Episode Transcript
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Speaker 1 (00:09):
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, Paulo la Pietra, one of the wealth
advisors along with portfolio strategists. You're at the Bouchet Financial Group,
sitting in for Steven Bouche, who is taking a very
well deserved break. But I do have my colleague with me,
(00:31):
Vincenzo Tesla, Certified Financial Planner CPA and Eca boys out
of mouth bowl, Vinny, how are we doing this morning?
Speaker 2 (00:40):
Good follow Thanks for having me, of.
Speaker 1 (00:42):
Course, of course. And Vidio, I know you're a big
horse guy. Did you catch the Preakness yesterday?
Speaker 2 (00:48):
I did? I did. It looks like the two horse
came from behind and took it all. I didn't have
him in my exactly box. But what can you do.
You win some you lose them, That's right.
Speaker 1 (00:58):
That is a certain at the center of horse racing.
And you know I live up here in Saratoga and
take driving down to East Ave, which I live on.
You know, you pass the Oklahoma Track and I saw
the horses warming up. Belmont is right around the corner,
so you know, Vinnie, I'm sure you're looking at those
horses and already starting to line up some of the
(01:19):
some of your favorites.
Speaker 3 (01:20):
So I'm looking forward to hearing who you have to pick.
Speaker 1 (01:24):
But folks, I bet you didn't join this morning to
hear Vinnie and I talk about some horse racing, and
I'm sure you did tune in to talk about some markets.
And we certainly had a lot of information come through
the markets this week. We had CPI numbers, we had
PPI numbers, we had retail sales. We reach a trader
agreement or a trade truce as of right now with China,
(01:46):
and the markets have certainly reacted with that, so I
want to go through that. We also had our quarterly
economic update. Webinar myself, who's the portfolio strategist, and then Ryan,
who's who is our chief investment officer, went through a
lot of economic information and market information, so I will
(02:07):
also be sharing that with you this morning, and then
of course with Vinnie on the call. Always want Vinnie
to be sharing some tax planning and tax strategies, and
we'll certainly get Vinnie sharing those strategies as well. But
where I really want to kick us off is let's
do a weekly market recap. Of what the major indices
(02:28):
did this week.
Speaker 3 (02:29):
So we had the.
Speaker 1 (02:30):
SMP five hundred up two point five to nine percent,
the tech heavy Nasdaq up three point three eight percent,
and the Dow Jones Industrial Average up only about one
point zero four percent, and a lot of that had
to do with United Health that we could get into
as well. We had the ten year Treasury sitting right
around four point four five percent, and then the VIX,
(02:53):
which is that volatility gauge, sitting in right around seventeen
point twenty four. The market's really pricing in this good environment, right.
They think that there's been a lot of trade resolution,
and they think that a lot of the economic data
that we've received has been a positive, and the market
has certainly been you know, reacting towards that. So all
(03:14):
good things again, a great week in the market, you know,
just you know, amazing to think about a month ago
when we were hitting you know, right around early April,
the terriffs just got rolled out. Market comes selling down,
We're down over twenty percent at one point, and here
we are right now, we're going to enter into Monday
(03:36):
of this week, and the S and P five hundred's
actually up one point five to three percent so far
this year. So it is amazing how much the markets
could turn around in just thirty days.
Speaker 3 (03:48):
And we talk about this all the time. We know
that the.
Speaker 1 (03:51):
Markets are always forward looking, right, You never really want
to be a prisoner of the moment of seeing all
the volatility and thinking, hey, this time is different. This
time the market isn't going to turn around because X,
y and z amount of factors.
Speaker 3 (04:07):
The truth of the.
Speaker 1 (04:08):
Matter is the volatility is just second nature to the markets.
It's always going to be here. So it's about devising
a plan, sticking to that plan, and riding through those
bouts of volatilities because volatility doesn't last.
Speaker 3 (04:23):
The long term investors do.
Speaker 1 (04:25):
And I think that's really important to understand at the
crux of your investment portfolios, knowing that you need to
be a long term investor, and that's really important. But
where I really want to kind of take us quickly
is just talking about some of the data that we
did get this week, and where we could first start
off is on Tuesday, we got CPI numbers, right, we
(04:48):
got inflation numbers, And I just remember doing the radio
show twenty twenty two, twenty three, twenty four inflation was
everything right because inflation was really the gauge of what
the Fed was looking at for where they're going to
bring interest rates. And now you know, since we've had
the tariff situation, it seems like tariffs have really taken
(05:09):
the driver's seat on what's been driving.
Speaker 3 (05:10):
The overall markets.
Speaker 1 (05:11):
But we need to remember inflation is still important. We
need to check in on the progress of how.
Speaker 3 (05:17):
We've been doing.
Speaker 1 (05:19):
And thankfully on Tuesday, when we got those numbers, CPI
on an annualized basis came in at two point three
percent year over year in April.
Speaker 3 (05:27):
That's amazing.
Speaker 1 (05:28):
That was actually below the market's expectations of two point
four percent, So certainly a positive to the markets, certainly
ammunition to the Fed to hopefully cut rates, and I'm
gonna want to get into that as well. But the
other good news on that CPI report is two point
three percent is the lowest inflation's been in four years.
(05:49):
So we have been making progress on inflation. We're not
quite there to that Fed's targeted two percent, but again
we knew that this is more of a longer term
approach and we just need to be patient and continue
to see where inflation takes us for right now that
doctors check in for April two point three percent, certainly
a positive. Then the next day we look into Wednesday,
(06:12):
we see our PPI report, So that's the producer price Index,
so that's what companies are actually producing at and how
much of that is costing them. And this is also
an important inflation factor because this gets passed down and
those PPI numbers actually came in down point one percent,
so another decrease, another positive towards this conviction call of
(06:39):
the Fed now garnishing enough information and enough data to
be able to be cutting rates.
Speaker 3 (06:45):
Now.
Speaker 1 (06:46):
On Friday, we did get retail sales numbers, and retail
sales are very important because that means what myself and
Vinnie and you listening, what we're going out and spending
in the economy, and that is very very important. I
talk about this so much because me, Vinnie, you listening,
we make up seventy percent of the US economy. So
(07:08):
if we're not going out and spending money, well, then
the US economy is not doing well. And we did
see retail sales slow to only point one percent growth
in April. That was a little bit challenging, But then
we need to step back and really take a look.
Speaker 3 (07:24):
At the numbers.
Speaker 1 (07:25):
Right, we don't want to just look at one month.
Let's now look back and say, oh, okay, what happened
in March. And we saw in March retail sales grew
to one point seven percent, and that was really a
lot of consumers getting out there and purchasing goods and
materials and services ahead of what they thought was going
to be a highly inflationary environment due to tariff. So
(07:46):
when you kind of take March and April and average
them together, we get certainly much more of a balancing act.
Speaker 3 (07:52):
So that's that's been a positive. Now again April's.
Speaker 1 (07:55):
Numbers slowan to just point one percent, that could be
a challenge, but we looked back to March in one
point seven percent, that paints a much more clearer picture
and much less of a cause of concern, And then,
of course that would be remissive. I didn't bring up
probably the most important news that we got, which came
on Monday, and that was the trade let's say truce
(08:20):
as of right now between the US and China, their
own separate ninety day pause, and obviously the markets really
enjoyed that. When we saw the markets strongly rebound off
of that. Because remember where we were before we enacted
this ninety day truce. We had one hundred and forty
five percent tariff on Chinese imported goods in China had
(08:44):
one hundred and five percent no, I'm sorry, one hundred
and twenty five percent tariff on US imported goods. Now,
after this ninety day pause, this has brought down US's
tariffs on China to only thirty percent in China only
ten percent. So this is a good environment to have
a reset for this next ninety days and allow those
(09:05):
trade negotiations to come through, because you know, China was
adaman on it and so is the US. That at
levels of one hundred and forty five percent and one
hundred and twenty five percent, you're essentially stopping all economic activity.
Speaker 3 (09:20):
Then that's that's not going to help anybody, right When you.
Speaker 1 (09:23):
Have two of the largest uh you know, economies in
the world having these massive trade barriers between each other,
that's not going to be a positive for global trade
and economic growth. So my myself and of course the
Investment Committee here at Bouchet, obviously we're very pleased to
see that this pause wasn't acted, and that will help
(09:45):
create some stability through those trade talks.
Speaker 3 (09:48):
Now, are we out of the woods yet?
Speaker 1 (09:51):
No, not necessarily, right, I mean a ninety day pause
is a ninety day pause. There hasn't actually been a
trade agreement put in play. And that's what's going to
be important over these next ninety days is continued talks
and resolutions between the US and China to create a
more stable environment of trade, to help and signal to
(10:13):
the markets that we know now we have fluidness going forward.
Right now, we're taking the unpredictability out of the markets
because that's the number one thing that markets hate the most,
it's uncertainty. Right well, could do this, it could do that.
Markets don't like that. They want to see concrete data.
And right now the ninety day pause just settles the
(10:35):
fact that, hey, we have some breathing room. Let's stop,
let's pause, Let's let these negotiations go through, and let's
see what real resolution gets put through. So as of
right now, all things you know in the market related
last week, we're positive. So again, we got inflation to
come down, we have the ninety day trade you know
pause with China, We've got PPI numbers that come down
(10:59):
retail sales a little challenging, but again when we look.
Speaker 3 (11:02):
At March, not too bad. Now.
Speaker 1 (11:05):
Some of the other key points that I, you know,
presented on on Wednesday, and you could also find the
recording of our webinar on Bouchet dot com under our
webinar's page, and again there's a lot of great information
both myself and Ryan presented.
Speaker 3 (11:20):
But we also looked at other.
Speaker 1 (11:21):
Key factors that were important that we're discussed really over
the last quarter. And the first one I really want
to bring up was the US GDP growth because when
we got GDP growth for the first quarter of this year,
it actually came in negative. We had a negative point
three percent GDP growth, and that was challenging, right because
(11:43):
this was right around when all the teriff conversations were
coming out and tariff implementation was coming through, and people
thought this was having a massive material effect already on
the economy. That point three percent negative GDP growth was
actually the first g negative GDP growth that we've had
since Q one of twenty twenty two, so it had
(12:05):
investors a little concerned. But again it's our job to
not only review the data, right but to go through
the data, peel back the onion, see what's underneath the hood.
And that's exactly what we did, because when we looked
at the first quarter GDP numbers, we saw that consumption,
which is again me, Vinnie, you listening what we spend
(12:26):
in the economy, which makes up seventy percent of our economy,
actually grew in the.
Speaker 3 (12:32):
First quarter by one point two percent.
Speaker 1 (12:34):
Business fixed investment actually grew in the first quarter by
one point three percent. Now, with the big drag on
the first quarter was that brought it to a negative
point three percent GDP growth was net exports right country.
I mean, companies were importing much much more goods and
services than normal, trying to get ahead of the potential
(12:57):
tariffs that were coming through the pipeline. And again that
was just a reactionary event, trying to get ahead of
April second. So when you take that away, we actually
had a solid first quarter of this year. It was
just the reaction around the terriff situation that brought us
to a negative point three percent GDP growth. So again,
(13:19):
even though it's negative, nothing of actual concern from a
data standpoint for us. The next thing that you know,
I really wanted to take a look at during our
webinar was the labor market, right, and I always talk
about how this is the foundation of the US economy
because if you don't have an employed America, then you
don't have, you know, a consumer that could go out
(13:40):
and spend. And if you don't have a consumer that
could go out and spend, then you don't have a
US economy. And we got to look at the April
jobs market earlier this month, and the expectation for how
many jobs were created in April was one hundred and
thirty thousand, and we actually came in at one hundred
in seventy seven thousand. So we still have a very
(14:03):
strong labor market and unemployment still stays near, you know,
historical lows, and that's important, right as we continue to
foster a strong economy, it needs to be a fully
employed economy, and we're going, you know, we're continuing to
see that within our US labor market, which is a positive.
(14:24):
Now some concerns that I highlighted in the webinar, and
I think this was a good one. Ryan actually shared
this chart with me. Was looking at credit card delinquency
rates going all the way back to the year two
thousand and with this chart shows is the peak delinquency
rates came between two thousand and one and two thousand
(14:45):
and two, the kind of the back of the dot
com bubble, And you saw that delinquency rates peak for
both the lowest income households and the highest and then
it goes down pretty dramatically through the Great Financial Crisis,
which is surprising, and all the way down to about
twenty twenty one.
Speaker 3 (15:02):
Then we see a tick up.
Speaker 1 (15:04):
And now currently right now, delinquency rates for both the
lowest and the highest income households are near the levels
that we saw back in two thousand and one.
Speaker 3 (15:14):
In two thousand and two.
Speaker 1 (15:16):
So we are starting to see some consumer fatigue. Yes,
the consumer's going out and spending money, and that's great,
but it is coming at a cost. And when I
say the highest income households, the top ten percent, that
number is only around five percent right of delinquency rates.
Speaker 3 (15:33):
So that's that's not really a massive challenge.
Speaker 1 (15:35):
It's it's something I want to keep an eye on,
but nothing that it has me purely panic. But you
look at the lowest income household the bottom ten percent,
we're seeing that number get a little bit north of
fifteen percent. Okay, that number is starting to creep up
and that can be a challenge. So again, nothing that
has us, you know, kind of sounding the alarm yet,
(15:58):
but something that we want to continue to monitor because again,
consumer spending is paramount for our economy and if we're
starting to see material cracks on consumer spending, that's something
that we're going to really want to take a look at. Now,
one last thing I want to kind of talk about
before I start Ropinvinnian here is where the Fed is
(16:18):
going to be taking us.
Speaker 3 (16:19):
With interest rates, right, and that's very important. Interest rates
and where the FED takes interest rates has material effects
on our everyday lives. Right.
Speaker 1 (16:28):
It affects what we purchase a car for, we buy
a home for, on your mortgage, what your personal loans are,
whatever the case may be. That is really the foundation
of where interest rates go. And right now, the FED
has the Federal funds rate between four point two five
percent and four point five percent. Now, all the data
(16:49):
supports right that we're going to continue to see rates
come down, especially this year. FED forecasts and market forecasts
believe that we're going to see probably two cuts in
the form of twenty five basis points each, so fifty
basis points in total, bring us the round three point
seventy five percent by your end. And what I talked
about earlier on the show, that data supports that right.
(17:11):
CPI in April comes down two point three percent, lowest
we've seen in four years. That is certainly a catalyst
towards the FED cutting rates. But I'm looking at the
Fed's funds futures market, which is just a fancy market
that shows what the probability the FED is going to
cut at the next meeting. And their next meeting is
in June, and I'm looking at the probability meter right now,
(17:34):
and there's a ninety two percent chance they don't cut
they hold rates steady. And you might say, well, wait,
Polo just said, you know they're bringing down you know,
the inflations continue to come down. PPI is coming coming down.
Retail sales were a little light. It seems like the
FED has everything that they need to cut rates. But
what the FED is also trying to take a look
(17:54):
at is where we go with tariffs. And again we've
already had resolution with the UK, We've had a ninety
day pause with the rest of the world, we have
a separate ninety day pause with China. That is all
great for now, but remember Jaypowllan company is looking out
not just one month, not just three months, but six months,
twelve months, twenty four months down the road, and they're
(18:15):
really trying to get their arms around the uncertainty of
what these tariff implications can have. The last thing they
want to do is prematurely cut rates and then see
that the China trade talks reverse get in that inflationary
environment with lower interest rates. That would put them in
a dilemma. And that's exactly what I name these slides
(18:36):
in the presentation is the Fed's dilemma, right, because it
seems like they have all the data they need to
cut rates, but they also have a lot of uncertainty
still in the marketplace and really just trying to move
meeting by meeting forward and figuring out exactly, you know,
where they're going to want to cut rates and buy
how much. Now, Vinnie, I'm sure the listening audience is
(19:00):
already probably getting sick of me talking about some some
economic data. So I really want to rope you in
and talk about some tax planning.
Speaker 3 (19:07):
And we talked about, you know.
Speaker 1 (19:09):
The Preakness yesterday and we got the Bellmont as I'm
sure you're very well aware of.
Speaker 3 (19:14):
Coming up in June.
Speaker 1 (19:15):
And I think something that's interesting and I was hoping
you could talk about because you know a lot of
people in Saratoga or maybe even the Capital district, can
you know, get behind this is something called the Augusta Rule.
Speaker 3 (19:26):
Do I have that right?
Speaker 2 (19:28):
Yeah? Yeah, absolutely, And again we encourage all listeners to
call in at eight hundred talk WGY. That's eight hundred
and eighty two five five nine four nine, and yeah,
that's right. Pollow the Augusta rule, and that's something that
you use. You know, I've known Powell for fifteen years,
probably even longer than that. Now we're both controlling. We
both came out of the firm together, so Paul and
I have a really close personal relationship, and I know
(19:48):
that Polo uses this kind of loophole that the tax
law provides called the Augusta rule. And that's when you're
able to rent your personal residence for fourteen days or
less and in turn, you're not, you know, required to
report that rental income as taxable income in your tech
(20:09):
so it's all tax free. So Polow's house, what he said,
is on the staffs in Saratoga, right next to the track.
And I know that every year he has some folks
come in because he lives right next to the horse auction,
So some folks come in for the horse auction every year.
And Pollow rents his personal residence for less than fourteen days,
and Pollow is not required to report that it taxable income. Right,
(20:29):
that's a great benefit. The reason that it's called the
Augusta rule and follow is a little bit more uh
roped in on golf and I am, but what is
the Master's tournament that this culting is in Georgia? Pollow?
That's right, Yeah, So that that's what the name of
the rule comes from. Because folks that own property around
(20:51):
that Master's tournament, the golf tournament, would rent out their
properties for fourteen days or less and the you know
tax law I R. S had given them that kind
of that loophole and way out of report of that
taxbule income and rental income. And obviously a really great benefit.
And again that applies in places like Saratoga, right, these
hot spots that maybe for a short period of time,
(21:13):
folks come on in and you know, short term rentals
can be very lucrative and there's a huge demand for it.
So yeah, that's, honestly, you know, in my opinion, one
of the great tax loopholes of the individual and individual taxpayer.
Speaker 3 (21:27):
And that's amazing.
Speaker 1 (21:28):
So if somebody does do this ven a, and as
you pointed out, I have certainly taken advantage of this before,
but there's no filing, no reporting that needs to be
involved if it stays under fourteen days. You know, I
just want to make sure the listening audience has all
the correct information in case they want to take an
opportunity like this.
Speaker 2 (21:49):
No, no no reporting required at all. You're not you know.
Also you're not able to write off expenses either. Right,
so sometimes when you have a rental property, you'll be
able to deduct rentals and your rental property could being
a loss, and that could be beneficial because you know,
if you have W two income or are their business income,
you'd be able to deduct a limited amount of rental
(22:10):
losses against that income. So there's no reporting required whatsoever.
But the caveat is even if you had rental expenses
that exceeded that rental income, you wouldn't be able to
utilize those losses, which is kind of you know, not ideal,
But in most situations, if you're doing a short term rental,
you're probably gonna have net income because any expenses that
are associated with your personal residence, you only be able
(22:31):
to pro rate those expenses for the period of time
that the home was rented. And you know, all in all,
for a short term rental in a place like Saratoga
or Dusta, Georgia, you know that rental income is gonna
be pretty high, and it's hard to believe that any
expenses that are pro rated in that period of time
would you know, overseed the rental income.
Speaker 1 (22:52):
So yeah, now that that makes a lot of sense.
And again has any pointed out My wife and I
has taken advantage of that multiple times. So when we
have the fact titman sales that come in and you
have people from all over the world that that want
to come in and participate in the WHRSE sales, and well,
it's you know, tough to step away from Saratoga during
(23:14):
some of the most peak weeks of the year.
Speaker 3 (23:17):
It's usually the first two weeks of August, you know.
Speaker 1 (23:20):
Having some rental property income coming in and not having
to you know necessarily, you know, do too much around.
That has certainly been beneficial, and you know, I've had
nothing but great experiences from it. I know my brother
has the house up here as well, and he takes
advantage of that rule. And you know, so anybody that's
(23:42):
in the area that has people that want to come
in and see a sporting event or see a sale,
or whatever the case may be. I highly encourage that
you take advantage of that rule. And you know, Vinnie's
also going to be bringing up a lot of tax
planning strategies on the second half of the show, and
I'm going to be talking a little bit more about
market specific as well. But as Vinny pointing out, we'd
(24:02):
love to hear from you. That number is one eight
hundred talk WGY. That's one eight hundred eight two five, five,
nine four nine, And you will catch us on the
second half of this show. It's crazy to think we
already ran through the first thirty minutes, but you are
listening to Let's Talk Money, brought to you by the
Bouchet Financial Group, where we help our clients prioritize our
health while we manage their wealth for life.
Speaker 3 (24:41):
Is there a break?
Speaker 1 (24:42):
But I do have my colleague with me, Vincenzo test
the CPA, CFP and E c A.
Speaker 3 (24:49):
Vinny.
Speaker 1 (24:49):
We have in some great conversations, you know, right before
the break, and we just started to get into some
of the tax strategies. And actually, before I even rope
you into this, I do want to put it back
out there. We would love to hear from the listening
audience any investment questions, economic questions, tax planning, whatever the.
Speaker 3 (25:08):
Case may be.
Speaker 1 (25:09):
Phone lines are going to be open all throughout today's show.
That's one eight hundred talk WGY. That's one eight hundred
eight two five five nine four nine. Again, that's one
eight hundred eight two five five nine four nine. And also, Vinnie,
actually before I broke you in, I really wanted to
share something important. It's a it's an event that we're
(25:32):
hosting and I think every one of our listeners will
benefit from it, and I really want you to ask yourself,
are you confident that your wealth is protected and optimized
for the future these uncertain times. It's not just about
how much you make, it's about how much you keep.
So join us for this exclusive event. It's called planning
with purpose, taking control of your wealth and uncertain times.
(25:55):
And this is for anyone who wants clarity around the
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event is going to cover how to maximize the after
tax wealth, preserve what you've built, and plan intentionally for
your future. It's all happening soon and space is limited,
so you want to visit bouchet dot com that is
(26:17):
be as in boy oeuch e.
Speaker 3 (26:20):
Y dot com to sign up today.
Speaker 1 (26:23):
Just look for that sign up button at the bottom
of our homepage. And this event is going to be
you know, ran by Ryan Bouchett, who is our chief
investment officer, and also Michael Ginsberg who is an amazing
attorney in this area. So we would love to see
you there and help you take control of your financial future. Now,
(26:45):
Vinnie again coming back to really those tax planning and
you know, tax preparation conversations we just wanted to start with.
Wanted to see if there's anything else you really wanted
to highlight that kick off the second half of the show.
Speaker 2 (26:58):
Yeah, absolutely, following again, and like Paula said, we encourage
all listeners to paul in at eight hundred talk WGY.
That's eight hundred eighty two five five nine four nine.
And one of the things that I think differentiates we,
say a financial group from a lot of other firms
is the tax expertise we do have. So we do
have a tax preparation service or some of our clients, uh,
(27:19):
you know, we really try to give our clients the
best service we possibly can. And you know, tax prep
is you know, what some clients want and some clients,
you know, we refer to other CPAs. But really what
I think the breadth of what we do and the
most benefit that we bring to our clients is the
tax planning.
Speaker 3 (27:39):
Right.
Speaker 2 (27:40):
So if you think about, you know, your tax liability
from a federal income tax and state income tax perspective,
that's most likely one of the largest outflows of funds
that you'll have in your life is your tax liability. Right,
So if we can plan around that and save clients
money for strategic tax planning and you know, kind of
executing these strategies that I'm about to talk about, and
(28:03):
clients say tax liability, we minimize their tax liability. That's
so beneficial to clients. You know, alongside financial planning and
investment management, and there's ways to rope. All three of
those things, all three of those three things in together, right,
the financial planning, the tax planning, and the investment management,
and they all go hand in hand. And when we
(28:25):
do that for clients, that's really you know, the end
all be all. Well, I feel like I get such
a dopamine rush from helping clients and executing those strategies.
It's really so beneficial. So, like I said, tax planning
really is you know a huge part of what we do.
You know, I'm a CPA. We have two other CPAs
on staff, John Malay and Ryan Bouchet, Steve Son, and
(28:49):
we have an E a Scott Strohecker, which is a CPA.
To be a CPA you have to have basically a
matter's theory in accounting, and some folks, you know, move
over the tax space when they're acking honest major or
finance major. So God having that EA or enrolled agent
designation gives him that expertise, you know, just like a
(29:09):
CPA would have as well, but just kind of Scott,
I think, was a major in economics, so he kind
of had to go that route. So we really do have,
you know a lot of tax expertise, and you know,
really beneficial in clients. You know, see the money we see,
you know, save them when it comes to tax planning.
So one of the most important things I think when
(29:30):
it comes to tax planning, right, it's kind of preparing
yourself for the preparation. Right, So we want to have
a proactive strategy rather than be being reactive as violence.
So a lot of the things we do for clients,
you know, they really range from raw conversions, deduction optimization,
tax loss harvesting, maybe a ten thirty one exchange for
(29:53):
those who aren't are familiar with, you know, real estate
investing at ten thirty one like kind of exchange is
when you own a rental property and maybe you depreciate
it over so many years, you've maybe even own it
for twenty years. If you sell that rental property, you're
going to have a pretty significant tax bill, right, So
there's a way to defer those taxes when you sell
(30:16):
the property, and that's called the like kind exchange. You
could do that with tangible property, right, So that's if
you're sell your rental property and buy another rental property
in a specific time period, you're able to basically move
your cost basis over to the new property. And not
pay taxes on the original sale. That's a like kind exchange.
What's really beneficial what we do with the firm for
(30:38):
our real estate investing clients is a ten point thirty
one exchange through something called a Delaware statutory trust. So
why is that beneficial? A Delaware statutory trust's basically a
fund similar to an ETAP or mutual fund that you
could sell rental property and place the funds into this,
you know, investment fund and kind of remove yourself from
(30:59):
being a landlord, remove yourself from the headaches of fixing
toilets at two am, and kind of just let your
money sit and for the taxes. So on the flip side,
the other benefit to it is for those of you
familiar with taxable brokerat accounts or real estate investing in general,
is when you pass away something called a step up
(31:22):
a basis. So if you bought a piece of property
for one hundred thousand dollars and you pass away and
it's worth three hundred thousand dollars, your beneficiary, the person
who inherits that property, is going to get a new
cost basis of three hundred thousand dollars because that's the
market value at the date of death, and when they
sell that property, there's no tax bill they were to
(31:44):
sell it. If you were to sell it while you
were alive, it'd be a huge tax bill because you
bought it for one hundred thousand, you depreciated it, maybe
your adjusted basis and the property is zero after depreciation,
you would have three hundred thousand dollars in taxable income.
But with the step of a basis, obviously you passed away,
you're not going to bene a benefit from it. But
it's a state planning, it's legacy planning. Right, your beneficiaries
(32:05):
are going to reap the benefits of not having to
pay taxes on that. The Delaware statutory trust also holds
the same benefit. You get that step up in basis.
You sell tangible real estate. Maybe you own a rental property.
You know all of me. Maybe you own a rental
property in Saratoga. You're sick of being a landlord, you're
sixty five, you're retiring, you just can't do it anymore.
This is a way to take those funds from the
(32:27):
sale real estate and put them into a fund and
let it sit passively. It's still invested in real estate.
Speaker 3 (32:34):
Right.
Speaker 2 (32:34):
A lot of the Delaware statutory trusts that we use.
They might be invested in a commercial mall in Arizona
or you know, a manufacturing plant in New Mexico. Right,
So it's a way to still be invested in real estate,
but be completely hands off and get that step up
in basisy, let it sit in the trust and you
know you're kind of just hands off and reap the benefits,
(32:57):
especially from a state planning perspective, right. And you're deferring
the tax that's really the most important part of it all.
And upon your debt, you're avoiding the taxes. Right. There's
a difference between tax evasion and tax avoidance. Tax avoidance
is legal. Tax evasions is when you know you end
up like Wesley Snipes and you're in prison for a
couple of years because you know you didn't fag your taxes.
(33:17):
So again, we encourage all listeners to call in and
talk WGY. That's eight hundred eight two five five nine
four nine. One of the other major things that we
do for our clients is raw conversions. So when we
have initial clients come in a lot of the times,
maybe they have a taxical brokerage account, maybe they have
(33:38):
you know old four or one KAY, but a majority
of our clients had. You know, you worked all these years,
you contribute to a four h one K, right, all
of those contributions to this four oh one K or
tax deferred, which means if you made one hundred thousand
dollars that made a contribution in any giving year of
ten thousand dollars to a four h one K, you
really made ninety thousand of taxable income because you get
(33:59):
to the dust your contribution to the four oh one
K from your taxable income when you pull the money
out of the four one K, or when you take
the four one K and roll it over to an IRA,
and then you have you hit R and D age
or you take out money for distributions and retirement. That
money is then taxable on the flip side at age
(34:19):
seventy three currently the age of seventy three, but it
increases the age seventy five in a couple of years.
You have something called the R M D. Right, So
the R and D is the IRS saying, hey, you
receive the tax benefit for so many years and defer
your taxes in your four one K in IRA. Now
we want our money back. We want. We want you
to take this amount out year by year because we
(34:43):
want our income tax paid back to us, you know,
at age seventy three and like I said, eight seventy
five in a couple of years. So that's call a
required minimum distribution. We manage all those for our clients
that have r and ds. You know this is no
one is exempt from an rm D, right, So if
you think about this, if you have a large amount
(35:04):
of funds in a tax deferred account and your R
and D age comes up, you're really in a tough
spot because the IRS is telling you, and the amount
is about four percent of the account balance in the
previous year, the IRS is telling you that you have
to take out four percent. So if you had an
IRA with five million, and some folks do some folks
have you know, maxed out their contributions over the years
(35:27):
and invested, well, you're gonna have to pull out two
hundred thousand dollars a year and you don't have a choice, right,
and what does that do? That really puts you in
a tough position to manage your taxable income, so you
could be getting pushed up. Let's say you have other
income on your taxes or maybe you have other investment income.
You have a taxical porker's account, maybe have a rental property,
maybe own a business of retirement. You have two hundred
(35:48):
grand coming in from your IRA, even if you don't
need it, So you could be getting pushed up in
the higher tax right, if you could be put in
push up into the highest tax bracket.
Speaker 3 (35:59):
Right.
Speaker 2 (35:59):
And the other thing is too. Medicare premiums are dependent
on your on your AGI, right, how much income you
have on your tax return, and that that's a pretty
you know, large range in terms of like the lowest
bracket for Medicare premiums, it's like one hundred and fifty dollars,
you can get push up to six hundred and fifty
dollars a month for both taxpayer en spouse. Right. And
(36:22):
like I said, it depends on the income on your
tax return. So when it comes to having a large
amount and tax the third iras, it puts you in
a tough spot. So that's why we do a lot
of roth conversion. A roth ira is the opposite of
attached to the third four one k or ira or
traditional ira that you put in the money after you
(36:42):
paid tax on it, and it grows tax free, right,
so you're able to the IRS allows you to you're
able to do Roth conversion, which is basically push money
out of your IRA or four one K and put
it into a ROTH. It's not the same as a
contribution to the ROTH IRA. You're only allowed to put
seven thousand dollars of contributed funds into an IRA and
(37:04):
eight thousand if you're over the age of fifty. With
ross conversions, you can put any amount in, but you
just have to push it out of the IRA, push
it out of the four one K and recognize the
tax bill income. So the way we do ross con
version planning for clients is, you know, we have a
software we you know, we take the last year's tax
turn to project out their income in the current year
(37:27):
and kind of use a stress test. Right, what's it
going to look like if we move thirty thousand this year?
What's it going to look like if we move fifty thousand,
are the medicare premiums going to get adjusted? Are they
going to be in a higher tax bracket than they
were before. We're looking at all of these things, you know,
utilizing the twenty thousand dollars New York tension annuity exclusion, right,
(37:48):
maybe twenty thousand dollars per person if of taxpayers and
using that we're always taking that into consideration. It's very
complex planning that we're doing for clients when it comes
to ROSSN versus because if you push the money out
of the IRA and so the raw guess what you
and you get ahead of it. If you're doing it
twenty years ahead of time in your rmb AH, guess what,
You're not going to have that problem coming to take
(38:09):
out two undred thousand dollars a year taxbill income out
of your IRA. You're not going to have that problem
of you know, paying higher Medicare premiums because the IRIS
is telling it you have to take money out of
your IRA. You're just not going to have that problem.
So you're paying the taxes now, you're paying it forward
to benefit in the future, right and this is year
you know future tax you're planning. We're doing it on
(38:29):
a consistent basis for all of our clients, and I
think that really differentiates us from a lot of the
firms in the area. I mean having an expertise that
we do have with all the CPAs and scott As,
the EA you know, we're really doing complex planning for clients,
but a lot of firms aren't doing and you know,
we're really proud of that. And again I encourage all
listeners to call in at eight hundred talk WGY. That's
(38:50):
eight hundred eight two five five nine four.
Speaker 3 (38:52):
Nine in Vine.
Speaker 1 (38:54):
Those those are really great strategies, and you know, I
really think that that is a huge differentiating factor between
us and other advisory firms. I mean, so often do
I have a conversation with an initial client that comes
in and Vinnie, you and me are sitting there and
we talked to the client, go, yeah, we'd love to
see your tax return. We're like, oh, what before my
(39:15):
previous advisor or my previous advisers have never asked for it.
And that is one hundred percent ingrained and what your
investment DNA should be as well.
Speaker 3 (39:24):
You know.
Speaker 1 (39:25):
So any really highlighted WROTH conversions were extremely important for
all of the great reasons that Viny laid out, whether
it's R and D management, switching assets from pre tax
to after tax, getting all that after tax growth, doing
Roth conversions in the midst of volatility, so all of
the rebound that you see in the markets is all
going to be after tax growth. Those are all great
(39:46):
strategies to implement, but you need detail planning around it.
Speaker 3 (39:50):
You can't just shoot from.
Speaker 1 (39:52):
The hip and say, hey, I listened to Vinnie and
Paulo on the radio and they said roth conversions are good,
so I'm just gonna.
Speaker 3 (39:59):
Take fifth thousand out. No, that's again, we have to
take a look.
Speaker 1 (40:03):
We got to do projections, and you really need, you know,
an EA or CPA like Vinnie to take a look
at this and making sure that we're in in the
realm of the same applicable tax brackets. The other thing
that Vinnie pointed out, which is something I'm very involved with,
is tax lost harvest thing. So tax loss harvest thing
(40:23):
just simply means you sell an investment for a loss
and you buy something that's like kinded, and that way
you're never out of the market and still fully see
the market rebounds. So, for instance, let's give a real
world scenario. I might own Let's say Apple, So I
own Apple and Apple goes down ten percent. I could
(40:44):
sell Apple realize that ten percent loss. So say that's
one thousand dollars of losses that I could either write
off on my taxes at year end, or use it
to offset any other gains I might have in the portfolio.
And right when I sell Apple, I'll buy microso at
the same exact time. Now they're two separately, you know,
two separate companies, but they're in the same realm of
(41:06):
you know, technology large caps, so we're going to get
very similar exposures. So the thought process here is you
could always harvest losses while always still fully remaining within
the market.
Speaker 3 (41:18):
That's important now.
Speaker 1 (41:20):
Traditionally within our portfolios, our core DNA is using ETFs
exchange traded funds. We love them because they're very liquid,
meaning you could buy and sell them at any point.
They're also very low cost compared to neutral funds. For instance,
one of our core holdings, it's expense ratio is point
(41:40):
zero three percent versus your active managed mutual fund your
average one is around one percent, so it's about ninety
seven percent cheaper than your average mutual fund. And the
other thing is they're very tax efficient. They don't have
anything called capital gains distribution, where year end the fund
is just going to kick out whatever gains that were
been realizing the fund. That doesn't happen with ETFs. But
(42:04):
even though those are you know, our DNA of our portfolios,
they can be challenging with tax loss harvesting just like
any other type of you know, uh mutual fund or ETF,
because you know, think about years like twenty twenty three
and twenty twenty four, right, that was the story of
the Magnificent Seven, those the seven largest technology stocks that
really powered the markets where the rest of the market
(42:27):
really wasn't doing well. So by holding an e ETF
that invests you into the s and P five hundred,
you know that fund might be up fifteen to twenty
percent in any given year like twenty twenty three and
twenty twenty four, but the majority of the stocks within
the SMP five hundred might even just be at a loss.
So what we have done is adopted a tech technology
(42:49):
called direct indexing to unlock these ETFs and allow us
to hold each one of the individual stocks that make
up the SMP five hundred, allow us to do tax
loss harvest thing continuously throughout the year. So it's just
like our ETF portfolios, except now we're going to get
(43:09):
the same exact exposure except holding all of those individual stocks.
And again, the benefit there is in any given day,
you might have you know, the whole index like the
S and P five hundred top one percent, but United
Health might be down fifteen percent. Like we saw this week,
United Health got into a criminal investigation for medicare advantage practices.
(43:31):
They also had a leadership change. They suspended their financial
outlook for twenty twenty five and the stock dropped about
fifty percent within a week. So having direct index thing
will allow you to sell you know, United Health and
buy another like kid Healthcare company. So we're perpetually always
realizing these losses while staying in the market, and that's
(43:53):
been extremely advantageous for our clients. And I know for
a fact that puts a smile on Viny's face. So
when I'm talking to him about the investment portfolios and saying, Hey,
by the way, Benny, we have you know, X, Y
and z amount of capital losses that we could work with.
That is always going to make your tax professional happy
about that. But something else I quickly wanted to talk about,
(44:15):
and if we could get a call, I would love
to get a call. That's one eight hundred top WGY
that's one eight hundred eighty two five five nine four nine.
We do have probably five six minutes left if somebody
wants to fit in a quick call. But Vinnie, there
is something that I thought you'd done a great job on.
Really brought it to the Investment Committee and we started
to model portfolios around this. But something called building a
(44:38):
tax smart portfolio, and I was wondering if you could maybe,
you know, share a few minutes on that.
Speaker 2 (44:44):
Yeah, So I think it's really important to look at
what types of accounts you have, whether the retirement accounts,
raw iras, visional iras, roll ober iras four one k's,
brokerage accounts, HSA kind of look at this collectively, right,
So I'll just give you an example when we're building
out portfolios and the things that we're looking at. So
(45:05):
let's have an example of someone with a tactical brokerage
account that's your typical investment account, Robinhood account, what have you?
An IRA four one K which is a tax the
third retirement account and a ross IRA. Right, Let's say
someone has all three of those. Where are you're placing
your assets? As you know, where can we put equities,
(45:27):
where can we put bonds? Where can we put alternative
investment assets? That we're managing for clients respective to each
of those accounts, right, Like what's beneficial. So another to
add to the example, let's say we have someone who's
in the sixty forty portfolios. Right, we have risk tolerances
that we give our clients. Right, how comfortable are you
with risk? How much money do you need in retirement.
(45:49):
We're looking at these things and telling, you know, working
with clients and suggesting that, oh, maybe you should be
in all stocks. You're young, you have so much time
to deal with the ups and downs of the morts.
You know, being an all equity is beneficial. Or you're
older and you can handle the volatility, and can you
own a business and you don't really need the money
in your portfolio or the growth portfolio which is eighty twenty.
(46:12):
But a lot of our retirees are in the sixty forty.
So let's say they have those three accounts, and we
look at those accounts and say, hey, maybe it makes
sense to put all of the equities into the taxable
account and the roth IRA, right, depending on the balances
of each. Right, it's kind of on a case by
case basis of how we would allocate these funds. Put
(46:33):
all the equities in the taxable account in the rough ira.
Because the taxable account, if even if you were to
sell you as capital gains and taxunt they're at preferential rates, right,
preferential taxics long term capital gain rates are much lower
than ordinary income rates. And when the client passes away
and the beneficiaries inherit the taxable account, it's beneficial to
(46:55):
the beneficiary because you did a step up a basis.
So if they were to sell all the funds in
the tax of varage account upon inheritance, there'd be no
tax liability. So that's beneficial. The rawth iry, all of
it's growing tax free. So with equity you're going to
have more upside over the long term, right versus a bond.
A bond is never going to return, you know, as
(47:16):
much as equities over a long period of time. So
you want to put the risk on assets in the
taxable account and the raw diray because of all of
those benefits. And then may we throw all the bonds
in the ira? Right, we kind of want to stunt
the growth of the Ira because of what I was
just talking about with roth conversions. You don't want that
your tax the fird account to grow to a high
(47:36):
number because you're going to have those tax issues in
retirement as far as you know, when your R and
D comes and you're having to pull out certain amounts
out of your IRA and you have no control over it.
So that's really how we're building out portfolios. And we're
looking at, like I said, the tax planning, the financial planning,
and the investment management all comes you know together, it's
full congruence. And this is really, you know, like I said,
(47:58):
the dopamine shot that I get is when we help
clients and all these things you know, go hand in
hand and we make it all work. But we do
have thirty seconds left, you know, Paula and I appreciate
everyone for listening in. You are listening to Let's Talk Money,
brought to you by Bouchet Financial Group, where we help
our clients prioritize their health, where we manage their wealth
for life. Thank you,
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, Paulo la Pietra, one of the wealth
advisors along with portfolio strategists. You're at the Bouchet Financial Group,
sitting in for Steven Bouche, who is taking a very
well deserved break. But I do have my colleague with me,
(00:31):
Vincenzo Tesla, Certified Financial Planner CPA and Eca boys out
of mouth bowl, Vinny, how are we doing this morning?
Speaker 2 (00:40):
Good follow Thanks for having me, of.
Speaker 1 (00:42):
Course, of course. And Vidio, I know you're a big
horse guy. Did you catch the Preakness yesterday?
Speaker 2 (00:48):
I did? I did. It looks like the two horse
came from behind and took it all. I didn't have
him in my exactly box. But what can you do.
You win some you lose them, That's right.
Speaker 1 (00:58):
That is a certain at the center of horse racing.
And you know I live up here in Saratoga and
take driving down to East Ave, which I live on.
You know, you pass the Oklahoma Track and I saw
the horses warming up. Belmont is right around the corner,
so you know, Vinnie, I'm sure you're looking at those
horses and already starting to line up some of the
(01:19):
some of your favorites.
Speaker 3 (01:20):
So I'm looking forward to hearing who you have to pick.
Speaker 1 (01:24):
But folks, I bet you didn't join this morning to
hear Vinnie and I talk about some horse racing, and
I'm sure you did tune in to talk about some markets.
And we certainly had a lot of information come through
the markets this week. We had CPI numbers, we had
PPI numbers, we had retail sales. We reach a trader
agreement or a trade truce as of right now with China,
(01:46):
and the markets have certainly reacted with that, so I
want to go through that. We also had our quarterly
economic update. Webinar myself, who's the portfolio strategist, and then Ryan,
who's who is our chief investment officer, went through a
lot of economic information and market information, so I will
(02:07):
also be sharing that with you this morning, and then
of course with Vinnie on the call. Always want Vinnie
to be sharing some tax planning and tax strategies, and
we'll certainly get Vinnie sharing those strategies as well. But
where I really want to kick us off is let's
do a weekly market recap. Of what the major indices
(02:28):
did this week.
Speaker 3 (02:29):
So we had the.
Speaker 1 (02:30):
SMP five hundred up two point five to nine percent,
the tech heavy Nasdaq up three point three eight percent,
and the Dow Jones Industrial Average up only about one
point zero four percent, and a lot of that had
to do with United Health that we could get into
as well. We had the ten year Treasury sitting right
around four point four five percent, and then the VIX,
(02:53):
which is that volatility gauge, sitting in right around seventeen
point twenty four. The market's really pricing in this good environment, right.
They think that there's been a lot of trade resolution,
and they think that a lot of the economic data
that we've received has been a positive, and the market
has certainly been you know, reacting towards that. So all
(03:14):
good things again, a great week in the market, you know,
just you know, amazing to think about a month ago
when we were hitting you know, right around early April,
the terriffs just got rolled out. Market comes selling down,
We're down over twenty percent at one point, and here
we are right now, we're going to enter into Monday
(03:36):
of this week, and the S and P five hundred's
actually up one point five to three percent so far
this year. So it is amazing how much the markets
could turn around in just thirty days.
Speaker 3 (03:48):
And we talk about this all the time. We know
that the.
Speaker 1 (03:51):
Markets are always forward looking, right, You never really want
to be a prisoner of the moment of seeing all
the volatility and thinking, hey, this time is different. This
time the market isn't going to turn around because X,
y and z amount of factors.
Speaker 3 (04:07):
The truth of the.
Speaker 1 (04:08):
Matter is the volatility is just second nature to the markets.
It's always going to be here. So it's about devising
a plan, sticking to that plan, and riding through those
bouts of volatilities because volatility doesn't last.
Speaker 3 (04:23):
The long term investors do.
Speaker 1 (04:25):
And I think that's really important to understand at the
crux of your investment portfolios, knowing that you need to
be a long term investor, and that's really important. But
where I really want to kind of take us quickly
is just talking about some of the data that we
did get this week, and where we could first start
off is on Tuesday, we got CPI numbers, right, we
(04:48):
got inflation numbers, And I just remember doing the radio
show twenty twenty two, twenty three, twenty four inflation was
everything right because inflation was really the gauge of what
the Fed was looking at for where they're going to
bring interest rates. And now you know, since we've had
the tariff situation, it seems like tariffs have really taken
(05:09):
the driver's seat on what's been driving.
Speaker 3 (05:10):
The overall markets.
Speaker 1 (05:11):
But we need to remember inflation is still important. We
need to check in on the progress of how.
Speaker 3 (05:17):
We've been doing.
Speaker 1 (05:19):
And thankfully on Tuesday, when we got those numbers, CPI
on an annualized basis came in at two point three
percent year over year in April.
Speaker 3 (05:27):
That's amazing.
Speaker 1 (05:28):
That was actually below the market's expectations of two point
four percent, So certainly a positive to the markets, certainly
ammunition to the Fed to hopefully cut rates, and I'm
gonna want to get into that as well. But the
other good news on that CPI report is two point
three percent is the lowest inflation's been in four years.
(05:49):
So we have been making progress on inflation. We're not
quite there to that Fed's targeted two percent, but again
we knew that this is more of a longer term
approach and we just need to be patient and continue
to see where inflation takes us for right now that
doctors check in for April two point three percent, certainly
a positive. Then the next day we look into Wednesday,
(06:12):
we see our PPI report, So that's the producer price Index,
so that's what companies are actually producing at and how
much of that is costing them. And this is also
an important inflation factor because this gets passed down and
those PPI numbers actually came in down point one percent,
so another decrease, another positive towards this conviction call of
(06:39):
the Fed now garnishing enough information and enough data to
be able to be cutting rates.
Speaker 3 (06:45):
Now.
Speaker 1 (06:46):
On Friday, we did get retail sales numbers, and retail
sales are very important because that means what myself and
Vinnie and you listening, what we're going out and spending
in the economy, and that is very very important. I
talk about this so much because me, Vinnie, you listening,
we make up seventy percent of the US economy. So
(07:08):
if we're not going out and spending money, well, then
the US economy is not doing well. And we did
see retail sales slow to only point one percent growth
in April. That was a little bit challenging, But then
we need to step back and really take a look.
Speaker 3 (07:24):
At the numbers.
Speaker 1 (07:25):
Right, we don't want to just look at one month.
Let's now look back and say, oh, okay, what happened
in March. And we saw in March retail sales grew
to one point seven percent, and that was really a
lot of consumers getting out there and purchasing goods and
materials and services ahead of what they thought was going
to be a highly inflationary environment due to tariff. So
(07:46):
when you kind of take March and April and average
them together, we get certainly much more of a balancing act.
Speaker 3 (07:52):
So that's that's been a positive. Now again April's.
Speaker 1 (07:55):
Numbers slowan to just point one percent, that could be
a challenge, but we looked back to March in one
point seven percent, that paints a much more clearer picture
and much less of a cause of concern, And then,
of course that would be remissive. I didn't bring up
probably the most important news that we got, which came
on Monday, and that was the trade let's say truce
(08:20):
as of right now between the US and China, their
own separate ninety day pause, and obviously the markets really
enjoyed that. When we saw the markets strongly rebound off
of that. Because remember where we were before we enacted
this ninety day truce. We had one hundred and forty
five percent tariff on Chinese imported goods in China had
(08:44):
one hundred and five percent no, I'm sorry, one hundred
and twenty five percent tariff on US imported goods. Now,
after this ninety day pause, this has brought down US's
tariffs on China to only thirty percent in China only
ten percent. So this is a good environment to have
a reset for this next ninety days and allow those
(09:05):
trade negotiations to come through, because you know, China was
adaman on it and so is the US. That at
levels of one hundred and forty five percent and one
hundred and twenty five percent, you're essentially stopping all economic activity.
Speaker 3 (09:20):
Then that's that's not going to help anybody, right When you.
Speaker 1 (09:23):
Have two of the largest uh you know, economies in
the world having these massive trade barriers between each other,
that's not going to be a positive for global trade
and economic growth. So my myself and of course the
Investment Committee here at Bouchet, obviously we're very pleased to
see that this pause wasn't acted, and that will help
(09:45):
create some stability through those trade talks.
Speaker 3 (09:48):
Now, are we out of the woods yet?
Speaker 1 (09:51):
No, not necessarily, right, I mean a ninety day pause
is a ninety day pause. There hasn't actually been a
trade agreement put in play. And that's what's going to
be important over these next ninety days is continued talks
and resolutions between the US and China to create a
more stable environment of trade, to help and signal to
(10:13):
the markets that we know now we have fluidness going forward.
Right now, we're taking the unpredictability out of the markets
because that's the number one thing that markets hate the most,
it's uncertainty. Right well, could do this, it could do that.
Markets don't like that. They want to see concrete data.
And right now the ninety day pause just settles the
(10:35):
fact that, hey, we have some breathing room. Let's stop,
let's pause, Let's let these negotiations go through, and let's
see what real resolution gets put through. So as of
right now, all things you know in the market related
last week, we're positive. So again, we got inflation to
come down, we have the ninety day trade you know
pause with China, We've got PPI numbers that come down
(10:59):
retail sales a little challenging, but again when we look.
Speaker 3 (11:02):
At March, not too bad. Now.
Speaker 1 (11:05):
Some of the other key points that I, you know,
presented on on Wednesday, and you could also find the
recording of our webinar on Bouchet dot com under our
webinar's page, and again there's a lot of great information
both myself and Ryan presented.
Speaker 3 (11:20):
But we also looked at other.
Speaker 1 (11:21):
Key factors that were important that we're discussed really over
the last quarter. And the first one I really want
to bring up was the US GDP growth because when
we got GDP growth for the first quarter of this year,
it actually came in negative. We had a negative point
three percent GDP growth, and that was challenging, right because
(11:43):
this was right around when all the teriff conversations were
coming out and tariff implementation was coming through, and people
thought this was having a massive material effect already on
the economy. That point three percent negative GDP growth was
actually the first g negative GDP growth that we've had
since Q one of twenty twenty two, so it had
(12:05):
investors a little concerned. But again it's our job to
not only review the data, right but to go through
the data, peel back the onion, see what's underneath the hood.
And that's exactly what we did, because when we looked
at the first quarter GDP numbers, we saw that consumption,
which is again me, Vinnie, you listening what we spend
(12:26):
in the economy, which makes up seventy percent of our economy,
actually grew in the.
Speaker 3 (12:32):
First quarter by one point two percent.
Speaker 1 (12:34):
Business fixed investment actually grew in the first quarter by
one point three percent. Now, with the big drag on
the first quarter was that brought it to a negative
point three percent GDP growth was net exports right country.
I mean, companies were importing much much more goods and
services than normal, trying to get ahead of the potential
(12:57):
tariffs that were coming through the pipeline. And again that
was just a reactionary event, trying to get ahead of
April second. So when you take that away, we actually
had a solid first quarter of this year. It was
just the reaction around the terriff situation that brought us
to a negative point three percent GDP growth. So again,
(13:19):
even though it's negative, nothing of actual concern from a
data standpoint for us. The next thing that you know,
I really wanted to take a look at during our
webinar was the labor market, right, and I always talk
about how this is the foundation of the US economy
because if you don't have an employed America, then you
don't have, you know, a consumer that could go out
(13:40):
and spend. And if you don't have a consumer that
could go out and spend, then you don't have a
US economy. And we got to look at the April
jobs market earlier this month, and the expectation for how
many jobs were created in April was one hundred and
thirty thousand, and we actually came in at one hundred
in seventy seven thousand. So we still have a very
(14:03):
strong labor market and unemployment still stays near, you know,
historical lows, and that's important, right as we continue to
foster a strong economy, it needs to be a fully
employed economy, and we're going, you know, we're continuing to
see that within our US labor market, which is a positive.
(14:24):
Now some concerns that I highlighted in the webinar, and
I think this was a good one. Ryan actually shared
this chart with me. Was looking at credit card delinquency
rates going all the way back to the year two
thousand and with this chart shows is the peak delinquency
rates came between two thousand and one and two thousand
(14:45):
and two, the kind of the back of the dot
com bubble, And you saw that delinquency rates peak for
both the lowest income households and the highest and then
it goes down pretty dramatically through the Great Financial Crisis,
which is surprising, and all the way down to about
twenty twenty one.
Speaker 3 (15:02):
Then we see a tick up.
Speaker 1 (15:04):
And now currently right now, delinquency rates for both the
lowest and the highest income households are near the levels
that we saw back in two thousand and one.
Speaker 3 (15:14):
In two thousand and two.
Speaker 1 (15:16):
So we are starting to see some consumer fatigue. Yes,
the consumer's going out and spending money, and that's great,
but it is coming at a cost. And when I
say the highest income households, the top ten percent, that
number is only around five percent right of delinquency rates.
Speaker 3 (15:33):
So that's that's not really a massive challenge.
Speaker 1 (15:35):
It's it's something I want to keep an eye on,
but nothing that it has me purely panic. But you
look at the lowest income household the bottom ten percent,
we're seeing that number get a little bit north of
fifteen percent. Okay, that number is starting to creep up
and that can be a challenge. So again, nothing that
has us, you know, kind of sounding the alarm yet,
(15:58):
but something that we want to continue to monitor because again,
consumer spending is paramount for our economy and if we're
starting to see material cracks on consumer spending, that's something
that we're going to really want to take a look at. Now,
one last thing I want to kind of talk about
before I start Ropinvinnian here is where the Fed is
(16:18):
going to be taking us.
Speaker 3 (16:19):
With interest rates, right, and that's very important. Interest rates
and where the FED takes interest rates has material effects
on our everyday lives. Right.
Speaker 1 (16:28):
It affects what we purchase a car for, we buy
a home for, on your mortgage, what your personal loans are,
whatever the case may be. That is really the foundation
of where interest rates go. And right now, the FED
has the Federal funds rate between four point two five
percent and four point five percent. Now, all the data
(16:49):
supports right that we're going to continue to see rates
come down, especially this year. FED forecasts and market forecasts
believe that we're going to see probably two cuts in
the form of twenty five basis points each, so fifty
basis points in total, bring us the round three point
seventy five percent by your end. And what I talked
about earlier on the show, that data supports that right.
(17:11):
CPI in April comes down two point three percent, lowest
we've seen in four years. That is certainly a catalyst
towards the FED cutting rates. But I'm looking at the
Fed's funds futures market, which is just a fancy market
that shows what the probability the FED is going to
cut at the next meeting. And their next meeting is
in June, and I'm looking at the probability meter right now,
(17:34):
and there's a ninety two percent chance they don't cut
they hold rates steady. And you might say, well, wait,
Polo just said, you know they're bringing down you know,
the inflations continue to come down. PPI is coming coming down.
Retail sales were a little light. It seems like the
FED has everything that they need to cut rates. But
what the FED is also trying to take a look
(17:54):
at is where we go with tariffs. And again we've
already had resolution with the UK, We've had a ninety
day pause with the rest of the world, we have
a separate ninety day pause with China. That is all
great for now, but remember Jaypowllan company is looking out
not just one month, not just three months, but six months,
twelve months, twenty four months down the road, and they're
(18:15):
really trying to get their arms around the uncertainty of
what these tariff implications can have. The last thing they
want to do is prematurely cut rates and then see
that the China trade talks reverse get in that inflationary
environment with lower interest rates. That would put them in
a dilemma. And that's exactly what I name these slides
(18:36):
in the presentation is the Fed's dilemma, right, because it
seems like they have all the data they need to
cut rates, but they also have a lot of uncertainty
still in the marketplace and really just trying to move
meeting by meeting forward and figuring out exactly, you know,
where they're going to want to cut rates and buy
how much. Now, Vinnie, I'm sure the listening audience is
(19:00):
already probably getting sick of me talking about some some
economic data. So I really want to rope you in
and talk about some tax planning.
Speaker 3 (19:07):
And we talked about, you know.
Speaker 1 (19:09):
The Preakness yesterday and we got the Bellmont as I'm
sure you're very well aware of.
Speaker 3 (19:14):
Coming up in June.
Speaker 1 (19:15):
And I think something that's interesting and I was hoping
you could talk about because you know a lot of
people in Saratoga or maybe even the Capital district, can
you know, get behind this is something called the Augusta Rule.
Speaker 3 (19:26):
Do I have that right?
Speaker 2 (19:28):
Yeah? Yeah, absolutely, And again we encourage all listeners to
call in at eight hundred talk WGY. That's eight hundred
and eighty two five five nine four nine, and yeah,
that's right. Pollow the Augusta rule, and that's something that
you use. You know, I've known Powell for fifteen years,
probably even longer than that. Now we're both controlling. We
both came out of the firm together, so Paul and
I have a really close personal relationship, and I know
(19:48):
that Polo uses this kind of loophole that the tax
law provides called the Augusta rule. And that's when you're
able to rent your personal residence for fourteen days or
less and in turn, you're not, you know, required to
report that rental income as taxable income in your tech
(20:09):
so it's all tax free. So Polow's house, what he said,
is on the staffs in Saratoga, right next to the track.
And I know that every year he has some folks
come in because he lives right next to the horse auction,
So some folks come in for the horse auction every year.
And Pollow rents his personal residence for less than fourteen days,
and Pollow is not required to report that it taxable income. Right,
(20:29):
that's a great benefit. The reason that it's called the
Augusta rule and follow is a little bit more uh
roped in on golf and I am, but what is
the Master's tournament that this culting is in Georgia? Pollow?
That's right, Yeah, So that that's what the name of
the rule comes from. Because folks that own property around
(20:51):
that Master's tournament, the golf tournament, would rent out their
properties for fourteen days or less and the you know
tax law I R. S had given them that kind
of that loophole and way out of report of that
taxbule income and rental income. And obviously a really great benefit.
And again that applies in places like Saratoga, right, these
hot spots that maybe for a short period of time,
(21:13):
folks come on in and you know, short term rentals
can be very lucrative and there's a huge demand for it.
So yeah, that's, honestly, you know, in my opinion, one
of the great tax loopholes of the individual and individual taxpayer.
Speaker 3 (21:27):
And that's amazing.
Speaker 1 (21:28):
So if somebody does do this ven a, and as
you pointed out, I have certainly taken advantage of this before,
but there's no filing, no reporting that needs to be
involved if it stays under fourteen days. You know, I
just want to make sure the listening audience has all
the correct information in case they want to take an
opportunity like this.
Speaker 2 (21:49):
No, no no reporting required at all. You're not you know.
Also you're not able to write off expenses either. Right,
so sometimes when you have a rental property, you'll be
able to deduct rentals and your rental property could being
a loss, and that could be beneficial because you know,
if you have W two income or are their business income,
you'd be able to deduct a limited amount of rental
(22:10):
losses against that income. So there's no reporting required whatsoever.
But the caveat is even if you had rental expenses
that exceeded that rental income, you wouldn't be able to
utilize those losses, which is kind of you know, not ideal,
But in most situations, if you're doing a short term rental,
you're probably gonna have net income because any expenses that
are associated with your personal residence, you only be able
(22:31):
to pro rate those expenses for the period of time
that the home was rented. And you know, all in all,
for a short term rental in a place like Saratoga
or Dusta, Georgia, you know that rental income is gonna
be pretty high, and it's hard to believe that any
expenses that are pro rated in that period of time
would you know, overseed the rental income.
Speaker 1 (22:52):
So yeah, now that that makes a lot of sense.
And again has any pointed out My wife and I
has taken advantage of that multiple times. So when we
have the fact titman sales that come in and you
have people from all over the world that that want
to come in and participate in the WHRSE sales, and well,
it's you know, tough to step away from Saratoga during
(23:14):
some of the most peak weeks of the year.
Speaker 3 (23:17):
It's usually the first two weeks of August, you know.
Speaker 1 (23:20):
Having some rental property income coming in and not having
to you know necessarily, you know, do too much around.
That has certainly been beneficial, and you know, I've had
nothing but great experiences from it. I know my brother
has the house up here as well, and he takes
advantage of that rule. And you know, so anybody that's
(23:42):
in the area that has people that want to come
in and see a sporting event or see a sale,
or whatever the case may be. I highly encourage that
you take advantage of that rule. And you know, Vinnie's
also going to be bringing up a lot of tax
planning strategies on the second half of the show, and
I'm going to be talking a little bit more about
market specific as well. But as Vinny pointing out, we'd
(24:02):
love to hear from you. That number is one eight
hundred talk WGY. That's one eight hundred eight two five, five,
nine four nine, And you will catch us on the
second half of this show. It's crazy to think we
already ran through the first thirty minutes, but you are
listening to Let's Talk Money, brought to you by the
Bouchet Financial Group, where we help our clients prioritize our
health while we manage their wealth for life.
Speaker 3 (24:41):
Is there a break?
Speaker 1 (24:42):
But I do have my colleague with me, Vincenzo test
the CPA, CFP and E c A.
Speaker 3 (24:49):
Vinny.
Speaker 1 (24:49):
We have in some great conversations, you know, right before
the break, and we just started to get into some
of the tax strategies. And actually, before I even rope
you into this, I do want to put it back
out there. We would love to hear from the listening
audience any investment questions, economic questions, tax planning, whatever the.
Speaker 3 (25:08):
Case may be.
Speaker 1 (25:09):
Phone lines are going to be open all throughout today's show.
That's one eight hundred talk WGY. That's one eight hundred
eight two five five nine four nine. Again, that's one
eight hundred eight two five five nine four nine. And also, Vinnie,
actually before I broke you in, I really wanted to
share something important. It's a it's an event that we're
(25:32):
hosting and I think every one of our listeners will
benefit from it, and I really want you to ask yourself,
are you confident that your wealth is protected and optimized
for the future these uncertain times. It's not just about
how much you make, it's about how much you keep.
So join us for this exclusive event. It's called planning
with purpose, taking control of your wealth and uncertain times.
(25:55):
And this is for anyone who wants clarity around the
state planning tax strategies and protecting their legacy. And this
event is going to cover how to maximize the after
tax wealth, preserve what you've built, and plan intentionally for
your future. It's all happening soon and space is limited,
so you want to visit bouchet dot com that is
(26:17):
be as in boy oeuch e.
Speaker 3 (26:20):
Y dot com to sign up today.
Speaker 1 (26:23):
Just look for that sign up button at the bottom
of our homepage. And this event is going to be
you know, ran by Ryan Bouchett, who is our chief
investment officer, and also Michael Ginsberg who is an amazing
attorney in this area. So we would love to see
you there and help you take control of your financial future. Now,
(26:45):
Vinnie again coming back to really those tax planning and
you know, tax preparation conversations we just wanted to start with.
Wanted to see if there's anything else you really wanted
to highlight that kick off the second half of the show.
Speaker 2 (26:58):
Yeah, absolutely, following again, and like Paula said, we encourage
all listeners to paul in at eight hundred talk WGY.
That's eight hundred eighty two five five nine four nine.
And one of the things that I think differentiates we,
say a financial group from a lot of other firms
is the tax expertise we do have. So we do
have a tax preparation service or some of our clients, uh,
(27:19):
you know, we really try to give our clients the
best service we possibly can. And you know, tax prep
is you know, what some clients want and some clients,
you know, we refer to other CPAs. But really what
I think the breadth of what we do and the
most benefit that we bring to our clients is the
tax planning.
Speaker 3 (27:39):
Right.
Speaker 2 (27:40):
So if you think about, you know, your tax liability
from a federal income tax and state income tax perspective,
that's most likely one of the largest outflows of funds
that you'll have in your life is your tax liability. Right,
So if we can plan around that and save clients
money for strategic tax planning and you know, kind of
executing these strategies that I'm about to talk about, and
(28:03):
clients say tax liability, we minimize their tax liability. That's
so beneficial to clients. You know, alongside financial planning and
investment management, and there's ways to rope. All three of
those things, all three of those three things in together, right,
the financial planning, the tax planning, and the investment management,
and they all go hand in hand. And when we
(28:25):
do that for clients, that's really you know, the end
all be all. Well, I feel like I get such
a dopamine rush from helping clients and executing those strategies.
It's really so beneficial. So, like I said, tax planning
really is you know a huge part of what we do.
You know, I'm a CPA. We have two other CPAs
on staff, John Malay and Ryan Bouchet, Steve Son, and
(28:49):
we have an E a Scott Strohecker, which is a CPA.
To be a CPA you have to have basically a
matter's theory in accounting, and some folks, you know, move
over the tax space when they're acking honest major or
finance major. So God having that EA or enrolled agent
designation gives him that expertise, you know, just like a
(29:09):
CPA would have as well, but just kind of Scott,
I think, was a major in economics, so he kind
of had to go that route. So we really do have,
you know a lot of tax expertise, and you know,
really beneficial in clients. You know, see the money we see,
you know, save them when it comes to tax planning.
So one of the most important things I think when
(29:30):
it comes to tax planning, right, it's kind of preparing
yourself for the preparation. Right, So we want to have
a proactive strategy rather than be being reactive as violence.
So a lot of the things we do for clients,
you know, they really range from raw conversions, deduction optimization,
tax loss harvesting, maybe a ten thirty one exchange for
(29:53):
those who aren't are familiar with, you know, real estate
investing at ten thirty one like kind of exchange is
when you own a rental property and maybe you depreciate
it over so many years, you've maybe even own it
for twenty years. If you sell that rental property, you're
going to have a pretty significant tax bill, right, So
there's a way to defer those taxes when you sell
(30:16):
the property, and that's called the like kind exchange. You
could do that with tangible property, right, So that's if
you're sell your rental property and buy another rental property
in a specific time period, you're able to basically move
your cost basis over to the new property. And not
pay taxes on the original sale. That's a like kind exchange.
What's really beneficial what we do with the firm for
(30:38):
our real estate investing clients is a ten point thirty
one exchange through something called a Delaware statutory trust. So
why is that beneficial? A Delaware statutory trust's basically a
fund similar to an ETAP or mutual fund that you
could sell rental property and place the funds into this,
you know, investment fund and kind of remove yourself from
(30:59):
being a landlord, remove yourself from the headaches of fixing
toilets at two am, and kind of just let your
money sit and for the taxes. So on the flip side,
the other benefit to it is for those of you
familiar with taxable brokerat accounts or real estate investing in general,
is when you pass away something called a step up
(31:22):
a basis. So if you bought a piece of property
for one hundred thousand dollars and you pass away and
it's worth three hundred thousand dollars, your beneficiary, the person
who inherits that property, is going to get a new
cost basis of three hundred thousand dollars because that's the
market value at the date of death, and when they
sell that property, there's no tax bill they were to
(31:44):
sell it. If you were to sell it while you
were alive, it'd be a huge tax bill because you
bought it for one hundred thousand, you depreciated it, maybe
your adjusted basis and the property is zero after depreciation,
you would have three hundred thousand dollars in taxable income.
But with the step of a basis, obviously you passed away,
you're not going to bene a benefit from it. But
it's a state planning, it's legacy planning. Right, your beneficiaries
(32:05):
are going to reap the benefits of not having to
pay taxes on that. The Delaware statutory trust also holds
the same benefit. You get that step up in basis.
You sell tangible real estate. Maybe you own a rental property.
You know all of me. Maybe you own a rental
property in Saratoga. You're sick of being a landlord, you're
sixty five, you're retiring, you just can't do it anymore.
This is a way to take those funds from the
(32:27):
sale real estate and put them into a fund and
let it sit passively. It's still invested in real estate.
Speaker 3 (32:34):
Right.
Speaker 2 (32:34):
A lot of the Delaware statutory trusts that we use.
They might be invested in a commercial mall in Arizona
or you know, a manufacturing plant in New Mexico. Right,
So it's a way to still be invested in real estate,
but be completely hands off and get that step up
in basisy, let it sit in the trust and you
know you're kind of just hands off and reap the benefits,
(32:57):
especially from a state planning perspective, right. And you're deferring
the tax that's really the most important part of it all.
And upon your debt, you're avoiding the taxes. Right. There's
a difference between tax evasion and tax avoidance. Tax avoidance
is legal. Tax evasions is when you know you end
up like Wesley Snipes and you're in prison for a
couple of years because you know you didn't fag your taxes.
(33:17):
So again, we encourage all listeners to call in and
talk WGY. That's eight hundred eight two five five nine
four nine. One of the other major things that we
do for our clients is raw conversions. So when we
have initial clients come in a lot of the times,
maybe they have a taxical brokerage account, maybe they have
(33:38):
you know old four or one KAY, but a majority
of our clients had. You know, you worked all these years,
you contribute to a four h one K, right, all
of those contributions to this four oh one K or
tax deferred, which means if you made one hundred thousand
dollars that made a contribution in any giving year of
ten thousand dollars to a four h one K, you
really made ninety thousand of taxable income because you get
(33:59):
to the dust your contribution to the four oh one
K from your taxable income when you pull the money
out of the four one K, or when you take
the four one K and roll it over to an IRA,
and then you have you hit R and D age
or you take out money for distributions and retirement. That
money is then taxable on the flip side at age
(34:19):
seventy three currently the age of seventy three, but it
increases the age seventy five in a couple of years.
You have something called the R M D. Right, So
the R and D is the IRS saying, hey, you
receive the tax benefit for so many years and defer
your taxes in your four one K in IRA. Now
we want our money back. We want. We want you
to take this amount out year by year because we
(34:43):
want our income tax paid back to us, you know,
at age seventy three and like I said, eight seventy
five in a couple of years. So that's call a
required minimum distribution. We manage all those for our clients
that have r and ds. You know this is no
one is exempt from an rm D, right, So if
you think about this, if you have a large amount
(35:04):
of funds in a tax deferred account and your R
and D age comes up, you're really in a tough
spot because the IRS is telling you, and the amount
is about four percent of the account balance in the
previous year, the IRS is telling you that you have
to take out four percent. So if you had an
IRA with five million, and some folks do some folks
have you know, maxed out their contributions over the years
(35:27):
and invested, well, you're gonna have to pull out two
hundred thousand dollars a year and you don't have a choice, right,
and what does that do? That really puts you in
a tough position to manage your taxable income, so you
could be getting pushed up. Let's say you have other
income on your taxes or maybe you have other investment income.
You have a taxical porker's account, maybe have a rental property,
maybe own a business of retirement. You have two hundred
(35:48):
grand coming in from your IRA, even if you don't
need it, So you could be getting pushed up in
the higher tax right, if you could be put in
push up into the highest tax bracket.
Speaker 3 (35:59):
Right.
Speaker 2 (35:59):
And the other thing is too. Medicare premiums are dependent
on your on your AGI, right, how much income you
have on your tax return, and that that's a pretty
you know, large range in terms of like the lowest
bracket for Medicare premiums, it's like one hundred and fifty dollars,
you can get push up to six hundred and fifty
dollars a month for both taxpayer en spouse. Right. And
(36:22):
like I said, it depends on the income on your
tax return. So when it comes to having a large
amount and tax the third iras, it puts you in
a tough spot. So that's why we do a lot
of roth conversion. A roth ira is the opposite of
attached to the third four one k or ira or
traditional ira that you put in the money after you
(36:42):
paid tax on it, and it grows tax free, right,
so you're able to the IRS allows you to you're
able to do Roth conversion, which is basically push money
out of your IRA or four one K and put
it into a ROTH. It's not the same as a
contribution to the ROTH IRA. You're only allowed to put
seven thousand dollars of contributed funds into an IRA and
(37:04):
eight thousand if you're over the age of fifty. With
ross conversions, you can put any amount in, but you
just have to push it out of the IRA, push
it out of the four one K and recognize the
tax bill income. So the way we do ross con
version planning for clients is, you know, we have a
software we you know, we take the last year's tax
turn to project out their income in the current year
(37:27):
and kind of use a stress test. Right, what's it
going to look like if we move thirty thousand this year?
What's it going to look like if we move fifty thousand,
are the medicare premiums going to get adjusted? Are they
going to be in a higher tax bracket than they
were before. We're looking at all of these things, you know,
utilizing the twenty thousand dollars New York tension annuity exclusion, right,
(37:48):
maybe twenty thousand dollars per person if of taxpayers and
using that we're always taking that into consideration. It's very
complex planning that we're doing for clients when it comes
to ROSSN versus because if you push the money out
of the IRA and so the raw guess what you
and you get ahead of it. If you're doing it
twenty years ahead of time in your rmb AH, guess what,
You're not going to have that problem coming to take
(38:09):
out two undred thousand dollars a year taxbill income out
of your IRA. You're not going to have that problem
of you know, paying higher Medicare premiums because the IRIS
is telling it you have to take money out of
your IRA. You're just not going to have that problem.
So you're paying the taxes now, you're paying it forward
to benefit in the future, right and this is year
you know future tax you're planning. We're doing it on
(38:29):
a consistent basis for all of our clients, and I
think that really differentiates us from a lot of the
firms in the area. I mean having an expertise that
we do have with all the CPAs and scott As,
the EA you know, we're really doing complex planning for clients,
but a lot of firms aren't doing and you know,
we're really proud of that. And again I encourage all
listeners to call in at eight hundred talk WGY. That's
(38:50):
eight hundred eight two five five nine four.
Speaker 3 (38:52):
Nine in Vine.
Speaker 1 (38:54):
Those those are really great strategies, and you know, I
really think that that is a huge differentiating factor between
us and other advisory firms. I mean, so often do
I have a conversation with an initial client that comes
in and Vinnie, you and me are sitting there and
we talked to the client, go, yeah, we'd love to
see your tax return. We're like, oh, what before my
(39:15):
previous advisor or my previous advisers have never asked for it.
And that is one hundred percent ingrained and what your
investment DNA should be as well.
Speaker 3 (39:24):
You know.
Speaker 1 (39:25):
So any really highlighted WROTH conversions were extremely important for
all of the great reasons that Viny laid out, whether
it's R and D management, switching assets from pre tax
to after tax, getting all that after tax growth, doing
Roth conversions in the midst of volatility, so all of
the rebound that you see in the markets is all
going to be after tax growth. Those are all great
(39:46):
strategies to implement, but you need detail planning around it.
Speaker 3 (39:50):
You can't just shoot from.
Speaker 1 (39:52):
The hip and say, hey, I listened to Vinnie and
Paulo on the radio and they said roth conversions are good,
so I'm just gonna.
Speaker 3 (39:59):
Take fifth thousand out. No, that's again, we have to
take a look.
Speaker 1 (40:03):
We got to do projections, and you really need, you know,
an EA or CPA like Vinnie to take a look
at this and making sure that we're in in the
realm of the same applicable tax brackets. The other thing
that Vinnie pointed out, which is something I'm very involved with,
is tax lost harvest thing. So tax loss harvest thing
(40:23):
just simply means you sell an investment for a loss
and you buy something that's like kinded, and that way
you're never out of the market and still fully see
the market rebounds. So, for instance, let's give a real
world scenario. I might own Let's say Apple, So I
own Apple and Apple goes down ten percent. I could
(40:44):
sell Apple realize that ten percent loss. So say that's
one thousand dollars of losses that I could either write
off on my taxes at year end, or use it
to offset any other gains I might have in the portfolio.
And right when I sell Apple, I'll buy microso at
the same exact time. Now they're two separately, you know,
two separate companies, but they're in the same realm of
(41:06):
you know, technology large caps, so we're going to get
very similar exposures. So the thought process here is you
could always harvest losses while always still fully remaining within
the market.
Speaker 3 (41:18):
That's important now.
Speaker 1 (41:20):
Traditionally within our portfolios, our core DNA is using ETFs
exchange traded funds. We love them because they're very liquid,
meaning you could buy and sell them at any point.
They're also very low cost compared to neutral funds. For instance,
one of our core holdings, it's expense ratio is point
(41:40):
zero three percent versus your active managed mutual fund your
average one is around one percent, so it's about ninety
seven percent cheaper than your average mutual fund. And the
other thing is they're very tax efficient. They don't have
anything called capital gains distribution, where year end the fund
is just going to kick out whatever gains that were
been realizing the fund. That doesn't happen with ETFs. But
(42:04):
even though those are you know, our DNA of our portfolios,
they can be challenging with tax loss harvesting just like
any other type of you know, uh mutual fund or ETF,
because you know, think about years like twenty twenty three
and twenty twenty four, right, that was the story of
the Magnificent Seven, those the seven largest technology stocks that
really powered the markets where the rest of the market
(42:27):
really wasn't doing well. So by holding an e ETF
that invests you into the s and P five hundred,
you know that fund might be up fifteen to twenty
percent in any given year like twenty twenty three and
twenty twenty four, but the majority of the stocks within
the SMP five hundred might even just be at a loss.
So what we have done is adopted a tech technology
(42:49):
called direct indexing to unlock these ETFs and allow us
to hold each one of the individual stocks that make
up the SMP five hundred, allow us to do tax
loss harvest thing continuously throughout the year. So it's just
like our ETF portfolios, except now we're going to get
(43:09):
the same exact exposure except holding all of those individual stocks.
And again, the benefit there is in any given day,
you might have you know, the whole index like the
S and P five hundred top one percent, but United
Health might be down fifteen percent. Like we saw this week,
United Health got into a criminal investigation for medicare advantage practices.
(43:31):
They also had a leadership change. They suspended their financial
outlook for twenty twenty five and the stock dropped about
fifty percent within a week. So having direct index thing
will allow you to sell you know, United Health and
buy another like kid Healthcare company. So we're perpetually always
realizing these losses while staying in the market, and that's
(43:53):
been extremely advantageous for our clients. And I know for
a fact that puts a smile on Viny's face. So
when I'm talking to him about the investment portfolios and saying, Hey,
by the way, Benny, we have you know, X, Y
and z amount of capital losses that we could work with.
That is always going to make your tax professional happy
about that. But something else I quickly wanted to talk about,
(44:15):
and if we could get a call, I would love
to get a call. That's one eight hundred top WGY
that's one eight hundred eighty two five five nine four nine.
We do have probably five six minutes left if somebody
wants to fit in a quick call. But Vinnie, there
is something that I thought you'd done a great job on.
Really brought it to the Investment Committee and we started
to model portfolios around this. But something called building a
(44:38):
tax smart portfolio, and I was wondering if you could maybe,
you know, share a few minutes on that.
Speaker 2 (44:44):
Yeah, So I think it's really important to look at
what types of accounts you have, whether the retirement accounts,
raw iras, visional iras, roll ober iras four one k's,
brokerage accounts, HSA kind of look at this collectively, right,
So I'll just give you an example when we're building
out portfolios and the things that we're looking at. So
(45:05):
let's have an example of someone with a tactical brokerage
account that's your typical investment account, Robinhood account, what have you?
An IRA four one K which is a tax the
third retirement account and a ross IRA. Right, Let's say
someone has all three of those. Where are you're placing
your assets? As you know, where can we put equities,
(45:27):
where can we put bonds? Where can we put alternative
investment assets? That we're managing for clients respective to each
of those accounts, right, Like what's beneficial. So another to
add to the example, let's say we have someone who's
in the sixty forty portfolios. Right, we have risk tolerances
that we give our clients. Right, how comfortable are you
with risk? How much money do you need in retirement.
(45:49):
We're looking at these things and telling, you know, working
with clients and suggesting that, oh, maybe you should be
in all stocks. You're young, you have so much time
to deal with the ups and downs of the morts.
You know, being an all equity is beneficial. Or you're
older and you can handle the volatility, and can you
own a business and you don't really need the money
in your portfolio or the growth portfolio which is eighty twenty.
(46:12):
But a lot of our retirees are in the sixty forty.
So let's say they have those three accounts, and we
look at those accounts and say, hey, maybe it makes
sense to put all of the equities into the taxable
account and the roth IRA, right, depending on the balances
of each. Right, it's kind of on a case by
case basis of how we would allocate these funds. Put
(46:33):
all the equities in the taxable account in the rough ira.
Because the taxable account, if even if you were to
sell you as capital gains and taxunt they're at preferential rates, right,
preferential taxics long term capital gain rates are much lower
than ordinary income rates. And when the client passes away
and the beneficiaries inherit the taxable account, it's beneficial to
(46:55):
the beneficiary because you did a step up a basis.
So if they were to sell all the funds in
the tax of varage account upon inheritance, there'd be no
tax liability. So that's beneficial. The rawth iry, all of
it's growing tax free. So with equity you're going to
have more upside over the long term, right versus a bond.
A bond is never going to return, you know, as
(47:16):
much as equities over a long period of time. So
you want to put the risk on assets in the
taxable account and the raw diray because of all of
those benefits. And then may we throw all the bonds
in the ira? Right, we kind of want to stunt
the growth of the Ira because of what I was
just talking about with roth conversions. You don't want that
your tax the fird account to grow to a high
(47:36):
number because you're going to have those tax issues in
retirement as far as you know, when your R and
D comes and you're having to pull out certain amounts
out of your IRA and you have no control over it.
So that's really how we're building out portfolios. And we're
looking at, like I said, the tax planning, the financial planning,
and the investment management all comes you know together, it's
full congruence. And this is really, you know, like I said,
(47:58):
the dopamine shot that I get is when we help
clients and all these things you know, go hand in
hand and we make it all work. But we do
have thirty seconds left, you know, Paula and I appreciate
everyone for listening in. You are listening to Let's Talk Money,
brought to you by Bouchet Financial Group, where we help
our clients prioritize their health, where we manage their wealth
for life. Thank you,
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