Let's Talk Money

January 18th, 2025

Episode Transcript

Speaker 1 (00:08):
Good morning, and thank you for joining Let's Talk Money
on news Radio WGY. I'm going to be your host
for today's show, Palo la Pietro, one of the wealth
advisors along with portfolio strategists. You're at Bouchet Financial Group,
and I am also a certified financial planner, sitting in

(00:28):
for the one and only Stephen Bouche, who is taking
a very very well deserved break. But I do have
my colleague with me, Edward Wilhelm, who is our lead
portfolio trader.

Speaker 2 (00:40):
Ed, how are we doing this morning?

Speaker 3 (00:46):
Be on the show.

Speaker 2 (00:48):
It's a pleasure to have you.

Speaker 4 (00:50):
On, ed and folks, we have a very interesting weekend
coming up. This weekend for US sports wise, we have
the Divisional card around for NFL both today and tomorrow.
I know a lot of New York fans are going
to be tuning in tomorrow at six point thirty where
the Bills play the Ravens.

Speaker 2 (01:08):
That will be a very big game.

Speaker 4 (01:09):
And then the long weekend extends into Monday.

Speaker 3 (01:13):
For Martin Luther King Day, and we have the National.

Speaker 4 (01:15):
Championship for college football where Ohio State will be playing
Notre Dame. So a lot of good football ahead, but
have a little feeling that you didn't join today's show
wanting to talk about NFL or college football. This isn't ESPN,
it is let's talk them on the end news radio
WG Wise, I'm guessing we're gonna want to talk market,

(01:36):
and that's certainly what we're going to do today. Whenever
Ed and I do the show, it's going to be
very investment centric. We're going to be talking about a
lot of economic data that we've gotten so far this month, what.

Speaker 5 (01:49):
Economics coming up ahead, that we're going to be looking at,
our economic forecast for the year, our portfolio position in
just some areas in the market that really I am
interested but as always, would love.

Speaker 2 (02:02):
To hear from you.

Speaker 4 (02:03):
That number is one eight hundred eight two five five
nine four nine.

Speaker 2 (02:08):
Again, that number is.

Speaker 4 (02:09):
One eight hundred eight two five five nine four nine,
and those phone lines will be open all throughout today's show.

Speaker 2 (02:18):
So I feel like one of the most.

Speaker 4 (02:20):
Common themes that I've been seeing over the last few
times that I've hosted Let's Talk Money, is this this
value rotation that we've been seeing within the market.

Speaker 2 (02:31):
And that's really what has to.

Speaker 4 (02:33):
Do with the Dow Jones Industrial Average showing some some helperformance,
and I am getting a quick message that my mic
unfortunately is not coming through correctly, So I do apologize
on that.

Speaker 6 (02:47):
I'm actually going to take us to a quick break
and switch over to a different line, So I do
apologize about that.

Speaker 7 (03:12):
Our best, but you can do them, and folks, I
apologize about that.

Speaker 2 (03:24):
Again.

Speaker 3 (03:24):
Technical difficulties are never fun, especially when you're dealing with
a mic problem. But I did get word that my
mic was not coming through correctly, and I'm sure you
didn't want to hear me for a full hour with
a crackling voice coming over the mic, So I again
apologize about that. But what we were getting into was
a weekly market recap of what we've been seeing so

(03:46):
far this week as far as performance, and what I
was getting into is the last few times that I've
done the show is we've just seen this rotation out
of the NASDAC really being the outperformers and starting to
see the Dow Jones and dual average start to pick
up some steam in the market. We talk about that
being market breast, and that's really a positive sign that

(04:08):
the overall market is in a healthy spot and that
we just don't have, you know, one horse show, and
I know Steve would get a kick out of that
bringing in the horse reference. But what we're seeing that
again this week, we're seeing the Dow Jones Industrial Average
up three point sixty nine percent, the S and P
five hundred up two point nine to one percent, and

(04:28):
then we had the Nasdaq, the tech heavy NASDAK up
two point four.

Speaker 2 (04:32):
Or five percent.

Speaker 3 (04:34):
And really when we see the Dow Jones show some outperformance,
we could break that down by looking into what sectors
are really outperforming. And Ed and I were looking through
some data this week and really looking at where the
outperformance was. And Ed, I really want to rope you
in here and see if you could share some insight
on what you were seeing on your side as far

(04:54):
as sector rotations on who was the best performers this week.

Speaker 8 (05:00):
Yeah, if we're just thinking about what we've seen so
far to start the year, you know, the biggest winner
has been energy. It's up almost nine percent to start
the year, you know, after a little bit of a
tougher twenty twenty four being up about you know, two
percent on the year there.

Speaker 3 (05:19):
And a lot of that, you.

Speaker 8 (05:21):
Know, it's coming from a little bit of speculation on
Trump taking office. You know, he's got a quote from
I believe it was this week, uh drill, baby drill.
So you know, he's very pro fossil fuels, trying to
get you know, supply back up. So that's been a
big catalyst in that area. Outside of that, we've also
seen materials, industrials, and utilities starting off the year strong,

(05:47):
and a lot of that has been a bid on
the infrastructure behind AI. You know, what's needed to power
what's needed to fuel the continued growth for tech, and
a lot of these areas are you know, seeing a
lot of positive flows into them. And then I mean
also a little bit on utilities. You know, in a

(06:09):
higher interest rate environment, normally something like utilities would struggle
a little bit. You know, it's normally a sort of
yield replacement when we're in a lower rate regime.

Speaker 3 (06:19):
So it has been.

Speaker 8 (06:19):
Interesting to see that starting off so strong and continuing
some outperformance seen late in twenty twenty four, and a
lot of that has just been on the back of
AI speculation.

Speaker 3 (06:30):
On top of all of that, we saw.

Speaker 8 (06:32):
Financials gain some pretty good ground this week on some
strong earnings. So I mean like to touch on those
earnings a little bit. We had JP, Morgan, Bank of America,
and City all show strong earnings growth. A big driver
of that has been higher net interest income, and that's
just the result of elevated rates, right. Those elevated rates

(06:53):
help boost profit margins for some of these bigger banks.
They've seen strong spending on credit cards and rope us
demand for personal loans. So you know, this also offers
some insight into the broader economy, right. You know, we're
still seeing that strong spending and strong you know, personal loans,
so you know, in that way, you know, it shows

(07:15):
us that the consumer is still strong, even though we
are seeing credit card balances hit record levels and you know,
a flight pickup in delinquencies. But I don't think it's anything,
you know, to show too much cause for concern. Definitely
a little bit of stress, but I wouldn't say any
major worries there. And we've seen deposits stabilized, you know,

(07:37):
an interesting kind of dynamic in the just the banking
industry is smaller. Regional banks are still feeling some of
that pressure from outflows. You know, we saw earlier in
twenty twenty three. If we think back to Selcon Valley
and the kind of blow up there.

Speaker 2 (07:53):
So it's really helped big.

Speaker 8 (07:54):
Banks, you know, benefiting from a sort of flight to safety.
You know, they're taking some market share from these smaller
regional banks. And then just looking ahead at next next week,
we're going to get Netflix, American Express and Johnson and Johnson.
You know, American Express will help give us a little
bit more insight into consumer strength as well.

Speaker 3 (08:19):
Yeah, we got a lot of data this week, you know,
right on the cusp of earning seasons, and we already
got some earnings coming in, and you know, we'd be
remissed if we didn't talk about some of the data
we already did receive, right, I mean, so last Friday
we got jobs report which ed shared that consumer as
of right now is in a very healthy spot. You know,
we are seeing some credit card balances hit some all

(08:41):
time highs, which certainly can be a concern, but overall
health of the consumer still remains strong, Spending remains strong,
and the only way that that's possible is by having
a strong labor market. And we really got a good
look into that last Friday when we got December's jobs report,
and again another they're very very robust job support showing

(09:03):
that we've added on in an additional two hundred and
fifty six thousand jobs. This is a strong economy and
then the only challenges that we have though, when we
have a very healthy consumer that is being supported by
a healthy labor market, we get rising prices, right, we
get inflationary factors and that can be a COO concern.

(09:26):
So this week on Wednesday, we got CPI data, another
look in to see how we're doing on this continued
bite against inflation, and we actually got some pretty positive
numbers here. You know, CPI core actually came down, and
that's the exact metric that the FED looks at is

(09:46):
core CPI that excludes the valuatable aspects of the economy,
so that excludes food and energy and looks at more
sticky elements of the economy like shelter, which has been
a very problematic category within the CPI report over.

Speaker 2 (10:03):
The last couple of years.

Speaker 3 (10:04):
And that actually showed one of the biggest progresses on
coming down. That was a really healthy sign to the markets,
and we saw the market's rejoice right right after we
got Wednesday's CPI report. Markets really came roaring back on
Thursday and Friday, to finish out the week strong, so
really positive news there. And then you know some data

(10:26):
that we got coming up at the end of this
month is obviously going to be the Fed decision. They
meet together the fo MC meeting that is scheduled for
the end of January, and that's world they'll discuss any
potential rate cuts that could happen at that point or
talk about any forecasted raycuts for the rest of this year.

(10:46):
And Ed, I don't know if you have any insight
on what the Fed is currently thinking or what the
market is predicting on any sort of probability of a
rate cut for January. Did you see any data on that.

Speaker 8 (10:59):
Yeah, we can get some pretty good insight into these
meetings looking at the you know, futures market for the
FED funds rate. So right now that's pricing in a
ninety seven percent chance of no cut for the meeting
later this month. And then additionally, right now there's only
a thirty one percent chance of a cut for Marches meeting.

(11:23):
And just kind of totaling that up of what we're
looking at for potential cuts for this year. Right now,
you know, the market is really only expecting a total
of fifty basis points, so half a percent, you know,
coming from two separate cuts, going to be a quarter
percent each sometime later in the year most likely. So

(11:44):
you know, there's been a lot of change in you know,
where we're seeing these probabilities land. We've seen them come
back a little bit, and a lot of that is
due to some speculation on Trump coming into office. And again,
you know, it is all definitely speculation right now, but
the idea of some strong tariffs definitely present the potential

(12:07):
for inflation. So I think we've just seen markets kind
of start to price in some of that potential, but
we really won't know until we get there. I suppose
we'll get some insight on Monday at inauguration, but it's
definitely important to keep that in mind and remember that
we are just still so data dependent. You know, it

(12:29):
really just takes one CPI print or one job's number
to kind of really shape up the entire macro landscape.

Speaker 3 (12:39):
I couldn't agree more ED, and I mean Steve has
always said it.

Speaker 2 (12:42):
You know, we our job is to take.

Speaker 3 (12:44):
The emotion out of investing, and as the ED just showed,
you know, we really want to focus on the data
and where the forecast brings us in order to really
shape or on investments look like. But quickly, we do
have a caller. We have Frankie from Watervlief. Frankie, how
are we doing this morning?

Speaker 2 (13:05):
Good?

Speaker 9 (13:05):
How you doing, guys? And thanks for taking my call.
I appreciate it.

Speaker 2 (13:10):
Of course, Frankie.

Speaker 3 (13:11):
What's going on?

Speaker 10 (13:13):
Yeah?

Speaker 9 (13:13):
So I well, first off, let me just tell you You've
always put me in the center of making well informed
financial decisions, so I appreciate you managing my money and
the great job that you guys do over there. I
was just hoping to get some guidance around something. I'm
approaching retirement and I have a rental property. I just
paid off the mortgage, but you know, the upkeep and

(13:35):
the effort that I have to do to maintain the property.
It's just, you know, I'm getting to a point where
I'm not sure that it's worth it anymore. So I
wanted to pick your brain to see if you think
that I should continue to receive this rental income it's
a steady stream of income that I supplement my social
security and portfolio income with, or if I should sell

(13:58):
the property, take the proceeds and invest it. With you guys,
because you've been doing such a.

Speaker 2 (14:03):
Good job at managing my money.

Speaker 3 (14:07):
Well, frank I certainly appreciate you in those kind words.

Speaker 2 (14:12):
And you know, it's a great question when you.

Speaker 3 (14:14):
Think about your portfolio and the diversification that comes with
your portfolio. It's not as simple as you're saying, Oh,
I need large calf stocks and small calf stocks and
international stocks. It can also bring in other types of
investments like real estate, and real estate has really been
proven to be a great diversifier and great income stream
for investors. Like it sounds like just like for yourself, Frankie,

(14:36):
And you know, it's really difficult.

Speaker 2 (14:38):
To say, right. There's obviously a lot of tax.

Speaker 3 (14:40):
Implications that could come with selling a rental property. You
get the depreciation that you could take over time, you know,
then you have to sell that. You know, that could
be a lot of ordinary income that you're realizing. So
I would say a lot of that has to do
with you know exactly what your tax liability is and
what your current tax situation is.

Speaker 2 (14:59):
But there are there's also ways around that as well.

Speaker 3 (15:02):
Uh, you know, from an investment standpoint, there's things called
the deleatory Delaware statutory trust, which is a way of
putting your rental property into an investment vehicle and uh
you know, holding it in that investment vehicle and delaying
those taxes and getting your proceeds. So it's a much
more tax efficient way in a very complex new strategy

(15:24):
that our tax team actually handles here.

Speaker 11 (15:26):
Uh.

Speaker 3 (15:27):
Vinny Tesla, who is a CPA here, has been one
of the leaders on you know, gathering the information and
helping inform clients on exactly what a Delaware statutory trust is.
So those are the types of options that you have,
but as always, Frankie, it's really going to be dependent
on your situation.

Speaker 2 (15:45):
And I'd love for you to call in.

Speaker 3 (15:47):
This week and we could have a little bit more
detailed conversation on that.

Speaker 9 (15:52):
Yeah, that would be great if if you know a
lot of my buddies that are also about to retire,
they all have financial plans, and I say, think that's
something that i'd like too, So if I could set
up a meeting and we could go through that process,
I'd really appreciate it.

Speaker 2 (16:08):
That that we certainly can, Frankie.

Speaker 3 (16:11):
So, like I said, give us a call this week
and we can get something on the books.

Speaker 2 (16:14):
I appreciate the call.

Speaker 9 (16:16):
All right, thanks so much guys.

Speaker 3 (16:20):
So folks, great question from Frankie, And again just want
to encourage any other callers out there if you have
any questions, whether it's investments or financial planning, or potentially
real estate or tax planning, state planning, whatever the case.

Speaker 2 (16:34):
May be, give us a call.

Speaker 3 (16:35):
The number is one eight hundred eight two five five
nine four nine. Again, one eight hundred eighty two five
five nine four nine. And what we were talking about is,
you know, really being data dependent when you're looking at,
you know, your portfolio and forecasting for the rest.

Speaker 2 (16:52):
Of this year.

Speaker 3 (16:53):
And what I really want to say is, when we're
looking at the data and forecasting out now, you want
to look at what your overall portfolio positioning is. Do
you have a lot of large cap exposure.

Speaker 2 (17:06):
Versus small cap?

Speaker 3 (17:08):
Do you have the correct allocation between equities to fix income?
And those are really the important questions you need to
be asking yourself or your advisor. And so what I
would say is, right now, you know, the markets have
been doing very well on the equity side of things,
and interest rates, specifically on the bond yields have been

(17:30):
a little bit challenging this year. Right, So, the end
of last year, we saw rates started to come up.
There's been a lot of inflationary fears. Just my apologies
sound Look, I just got a little echo on my mic.

Speaker 2 (17:46):
Apologize about that.

Speaker 3 (17:48):
But what I was discussing was at the end of
last year, we saw rates come up a little bit,
yields on bonds come up a little bit because a
lot of the inflationary fears, and at kind of touched
on that a little bit earlier on today's show, and
that caused a lot of volatility within the bond market.
There's something you know, it's very important to understand when

(18:10):
you think about uh, you know, when you think about
your bond allocation, is bonds have an inverse relationship to
interest rates. So as interest rates go up, your bond
prices will go down. As interest rates go down, your
bond prices go well, we'll go up. Now you might
be thinking, well, the Fed's been cutting rates, so interest
rates should be coming down. Why is that causing volatility

(18:33):
on your bond The Fed dictates the short the short
end of the bond curve, but not necessarily the long end.
And what is important to think about is even though
the FED has been dropping rates, the long end of
the curve has been pricing in some more inflationary factors
within the market. That's been bringing up the long end

(18:55):
of the yield curve, and that's what's been so volatile
about bonds. But when we get a CPI report like
we got on Wednesday, that helps bring in, you know,
inflation expectations for the rest of the year, and that
helps bring down bond yields. We've seen the ten year
bond yield for treasuries come more in line to around
I think four point six percent. And Ed, I think

(19:18):
we had some mic troubles there.

Speaker 2 (19:21):
Do I have you back on Ed? Yep?

Speaker 3 (19:24):
I am, I'm back, okay, Yeah, No, I just saw
that you're having some mic trouble, so I wanted to
make sure that that I still had you on here
and Ed. What I was just telling the listening audience was,
you know, some of the relationships between yields and bonds,
and we saw the ten year yield go up really
towards the end of last year on a lot of

(19:45):
inflation expectations. I know you touched on that a little
bit earlier.

Speaker 2 (19:50):
On the show.

Speaker 3 (19:52):
You know, some inflationary fear expectation, maybe some Trump tariff
expectations sticking that that would bring some inflationary factors.

Speaker 2 (20:00):
But then off of you know.

Speaker 3 (20:01):
Wednesday CPI report, we saw yields come back down, and
I believe last time I looked at ten years around
four point six percent. And we're talking about how that
could create some some bond opportunities.

Speaker 2 (20:13):
And I was wondering if.

Speaker 3 (20:14):
I could pick your brain on some thoughts on where
you're seeing potentially some opportunities in the fixed income market.
Do you think it makes sense at this point to
take on some longer term bonds? You still want to
be short at this point, maybe if you want to
diversify add of treasuries or corporates.

Speaker 2 (20:29):
What are you thinking?

Speaker 8 (20:31):
Yeah, I mean just on the duration side, I think
you're you're definitely comfortable stepping a little bit out into duration.

Speaker 2 (20:40):
You know, I.

Speaker 8 (20:41):
Wouldn't allocate, you know, maybe your entire bond allocation into
the you know, twenty or thirty year but you know,
if you're underweight, you know, benchmark duration, you know, she's
normally around you know, six years roughly, you know, five
and a half six years, it's probably worth you know,
being right at that point or maybe starting to you know,
creep out a little bit longer. I think that's definitely

(21:02):
a fairly safe bet. But you know, probably the bigger
point would be is if you are just holding on
the shorter end, you know, maybe an ultra short bond
fund or in a money market fund, that's definitely an
area where where I would definitely want to start to
shift to intermediate or onto the longer end. You know,

(21:23):
as you were saying, you know, we've seen that long
end on the yield side kind of come up and
then on the shorter end start to come down, and
I think we are going to continue to see on
the short end. You know, I think as far as
yields go, there's a lot more downside on the short
end then there is upside. So I definitely encourage if

(21:44):
you've got cash just sitting in a money market fund
or an ultra short bond fund, you know, start to
diversify that. And it doesn't even have to be in
the treasury space, you know. I think I'm also definitely
very comfortable stepping out and you know, into the corporate area,
you know, taking on a little bit of credit risk.
Spreads are certainly still tight, so you're not getting, you know,

(22:06):
a ton of extra yield for taking on that credit risk.
But I don't think there is a lot of risk
there to begin with, so you might as well pick
up a little bit extra yield.

Speaker 3 (22:20):
And now I agree with that, and you know, you've
brought off something if you're in a marting market and
how you can step out. But you know, something else
I think is important is a money market, right, which
is just like cash, except you know, now you're earning
a very good interest rate on that and going rate
on money markets is about four point three percent. Those
interest rates are going to be coming down as the

(22:41):
Fed continues to cut rates.

Speaker 2 (22:44):
And you know, so if.

Speaker 3 (22:45):
You have some cash on the side and you've been
using that to just kind of safeguard for some distributions upcoming,
and you still want to be clipping a nice yield,
it might be time to start thinking about where you
want to move that short term cash, and that might
be ultra short term bonds, right, moving away instill having

(23:05):
the ability to clip some more attractive rates. So, folks,
the first half of the show really flew by, and
again I apologize about some mic difficulties that we did have,
but on the second half of the show, we're going
to be talking about a lot of good portfolio positioning,
so I hope you.

Speaker 2 (23:21):
Spit with us through the break.

Speaker 3 (23:22):
You're listening to Let's Talk Money, brought to you by
the Bouchet Financial Group, where we help our clients prioritize
their health while we manage your wealth for life. Thank
you and I'll see you on the second half of
the Today Show. Hello, and thank you for sticking with

(23:45):
us through the break.

Speaker 2 (23:47):
My name's Paulo la Pietra.

Speaker 3 (23:48):
I'm the host of today's show, certified financial planner, wealth
advisor and portfolio strategist. You're at the Bouchet Financial Group,
sitting in for Steven Bouchet. But I do have my
colleague Edward Helm on today's show helping me go through
a lot of economic data and investments and portfolio positioning.

Speaker 2 (24:07):
And before we.

Speaker 3 (24:08):
Get into it, just wondering what plans do you have
for this long weekend.

Speaker 8 (24:14):
Unfortunately, nothing, nothing, anything fun. I just started studying for
my CFA again, so I've got some hours to put
into the books today and tomorrow.

Speaker 3 (24:29):
So yeah, that's that's a lot of studying ahead and
for anybody that's listening that's wondering what a CFA is.
That is a very rigorous investment exam, a three part
that takes multiple years to complete, and it just really

(24:51):
encompasses all areas of the market and and something that's
important if you want to be you know, a CIO,
which a chief investment officer and over see the portfolio.
So godspeed to you ed this weekend. That doesn't sound
too fun, but all that studying I'm sure will pay off,
So again, best of luck to you on that and folks,

(25:12):
first half of the show, we're talking about market recap,
a lot of economic data that we went through, some
portfolio positioning. You know, I really want to start the
second half of today's show talk about things that you
should be thinking about as we start twenty twenty five.
You know, one of the first things I come to
mind when I think about the checklist of going through

(25:35):
things that you should be thinking about is certainly your
retirement funds. Right, no matter how old you are, you
might have just started your career, you might be getting
close to sunsetting your career, or right in the middle
of your prime years, and when you look at your
retirement accounts, of which could be a four to one K,
A four three B, A four fifty seven. The third
comp multiple iterations of it doesn't matter. There's some core

(25:59):
princes that you want to be thinking about to make
sure that you're doing the right thing. And the first
thing you want to do is look at how much
you're contributing. Now, good rule of thumb is you want
to contribute anywhere from ten to fifteen percent of your
gross salary. Now, again that is just a rule of thumb.

(26:21):
That's just something that you ope up a financial textbook.
You ope up your CFP textbook. That's what it's going
to tell you. And again that's a good benchmark to
live by. But as we know, real life is real life,
and they both could come up, you know, whether it's
you know, school for your maybe your kids, or you know, groceries,
credit card bills, rent, mortgage, car payment, whatever the case

(26:45):
may it be. So ten to fifteen percent can't always
be obtainable. So what I would then say is, if
you can't reach that benchmark of ten to fifteen percent,
you just want to start at a spot that you
know that you can afford on a month over the
month basis and grow from there. The number one golden

(27:06):
rule that you need to follow is there's no such
thing as oh, this isn't enough to contribute to make
any sort of big difference.

Speaker 2 (27:14):
I'm not going to contribute.

Speaker 3 (27:15):
Maybe next year when I get a raise, I'll start contributing. No,
you want to start early, You want to start often.
You start contributing now. It don't even care if it's
only one percent of your salary, because what you'll do
is one, we'll get the compounding returns of the market. Two,
you'll start to systematically see money go into your retirement account,

(27:35):
and that could be contagious. Right, You're going to see
the growth that you're going to get, and that's going
to excite you to contribute more. So start early, start often,
aim for ten to fifteen percent.

Speaker 2 (27:47):
But if you can't.

Speaker 3 (27:47):
Get to that, start with whatever that you can afford. Now,
the other next piece of your four to one K
is how do you want to contribute?

Speaker 9 (27:58):
Now?

Speaker 3 (27:58):
Not every four one K plan will have a WROTH component.

Speaker 2 (28:02):
But many do.

Speaker 3 (28:04):
So when you look at your four to one carrier
four or three B, whatever the case may be, any
retirement plan that you have through your employer, there may
be an option for a WROTH component. So your your
primary option is always going to be pre tax, which
means the money that you put in to your retirement
plan is not tax and so the benefit there is

(28:24):
by not being taxed on your money, you're allowed to
put more in and feel less of an impact with
your your paycheck, and all that money grows tax deferred,
and then when you go and get into retirement and
take that money out, that's when you pay your taxes.

Speaker 2 (28:38):
So it's kind of.

Speaker 3 (28:39):
Kicking the tax bucket down the road.

Speaker 2 (28:42):
Now.

Speaker 3 (28:42):
The other option that may be available to you is
your WROTH contributions, and what that means is those are
after tax contributions, so you pay your taxes and then
that money goes in to your retirement plan. So you're
going to feel that more.

Speaker 2 (28:58):
In your paycheck.

Speaker 3 (28:59):
Right, So, if you contribute ten percent pre tax versus
ten percent, say ROTH, you're going to much much more
feel that ROTH contribution out of your paycheck because you're
paying those taxes right away. Now, those monies in a
ROTH grow tax free, and when you go to take
them out in retirement, they also come out tax free.

(29:19):
So a huge huge benefit, right, especially if you're earlier
on in your career. Why is earlier on in your
career important?

Speaker 2 (29:29):
We'll think about it.

Speaker 3 (29:30):
If you're making ross contributions in your thirties and forties,
maybe even fifties, depending on what your retirement window is,
you're going to get all of those years of market
performance that are going to grow tax free and come
out in retirement tax free. And it's important to really
think about not only diversifying your portfolio, but diversifying your

(29:52):
tax buckets. You don't want to just rely upon your
pre tax a, your four to one k pre tax money,
because when you go to take those moneies out, all
that money is going to be taxable, and you need
to think about what type of impact that can have
on you know, your say medicare premiums and other such.
But before I get into that more, it looks like

(30:14):
we have another caller. We have Rick from Half Moon. Rick,
how we doing this morning?

Speaker 12 (30:21):
Hello?

Speaker 2 (30:22):
Is somebody there? Yes, Rick, It's Paulo la Pietra. How
are we doing this morning?

Speaker 13 (30:28):
Okay? I got a.

Speaker 10 (30:28):
Question about R m ds. Certainly, so I have an
I have to have an R and D done this year.
I mean, I hit that age, okay, and I'm planning
on using for expenses for like special type of expenses.
As far as the cash am I if I do

(30:50):
it when the markets up, I mean my portfolios where
the stocks I have have have have increased in value,
I'm also going to have to pay capital games.

Speaker 13 (31:01):
Correct.

Speaker 3 (31:04):
No, So when you take your RMD, you required minimum
distribution out of your IRA. It doesn't matter what you
take in your portfolio. So say you had Navidia on
one side that's grown tremendously over the last five years,
and then on the other side of your portfolio had
a bond that hasn't grown. No matter if you took
your Navidia out or your bond out of your portfolio.

(31:27):
For your rm D, you're just going to pay ordinary income.
And you pay ordinary income on just the amount of
money that comes out of your IRA, and that full
amount is going to be ordinary. Now, if you do
not have a pension and you live in New York State,
there's something that's called the New York State Pension Exclusion Amount,
and what that means is the first twenty thousand that

(31:48):
comes out of your IRA will actually be New York
State income tax free. So in your rm D for
your IRA, you will have to pay federal and stay taxes.

Speaker 2 (31:59):
But again, if you don't have.

Speaker 3 (32:00):
A pension when you live in New York State, that
first twenty thousand is actually going to be New York
State income tax right.

Speaker 13 (32:07):
Okay, meaning a New York State pension.

Speaker 3 (32:12):
If you just have any pension, So it doesn't matter
if you have a tension anywhere, that will qualify for
your twenty thousand dollars New York State pension exclusion amount.
So you might already be using that pension exclusion amount,
but if you don't have a pension, that means you're
not using it and that will qualify for your rm D.

Speaker 13 (32:29):
Okay.

Speaker 10 (32:30):
So you're saying, no matter what stocks.

Speaker 13 (32:32):
I I sell in order to have in order to
meet the R and D requirement, it was just it'll
be considered ordinary income.

Speaker 2 (32:44):
Correct.

Speaker 3 (32:45):
It doesn't matter what you sell anything that comes out.

Speaker 13 (32:50):
Okay, it doesn't matter what that makes sense? No, it didn't
make sense, right, It doesn't matter when it doesn't. It
doesn't matter when you sell it.

Speaker 3 (33:01):
It doesn't matter when you sell it. The only time
that it's going to be taxable is when you pull
it out of your IRA, And it doesn't matter what
you sell right, because any money that comes out of
your IRA is going to be ordinary income. There are
no capital gains, there's no cost basis within your IRA.
It's just whatever money that comes out of your IRA
doesn't matter which investments you sell within it.

Speaker 13 (33:26):
Okay, thank you for the clarification.

Speaker 2 (33:30):
Of course, and the brick.

Speaker 3 (33:32):
If you had any more questions on that, feel free to,
you know, give us a call in the office this week.
I'd be more than happy to go through your specific
situation in more detail. And it looks like we actually
have another caller. We have a line from Schenectady.

Speaker 2 (33:47):
What are we doing this morning?

Speaker 14 (33:49):
I'm doing pretty well.

Speaker 7 (33:50):
How are you guys.

Speaker 2 (33:53):
Doing very well? What's your question that you have for
us this morning?

Speaker 14 (33:58):
So I just wanted to call in to get like
some general financial advice as like a relatively new investor.
So I know nothing about finances that I want to
learn more. I'm a full time nursing student currently and
I own a runtal property and I just kind of

(34:21):
wanted to get some information about what to do come
like as being in the new year, because I want
to invest my savings, but I don't know where to start.

Speaker 2 (34:36):
Yeah, A lot.

Speaker 3 (34:37):
Well, that's those are all the right questions that you
should be thinking about starting the new year. So I
certainly am happy to hear this, and you know, I
was talking a little bit earlier, earlier on this is
where we first want to start, right, is thinking about
your retirement plan. So you said, you're a full time
nursing student. Do you have a retirement plan at the
hospital that you work at?

Speaker 14 (35:00):
I currently don't work there. I'm actually just still like
studying and stuff. I'm in school.

Speaker 2 (35:05):
Oh okay, it's still full time. Just got it, got it.

Speaker 11 (35:08):
Yeah.

Speaker 3 (35:09):
So you know what I would definitely recommend is, you know,
start saving to what we call an emergency fund. So
what that just means is, you know, you want to
set aside anywhere from three to six months. And now
I personally think six months is a little bit too far,
but say three months of your fixed expenses, And what
your fixed expenses means is what your mortgage or rent

(35:32):
might be, your car payment, your car insurance, all of
those necessary payments that are going to come out systematically
every month.

Speaker 2 (35:40):
You want to make sure.

Speaker 3 (35:41):
That you have saved put away in say a savings
account or you know, at least a three month duration
And the reason why you want to do that is,
you know, for the unexpected that could come up, we
want to make sure that we're at least covered for
three months if some unforeseen variable does pop up, one
we are able.

Speaker 2 (36:00):
To you know, achieve that.

Speaker 3 (36:03):
What I would recommend is, you know, if you are
I know you're a full time student, but if you're
doing any sort of part time work and you have
earned income, you could start thinking about.

Speaker 2 (36:11):
A wroth ira.

Speaker 3 (36:13):
A wroth iray is money for a retirement account, and
that's a personal account to you, and a wroth ira
I was talking about a little bit earlier with a
wroth for one kay is the money that you put
into a.

Speaker 2 (36:26):
Wroth ira is after tax.

Speaker 3 (36:28):
So you pay your taxes on those those moneies they
go into your wroth ira, and those are going to
grow over time. And you know, whenever you get to
retirement age, which the earliest you would be able to
take the monies out is fifty nine and a half,
you're going to see all this growth in your wroth ira.
And when you take those monies out, it's also going
to be tax raise. So with somebody that has so

(36:51):
much time on their side, like yourself until retirement. That
would be one of the first investment vehicles that I
would start with. Know again, I would be more than
happy to walk you through that a little bit more.
If you have time this week and you wanted to
call into the office, I could certainly, you know, show
you exactly where you want to go to open one
and how you could go about contributing and help you

(37:12):
also with your investment selections as well.

Speaker 14 (37:16):
Alrighty now, I also did do a little bit of
research and was looking into like a high yield savings
account because the find the savings that I do have
is pretty like substantial, so I don't want to just
sitting and not I guess having any like uh, I

(37:38):
guess yield. I don't really know the name of it,
but I was looking in like a high yield savings
account because I don't really touch my saving and it's
just sitting there and I don't like I could be
getting like four point five percent back or two point
five percent back, So I guess I would need to

(37:59):
just find like some banks that like do those things right.

Speaker 2 (38:05):
Absolutely.

Speaker 3 (38:06):
And what I would say is, though there's a difference
between you know, high yield savings and then also getting
that money invested. So if you also wanted to have
some money invested that are outside retirement accounts, you could
open something that's called a brokerage account, which is you know,
just like almost like you could think about a checking account,
but you could invest into some stocks. But before I

(38:29):
fully finish, I do want to rope ed into this
because Ed knows of a few high interest yielding savings accounts,
and I believe SOFI is one of them. Ed, can
you clarify on this.

Speaker 8 (38:41):
Yeah, if I had to recommend one, it would be
so FI.

Speaker 3 (38:45):
That's one I used.

Speaker 8 (38:46):
Personally, And I mean, really, you don't even it's not
a technically a high yield savings account. If you just
have a checking account with so FI. I believe the
base rate right now in that checking account is about
four percent, which is, you know right where i'd you know,
tell someone they'd want to target. You know, a lot
of money market funds are going to yield about four

(39:09):
points two percent, maybe a little bit under, so I mean,
just with the ease of having it in a checking account,
I'd say, and you're getting you know, four percent, or
even if it's a little under that. I think it's
worth it to you know, get a little bit of
yield on your money.

Speaker 14 (39:26):
Okay, awesome, Thank you guys so much.

Speaker 3 (39:30):
Of course, Alan, thank you so much for calling in.
So folks, a lot of great questions, a lot of
great calls. We had Alan that called in uh who
is currently a nursing student that you know, has some
savings and wants to think about how she could best
start saving for her current future and then also for
a retirement future as well. And then we also had

(39:52):
we sorry, we had Rick from half Moon that called
in about his R and D and talking about, you know,
exactly how much would be taxable out of his R
and D. And again just to clarify on that when
money comes out of your IRA, doesn't matter what stocks
or bonds or anything that you sell. It's just the
money that comes out of your IRA that is going
to be taxable, and that is going to be taxed

(40:14):
that's your ordinary income rate. So a lot of great questions,
and we are coming up to probably the last five
to ten minutes of the show, So if you do
have any additional questions, I would love to hear from you.
That numbers one, eight hundred eighty two five five nine
four nine. Again, that's one eight hundred eight two five
five nine four nine. So right before those calls, I

(40:37):
was talking about a checklist of what you should be
thinking about to start off this year. We talked about
contributions to your four to one k, the difference between
pre tax and ross, wanting to target that ten to
fifteen percent of your gross overall income, but also just
starting with what makes sense for you right again, ten

(40:58):
to fifteen percent, it's just a target that might not
be attainable to you right now. So start where you
know that you can contribute month over month and grow
from there.

Speaker 2 (41:10):
These are the important things to think about. The Other
thing I wants you.

Speaker 3 (41:13):
To finally think about on your four oh one K
or any retirement plan is is your allocation. But before
I get into my allocation, we do have James on
the line as well as James.

Speaker 2 (41:24):
How we doing this morning?

Speaker 15 (41:26):
Oh we're doing good. I just a basic quick question.
I hope it doesn't involve too much.

Speaker 14 (41:32):
But so.

Speaker 15 (41:35):
I want to stay at my job. I don't want
to retire anytime soon, and I'm fifty six. I want
to stay probably the seventy and I want to contribute
into my four to one K the whole time. Is
there an age limit where I have to stop contributing
to four one k? Or can I contribute to four

(41:57):
one k right up to my.

Speaker 12 (41:58):
Last day of work?

Speaker 15 (42:00):
And that's one question? And is there other avenues that
I can contribute that are like a four to one k?
You mentioned a raw ira? Are those things I can
do in addition to my four and one k? Even
though I'm I'm fifty six. I didn't start putting money
into my four one K until late night. So I

(42:21):
want to get as much in there as I can,
and I want to stay. I'm gonna stay till seventy
Like I said, I'm not as long as my health
is there. You know, they won't kick me out anytime.
So very few people want to do what we do,
and and I'm pretty good at what I do, So
I think I want to stay there as long as
I'm healthy. I want to stay there in seventy.

Speaker 2 (42:44):
Yeah, James, great question.

Speaker 3 (42:45):
And I think what's the most important here is you
started savings right. It doesn't matter, you know, if you didn't,
they weren't able to save earlier on your career. Started now,
and that's what's important, so to just quickly answer your questions.
First and foremost, you can contribute all up until you retire,
So even if you stay on till seventy, you could
contribute to your four to one K, and I highly
encourage that you do that.

Speaker 2 (43:07):
And on the other.

Speaker 3 (43:07):
Element, yes, you could also contribute to a roth ira.
Now there are income limits on how much you could
contribute to your wroth ira. So specifically I don't have
the numbers in front of me, but if you're making
over say one hundred and ninety thousand, you might be
phased out of contributing.

Speaker 2 (43:23):
To your wroth ira.

Speaker 3 (43:24):
But check with your four one K. You might have
an option to make roth contributions in your four to
one K and that will just bypass having the use
of roth ira, you know, in general. So those are
great question, James and I really appreciate the call. Thank you,
Thank you for your time, of course, and it looks like.

Speaker 2 (43:44):
We have one more call. We have Jim from opening Jim,
how are we doing this morning? Pretty well?

Speaker 11 (43:49):
How are you?

Speaker 3 (43:51):
I'm doing very well?

Speaker 2 (43:53):
Thanks for the call.

Speaker 15 (43:55):
Yes, quick question, I.

Speaker 11 (43:57):
Have a ross and I have a traditional Now that
this administration is changing, is.

Speaker 12 (44:05):
Is it and I'm seventy one.

Speaker 9 (44:07):
So if I wanted to switch my traditional to the raws,
I know there's going.

Speaker 2 (44:13):
To be the tax.

Speaker 15 (44:15):
Do they tax you on the tax.

Speaker 12 (44:18):
Rate at the moment that you're doing it, or do
they base it on previous years.

Speaker 3 (44:25):
It's going to be based on the tax rate of
this year that you do with Jim.

Speaker 2 (44:30):
So, if you're.

Speaker 3 (44:30):
Doing what you're referring to as a roth conversion, right,
you're transferring money from your I right.

Speaker 2 (44:36):
Into your wroth.

Speaker 3 (44:37):
That's all whatever amount that you convert is just going
to be added on into your income for this year.
So if you convert, say ten thousand, that's going to
be essentially an additional ten thousand dollars of employment income
that is coming in that year.

Speaker 2 (44:53):
That's how it would feel.

Speaker 3 (44:54):
So it would be whatever your capable tax rate is
for this year.

Speaker 11 (44:58):
So would it be a why move at this point
of my life to take the hit if under this
new administration the.

Speaker 12 (45:09):
Tax rate goes down a substantial amount? Or is that
something you foresee happening?

Speaker 2 (45:17):
Yeah, you know, it's a great question.

Speaker 3 (45:19):
I don't foresee really tax brackets changing too much. I mean,
remember we're still under the Trump you know, Tax and
Jobs Cut Act already, so I don't foresee too much
changes there. And really, to answer your specific question on
if it makes sense, it just depends on what your
goals are, right, I mean, if your goals for these

(45:40):
monies that you want to convert is to just maximize
growth and use those monies to spend during your retirement,
you know, that could be challenging, right because we want
to look at you know, investment time horizons and windows.
But if a portion of this is to do a
roth conversion to really bring down the amount that you're
going to be paying in rm D when you turn

(46:01):
seventy three and pass on potentially some of those assets
to maybe your kids or your heirs for your wroth IRA,
then it could make sense.

Speaker 2 (46:09):
I think a lot of that just.

Speaker 3 (46:10):
Has to do with financial planning and tax planning to
really help make the most educated decision around that.

Speaker 12 (46:18):
All right, well, I appreciate that answer. I was just
thinking about it that under the current or the new administration,
if like within two years time, the tax rate were
to come down enough that it would be worth my
while to do it that way. If the ten years

(46:42):
from now there's a rate that goes up even higher
with a new administration, then I wouldn't have to worry
about paying that tax.

Speaker 11 (46:49):
Rate at that point.

Speaker 3 (46:52):
And honestly, Jim, the way that you're thinking about that
certainly can make sense if that's what materializes, but I
think you really need to be focused more on your
immediate situation what that will make from impact impact as well.

Speaker 2 (47:06):
You know.

Speaker 3 (47:06):
The only two other tidbits that I would give you
is if you do do a roth conversion, it really
makes sense to pay those taxes not out of your IRA,
but with cash that you have on hand, because if
you do a ross conversion and you withhold, say twenty
five percent, and put you know, and then put that
into your roth IRA, you're really not maximizing the full benefit.

(47:28):
But we are coming up to the last minute of
the show, Jim, so unfortunately I do have to let
you go. But again, any questions you may have, Jim,
call into the office this week and I'd be more
than happy to go through those scenarios with you. So, folks,
a lot of great questions on the second half of
the show, and as always, I'm very very grateful for
everybody that did call in. I love hearing from you

(47:50):
on the potential concerns you might have, or the goals
that you may have, and how we could help assist.

Speaker 2 (47:57):
You to get to those. It's something that's very important
to me. So we are wrapping up today's show. I
really hope that you have an amazing weekend.

Speaker 3 (48:04):
All you football fans out there, I hope you do
enjoy all the great football and as always you are
listening to Let's Talk Money, brought to you by the
Bouchet Financial Group, where we help our clients prioritize their
health while we manage their wealth for life.

Speaker 2 (48:18):
Thank you and have an amazing weekend.