 (12:20):
Sounds good, Andy, Thanks as always for joining us tonight.
Coming up next, we shine a light on the hidden
risk of using AI to pilot or take over the
management of your portfolio. You're listening to simply money presented
by all Worth Financial on fifty five KRC, the talk
station you're listening to Simply Money, presented by all Worth
(12:42):
Financial and Bob Sponseller along with Brian James. If you
can't listen to Simply Money every night, subscribe and get
our daily podcast. Just search Simply Money on the iHeart
app or wherever you find your podcast. Straight ahead of
six forty three, we'll talk about overly complex portfolios and
flashy sales pitches from so called advisors that might not
(13:05):
be or turn out to be what they seem like.
All right, Speaking of that topic, AI tools are popping
up everywhere, from chatbots to portfolio quizzes, but can you
actually trust them with your investments to just turn on
a machine and let it run. A lot of people
are starting to do that, Brian, But new research shows
(13:26):
that leaning exclusively on AI the same way you would
a trusted human advisor could end up costing you, especially
the more money you know that you have in your portfolio.
Speaker 3 (13:38):
This is a study Bob by King's College out of
London and and a local school of business there that
compared the asset allocation recommendations from over from almost two
hundred human financial advisors to those generated by artificial intelligence tools,
so think Chat, GPT, Google, Gemini, et cetera. And they
found out that those AI tools were significantly more conserved,
(14:00):
which means lower allocations to stocks, higher to cash and
bonds than the human advisors were. So, for example, one
of them said that if you invested one hundred thousand
dollars this was Google Gemini, by the way, you might
lose about seventeen thousand dollars an opportunity cost over ten years,
in nearly forty nine thousand over twenty years, versus a
human advice portfolio. So I don't think we're yet at
(14:21):
the point where an artificial intelligence bob can truly understand
how a person will react when they panic, you know,
because we all say certain things in surveys, and then
we react completely different when the market behaves certain ways
and life happens to us. So I think what's happening
here is artificial intelligence is focusing much more on the
urge to panic that human beings sometimes have, rather than
(14:43):
the realization that if I just don't panic, then every
single time, every crazy thing that happened in history has
been kind of irrelevant. If I just kind of buy
and hold so I don't think AI is quite ready
for that.
Speaker 1 (14:57):
Yeah, I think it's interesting just to study the nuance
is of how these AI tools work. And you know,
I don't claim to be an expert in AI, but
I know enough at this point to know that it's
all based on what kind of information is fed into it,
and repetitions matter. And I think to your point, Uh,
the one thing that AI cannot do at this point
(15:20):
is it really can't interpret massage, you know, human emotion,
and that's one of the big parts of investing. I'm curious.
I mean, you you study this stuff all the time,
you use AI a lot, and uh, why why do
you think the conservative bias I would have I would
have almost assumed the opposite. Why do you think the
(15:40):
AI tools are are spitting out almost a two conservative portfolio?
Is it just because of the way the questions are
being asked by the user?
Speaker 3 (15:50):
Yeah, I think that's got a lot to do with it.
And when when I use it, I'm basically just using
it as Google on steroids find me the exact answer,
as opposed to articles about the answer, so I can
dig it up. So uh, but I don't think we're
anywhere near where I would run a full financial plan
through AI or something like that. It's just not there
yet and it doesn't think enough like a human being.
But it's fantastic for figuring out what the latest ar
(16:10):
ars regulations are on things. But anyway, this study that
was done, the researcher suggested several reasons. So the data
sets and the training of these tools, again, like we
were talking about, emphasizes downside avoidance. So in other words,
it feels like the downside is more impactful than the
potential upside and kind of relying on worst case scenarios.
We have clients like this. Clients tend to think this way.
This is kind of funny, and this is what we
(16:31):
have to talk people out of. Clients tend to think
like artificial intelligence, where my job is protect protect protect
that therefore, every last dollar must be in a safe place,
which is not the case. Something that that's a guaranteed
way to lose out to inflation. So we can't think
that way. But yet, our computers and our new fake
brains that we've been building over these last couple decades
apparently are little skittish with market swings. So again I
(16:54):
don't think we're quite ready to turn over our human
reactions and human emotions over to be parsed by AA
and tell us what to do. You need another human
being to look you in the eyes, tell you to
breathe before you decide, and walk you through some history
and the fact that we don't protect our assets by
not putting them at risk. You have to put some
risk in the system or will will lose to inflation.
(17:15):
The way to way around that is by making sure,
as Bob and I say all the time, making sure
that anything that's coming up in the next twelve to
twenty four months that's covered. Put that in something safe.
You know, find a nice CD or something like that.
If that bills come and do on a predictable date,
then nail that down and take that out of the
risk scenario. But that means the rest of your portfolio
should be in something that might swing a little bit
according to whatever your preferences are, but it needs to
(17:37):
be able to grow. Computers aren't going to do that
for us anytime soon.
Speaker 1 (17:40):
No excellent point. Hey, talk about how we should be
using AI. I mean I use it. It sounds like
in a very similar fashion at this point to how
you use it. You said, Google on steroids, And I
think that's a great analogy. I mean the positive thing
of AI. You can look up you can get the
answers to questions in seconds that used to take hours
(18:01):
to research, and I think that's a beautiful thing, especially
you know when you're looking up things about tax law
or you know, just things like that, you can get
a lot of information really quickly. Talk about how to
marry excellent tools like that with still using a human advisor,
in factoring in some of the nuances of human behavior,
(18:23):
human on human with an advisor into actually managing your portfolio.
Speaker 3 (18:28):
So I'm going to give you a precise example from
last week. So we are heading into we got the
last month of the year. Here, it's required minimum distribution season.
For those of you who haven't done it yet and
probably thinking about it, this is where if you have
an IRA or you inherited somebody else's IRA, you may
have to take a distribution out of it by the
end of the year. Well, one of the rule changes
for twenty twenty five updated something that changed in twenty twenty,
(18:50):
which is now there's this ten year limit that you
have to liquidate and inherited IRA completely and the assumption
for years has been that, well that means I can
wait until the year ten and do it all. Then
well that's not the case. If your loved one passed
away when they themselves were of required menum distribution age,
then they themselves were taking those distributions. That means you
(19:12):
have to take an annual distribution. You still have to
liquidate it by ten years. But that doesn't mean you
can do nothing. So I use chat GPT for this,
quite honestly, to lay out where are the IRS codes
that explain this, so that I can be very crystal
clear with the client who was questioning that whole process.
It is wonderful, a huge time saver for those kinds
of things. Beats the heck out of digging through all
the stuff on the IRS site.
Speaker 1 (19:32):
Myself excellent. Here's the all Worth advice. Treat AI as
a smart assistant, not your portfolio's autopilot. Keep some human
hands on the controls of that plane as you steer
it through the skies towards your financial future. All right,
baby boomers control eighty five trillion dollars. Now how they
(19:53):
built it and what you must learn if you want
to grow and keep your wealth you're listening to Simply Money,
presented by Allworth Finani on fifty five KRC, the talk station.
You're listening to Simply Money presented by all Worth Financial.
I'm Bob sponsorer along with Brian James. Well, Brian, I'm
(20:14):
anxious to kick this one around with you a little bit.
We came across a very interesting article in the Washington
Post just talking about the massive amount of wealth that
the Baby Boom generation is holding on to right now,
and what the prospects are in terms of building a
similar amount of wealth for the generations coming after that.
(20:36):
Some interesting data, some interesting points. Let's get into it.
Eager to hear your thoughts on it.
Speaker 3 (20:42):
Yeah, so this can be a bit of a hot button,
especially you know, I'll bet there were some conversations just
a few days ago around around the Thanksgiving tables about
what generation is to blame for what and who's doing
what wrong and all that kind of stuff. Unfortunately, that's nowadays,
that's how we spend our holidays, and this article, Bob,
isn't really going to help a whole lot because it
kind of leans toward its one generation's fault. So we
wanted to kind of balance things out a little bit.
(21:04):
It's not as simple as anybody what anybody thinks. Really,
So the article kind of it's going through, you know,
what is the situation with the current situation for the
baby boom generation. I really hope they're going to follow
up with something similar for you know, the younger generations too,
just kind of an overall, but the whole point of
it is that baby boomers hold about eighty five trillion
dollars in assets. That's the richest generation we've ever had.
(21:26):
And that's not too surprising, right, money goes up, not down,
so generally ensuing generations should be wealthier. But so where
that came from. The article assesses that that a lot
of this wealth came from entering the workforce during decades
of strong economic growth, rising productivity, favorable wages, long bull markets,
and I say all the time, you know, I think
this one. There's a lot of truth to that. The
(21:46):
eighties and the nineties were thenominally because really we had
twenty years of nothing but up essentially, and that is
not the way that history works. We've not been that
way since, and we weren't that way before. But there
is an awful lot of truth of that when I
think long bull markets during these times post recession recoveries,
tuition was lower, health care costs, all this stuff was
in favor. Equity holdings dominate, right, So this is the
(22:09):
generation that had its pensions taken away from them and
we're told you're on your own for retirement. So they
invested in the stock market. What did that do? Along
with a lot of other factors. Will all that money
flowing into the stock market started to push it up
as opposed to to pension type funds from the fifties
and sixties, which primarily invested mostly in treasury bonds to
keep them safe. So tons of you know, a lot
(22:29):
of factors came together to allow the baby boomers to
become one of the wealthiest generations the world has ever seen.
So on the other hand, we always have this, you know,
the the younger generations looking at that saying that's not
what I have. Tuition costs this much more for me.
My first house costs four times what your house did
in terms of how much of my income it requires
(22:50):
to get me to help me pay that mention, that
that pension and so forth. So you know, I don't know,
there's a lot of moving parts to this, and it's
not all about that. It's not. It wasn't all easy
for generation and hard for the other. Right, Let's not
forget in the early eighties we had eighteen percent mortgage rates.
There were multiple recessions through the seventies in the eighties.
That's where the term stagflation was invented. It wasn't invented
(23:11):
by the generations who were in their early working careers now,
because we have something similar going on or could. And
there was a lot of d industrialization at this time,
especially in the Midwest. This is when the Roust Belt
started to become the rust belt, when the factories were
closing down, the pensions, as we mentioned, were going away,
career instability, asset prices were lower back then, but at
the same time, paychecks weren't quite as reliable either. So
(23:34):
I don't let me come up for air for a
second there, and let me see what you think of
all that, Bob, this.
Speaker 1 (23:38):
Is going I have a lot of thought. You mentioned, thanks,
you mentioned Thanksgiving. I'm sitting around over at my let's see,
my sister's sister in law's family, all right, and all
our family went to my sister in law's house for Thanksgiving.
Let me rephrase that had a great time. We're sitting
around watching football, and between my kids and all my
(24:00):
nieces and nephews, I mean there's probably twenty to twenty
five kids, you know, if you add in their boyfriends
and girlfriends between the ages of say twenty one and thirty.
And as the evening went on, and you know, a
couple of adult beverages were consumed. As usually what happens,
the financial questions start getting popped at meat and I
(24:23):
won't identify who this person was, but they're asking. They're like, hey,
what should I be doing right now to you know,
grow a big port. And I looked at this happened
to be one of my nieces, and I said, look,
here's my advice. Spend less money than you make. Invest
the difference in a stock index fund and do that
for about thirty five years and you'll be rich. And
(24:46):
these kids just looked at me like I had four heads.
That was a concept that, you know, it was foreign
to them. I asked my son the next day, I said,
did I say something wrong? And my my own son said, Dad,
and most of my peers spend you know, on average,
almost around two hundred dollars per weekend in bars, you know,
(25:09):
and I watch it. They have these gourmet, gourmet cocktails
and they eat out, and life's all about experiences. I think.
I think there's nuances to this. And you know, by
the by the same token, I blame the baby boom
generation for telling all these kids everyone must go to
college or else you're a worthless human being. And by
(25:31):
the way, we'll loan you the money with no caps
to go to college, no idea whatsoever on what the
return on investment of that college degree would be. These
kids just follow the advice that they were getting. And
to your point, they are saddled with a lot of
debt right now. Meanwhile, asset prices have spiked and it's
hard to get started for people in the early twenties.
(25:52):
So that's my take. I think it's hard, you know,
to if you're just trying to look at outcomes and
not look at the inputs that create the outcomes. I
think we're missing, you know, a lot of the picture here. Yeah,
I'll go back to what my dad always told me.
He said, Bob, the harder you work, the luckier you
(26:13):
tend to be.
Speaker 3 (26:14):
I think there's I think there's a lot to be
said for that. It's good, good, good old school advice.
But yeah, I mean it's not shocking. I use the
phrase all the time. We are the United States of
profit margin. We are the country that has done the
best job in the history of the universe finding creative
ways to find profit margin under absolutely every cushion. And
that is good if you if you are somebody who
has the wherewithal to invest in stocks, like you just said,
(26:36):
do it. Do this for thirty years and ignore it,
and then you will have problems and concerns to answer.
You'll have a lot of opportunities that'll make a little
bit tougher.
Speaker 1 (26:43):
But you have to find a way to own some
appreciating assets if you want to grow wealth here.
Speaker 3 (26:48):
That's right. And we've done a lot in this country
to make the laws friendly toward taking risk. Right, it's
a lot easier to declare bankruptcy in this country. There
are a lot more you know, if you want, you're
gonna have or flexibility in terms of you know how
deductions work, how tax planning works. If you own a
small business, guess what you get. The right type of
small business you get, you get to take a twenty
(27:10):
percent discount on your income taxes through through recent rules
that didn't exist before. So the point of all this
is to say, we are a country that cares about
the ability to guess, pull yourself up by your own bootstraps.
That's what we've built. Sometimes that that means starts your
own business. Other times it means take advantage of other
people starting their own businesses. So find ways to invest
in assets that can grow. But that means you've got
(27:31):
to keep your budget below what it costs you what
you actually bring in so that there's something left over
to invest.
Speaker 1 (27:37):
Yep, all right. Coming up next, what to do when
your spouse wants to gamble on individual stocks and you don't. Plus,
how to tell if your portfolio is too complicated, and
what to make of those custom portfolio pitches. You know
that advisors are throwing around all the time these days.
You're listening to Simply Money presented by all Worth Financial
(27:57):
on fifty five KRC, the talk station. You're listening to
Simply Money said about all Worth Financial on Bob Sponsor
along with Brian James. Do you have a financial question
you'd like for us to answer? There is a red
button you can click while you're listening to the show.
If you're listening on the iHeart app, simply hit that button,
(28:19):
record your question and it will come straight to us.
All right, get Brian, get ready for Tony and fort Wright.
He says, We've built a comfortable portfolio, but I'm worried
we're too reliant on the same companies for dividends. How
do you tell when income is diversified versus concentrated? Great question,
not one we get very off. Yeah, this good one.
Speaker 3 (28:41):
This is a little different because what a lot of
people just heard is the age old idea of a
diversified portfolio. A lot of has, but that's not what
was asked here. What was asked is how do I
diversify my income? Because different sources of income can have
different outcomes. So, yeah, a lot of investors think they're diversified, Bob,
simply because they own a bunch of stocks. But income
concentrations different. It's about where these dollars are coming from,
(29:02):
not how many ticker symbols are in there. So here's
a good question. What percentage of your total dividends come
from your top five holdings If those five companies make
up you know, forty to fifty percent of your income,
that's concentration. So one of those companies hits the skids,
then all of a sudden, you're going to lose a
large chunk of it. If those top holdings are maybe
more like twenty to twenty five percent, that's a lot
healthier diversification. So I would look at the total income
(29:23):
stream and just break it down proportionally where's it coming from.
Then the next thing to look at would be sector concentration.
Once you have a handle on where the income is
coming from which individual companies, look at those sectors. Because
those dividends tend to cluster in just a few industries utilities, energy, financials,
consumer staples. You're not going to see a lot out
of the technology side, for example, But if more than
a third of your income's coming out of a single sector,
(29:46):
you are now exposed to that sector's business cycle. So
history kind of shows this clearly. In eight oh nine,
let's think the banking industry, bank dividends absolutely collapse because
the banks themselves were collapsing. Twenty fourteen to sixteen, we
had oil price shocks and that draw that pulled down
energy dividends as well, And so these are just things
to pay to pay attention to, because if if you've
(30:06):
got it overly exposed in any one area, you're gonna
get hurt by that. So I would make sure, just
just as always, understand which where your portfolio sits and
how it might react in different environments. All right, we're
gonna move on then. So now we've got Chris and Milford,
who he's got a question about tax efficiency. He's he
understands that their portfolio might be overly tax inefficient, which
(30:26):
that's I got to get my head around that. I
think we're just saying that we've got a tax inefficient portfolio,
but not quite sure what that means. So he's asking, Bob,
how can you tell if taxes are pulling down returns?
How do you spot that?
Speaker 1 (30:37):
Well, I obviously don't you know, have your entire portfolio
in front of me, crisp. So I'm just gonna throw
out three examples that we see quite often. Brian, feel
free to weigh in here as well. But one thing
is in your taxable account, you know, meaning non IRA
taxable accounts. This is where if you've built wealth using
mutual funds and things that just declare capital gains whether
(31:00):
you sell anything or not, you want to find a
way to systematically and over time transition that portfolio into ets,
direct indexing strategies, things that have some tax loss harvesting
working in the background. I'll just go out and say it.
I mean that if you're in a situation like that,
you've got to move your portfolios from you know, from
(31:22):
the nineteen eighties into twenty twenty five, because there are
a lot of ways to manage a non IRA taxable
quote unquote taxable portfolio now to be very tax efficient,
and you've got to find a way to get that done.
Another thing might have to do with the composition of
your asset allocation. Meaning if, depending on how your income
(31:44):
strategy is set up, if you're going to own some
bonds in your portfolio, well it might make sense to
own the majority of your bonds in iras and qualified
plans because those are tax deferred accounts. You're not paying
taxes every year, you know whether or not you take
anything out, and you want higher growth components of your
portfolio that could take advantage of the lower long term
(32:07):
capital gain rates, you want those in taxable accounts. And
then a third thing is taking a look at what
that dreaded required minimum distribution situation might be down the road,
And if it makes sense, do some wroth conversions now
and pay be willing to pay a little taxes to
save a lot of taxes later. Those are three things
(32:30):
right off the top of my head that probably should
be looked at to make your portfolio more tax efficient. Brian,
anything to add there?
Speaker 3 (32:39):
I think you just need to pay attention and make
sure you understand. You know how your different accounts are taxed.
There are three flavors of taxation taxed every year. That's
where you get a ten ninety nine B or a
ten ninety nine DIIV. And then you've got pre tax,
which is the money you've never paid taxes on you
deducted it when you shoved it into a retirement plan.
And then you have the wroth stuff, which is completely
tax free. Make sure you know how much of each
(33:01):
pile that you have, because everybody probably has a little
bit in each of these and there's not usually not
a lot of rhyme or reason. So just get an
idea start there, get an idea for what pile is
going to be taxed and how.
Speaker 1 (33:12):
All right, we talked about you know, we're going to
cover this topic, you know, hit this question in this segment,
So I'm gonna toss this one to you. Aaron in
Kenwood says, my husband and I disagree about holding individual
stocks versus funds. How do you blend the desire for
control with the need for simplicity and I'll add the
(33:32):
word diversification.
Speaker 3 (33:34):
Well, so I think first of all, you need to
decide there's nothing that says that married couples have to
agree on everything, right. If that were the rules, then
there wouldn't be any married couples. So there's nothing wrong
with the individual stocks. There's nothing wrong with funds. And
we don't really know who prefers what, but it doesn't
make any difference. Just make sure the whole pile makes sense. Now,
if the one who prefers individual stocks, if we're talking
(33:55):
and taking flyers on penny stocks and putting a huge
chunk of the portfolio in, you have bad idea to
be a fan of that. But on the other hand,
if this is if it's a good portfolio of stocks
that you know that have good earnings, track records and
have a good story and good products and so forth,
there's nothing wrong with that. Some the funds tend to
be preferred by people who just go you know what.
I'm okay with risk stuff going up and down, but
(34:16):
I really don't want to make the sausage. I don't
really care how we get there. I just want to
understand that I have something that can grow and can
keep up with inflation. But I want somebody else to
worry about it. All those things can work together, but
it starts with communication. Understand here's what I want, here's
what you want. How do we combine this together into
a full financial plan that benefits us both? All right?
Speaker 1 (34:35):
Coming up next, we've got steps to take to keep
your retirement on track while still helping those dreaded adult kids.
You're listening to Simply Money presented by all Worth Financial
on fifty five KRC the talk station. We're listening to
(34:57):
Simply Money presented by all Worth Financial spun Seller along
with Brian James. Brian Hat's off to Jet I needed
that bumper music. Joe Strecker coming out of a long weekend.
That's just outstanding, Thank you sir. All Right, some new
non numbers reveal a growing trend more adult children are
moving back in with their parents and the fallout is
(35:19):
more than just crowded kitchens. Brian walk us through it.
Speaker 3 (35:23):
So yeah, at first, I want to expose the little
inside joke there. So executive producer Joe Strecker knows what
we're going to be talking about, and sometimes he's able
to find some very appropriate music. So baby come back.
Literally that that's what we're talking about today. So, according
to a twenty twenty five survey from Thrive In, nearly
half of parents report that at least one child between
the ages of eighteen and thirty five has returned home
(35:44):
for a period of time. Even more alarmingly, for those
who may not be a fan of such things, about
four and ten of these boomerang parents say this has
hurt their own long term savings for retirement. Now that
that to me, that's not right, because one more person
living in your household should probably be helping, you know,
at least contribute something. Maybe they're not in a situation
where they can pay their own full rent and their
own full bills and all that, but there got to
(36:04):
be something contributing, contributed to a shared household. But anyway,
this makes a big difference spot because we're not talking
about you know, brand new college age or little kids
where you're talking about preserving these multimillion dollar portfolios, retirement timing,
legacy planning, and all these tax dynamics, things that take
decades to build but don't take all that long to destroy.
When an adult child moves back, it's not an extra
(36:25):
mouth to feed alone. It can also shift the cash flow,
change the housing support, can mess up your estate planning.
You know, it might affect your investment allocation because you're
trying to plan for different goals and so on and
so forth.
Speaker 1 (36:36):
All right, I'm going to do a little role playing
here because this will be fun for my the bo
who can follow. I'm going to pretend that I'm a
twenty one year old kid and I move back in
with my parents, and you use the word multimillion dollar portfolio.
So here's my little role play, Brian. I say, hey,
mom and dad, you got plenty of money. Keep the
refrigerator full. I want to sit in the basement and
(36:58):
play mL I'll be the show and watch Netflix while
I figure out my life. And you can afford it.
What's the big deal? Give me a little time to
get my legs under me here and get off my back.
Speaker 3 (37:10):
Yeah, Dad, I think I've decided on my career. I
want to be a stay at home son, So you know,
I really need you to kind of keep those things
going for me. I'm gonna need a place to keep
the rain off my stuff and a car. Gonna need
a car too, And you know, I'll find a job eventually,
you know, someday. But I really want to find myself first.
I need to get to know me, Dad, Bob, before
(37:30):
I can really commit this to the world. I don't
think the world is ready for this yet.
Speaker 1 (37:36):
So what do we do about it? What do we
do about it? I'm trying to be the kid here.
I need you to be the adult.
Speaker 3 (37:41):
Oh I'm the dad this time? Oh I told you that? Yeah,
all right, well I really wanted to be the kid. Fine,
I'll be a stay at home dead. Well then it
was so great. Okay, that's fine. Take some time figure
out what it is that you need. But this is
in a permanent situation. Someday I'm gonna be dead. What's
your plan? Then? I may or may not leave all
this stuff to you. We work very hard to build it.
You've got siblings. There are charities out there we want
(38:01):
to support, and you know your mother and I built
this the way we built it, and I'd like to
see you guys have learned something and do the same.
How do you think you would be able to react
to something like that?
Speaker 1 (38:13):
I don't know. Let me think about that. And Dad,
please go upstairs because I'm about I'm in the seventh
inning of my MLB the show game, so please get
out of the basement. All right, here's the all Worth advice.
Don't don't let today's generosity derail tomorrow's independence. Thanks for
listening tonight. You've been listening to Simply Money, presented by
all Worth Financial on fifty five KRC, the talk station
Tonight what the latest economic data means for your portfolio,
and whether the Fed's next move could or maybe should,
reshape your thinking and your financial plan. You're listening to
Simply Money, presented about all Worth Financial on Bob Sponseller
along with Brian James. Well, it's hard to believe, but
welcome to December. Hope. Everyone had a great Thanksgiving holiday weekend,
(00:26):
and while many are winding down and prepping for holiday parties,
there's still plenty of activity in the financial world that
we're keeping our eyes on. And to that point, we
want to welcome in tonight all Worse Chief investment Officer
Andy Stout, who joins us. Andy, thanks again as always
for being with us, and I'll just kick it off
(00:47):
on a broad basis here. I mean, for a while
we weren't getting any data. Now the data is starting
to trickle in. You've got data to work with. They're
in your little laboratory that you work on all day
every day. Tell us what's going on here with the economy.
Is the economy softening? You know? I know we got
Beige Book numbers. Give us an update on what the
(01:07):
data is suggesting as far as where we stand in
the economy heading into the last month of the year.
Speaker 2 (01:14):
Well hiding into the last month of the year. In
all honesty, we still don't have actually a good grasp
on the economic data because even though the government's been reopened,
the data that is coming out is still relatively stale,
least the official data you know, from the government. So
when you're thinking about, you know, the labor market data
or consumer inflation or retail sales, which you got last week,
(01:37):
we're still talking September data. So we're not don't even
think like, oh, November decided, what's going on in November.
We don't know because we don't even know what's been
going on in October because the data has not been
available and a lot of the October data is just
not coming back because that's usually or some of it's
collected in real time.
Speaker 1 (01:55):
So with you know, the.
Speaker 2 (01:56):
Government shut down during that, they weren't able to collect
the data. Looking off of the data that we do have,
you know what I would say, the picture is one
that's steady growth.
Speaker 1 (02:08):
But moderating momentum.
Speaker 2 (02:09):
And so when you look at some of the data
we got last week, again relatively stale. We did get
September's retail sales data, and it increased sort of spending
was up point two percent in September. So keep in
mind September was the last month of the third quarter,
and we're obviously at the last month of the fourth
(02:30):
quarter right now, so we're still kind of working through
this data backlog and it's going to catch up, but
unfortunately it's not there yet. So you know, just to
give you an example, BOP the consumer inflation and the
for November and the November Labor market report, they're not
(02:50):
going to come out until December sixteenth and eighteenth, and
then there's also the third quarter GDP. We would usually
have that by now, that's not being released until December
twenty third, So you know, if you want to ask
me how things are, i'd be much more well informed
answer that in a few weeks. But based on the
data that we've gotten, we did get some basebook information
(03:13):
which you just noted a little bit ago. What's interesting
about that it shows anecdotal evidence from like the fed's
twelve major districts. Overall, it really makes a case for
a rate reduction. In December. What it showed was relatively
steady growth but a weakening labor market with a lot
of or more districts noting i'll call it a sluggishness
(03:36):
and hiring and some and also pointed to consumers who
are strained.
Speaker 1 (03:40):
All right, Andy, I know, Brian. I don't want to
keep Brian from jumping into this conversation, but I do
want to go back to this data because when I
watch you know, various people interviewed, including FED governors in
various economies, I get when I sit there and watch
this stuff, I get conflicting ideas about how much real
usable day is coming in. And I want you to
(04:02):
just weigh in on this because one of the among
the many things I admire about you is you you
managed to stay very apolitical, very non biased, and very
right down the middle in looking at facts. And again
we'll use that four letter word data. Here's my question.
A lot of these folks are saying that the private
sector and their contacts and they're able to go out
(04:23):
and look at how the economy is actually doing and
talk to people and get you know, non government data
with which to base their opinions and decisions. Other people say, man,
we really need this government data and without it we're
flying blind. Here, tell will you just you know, for
my benefit and hopefully the others out there listening. What's
(04:45):
reality here? What kind of data are actually people have
been actually getting over the last three, four or five weeks.
And is it useful? I mean it is useful.
Speaker 2 (04:55):
I wantn't say we're flying completely blind or I mean
we're in the dark a little bit. If you want
to use an analogy, maybe you might be able to say,
it's like, it's like me, when I take my glasses off,
I can get a general sense of what's going on,
But do I have a really crisp idea of what's
going on? Not really until I put the glasses on.
And that's what the official government data actually provides.
Speaker 3 (05:12):
That sounds like, that sounds very very scary. A federal
government is running, but it forgot its glasses at home.
Basically is where weed.
Speaker 2 (05:20):
Yeah, and you don't want me driving without my glasses,
and that's.
Speaker 3 (05:23):
Where you're not helping.
Speaker 2 (05:25):
That's what we're asking the FED to do, right, We're
asking the Fed to drive the car when it comes
to monetary policy without its glasses so they can get
a decent idea. Because there is some private market data
out there. There's like ADP, which is the largest for
one of the largest private payroll companies, and they're telling
us what they see with their data. And we do
have some decent data coming out this week from the
ISM or the Institute of Supply Advantage that they're showing
(05:47):
us what from a survey perspective, what they see the
purchasing manager see on the manufacturing sector and the services
SACKER likely to show the manufacturing contracting again for the
November services probably expand services are roughly eighty five percent
of the economy, so that it is more important than
a manufacturing side, at least from a broad economic perspective.
(06:10):
So we do have some data, and some of that
data is good data like the ADP, while it is
a bit sporadic.
Speaker 1 (06:16):
You know, some of the government data, to be honest,
is also sporadic.
Speaker 2 (06:18):
Let's just be real about it. But you know, we
also get that ISM data which is coming out this week,
and that is a powerful tool that the FED will
look like look at when it's setting monetary policy. But yes,
I would absolutely presfer if they were wearing their glasses.
Speaker 3 (06:33):
So let's let's shift if we could, to interest rates. Andy.
There's been a lot of back and forth over the
past several months. You know, months ago it was a
foregone conclusion that we were going to cut again in December,
and you know, have a bunch of rate cuts through
their balance of twenty twenty five. And then when we
went we started flying blind with the data, as we've
already discussed. Then we had a brief period where it
looks like things were slowing down a little bit and
maybe we're not going to get a rate cut at all,
(06:54):
but it seems like the pendulum may have swung back
in the other direction. Can you give us an update
on interest rates?
Speaker 2 (07:00):
Yeah. I mean, if you have been to King's Island
before and got nauseous riding and roller coaster, don't pay
attention to the FED rate environment because you're going to
get that same nausea. So when you think about or
when you see what's been going on there, I mean
described it very well, because you know, heading into the
end of October, right before the FED last meeting, which
is like October thirtieth, twenty nine thirty, they the market
(07:23):
was pricing in one hundred percent chance of a cut
in December. You know when it next meets, which is
December tenth, by the way, So next Wednesday. Now, following
that October meeting, what we saw was that Jera Palell
came out and said, hey, there's no no foe gone
conclusions that we're going to have a rate cut in December.
So Wall Street you just need to you need to
(07:44):
back up a little bit here and just kind of
take it all in. And then you saw some other
data coming out from the or some other FED governors
coming out a little bit hawkish this, which means they
kind of are more worried about infhilation. And then you
saw the BLS come out and say, hey, there's not
going to be an October Jaws report at all, and
the November one isn't coming out until uh, you know,
(08:04):
mid December, after the Fed meets. All of that together
made Wall Street say, whoa, there really might not be
a rate cut. Then on November twentieth, there was just
a twenty five percent chance there would be a rate
cut on December tenth, so ten days ago, roughly, there
was a twenty five percent chance. Well guess what's happened
over the past ten days. Not too much, except we've
(08:26):
seen a little bit of all tilting in the market,
and we saw the Fed's Beige Book come out, which
showed some labor Marho weakness and guess what, now we're
at one hundred percent chance of a cut again on
December tenth. It's just, I mean, it's just it's a
it's a roller coaster ride, is what it is.
Speaker 3 (08:43):
All right.
Speaker 1 (08:44):
So with the market pricing in one hundred percent probability
of a rate cut, you know, this month, obviously the markets,
I think a lot of people weren't even paying attention.
Last week. We had a pretty good week, you know,
in the stock market. Uh. That being said, the Nasdaq
smp of both posted very strong year to date numbers.
International emerging market stocks have out performed even better. But
(09:05):
you know, in some cases by a long shot. When
you and your team look at rebalancing a portfolio going
into the end of the year, is there anything in
particular that folks should be thinking about right now or
should we just stick with the basic you know, blocking
and tackling, as we like to say, don't try to
pick tops and bottoms, just do your responsible rebalancing. And
(09:28):
what does that look like in terms of maybe taking
something something off the top in these tech stocks and
big growth you know, us growth companies and positioning it
into some international stocks.
Speaker 2 (09:39):
Well, what I would say is, probably you want to
start with whatever your target investment mixes based on you
know what rate of return you need to meet your
financial goals, whether it be four percent, six percent, eight percent,
whatever it is, and then that backs into what that
you know investment mixes that you need, and then you
hear about rebalancing, right, and that's you want to avoid
(10:00):
making an emotional decision. This kind of keeps you on target.
One thing that is usually not a good idea is
to do calendar rebalancing, like, oh, it's a new year,
we might as well rebounce back to that. Let's just
say you have a sixty forty sixty forty percent on target,
new calendar year, let's rebalance back. You know, I've done
some studies and there's been lots of other people who
have done these studies, and calendar rebalancing is not really
(10:21):
beneficial for you or whatsoever. If anything, it might actually
hurt you a little bit. Instead, you know, what makes
more sense is to just look at the drift in
your portfolio relative target, and if it drifts too far
low in terms of your stock allocation, you might want
to add risk if it drips too far high, say
you're sixty forty as an example, gets to like sixty
(10:41):
five thirty five, you might want to de risk. What
this actually allows you to do, Bob is instead of
making some sort of emotional decision where you end up
selling at lows and buying at highs. By doing a
discipline rebalancing process, you're instead buying low and selling high.
So your after there's been a sale. So I mean,
(11:01):
think about it. The stock market's really the only market,
if you will, where if things go on sale, people
don't want to buy things. I mean, we're at the
time where like we're looking for sales, we're looking for
things cheaper. H And you know, right now, I understand
the stock market may not be cheap, but there will
come in time when it is. And I would urge
you to make sure that you focus on the overall
investment mix and instead of making an emotional decision, you know,
(11:22):
think about what would you do if it's all you
Black Friday or Cyber Monday. You know, if it's on sale,
that's what you might want to buy. So that's uh,
you know what what you might want to consider, all.
Speaker 1 (11:31):
Right, Andy, to that point, a lot of folks that
we talk to and work with have these target date
retirement funds in their four to one K plans. How
do those funds tend to rebalance? Are a lot of
them calendar based? Or do some of them rebalance the
way you just talked about.
Speaker 2 (11:48):
You'd have to look at the actual plan documents and
the perspectives of those funds, But a lot of them
are calendar based, just because it's kind of like the
check in the box and keeping itself. And I understand
if you don't really have much of a choice, and
you know, in all honesty, at least having some sort
of ass allocated solution like that is better than nothing,
So it's not terrible from that perspective. So if you're
(12:09):
able to do that and that's all you have, that's fine.
But if you're able to maybe be a little bit
more nuanced and looking for other opportunities, there are ways
which you know might be more beneficial.
Speaker 1 (12:20):
Sounds good, Andy, Thanks as always for joining us tonight.
Coming up next, we shine a light on the hidden
risk of using AI to pilot or take over the
management of your portfolio. You're listening to simply money presented
by all Worth Financial on fifty five KRC, the talk
station you're listening to Simply Money, presented by all Worth
(12:42):
Financial and Bob Sponseller along with Brian James. If you
can't listen to Simply Money every night, subscribe and get
our daily podcast. Just search Simply Money on the iHeart
app or wherever you find your podcast. Straight ahead of
six forty three, we'll talk about overly complex portfolios and
flashy sales pitches from so called advisors that might not
(13:05):
be or turn out to be what they seem like.
All right, Speaking of that topic, AI tools are popping
up everywhere, from chatbots to portfolio quizzes, but can you
actually trust them with your investments to just turn on
a machine and let it run. A lot of people
are starting to do that, Brian, But new research shows
(13:26):
that leaning exclusively on AI the same way you would
a trusted human advisor could end up costing you, especially
the more money you know that you have in your portfolio.
Speaker 3 (13:38):
This is a study Bob by King's College out of
London and and a local school of business there that
compared the asset allocation recommendations from over from almost two
hundred human financial advisors to those generated by artificial intelligence tools,
so think Chat, GPT, Google, Gemini, et cetera. And they
found out that those AI tools were significantly more conserved,
(14:00):
which means lower allocations to stocks, higher to cash and
bonds than the human advisors were. So, for example, one
of them said that if you invested one hundred thousand
dollars this was Google Gemini, by the way, you might
lose about seventeen thousand dollars an opportunity cost over ten years,
in nearly forty nine thousand over twenty years, versus a
human advice portfolio. So I don't think we're yet at
(14:21):
the point where an artificial intelligence bob can truly understand
how a person will react when they panic, you know,
because we all say certain things in surveys, and then
we react completely different when the market behaves certain ways
and life happens to us. So I think what's happening
here is artificial intelligence is focusing much more on the
urge to panic that human beings sometimes have, rather than
(14:43):
the realization that if I just don't panic, then every
single time, every crazy thing that happened in history has
been kind of irrelevant. If I just kind of buy
and hold so I don't think AI is quite ready
for that.
Speaker 1 (14:57):
Yeah, I think it's interesting just to study the nuance
is of how these AI tools work. And you know,
I don't claim to be an expert in AI, but
I know enough at this point to know that it's
all based on what kind of information is fed into it,
and repetitions matter. And I think to your point, Uh,
the one thing that AI cannot do at this point
(15:20):
is it really can't interpret massage, you know, human emotion,
and that's one of the big parts of investing. I'm curious.
I mean, you you study this stuff all the time,
you use AI a lot, and uh, why why do
you think the conservative bias I would have I would
have almost assumed the opposite. Why do you think the
(15:40):
AI tools are are spitting out almost a two conservative portfolio?
Is it just because of the way the questions are
being asked by the user?
Speaker 3 (15:50):
Yeah, I think that's got a lot to do with it.
And when when I use it, I'm basically just using
it as Google on steroids find me the exact answer,
as opposed to articles about the answer, so I can
dig it up. So uh, but I don't think we're
anywhere near where I would run a full financial plan
through AI or something like that. It's just not there
yet and it doesn't think enough like a human being.
But it's fantastic for figuring out what the latest ar
(16:10):
ars regulations are on things. But anyway, this study that
was done, the researcher suggested several reasons. So the data
sets and the training of these tools, again, like we
were talking about, emphasizes downside avoidance. So in other words,
it feels like the downside is more impactful than the
potential upside and kind of relying on worst case scenarios.
We have clients like this. Clients tend to think this way.
This is kind of funny, and this is what we
(16:31):
have to talk people out of. Clients tend to think
like artificial intelligence, where my job is protect protect protect
that therefore, every last dollar must be in a safe place,
which is not the case. Something that that's a guaranteed
way to lose out to inflation. So we can't think
that way. But yet, our computers and our new fake
brains that we've been building over these last couple decades
apparently are little skittish with market swings. So again I
(16:54):
don't think we're quite ready to turn over our human
reactions and human emotions over to be parsed by AA
and tell us what to do. You need another human
being to look you in the eyes, tell you to
breathe before you decide, and walk you through some history
and the fact that we don't protect our assets by
not putting them at risk. You have to put some
risk in the system or will will lose to inflation.
(17:15):
The way to way around that is by making sure,
as Bob and I say all the time, making sure
that anything that's coming up in the next twelve to
twenty four months that's covered. Put that in something safe.
You know, find a nice CD or something like that.
If that bills come and do on a predictable date,
then nail that down and take that out of the
risk scenario. But that means the rest of your portfolio
should be in something that might swing a little bit
according to whatever your preferences are, but it needs to
(17:37):
be able to grow. Computers aren't going to do that
for us anytime soon.
Speaker 1 (17:40):
No excellent point. Hey, talk about how we should be
using AI. I mean I use it. It sounds like
in a very similar fashion at this point to how
you use it. You said, Google on steroids, And I
think that's a great analogy. I mean the positive thing
of AI. You can look up you can get the
answers to questions in seconds that used to take hours
(18:01):
to research, and I think that's a beautiful thing, especially
you know when you're looking up things about tax law
or you know, just things like that, you can get
a lot of information really quickly. Talk about how to
marry excellent tools like that with still using a human advisor,
in factoring in some of the nuances of human behavior,
(18:23):
human on human with an advisor into actually managing your portfolio.
Speaker 3 (18:28):
So I'm going to give you a precise example from
last week. So we are heading into we got the
last month of the year. Here, it's required minimum distribution season.
For those of you who haven't done it yet and
probably thinking about it, this is where if you have
an IRA or you inherited somebody else's IRA, you may
have to take a distribution out of it by the
end of the year. Well, one of the rule changes
for twenty twenty five updated something that changed in twenty twenty,
(18:50):
which is now there's this ten year limit that you
have to liquidate and inherited IRA completely and the assumption
for years has been that, well that means I can
wait until the year ten and do it all. Then
well that's not the case. If your loved one passed
away when they themselves were of required menum distribution age,
then they themselves were taking those distributions. That means you
(19:12):
have to take an annual distribution. You still have to
liquidate it by ten years. But that doesn't mean you
can do nothing. So I use chat GPT for this,
quite honestly, to lay out where are the IRS codes
that explain this, so that I can be very crystal
clear with the client who was questioning that whole process.
It is wonderful, a huge time saver for those kinds
of things. Beats the heck out of digging through all
the stuff on the IRS site.
Speaker 1 (19:32):
Myself excellent. Here's the all Worth advice. Treat AI as
a smart assistant, not your portfolio's autopilot. Keep some human
hands on the controls of that plane as you steer
it through the skies towards your financial future. All right,
baby boomers control eighty five trillion dollars. Now how they
(19:53):
built it and what you must learn if you want
to grow and keep your wealth you're listening to Simply Money,
presented by Allworth Finani on fifty five KRC, the talk station.
You're listening to Simply Money presented by all Worth Financial.
I'm Bob sponsorer along with Brian James. Well, Brian, I'm
(20:14):
anxious to kick this one around with you a little bit.
We came across a very interesting article in the Washington
Post just talking about the massive amount of wealth that
the Baby Boom generation is holding on to right now,
and what the prospects are in terms of building a
similar amount of wealth for the generations coming after that.
(20:36):
Some interesting data, some interesting points. Let's get into it.
Eager to hear your thoughts on it.
Speaker 3 (20:42):
Yeah, so this can be a bit of a hot button,
especially you know, I'll bet there were some conversations just
a few days ago around around the Thanksgiving tables about
what generation is to blame for what and who's doing
what wrong and all that kind of stuff. Unfortunately, that's nowadays,
that's how we spend our holidays, and this article, Bob,
isn't really going to help a whole lot because it
kind of leans toward its one generation's fault. So we
wanted to kind of balance things out a little bit.
(21:04):
It's not as simple as anybody what anybody thinks. Really,
So the article kind of it's going through, you know,
what is the situation with the current situation for the
baby boom generation. I really hope they're going to follow
up with something similar for you know, the younger generations too,
just kind of an overall, but the whole point of
it is that baby boomers hold about eighty five trillion
dollars in assets. That's the richest generation we've ever had.
(21:26):
And that's not too surprising, right, money goes up, not down,
so generally ensuing generations should be wealthier. But so where
that came from. The article assesses that that a lot
of this wealth came from entering the workforce during decades
of strong economic growth, rising productivity, favorable wages, long bull markets,
and I say all the time, you know, I think
this one. There's a lot of truth to that. The
(21:46):
eighties and the nineties were thenominally because really we had
twenty years of nothing but up essentially, and that is
not the way that history works. We've not been that
way since, and we weren't that way before. But there
is an awful lot of truth of that when I
think long bull markets during these times post recession recoveries,
tuition was lower, health care costs, all this stuff was
in favor. Equity holdings dominate, right, So this is the
(22:09):
generation that had its pensions taken away from them and
we're told you're on your own for retirement. So they
invested in the stock market. What did that do? Along
with a lot of other factors. Will all that money
flowing into the stock market started to push it up
as opposed to to pension type funds from the fifties
and sixties, which primarily invested mostly in treasury bonds to
keep them safe. So tons of you know, a lot
(22:29):
of factors came together to allow the baby boomers to
become one of the wealthiest generations the world has ever seen.
So on the other hand, we always have this, you know,
the the younger generations looking at that saying that's not
what I have. Tuition costs this much more for me.
My first house costs four times what your house did
in terms of how much of my income it requires
(22:50):
to get me to help me pay that mention, that
that pension and so forth. So you know, I don't know,
there's a lot of moving parts to this, and it's
not all about that. It's not. It wasn't all easy
for generation and hard for the other. Right, Let's not
forget in the early eighties we had eighteen percent mortgage rates.
There were multiple recessions through the seventies in the eighties.
That's where the term stagflation was invented. It wasn't invented
(23:11):
by the generations who were in their early working careers now,
because we have something similar going on or could. And
there was a lot of d industrialization at this time,
especially in the Midwest. This is when the Roust Belt
started to become the rust belt, when the factories were
closing down, the pensions, as we mentioned, were going away,
career instability, asset prices were lower back then, but at
the same time, paychecks weren't quite as reliable either. So
(23:34):
I don't let me come up for air for a
second there, and let me see what you think of
all that, Bob, this.
Speaker 1 (23:38):
Is going I have a lot of thought. You mentioned, thanks,
you mentioned Thanksgiving. I'm sitting around over at my let's see,
my sister's sister in law's family, all right, and all
our family went to my sister in law's house for Thanksgiving.
Let me rephrase that had a great time. We're sitting
around watching football, and between my kids and all my
(24:00):
nieces and nephews, I mean there's probably twenty to twenty
five kids, you know, if you add in their boyfriends
and girlfriends between the ages of say twenty one and thirty.
And as the evening went on, and you know, a
couple of adult beverages were consumed. As usually what happens,
the financial questions start getting popped at meat and I
(24:23):
won't identify who this person was, but they're asking. They're like, hey,
what should I be doing right now to you know,
grow a big port. And I looked at this happened
to be one of my nieces, and I said, look,
here's my advice. Spend less money than you make. Invest
the difference in a stock index fund and do that
for about thirty five years and you'll be rich. And
(24:46):
these kids just looked at me like I had four heads.
That was a concept that, you know, it was foreign
to them. I asked my son the next day, I said,
did I say something wrong? And my my own son said, Dad,
and most of my peers spend you know, on average,
almost around two hundred dollars per weekend in bars, you know,
(25:09):
and I watch it. They have these gourmet, gourmet cocktails
and they eat out, and life's all about experiences. I think.
I think there's nuances to this. And you know, by
the by the same token, I blame the baby boom
generation for telling all these kids everyone must go to
college or else you're a worthless human being. And by
(25:31):
the way, we'll loan you the money with no caps
to go to college, no idea whatsoever on what the
return on investment of that college degree would be. These
kids just follow the advice that they were getting. And
to your point, they are saddled with a lot of
debt right now. Meanwhile, asset prices have spiked and it's
hard to get started for people in the early twenties.
(25:52):
So that's my take. I think it's hard, you know,
to if you're just trying to look at outcomes and
not look at the inputs that create the outcomes. I
think we're missing, you know, a lot of the picture here. Yeah,
I'll go back to what my dad always told me.
He said, Bob, the harder you work, the luckier you
(26:13):
tend to be.
Speaker 3 (26:14):
I think there's I think there's a lot to be
said for that. It's good, good, good old school advice.
But yeah, I mean it's not shocking. I use the
phrase all the time. We are the United States of
profit margin. We are the country that has done the
best job in the history of the universe finding creative
ways to find profit margin under absolutely every cushion. And
that is good if you if you are somebody who
has the wherewithal to invest in stocks, like you just said,
(26:36):
do it. Do this for thirty years and ignore it,
and then you will have problems and concerns to answer.
You'll have a lot of opportunities that'll make a little
bit tougher.
Speaker 1 (26:43):
But you have to find a way to own some
appreciating assets if you want to grow wealth here.
Speaker 3 (26:48):
That's right. And we've done a lot in this country
to make the laws friendly toward taking risk. Right, it's
a lot easier to declare bankruptcy in this country. There
are a lot more you know, if you want, you're
gonna have or flexibility in terms of you know how
deductions work, how tax planning works. If you own a
small business, guess what you get. The right type of
small business you get, you get to take a twenty
(27:10):
percent discount on your income taxes through through recent rules
that didn't exist before. So the point of all this
is to say, we are a country that cares about
the ability to guess, pull yourself up by your own bootstraps.
That's what we've built. Sometimes that that means starts your
own business. Other times it means take advantage of other
people starting their own businesses. So find ways to invest
in assets that can grow. But that means you've got
(27:31):
to keep your budget below what it costs you what
you actually bring in so that there's something left over
to invest.
Speaker 1 (27:37):
Yep, all right. Coming up next, what to do when
your spouse wants to gamble on individual stocks and you don't. Plus,
how to tell if your portfolio is too complicated, and
what to make of those custom portfolio pitches. You know
that advisors are throwing around all the time these days.
You're listening to Simply Money presented by all Worth Financial
(27:57):
on fifty five KRC, the talk station. You're listening to
Simply Money said about all Worth Financial on Bob Sponsor
along with Brian James. Do you have a financial question
you'd like for us to answer? There is a red
button you can click while you're listening to the show.
If you're listening on the iHeart app, simply hit that button,
(28:19):
record your question and it will come straight to us.
All right, get Brian, get ready for Tony and fort Wright.
He says, We've built a comfortable portfolio, but I'm worried
we're too reliant on the same companies for dividends. How
do you tell when income is diversified versus concentrated? Great question,
not one we get very off. Yeah, this good one.
Speaker 3 (28:41):
This is a little different because what a lot of
people just heard is the age old idea of a
diversified portfolio. A lot of has, but that's not what
was asked here. What was asked is how do I
diversify my income? Because different sources of income can have
different outcomes. So, yeah, a lot of investors think they're diversified, Bob,
simply because they own a bunch of stocks. But income
concentrations different. It's about where these dollars are coming from,
(29:02):
not how many ticker symbols are in there. So here's
a good question. What percentage of your total dividends come
from your top five holdings If those five companies make
up you know, forty to fifty percent of your income,
that's concentration. So one of those companies hits the skids,
then all of a sudden, you're going to lose a
large chunk of it. If those top holdings are maybe
more like twenty to twenty five percent, that's a lot
healthier diversification. So I would look at the total income
(29:23):
stream and just break it down proportionally where's it coming from.
Then the next thing to look at would be sector concentration.
Once you have a handle on where the income is
coming from which individual companies, look at those sectors. Because
those dividends tend to cluster in just a few industries utilities, energy, financials,
consumer staples. You're not going to see a lot out
of the technology side, for example, But if more than
a third of your income's coming out of a single sector,
(29:46):
you are now exposed to that sector's business cycle. So
history kind of shows this clearly. In eight oh nine,
let's think the banking industry, bank dividends absolutely collapse because
the banks themselves were collapsing. Twenty fourteen to sixteen, we
had oil price shocks and that draw that pulled down
energy dividends as well, And so these are just things
to pay to pay attention to, because if if you've
(30:06):
got it overly exposed in any one area, you're gonna
get hurt by that. So I would make sure, just
just as always, understand which where your portfolio sits and
how it might react in different environments. All right, we're
gonna move on then. So now we've got Chris and Milford,
who he's got a question about tax efficiency. He's he
understands that their portfolio might be overly tax inefficient, which
(30:26):
that's I got to get my head around that. I
think we're just saying that we've got a tax inefficient portfolio,
but not quite sure what that means. So he's asking, Bob,
how can you tell if taxes are pulling down returns?
How do you spot that?
Speaker 1 (30:37):
Well, I obviously don't you know, have your entire portfolio
in front of me, crisp. So I'm just gonna throw
out three examples that we see quite often. Brian, feel
free to weigh in here as well. But one thing
is in your taxable account, you know, meaning non IRA
taxable accounts. This is where if you've built wealth using
mutual funds and things that just declare capital gains whether
(31:00):
you sell anything or not, you want to find a
way to systematically and over time transition that portfolio into ets,
direct indexing strategies, things that have some tax loss harvesting
working in the background. I'll just go out and say it.
I mean that if you're in a situation like that,
you've got to move your portfolios from you know, from
(31:22):
the nineteen eighties into twenty twenty five, because there are
a lot of ways to manage a non IRA taxable
quote unquote taxable portfolio now to be very tax efficient,
and you've got to find a way to get that done.
Another thing might have to do with the composition of
your asset allocation. Meaning if, depending on how your income
(31:44):
strategy is set up, if you're going to own some
bonds in your portfolio, well it might make sense to
own the majority of your bonds in iras and qualified
plans because those are tax deferred accounts. You're not paying
taxes every year, you know whether or not you take
anything out, and you want higher growth components of your
portfolio that could take advantage of the lower long term
(32:07):
capital gain rates, you want those in taxable accounts. And
then a third thing is taking a look at what
that dreaded required minimum distribution situation might be down the road,
And if it makes sense, do some wroth conversions now
and pay be willing to pay a little taxes to
save a lot of taxes later. Those are three things
(32:30):
right off the top of my head that probably should
be looked at to make your portfolio more tax efficient. Brian,
anything to add there?
Speaker 3 (32:39):
I think you just need to pay attention and make
sure you understand. You know how your different accounts are taxed.
There are three flavors of taxation taxed every year. That's
where you get a ten ninety nine B or a
ten ninety nine DIIV. And then you've got pre tax,
which is the money you've never paid taxes on you
deducted it when you shoved it into a retirement plan.
And then you have the wroth stuff, which is completely
tax free. Make sure you know how much of each
(33:01):
pile that you have, because everybody probably has a little
bit in each of these and there's not usually not
a lot of rhyme or reason. So just get an
idea start there, get an idea for what pile is
going to be taxed and how.
Speaker 1 (33:12):
All right, we talked about you know, we're going to
cover this topic, you know, hit this question in this segment,
So I'm gonna toss this one to you. Aaron in
Kenwood says, my husband and I disagree about holding individual
stocks versus funds. How do you blend the desire for
control with the need for simplicity and I'll add the
(33:32):
word diversification.
Speaker 3 (33:34):
Well, so I think first of all, you need to
decide there's nothing that says that married couples have to
agree on everything, right. If that were the rules, then
there wouldn't be any married couples. So there's nothing wrong
with the individual stocks. There's nothing wrong with funds. And
we don't really know who prefers what, but it doesn't
make any difference. Just make sure the whole pile makes sense. Now,
if the one who prefers individual stocks, if we're talking
(33:55):
and taking flyers on penny stocks and putting a huge
chunk of the portfolio in, you have bad idea to
be a fan of that. But on the other hand,
if this is if it's a good portfolio of stocks
that you know that have good earnings, track records and
have a good story and good products and so forth,
there's nothing wrong with that. Some the funds tend to
be preferred by people who just go you know what.
I'm okay with risk stuff going up and down, but
(34:16):
I really don't want to make the sausage. I don't
really care how we get there. I just want to
understand that I have something that can grow and can
keep up with inflation. But I want somebody else to
worry about it. All those things can work together, but
it starts with communication. Understand here's what I want, here's
what you want. How do we combine this together into
a full financial plan that benefits us both? All right?
Speaker 1 (34:35):
Coming up next, we've got steps to take to keep
your retirement on track while still helping those dreaded adult kids.
You're listening to Simply Money presented by all Worth Financial
on fifty five KRC the talk station. We're listening to
(34:57):
Simply Money presented by all Worth Financial spun Seller along
with Brian James. Brian Hat's off to Jet I needed
that bumper music. Joe Strecker coming out of a long weekend.
That's just outstanding, Thank you sir. All Right, some new
non numbers reveal a growing trend more adult children are
moving back in with their parents and the fallout is
(35:19):
more than just crowded kitchens. Brian walk us through it.
Speaker 3 (35:23):
So yeah, at first, I want to expose the little
inside joke there. So executive producer Joe Strecker knows what
we're going to be talking about, and sometimes he's able
to find some very appropriate music. So baby come back.
Literally that that's what we're talking about today. So, according
to a twenty twenty five survey from Thrive In, nearly
half of parents report that at least one child between
the ages of eighteen and thirty five has returned home
(35:44):
for a period of time. Even more alarmingly, for those
who may not be a fan of such things, about
four and ten of these boomerang parents say this has
hurt their own long term savings for retirement. Now that
that to me, that's not right, because one more person
living in your household should probably be helping, you know,
at least contribute something. Maybe they're not in a situation
where they can pay their own full rent and their
own full bills and all that, but there got to
(36:04):
be something contributing, contributed to a shared household. But anyway,
this makes a big difference spot because we're not talking
about you know, brand new college age or little kids
where you're talking about preserving these multimillion dollar portfolios, retirement timing,
legacy planning, and all these tax dynamics, things that take
decades to build but don't take all that long to destroy.
When an adult child moves back, it's not an extra
(36:25):
mouth to feed alone. It can also shift the cash flow,
change the housing support, can mess up your estate planning.
You know, it might affect your investment allocation because you're
trying to plan for different goals and so on and
so forth.
Speaker 1 (36:36):
All right, I'm going to do a little role playing
here because this will be fun for my the bo
who can follow. I'm going to pretend that I'm a
twenty one year old kid and I move back in
with my parents, and you use the word multimillion dollar portfolio.
So here's my little role play, Brian. I say, hey,
mom and dad, you got plenty of money. Keep the
refrigerator full. I want to sit in the basement and
(36:58):
play mL I'll be the show and watch Netflix while
I figure out my life. And you can afford it.
What's the big deal? Give me a little time to
get my legs under me here and get off my back.
Speaker 3 (37:10):
Yeah, Dad, I think I've decided on my career. I
want to be a stay at home son, So you know,
I really need you to kind of keep those things
going for me. I'm gonna need a place to keep
the rain off my stuff and a car. Gonna need
a car too, And you know, I'll find a job eventually,
you know, someday. But I really want to find myself first.
I need to get to know me, Dad, Bob, before
(37:30):
I can really commit this to the world. I don't
think the world is ready for this yet.
Speaker 1 (37:36):
So what do we do about it? What do we
do about it? I'm trying to be the kid here.
I need you to be the adult.
Speaker 3 (37:41):
Oh I'm the dad this time? Oh I told you that? Yeah,
all right, well I really wanted to be the kid. Fine,
I'll be a stay at home dead. Well then it
was so great. Okay, that's fine. Take some time figure
out what it is that you need. But this is
in a permanent situation. Someday I'm gonna be dead. What's
your plan? Then? I may or may not leave all
this stuff to you. We work very hard to build it.
You've got siblings. There are charities out there we want
(38:01):
to support, and you know your mother and I built
this the way we built it, and I'd like to
see you guys have learned something and do the same.
How do you think you would be able to react
to something like that?
Speaker 1 (38:13):
I don't know. Let me think about that. And Dad,
please go upstairs because I'm about I'm in the seventh
inning of my MLB the show game, so please get
out of the basement. All right, here's the all Worth advice.
Don't don't let today's generosity derail tomorrow's independence. Thanks for
listening tonight. You've been listening to Simply Money, presented by
all Worth Financial on fifty five KRC, the talk station
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Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Are You A Charlotte?
In 1997, actress Kristin Davis’ life was forever changed when she took on the role of Charlotte York in Sex and the City. As we watched Carrie, Samantha, Miranda and Charlotte navigate relationships in NYC, the show helped push once unacceptable conversation topics out of the shadows and altered the narrative around women and sex. We all saw ourselves in them as they searched for fulfillment in life, sex and friendships. Now, Kristin Davis wants to connect with you, the fans, and share untold stories and all the behind the scenes. Together, with Kristin and special guests, what will begin with Sex and the City will evolve into talks about themes that are still so relevant today. "Are you a Charlotte?" is much more than just rewatching this beloved show, it brings the past and the present together as we talk with heart, humor and of course some optimism.
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