Episode Transcript
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Speaker 1 (00:06):
Tonight, questions you need to be asking or strategies to
look into if you have now become a higher net
worth investor. Even if not, there is some good stuff
in here for you as well. You're listening to simply
money presented by all Worth Financial, I me Me Wagner
along with Bob's spondseller. The conversation does shift a little bit, Bob,
(00:28):
when you and I are working with someone who maybe
has been stuffing money to their FO one K since
they were first out of college, or they are executives,
they are higher earners, and they have maybe a couple
of million dollars and assets at this point, maybe more.
It's not just about maximizing the money at that point,
(00:50):
it's being really strategic about tax efficiency and in some
cases also this is money that may never be spent
in this person's lifetime. And then the conversation is also
about strategies for legacy planning.
Speaker 2 (01:06):
Yeah, I've I've had meetings recently, I'm saying, over the
last six to eight months with folks that have come
into the office, prospective clients that are just evaluating, Hey,
does it make sense to work with you guys? Yeah,
And oftentimes what I find to your point, Amy, Once
you've got a certain amount of money, the focus is
no longer do I have enough money to live and retire?
(01:29):
You know that box is checked. That's not a worry.
So I've had meetings where I've literally told people, Hey,
you don't need us. Yeah, you're gonna be okay, You're
not going to run out of money. You may want
us to be involved in your situation for all these
other things that we're going to talk about today, tax efficiency,
wealth planning, legacy planning for your kids, alternative investments, private investments,
(01:53):
all things that a lot of people never even think
about because they spend the first six fifty to sixty
years of their life just trying to make sure, Hey
can I retire and do I have enough money?
Speaker 1 (02:03):
Yeah, a little bit like the shift from the accumulation
phase into the distribution phase.
Speaker 2 (02:07):
Right.
Speaker 1 (02:08):
Certainly, at any point, I think if you're a higher
net worth investor, there are strategies you can employ, but
especially around then. I had actually a conversation with someone
this week who both of them highly highly successful, right
high earners. Over the course of their lifetime. She has retired,
he is retiring in just the next few weeks. They
(02:29):
have many, many different accounts, many different tax treatments, not
exactly sure what their asset allocation looks like. And we're
starting to have this conversation of you've done a great
job of accumulating, but how now can we be more
strategic about not only continuing to maximize what you've already built,
but being really tax efficient in how we're going to
(02:52):
start maybe even taking distributions from these accounts. Right, the
word strategy comes into play here. Now when you're in
your early twenties and just graduated from college and putting
money into for it's not really strategic. Put money away
later in life, though, it becomes a different conversation.
Speaker 2 (03:09):
Yeah, And what I also find is people come in
and I'm thinking of one new client in particular, when
they came to us Amy, these people had accounts at
like twelve to fourteen different financial institutions. And these are
both busy people. You know, they're working hard every day
running their business and what have you. And just the
exercise of getting everything organized and all into one place
(03:32):
where we could actually do some strategic planning, that was
a big first step for them. And I could just
see them exhale when they came into the office, it
saw that we had it all organized, and now we're
getting out the tax software and we're doing some actual planning.
This is stuff they hadn't looked at in over twenty years.
Speaker 1 (03:50):
Yeah, we have some first of all, great strategies that
we can use when it comes to your investments. Right
around here, we've talked a little bit recently on the
show about concentrated positions. Right, we see lots of people.
I'm just going to throw it out there, Procter and Gamble.
A large part of your retirement is in Procter and Gamble. Well,
that's great. We love this hometown team, We love this company.
(04:14):
They are as rock solid as you can get. But
we also know that any individual company, anything could happen
at some point, and so you know, there are strategies
around how can we maybe start to diversify you out
of that concentrated position. You know, if you were just
going to do that wholesale on your own from tonight
until tomorrow with a tax burden of that would be
(04:35):
potentially overwhelming.
Speaker 2 (04:37):
And that's why most people never do it or never
even talk about it, because all they can envision is, hey,
I'm going to sell this, you know, eight hundred to
a two million dollars worth of Procter and Gamble stock,
and I'm just going to get hamm ing to change,
so I don't even want to talk about it. Yeah, well,
there's a lot of things we can do to stage
that in over time and lessen that tax burden. Then
(04:58):
have a have a time strategy to get people where
they need to be from a diversification standpoint.
Speaker 1 (05:04):
Yeah, and we have some tools now where maybe before
it would have taken seven to ten years to diversify
it up where we can get you out in a
really tax efficient way in three years. So it used
to be those concentrated positions kind of backed you into
a corner as an investor, right it looked like you
had a lot of assets, but to actually use them
would be, you know, not super tax efficient. Well, now
(05:25):
there's strategy, so lots of I think opportunities here and
then just beyond the typical stocks versus bonds, we've got alternatives,
we've got private investments. Our chief investment officer Andy Stout
was on the show talking about this recently and just
kind of talking through, Hey, we've got access to some
things that maybe you as the average investor may not
(05:45):
have access to, but certainly the conversation in you know,
private debt, private equity, things like that, that you might
have access to that also maybe in the past wasn't
super liquid, your money might have been tied up for
a long time. Now you've got more options.
Speaker 2 (06:00):
Yeah, and for some of these you do need to
be a higher net worth investor because there's a term
called incredited investor to get into some of these things
that involves a net worth and income of a certain amount.
The reason to add these to your plan has to
do with managing risk, managing volatility, having some non correlated
asset classes in your portfolio. So there's some newer exciting
(06:23):
things out there with lower fees, lower lock up periods
of time that people ought to be learning about. And
we're finding people when they actually learn about some of
these opportunities, people are finding they make a lot of
sense to them and they're very open to exploring them
and putting them into their portfolio.
Speaker 1 (06:43):
You're listening to Simply Money presented by all Worth Financial
I Meani Wagner along with Bob Sponteller. If you have
worked really hard and saved really hard, and you might
consider yourself at this point a high net worth investor.
Maybe we would consider you that there are certain strategies
that you can be using to not only maximize what
you've had, but to keep more of it in your pocket.
(07:03):
And I would say, hey, even if you are not
quote unquote high networth, there's still a lot in here
some great strategies that apply to you as well. And
one of them is is state planning.
Speaker 2 (07:16):
Yeah, this is a topic that comes up often with
my clients, now that you know a lot of them,
I've worked with for you know, over twenty five thirty years.
These folks are in their late seventies to mid eighties,
and you know, while talking about rates of return and
private equity and in all these exciting fun topics, at
the end of the day, a lot of these folks
are now focused on what am I going to do
(07:38):
for my family? How are we going to make sure
we pass these assets down in a situation where I
can have peace of mind that my kids and my
grandkids are going to handle these assets responsibly. It's a
big topic, and oftentimes folks have not taught or had
a lot of discussions with their kids about how to
(08:00):
handle money and it becomes a worry to folks. You
know what happens if I dropped two million bucks on
each of my three kids, and you know, just hope
it all works out. Oftentimes it doesn't, and it's really
not the kid's fault. It's because they haven't been prepared.
So there's things like trusts and other things that we
(08:20):
talk about. Another thing that's coming up more and more
is just how to handle a vacation home. Because if
you've got multiple kids and spouses and you've got this
beloved lake house that everybody's enjoyed for the last thirty
forty years, things might change after mom and dad pass away.
What do we do with this place? Some of the
(08:42):
kids might want to continue to use it, Others say, well,
I want my piece of it. So you got to
talk about those things in advance, so there's not a
lot of misunderstanding and discord in the family down the road.
Speaker 1 (08:54):
It's interesting. I'm actually reading a book right now about
estate planning, and the numbers are I opening. It's not
so much that you have to have ten million dollars
to leave an impactful legacy. For a lot of my clients,
they've just saved and saved and saved, and then they
don't spend in retirement. So it's like you can either
like you know, travel first class to Europe for a
(09:16):
few months a year every year from now, but they're
not going to do that. So then those that money's
just going to grow in compound. And when we do
some forecasting on what's left at the end of this
happened yesterday in my office. I was forecasting five million
dollars at the end, and these people were flabbergasted by it.
And then it became a oh, we never even thought
about this. Our kids have no idea, And now that
(09:38):
I'm reading this book about this, the part of it
that makes me worried is there can be a major
breakdown and this bears it out in statistics. When we're
not having these conversations about what can be expected, kids
not on the same page, making terrible decisions, and so
money that could be set like passed down several generations
(09:59):
and up fizzling out in the next generation. So as
state planning becomes of the utmost important, not only that,
communicating about it well.
Speaker 2 (10:08):
One of the first questions I always ask somebody that
comes into the office, is just an open ended question,
tell me about your family. Yeah, and just let them talk,
because they all want to talk about their kids and
their grandkids. And in that conversation you can uncover very
quickly where some of the opportunities might be here to
(10:29):
have these discussions and do these plans. So, yeah, it's
important to have the conversations and put the plans in
place before we pass away, because things can unravel quickly
if you haven't communicated to your point and you haven't
put some firm plans in place.
Speaker 1 (10:47):
There's also some great strategies for those who are charitably inclined,
and this does not necessarily mean you have to have
millions of dollars to give away. Maybe you're already donating
regularly to your church. There could be some great opportunities
there to do those donations same impact right philanthropically, but
also do it in a more tax efficient way.
Speaker 2 (11:07):
The big one there, Amy, and I know you know
this and use this all the time, is the qualified
Charitable Deduction. And you do not have to be a
multimillionaire to do this. This works for everybody. If you're
over seventy and a half years old and have an
IRA and you're getting into this require minimum distribution phase
of life. Stop writing the checks to the church and
(11:30):
putting the twenty dollars bill in the offering plate. Use
your IRA to make your charitable gifts. Because one hundred
percent of anything that you give to charity coming out
of that IRA, that money does not hit your tax return.
It's a wonderful strategy to use. We do it all
the time and people are shocked that they can do this.
Speaker 1 (11:51):
So, by the way, if you have a concentrated position,
you can also donate those stocks right and not have
to pay taxes on them. So again, in lots of
opportunities here, here's the all Worth advice. Managing wealth is
not just about preserving financial resources. It's about how to
enrich your life, support your loved ones, and fulfilling your
(12:11):
personal vision for the future. Next, we are answering your
questions about four one ks plus. Is your company offering
a million bucks for winning their March Madness bracket challenge?
Speaker 2 (12:22):
No?
Speaker 1 (12:22):
One company is not ours. There you go, we'll talk
about it. Next. You're listening to Simply Money, presented by
all Worth Financial. You're in fifty five KRC the talk station.
You're listening to Simply Money presented by all Worth Financial.
I mean me Wagner along with Bob sponsellers. Straight ahead,
we are playing fact or fiction. Take close note those
(12:44):
of you who maybe have saved a little bit more right,
a little focus on those with a higher net worth.
This is my favorite time of year. It is like
Christmas in my home. We love college basketball. We have
literally brack. It's covering the island in the kitchen. We
are already talking smack to each other. And you know,
(13:06):
I realized that people's lives continue.
Speaker 2 (13:08):
Right.
Speaker 1 (13:08):
We're supposed to work while these games are going on.
Not easy to do. And apparently I'm not the only
one in this boat who finds it a little more
difficult to be productive when these major games are going
on during the day.
Speaker 2 (13:21):
Yeah. A recent study we came across found that March
madness could cost us economy to lose approximately twenty billion
dollars in lost productivity. I mean, we talk about tariffs
all the time. In what's really going to tank the
economy is you paying attention to your office pool instead
of working. And the study shows that this amounts I
(13:45):
don't know how they come up with this, but eighteen
hundred dollars per worker and lost productivity just due to
March madness.
Speaker 1 (13:53):
Okay. This research also says that four and ten people
who were participating said they called in sick for March. Okay,
I'm here, we're here today. Uh So it's not that
I'm calling in sick. But I Am not going to
lie to you and say that. First of all, you've
got your brackets out right here in the studio, but second,
in the background during the day, I am a little
(14:13):
bit watching these games. I am a little bit checking
these scores.
Speaker 2 (14:17):
Well, what I'm worried about, Amy, speaking of lost productivity,
is if your Kentucky Wildcats go down to the Troy
Trojans in the first round, I can picture you being
in the fetal position, you know, at home and maybe
not reporting to work until what next Wednesday.
Speaker 1 (14:33):
It's gonna it's there's some recovery from this. Just last night,
Trey and I were looking at every team that Troy
has already played this year and how they did. I mean,
this is this is big, big in my home. And listen,
not only are we competitive about this, but we want
to win the pools also. We never do. But do
you have an office pool and is it as good
(14:56):
as the one that Berkshire Hathaway has. Warren Buffett all
gets attention this time of year because he really tries
to have fun with us. The interesting thing is nobody
ever wins his pools.
Speaker 2 (15:08):
Yeah, employees of his company can win one million dollars
if they correctly pick winners of thirty out of the
tournaments thirty two first round games that end you know tonight. Yeah,
so get thirty out of thirty two a first round.
Mister Buffett's going to hand you a million dollars. How
about that?
Speaker 1 (15:27):
Well, listen, he's thrown out some other things, saying last
year he said, okay, to get the first rounds thirty
two games without air, you're gonna win the grand prize, right,
a million dollars and still didn't work, even though back
in also twenty sixteen, right, he took it one step further.
He said, I'm only going to give you a million
dollars for a perfect bracket. This year, I'm going to
(15:48):
give you a million dollars in perpetuity for the rest
of your life. A million dollars and still no one
has claimed. It almost makes me want to go to
work for Berkshire Hathaway for the month of March every year.
Is there a way to get in and out quickly?
I'm having to participate.
Speaker 2 (16:02):
I'm thinking about your son, Trey, because I think I honestly,
I think your son would come up with a way
to get six or seven of us to pull together, yep,
and split like a lottery ticket, fill out slightly different
pools and say, hey, one of us is bound to win.
We will split the million dollars evenly for life. Yeah,
and we'll all be able to retire and watch as
(16:24):
much basketball as we want.
Speaker 1 (16:26):
Well, I'll keep an eye on his bracket this year.
I'll report back to see how how likely he would
have been to win this. Every Sunday you'll find our
all worth advice in this and Sunny Inquirer. We give
you a preview though and Friday night show. First question
comes from Cody and Cincinnati. He says, I plan on
maxing out my four one K as soon as possible
this year. Will I still get my full match? So, Cody,
(16:47):
lots of people end up in your boat, and that's
you know, most of the time, when you're putting money
into your four one K, you're putting the same amount
out of your paycheck every month, every pay period, whatever
that looks like over the course of the year. But
maybe you get a bonus in the first quarter that's significant,
and you say, I'm just want to put as much
(17:07):
in of that bonus now. That way, I'm still having
the full impact on my four oh one K, but
my cash flow for the rest of the year is
going to be better, right because there's less that I'm
putting into that four oh one K. Well, that is
great as long as your company's four oh one K
has a true up feature, meaning that if you're putting
(17:28):
all of your money in at once. There are some
plans only at this point, about a third of them
who will do the match that they do at that point,
But because you're not putting money in for the rest
of the year, you're potentially leaving dollars on the table.
The true up feature means your company is checking in quarterly.
Even if you put money in all of it in
(17:48):
the first quarter, they're going to true up throughout the
year to put the rest of their match in. Again.
Two thirds of plans offer this true up feature, which
makes it great to put your money in if you
want it. On January first, max out your four one K.
Absolutely you can do that, but this is something of Hey,
just do a little research, ask your HR department if
(18:10):
you do have this feature in your plan, and then
go all in. You can fully fund that in the
month of January or whatever. So good idea. Let's just
double check on it before we do it, because we
certainly don't want to leave any free money on the table.
Let's get to K ask this question. They are in
Fort Thomas. What are your thoughts on having cryptocurrency in
your four to oh one K I.
Speaker 2 (18:31):
Love the question. This is kind of fun. This is
a fun one. I mean our thoughts on cryptocurrency. It
really doesn't matter where you invest. You know which vehicle
you use, but you know if you are going to
use crypto. One of the advantages of doing it in
a four to oh one K plan or an IRA
is all the gains, assuming you have some, are tax deferred.
(18:53):
So my only caution with a four to oh one
K plan because a lot of times you got to
be in a position to get in and out of
this stuff during the trading day, you know, not at
the end of every trading day. To me, if you're
going to do this in a four to one K plan.
Make sure you're doing it in a self directed brokerage
account that you can log into and do what you
(19:13):
need to do throughout the day. Talk about loss productivity
following up.
Speaker 1 (19:21):
Cool.
Speaker 2 (19:21):
Yeah, be careful here because if you're trying to daytate
day trade cryptocurrency, you might not be getting your job
done and that could have other consequences that you might
not have thought about.
Speaker 1 (19:34):
Wasn't in all honesty, I don't love the concept of
cryptocurrency in your four oh one K. I'm not saying
I'm against it as an investor, but I think this
is money that you have in the side that you
are not counting on for your retirement. If, however, you
are adamant about putting it in your four oh one K,
I would say, make sure that there's only a certain portion, right,
(19:57):
a small percentage of your overall portfolio that is going
into that. Coming up next, all Worth Chief Investment Officer
andy'st doubt next with some strategies for the investor who's
looking to be a little more tax efficient. You're listening
to Simply Money presented by all Worth Financial here in
fifty five KRC the talk station. You're listening to your
(20:23):
simply money. Then I'm by all Worth Financial Enemy Wagner
along with Bobs bond Seller. Many times we'll get someone
coming into our office. Maybe they've worked with other advisors
in the past, or they are di I wires and
they really understand investment philosophies. You know, they're trying to
figure out how they can get the highest possible return,
(20:43):
and off in the conversation I have with them is
what about taxes? Have you been keeping an eye on
taxes when you're investing in the look at the late
strangest look on their face, and then I bring up
this term called tax alpha and they're like, what exactly
are you talking about? Joining us tonight with I think
some great perspective on why all investors need to be
(21:04):
focusing on tax alpha. As our chief investment officer, Andy Stout, Andy,
let's just start with what tax alpha is for investors
who've maybe never thought about it before.
Speaker 3 (21:14):
When you think about the words tax and alpha, one
is good, one is bad, right, tax is bad? Alpha
is good? What alpha is? Think of alpha as just
excess return above some level. So tax alpha that is
really just the extra return investors can get from being
tax conscious or tax aware investing, So think of it
(21:36):
as that extra return by minimizing tax liabilities rather than
just by thinking about returns in isolation. You want to
take into consideration ways that you can lower your taxes.
Speaker 2 (21:49):
Andy, I'm curious just as an advisor in our office,
and I know you have the unenviable task of having
all of us come to you with all of our
client problems and say, Andy, help us fix it. So,
you know, when you think of some of the more
complex situations you see it come across your desk that
advisors bring to you. You know, for folks that maybe
(22:11):
have a little bit higher net worth and higher complex situation.
What are some of the more common things that you're
asking you're being asked to solve for or fix.
Speaker 3 (22:23):
Well, a lot of it might be related to concentrated stock.
They have so much and you know Procter and Gamble
in the in they but they have a large tax
or you know, small tax basis, meaning they would have
to pay a lot of taxes to sell out of it.
They're also concerned about, you know, I have this need
for income, I don't want to pay taxes. How can
(22:45):
we get some you know, some tax free income. Uh,
there's also just the idea of when you take that
money out. So you have clients who want to start
withdrawing money, that's where you want to start thinking about
the sequencing of those returns. And then you also have
people who might be charitably inclined, So how can you
(23:06):
how can you line up the idea to actually donate
the charity but doing it in such a way that
you know, it's almost like a double win. So rather
than just donating money out of your bank account, right,
you have other gifting strategies that could also reduce your
tax taxical incomes. So those are the things that I
see a lot.
Speaker 2 (23:26):
So when you talk about dovetailing a good investment strategy
with generating some tax alpha and tax efficiency. What have
been a couple of the key strategies that you've seen
come into our industry within the last say five to
ten years, and even specifically to some of the strategies
we have here at all Worth that you're excited about.
(23:46):
You know, things were able to bring to the table
to help people with these situations.
Speaker 3 (23:50):
Right, So, I mean there's a lot of things and
some of these have been around longer than five or
ten years. But just at a high level, I'll start
with asset low and this is where you take advantage
of putting some invest certain investments in tax bile accounts
and certain investments in non taxbile accounts. So, for instance,
what you might want to do is put your fixed
(24:14):
income or your bonds in a non taxbile a count
because that way you're not paying in your income tax
rate on the income that comes in from bonds. So
depending on what your tax rate is, you know, you
can look at what's called asset location, so locating your
investments and certain types of accounts to minimize your tax liability. Now,
(24:36):
also one thing to keep in mind, if you do
have some large positions in your you've held it for
maybe ten months or eleven months, and you're kind of
on the fence, it might be worth considering waiting another
month or two so you've held it for at least
a year, and now instead of paying a short term
capital gain, you're paying a longer term capital gain tax
(24:57):
rate which is much much lower, and that's going to
save you a lot of money. You could I mentioned
gifting a little bit ago abob, so using like a
donor advised fund or donating your most highly appreciated stocks
to whatever charity you have in mind. That way, you
lower your overall basis and you're essentially making a very
(25:19):
conscious decision that you know aligns with your values. And
we can get more complex things. I mean, there's some
complex tax loss harvesting that you could do with things
investments called direct indexes, which is a way to really
just give a lot of tax alpha. So a direct
index is really a passive investment, means it tries to
(25:41):
match an index return. However it does this through aggressive
tax loss harvesting. For example, maybe the fund owns both
home depot and lows. It might buy one and sell
another just to generate losses, but you still have that
similar type of exposure. There's lots of other things we
can get into, I mean, alternative assets like a ten
(26:01):
thirty one DST Delaware Statutory Trust fund that's it great
for tax deferral. There's KEYBOZ funds, qualified qualified opportunity zone funds.
You can also get into things like a long short
strategy where you look to generate a lot of tax
afas on if the market's going up or down, and
(26:22):
then those tax losses can be used offset gains in
other areas. So there's lots of ways that you can do.
Just make sure that it's right for your situation.
Speaker 1 (26:30):
Oh, we're Chief Investment Officer Andy Stout joining us tonight
with an I on being really tax efficient, going through
some great strategies that investors can think through. Andy, I've
gotten many many people in my office who are you know,
coming on board as a client of mine, who have
maybe not you know, some significant assets built up in
(26:51):
taxable accounts, and I will bring up the concept of
tax loss harvesting and they don't know what I'm talking
about right there? What do you what do you speaking of?
Let's they explinch them. They're like, yes, yes, sign me
up for that. That makes a lot of sense. Let's
walk through that from an investor's perspective and talk about
how that can really help, especially when you're getting to
(27:11):
the point of maybe taking distributions from those accounts, maybe
in retirement or whenever you need those. Yeah.
Speaker 3 (27:19):
So what tax loss harvesting is, And if you're not
familiar with it, it might sound like it's not a great thing, like, oh,
I have a loss. That's bad. Right, Well, markets and
investments they go up and down over time. Over the
long run, markets tend to move higher. We know that.
But what we can do is we can take advantage
of those pullbacks. So let's just say, hypothetically, you have
(27:42):
an investment in a large cap index fund. Let's just
say it's the S and P five hundred index fund
for my shares, and let's just say it drops in
value because the market pulls back, which is normal. What
you can do is you could sell that at that
time after it drops and essentially lock in the losses
(28:03):
and you can use those losses to offset gains in
other areas. But you still want to have that broad
exposure to large cap socks. So then you could look
at maybe something that's similar but not the same. You
don't want to buy the same fund, but maybe instead
you buy instead of the I shares S and P
five hundred fun you would buy a Vanguard as an example,
(28:23):
or State Street Total US Market or a Russell one
thousand fund. So it's also kind of in a large
cap space, but different fund family, different underlying index, and
you're getting a similar exposure, and that would allow you
to get that same large cap exposure, but you've banked
those losses and you can use those losses to offset
(28:44):
gains in other areas. You can also use up to
three thousand dollars of losses in a given counter year
to lower your taxable income.
Speaker 1 (28:51):
These are just important strategies for investors to think through,
and you know, not just only focus on what kind
of returns am I getting, but also how being as
tax efficient as possible, especially for those who are getting
closer to retirement, because I've seen a huge difference in
how much you can keep in your pocket versus how
much you're paying out to Uncle Sam. Great perspective, of
(29:11):
course from our chief investment officer, Andy Stout. You're listening
to Simply Money presented by all Worth Financial here on
fifty five krs the talk station. You're listening to Simply
Money presented by all Worth Financial. I mean you Wagner
along with Bob spons Allar. Do you have a financial
question you need a little help with. There's a red
button you can click them while you're listening to the show.
It's right there on the iHeart opp record your question.
(29:33):
It's coming straight to us and it is time to
play fact or fiction. Bob. Let's get right to it.
Fact or fiction. Once you reach kind of a certain point. Right,
your money has gotten to a certain point, it becomes
real money to you. Active management is always better than
passive investing.
Speaker 2 (29:52):
That is fiction, and that's something that has always surprised me.
You know, over the decades, I've been doing this as
people fall under the mistaken notion that now that they
have more money, their investments need to get more complicated
and therefore more expensive, and that's just not true. Oftentimes,
all of the great things people did to save and
(30:14):
invest and get themselves to the point where they had
have enough money and have a nice net worth saved
up or exactly the things that we should continue to
do in retirement. So in other words, if it ain't broke,
don't fix it.
Speaker 1 (30:29):
Yeah, I think there's a lot of smoke and mirrors
kind of involved in this. And I'll get some people
into my office who've talked to maybe some other advisors,
and they talk about all these complex strategies that they
think need to be applied. And I haven't doned the
show for a long time. I've looked at so much research,
and time after time after time again, passive investing, right
(30:50):
just tracking the markets and the indexes tend to land
you better than someone who's paid a lot of money
on Wall Street to keep their fingers in the pod
in and sell things all day every day. I think
you like the idea of having someone in there buying
and selling things, but often it just the research points
this out. It does not end up. You don't get
(31:12):
a higher return, you know, by by investing that way
than just having passive investing. Here's another one for you,
fact or fiction. Hedge funds, right, this is a big buzzword.
Do not guarantee better returns than passive investments. In fact,
many underperform if you're looking taking fees into.
Speaker 2 (31:29):
Account, that's a fact, and that feeds right into the
point that you were just making. You know, amy the
more complex these investments get, you know, they can have
lock up provisions, they almost always have higher fees. So
again it's important to understand what these things do, why
you want to even consider having them in your portfolio.
(31:51):
And that's another good reason to sit down with a
fiduciary advisor that actually knows how these investments work. They
can explain the pros and cons and you know, sometimes
keep you out of harm's way, so to speak.
Speaker 1 (32:04):
Well, and going back to what we just talked about
with our Chief investment officer, Andy Stout. When you have
more money saved and you've seen your net worth grow,
more than focusing on getting more complex in your strategies,
I think the focus also needs to be on how
to be more tax efficient in how you've invested, in
how you're taking these distributions out. So, yes, there are
(32:26):
things need to be thinking about, but it's not getting
like fancier or sexier or more complex in how you're investing.
Here's another one for you, Bob, fact or fiction. A
trust completely will shield your assets from any estate taxes.
Speaker 2 (32:42):
That's fiction, and estate taxes are becoming less and less
of an issue these days. For example, the state of
Ohio does not have an inheritance tax anymore. And the
federal estate tax you know, for a married filing joint couple,
you know that's done basic wills and trust. You know
you can shelter up to almost twenty eight million dollars
(33:03):
from federal estate taxes now. So what a trust really
does is it shields your assets from probate and then
as importantly, it allows you to get much more specific
about the timing over which you want to have your
airrors inherit your assets. So that's a reason to consider
a trust probate and just more customization of your estate
(33:28):
distribution strategy, not estate taxes factor fiction.
Speaker 1 (33:32):
Real estate always a better investment than stocks or equities
if you have maybe saved more money.
Speaker 2 (33:39):
Another fiction, and you know, without getting into the nitty
gritty details here, I mean, you have to evaluate everything
that you buy and invest in for a net rate
of return. And what I find is a lot of
times when you get into real estate, whether it be
your primary residence or a second home or vacation home,
emotion starts to creep into it and we try to
(34:02):
justify or rationalize the reason why we own real estate
and aren't really honest with ourselves about the true net
rate of return after expenses and you know, management fees
and everything else that goes into owning property.
Speaker 1 (34:18):
If you look at how the S and P. Five
hundred has done over the past one hundred years versus
real estate, right just on a chart, you will see
that the stock market has outperformed the real estate market. Now,
in this post pandemic world, rite post COVID, things are
a little bit all over the place. I mean, anecdotally.
(34:39):
The stories are, you know, the house down the street
from me just sold for you know, fifty thousand dollars
more than what it was worth, you know, a year ago.
I think those kinds of stories might, you know, over time,
not necessarily be true anymore.
Speaker 2 (34:54):
So.
Speaker 1 (34:54):
I think what you have to figure out is what
do you need your investment to do for you? Right
and look at it from that person instead. Coming up next,
we're going to take you inside Bob's world of wealth.
You're going to want to stick around for that. You're
listening to Simply Money presented by all Worth Financial here
in fifty five KRZ the talk station. You're listening to
(35:19):
Simply Money presented by all Worth Financial. I mean you
Wagner along with Bob's sponsaler. That music means one thing.
It is time to walk into Bob's world of wealth
where we are all going to learn something. What have
you got for us?
Speaker 2 (35:31):
Bob? Well Amy, you and I both talked about this
topic in recent days and weeks, and that's the fact
that we are often surprised when clients come into our
office preparing for retirement and they actually have no idea
what they're planning to spend.
Speaker 1 (35:46):
In retirement happens all the time.
Speaker 2 (35:49):
You know, we could talk about tax alfa, you know,
internal management expenses, all that kind of sexy stuff to
talk about, But at the end of the day, the
biggest number that's going to really move the needle and
determine the viability of retirement of your retirement plan is
how much are you going to spend? So you know,
I've made comments on this, so I wanted to dig
(36:09):
into this for just a couple of minutes. This is
what I mean in terms of what we all need
to be talking about in preparation for retirement and talking
about this with your spouse or significant significant other. We
all know the basic, you know, operating costs of operating
a household, but the things that change and evolve over time,
(36:29):
especially in those retirement years, are are things like, hey,
are the kids still living with you? Are you still
paying for college costs? And are those costs going to
disappear at some point? How's that going to impact your
overall budget. The other thing is travel. When people stop working,
they have more time, and you know, people have been
(36:49):
dreaming for years about having the opportunity to go travel
and do some things you need to You need to
figure out what that travel budget looks like and have
that be part of your plan. The other thing is grandkids.
You know, when grandkids show up, grandma and grandpa like
to spend money on them. And I've had a couple
(37:10):
of clients say, you know, Bob, no matter what our
retirement plan looks like, we are going to pay for
our grandkids private high school or college education. And I'm like, well,
have we talked about what that costs and is that
going to make you cash poor and retirement. Another thing
is aging parents. You know, and this is just real life.
(37:31):
About the time we get our kids raised, our parents
are starting to get to the age where they're having
health problems and depending on their financial situation and their
need for care, that can involve some expenses as well.
You've got to factor that into your retirement planning budget.
And then the last thing I wanted to bring up
is just long term care costs. Amy. We talked about
(37:52):
this on the show last week. It's a very important
topic that very few people ever talk about and bring
up with their advisor, and that could be a real
game changer in terms of how much money flies out
of your bank account and investment accounts in your latter years.
Speaker 1 (38:10):
I was standing in the lobby with one of my
clients last week and he said, you know, a few
years ago, I had the assumption that when I retired,
my expenses were going to be lower. And he said,
now that I'm getting closer to retirement, I realized they're
not going to be And I said, yes, that's exactly right.
I spend more money on the weekends because I have
more free time. What is retirement It is more free time.
It is more time to travel, to spoil the grandkids,
(38:32):
to do the things that you like. And that's going
to be likely more expensive than the cost of your
commute or your dry cleaning or whatever it was that
everyone thought was so much more expensive when they're working.
Important to understand these things. Thanks for listening, even listening
to Simply Money presented by all Worth Financial here in
fifty five krs. The talk station
Tonight, questions you need to be asking or strategies to
look into if you have now become a higher net
worth investor. Even if not, there is some good stuff
in here for you as well. You're listening to simply
money presented by all Worth Financial, I me Me Wagner
along with Bob's spondseller. The conversation does shift a little bit, Bob,
(00:28):
when you and I are working with someone who maybe
has been stuffing money to their FO one K since
they were first out of college, or they are executives,
they are higher earners, and they have maybe a couple
of million dollars and assets at this point, maybe more.
It's not just about maximizing the money at that point,
(00:50):
it's being really strategic about tax efficiency and in some
cases also this is money that may never be spent
in this person's lifetime. And then the conversation is also
about strategies for legacy planning.
Speaker 2 (01:06):
Yeah, I've I've had meetings recently, I'm saying, over the
last six to eight months with folks that have come
into the office, prospective clients that are just evaluating, Hey,
does it make sense to work with you guys? Yeah,
And oftentimes what I find to your point, Amy, Once
you've got a certain amount of money, the focus is
no longer do I have enough money to live and retire?
(01:29):
You know that box is checked. That's not a worry.
So I've had meetings where I've literally told people, Hey,
you don't need us. Yeah, you're gonna be okay, You're
not going to run out of money. You may want
us to be involved in your situation for all these
other things that we're going to talk about today, tax efficiency,
wealth planning, legacy planning for your kids, alternative investments, private investments,
(01:53):
all things that a lot of people never even think
about because they spend the first six fifty to sixty
years of their life just trying to make sure, Hey
can I retire and do I have enough money?
Speaker 1 (02:03):
Yeah, a little bit like the shift from the accumulation
phase into the distribution phase.
Speaker 2 (02:07):
Right.
Speaker 1 (02:08):
Certainly, at any point, I think if you're a higher
net worth investor, there are strategies you can employ, but
especially around then. I had actually a conversation with someone
this week who both of them highly highly successful, right
high earners. Over the course of their lifetime. She has retired,
he is retiring in just the next few weeks. They
(02:29):
have many, many different accounts, many different tax treatments, not
exactly sure what their asset allocation looks like. And we're
starting to have this conversation of you've done a great
job of accumulating, but how now can we be more
strategic about not only continuing to maximize what you've already built,
but being really tax efficient in how we're going to
(02:52):
start maybe even taking distributions from these accounts. Right, the
word strategy comes into play here. Now when you're in
your early twenties and just graduated from college and putting
money into for it's not really strategic. Put money away
later in life, though, it becomes a different conversation.
Speaker 2 (03:09):
Yeah, And what I also find is people come in
and I'm thinking of one new client in particular, when
they came to us Amy, these people had accounts at
like twelve to fourteen different financial institutions. And these are
both busy people. You know, they're working hard every day
running their business and what have you. And just the
exercise of getting everything organized and all into one place
(03:32):
where we could actually do some strategic planning, that was
a big first step for them. And I could just
see them exhale when they came into the office, it
saw that we had it all organized, and now we're
getting out the tax software and we're doing some actual planning.
This is stuff they hadn't looked at in over twenty years.
Speaker 1 (03:50):
Yeah, we have some first of all, great strategies that
we can use when it comes to your investments. Right
around here, we've talked a little bit recently on the
show about concentrated positions. Right, we see lots of people.
I'm just going to throw it out there, Procter and Gamble.
A large part of your retirement is in Procter and Gamble. Well,
that's great. We love this hometown team, We love this company.
(04:14):
They are as rock solid as you can get. But
we also know that any individual company, anything could happen
at some point, and so you know, there are strategies
around how can we maybe start to diversify you out
of that concentrated position. You know, if you were just
going to do that wholesale on your own from tonight
until tomorrow with a tax burden of that would be
(04:35):
potentially overwhelming.
Speaker 2 (04:37):
And that's why most people never do it or never
even talk about it, because all they can envision is, hey,
I'm going to sell this, you know, eight hundred to
a two million dollars worth of Procter and Gamble stock,
and I'm just going to get hamm ing to change,
so I don't even want to talk about it. Yeah, well,
there's a lot of things we can do to stage
that in over time and lessen that tax burden. Then
(04:58):
have a have a time strategy to get people where
they need to be from a diversification standpoint.
Speaker 1 (05:04):
Yeah, and we have some tools now where maybe before
it would have taken seven to ten years to diversify
it up where we can get you out in a
really tax efficient way in three years. So it used
to be those concentrated positions kind of backed you into
a corner as an investor, right it looked like you
had a lot of assets, but to actually use them
would be, you know, not super tax efficient. Well, now
(05:25):
there's strategy, so lots of I think opportunities here and
then just beyond the typical stocks versus bonds, we've got alternatives,
we've got private investments. Our chief investment officer Andy Stout
was on the show talking about this recently and just
kind of talking through, Hey, we've got access to some
things that maybe you as the average investor may not
(05:45):
have access to, but certainly the conversation in you know,
private debt, private equity, things like that, that you might
have access to that also maybe in the past wasn't
super liquid, your money might have been tied up for
a long time. Now you've got more options.
Speaker 2 (06:00):
Yeah, and for some of these you do need to
be a higher net worth investor because there's a term
called incredited investor to get into some of these things
that involves a net worth and income of a certain amount.
The reason to add these to your plan has to
do with managing risk, managing volatility, having some non correlated
asset classes in your portfolio. So there's some newer exciting
(06:23):
things out there with lower fees, lower lock up periods
of time that people ought to be learning about. And
we're finding people when they actually learn about some of
these opportunities, people are finding they make a lot of
sense to them and they're very open to exploring them
and putting them into their portfolio.
Speaker 1 (06:43):
You're listening to Simply Money presented by all Worth Financial
I Meani Wagner along with Bob Sponteller. If you have
worked really hard and saved really hard, and you might
consider yourself at this point a high net worth investor.
Maybe we would consider you that there are certain strategies
that you can be using to not only maximize what
you've had, but to keep more of it in your pocket.
(07:03):
And I would say, hey, even if you are not
quote unquote high networth, there's still a lot in here
some great strategies that apply to you as well. And
one of them is is state planning.
Speaker 2 (07:16):
Yeah, this is a topic that comes up often with
my clients, now that you know a lot of them,
I've worked with for you know, over twenty five thirty years.
These folks are in their late seventies to mid eighties,
and you know, while talking about rates of return and
private equity and in all these exciting fun topics, at
the end of the day, a lot of these folks
are now focused on what am I going to do
(07:38):
for my family? How are we going to make sure
we pass these assets down in a situation where I
can have peace of mind that my kids and my
grandkids are going to handle these assets responsibly. It's a
big topic, and oftentimes folks have not taught or had
a lot of discussions with their kids about how to
(08:00):
handle money and it becomes a worry to folks. You
know what happens if I dropped two million bucks on
each of my three kids, and you know, just hope
it all works out. Oftentimes it doesn't, and it's really
not the kid's fault. It's because they haven't been prepared.
So there's things like trusts and other things that we
(08:20):
talk about. Another thing that's coming up more and more
is just how to handle a vacation home. Because if
you've got multiple kids and spouses and you've got this
beloved lake house that everybody's enjoyed for the last thirty
forty years, things might change after mom and dad pass away.
What do we do with this place? Some of the
(08:42):
kids might want to continue to use it, Others say, well,
I want my piece of it. So you got to
talk about those things in advance, so there's not a
lot of misunderstanding and discord in the family down the road.
Speaker 1 (08:54):
It's interesting. I'm actually reading a book right now about
estate planning, and the numbers are I opening. It's not
so much that you have to have ten million dollars
to leave an impactful legacy. For a lot of my clients,
they've just saved and saved and saved, and then they
don't spend in retirement. So it's like you can either
like you know, travel first class to Europe for a
(09:16):
few months a year every year from now, but they're
not going to do that. So then those that money's
just going to grow in compound. And when we do
some forecasting on what's left at the end of this
happened yesterday in my office. I was forecasting five million
dollars at the end, and these people were flabbergasted by it.
And then it became a oh, we never even thought
about this. Our kids have no idea, And now that
(09:38):
I'm reading this book about this, the part of it
that makes me worried is there can be a major
breakdown and this bears it out in statistics. When we're
not having these conversations about what can be expected, kids
not on the same page, making terrible decisions, and so
money that could be set like passed down several generations
(09:59):
and up fizzling out in the next generation. So as
state planning becomes of the utmost important, not only that,
communicating about it well.
Speaker 2 (10:08):
One of the first questions I always ask somebody that
comes into the office, is just an open ended question,
tell me about your family. Yeah, and just let them talk,
because they all want to talk about their kids and
their grandkids. And in that conversation you can uncover very
quickly where some of the opportunities might be here to
(10:29):
have these discussions and do these plans. So, yeah, it's
important to have the conversations and put the plans in
place before we pass away, because things can unravel quickly
if you haven't communicated to your point and you haven't
put some firm plans in place.
Speaker 1 (10:47):
There's also some great strategies for those who are charitably inclined,
and this does not necessarily mean you have to have
millions of dollars to give away. Maybe you're already donating
regularly to your church. There could be some great opportunities
there to do those donations same impact right philanthropically, but
also do it in a more tax efficient way.
Speaker 2 (11:07):
The big one there, Amy, and I know you know
this and use this all the time, is the qualified
Charitable Deduction. And you do not have to be a
multimillionaire to do this. This works for everybody. If you're
over seventy and a half years old and have an
IRA and you're getting into this require minimum distribution phase
of life. Stop writing the checks to the church and
(11:30):
putting the twenty dollars bill in the offering plate. Use
your IRA to make your charitable gifts. Because one hundred
percent of anything that you give to charity coming out
of that IRA, that money does not hit your tax return.
It's a wonderful strategy to use. We do it all
the time and people are shocked that they can do this.
Speaker 1 (11:51):
So, by the way, if you have a concentrated position,
you can also donate those stocks right and not have
to pay taxes on them. So again, in lots of
opportunities here, here's the all Worth advice. Managing wealth is
not just about preserving financial resources. It's about how to
enrich your life, support your loved ones, and fulfilling your
(12:11):
personal vision for the future. Next, we are answering your
questions about four one ks plus. Is your company offering
a million bucks for winning their March Madness bracket challenge?
Speaker 2 (12:22):
No?
Speaker 1 (12:22):
One company is not ours. There you go, we'll talk
about it. Next. You're listening to Simply Money, presented by
all Worth Financial. You're in fifty five KRC the talk station.
You're listening to Simply Money presented by all Worth Financial.
I mean me Wagner along with Bob sponsellers. Straight ahead,
we are playing fact or fiction. Take close note those
(12:44):
of you who maybe have saved a little bit more right,
a little focus on those with a higher net worth.
This is my favorite time of year. It is like
Christmas in my home. We love college basketball. We have
literally brack. It's covering the island in the kitchen. We
are already talking smack to each other. And you know,
(13:06):
I realized that people's lives continue.
Speaker 2 (13:08):
Right.
Speaker 1 (13:08):
We're supposed to work while these games are going on.
Not easy to do. And apparently I'm not the only
one in this boat who finds it a little more
difficult to be productive when these major games are going
on during the day.
Speaker 2 (13:21):
Yeah. A recent study we came across found that March
madness could cost us economy to lose approximately twenty billion
dollars in lost productivity. I mean, we talk about tariffs
all the time. In what's really going to tank the
economy is you paying attention to your office pool instead
of working. And the study shows that this amounts I
(13:45):
don't know how they come up with this, but eighteen
hundred dollars per worker and lost productivity just due to
March madness.
Speaker 1 (13:53):
Okay. This research also says that four and ten people
who were participating said they called in sick for March. Okay,
I'm here, we're here today. Uh So it's not that
I'm calling in sick. But I Am not going to
lie to you and say that. First of all, you've
got your brackets out right here in the studio, but second,
in the background during the day, I am a little
(14:13):
bit watching these games. I am a little bit checking
these scores.
Speaker 2 (14:17):
Well, what I'm worried about, Amy, speaking of lost productivity,
is if your Kentucky Wildcats go down to the Troy
Trojans in the first round, I can picture you being
in the fetal position, you know, at home and maybe
not reporting to work until what next Wednesday.
Speaker 1 (14:33):
It's gonna it's there's some recovery from this. Just last night,
Trey and I were looking at every team that Troy
has already played this year and how they did. I mean,
this is this is big, big in my home. And listen,
not only are we competitive about this, but we want
to win the pools also. We never do. But do
you have an office pool and is it as good
(14:56):
as the one that Berkshire Hathaway has. Warren Buffett all
gets attention this time of year because he really tries
to have fun with us. The interesting thing is nobody
ever wins his pools.
Speaker 2 (15:08):
Yeah, employees of his company can win one million dollars
if they correctly pick winners of thirty out of the
tournaments thirty two first round games that end you know tonight. Yeah,
so get thirty out of thirty two a first round.
Mister Buffett's going to hand you a million dollars. How
about that?
Speaker 1 (15:27):
Well, listen, he's thrown out some other things, saying last
year he said, okay, to get the first rounds thirty
two games without air, you're gonna win the grand prize, right,
a million dollars and still didn't work, even though back
in also twenty sixteen, right, he took it one step further.
He said, I'm only going to give you a million
dollars for a perfect bracket. This year, I'm going to
(15:48):
give you a million dollars in perpetuity for the rest
of your life. A million dollars and still no one
has claimed. It almost makes me want to go to
work for Berkshire Hathaway for the month of March every year.
Is there a way to get in and out quickly?
I'm having to participate.
Speaker 2 (16:02):
I'm thinking about your son, Trey, because I think I honestly,
I think your son would come up with a way
to get six or seven of us to pull together, yep,
and split like a lottery ticket, fill out slightly different
pools and say, hey, one of us is bound to win.
We will split the million dollars evenly for life. Yeah,
and we'll all be able to retire and watch as
(16:24):
much basketball as we want.
Speaker 1 (16:26):
Well, I'll keep an eye on his bracket this year.
I'll report back to see how how likely he would
have been to win this. Every Sunday you'll find our
all worth advice in this and Sunny Inquirer. We give
you a preview though and Friday night show. First question
comes from Cody and Cincinnati. He says, I plan on
maxing out my four one K as soon as possible
this year. Will I still get my full match? So, Cody,
(16:47):
lots of people end up in your boat, and that's
you know, most of the time, when you're putting money
into your four one K, you're putting the same amount
out of your paycheck every month, every pay period, whatever
that looks like over the course of the year. But
maybe you get a bonus in the first quarter that's significant,
and you say, I'm just want to put as much
(17:07):
in of that bonus now. That way, I'm still having
the full impact on my four oh one K, but
my cash flow for the rest of the year is
going to be better, right because there's less that I'm
putting into that four oh one K. Well, that is
great as long as your company's four oh one K
has a true up feature, meaning that if you're putting
(17:28):
all of your money in at once. There are some
plans only at this point, about a third of them
who will do the match that they do at that point,
But because you're not putting money in for the rest
of the year, you're potentially leaving dollars on the table.
The true up feature means your company is checking in quarterly.
Even if you put money in all of it in
(17:48):
the first quarter, they're going to true up throughout the
year to put the rest of their match in. Again.
Two thirds of plans offer this true up feature, which
makes it great to put your money in if you
want it. On January first, max out your four one K.
Absolutely you can do that, but this is something of Hey,
just do a little research, ask your HR department if
(18:10):
you do have this feature in your plan, and then
go all in. You can fully fund that in the
month of January or whatever. So good idea. Let's just
double check on it before we do it, because we
certainly don't want to leave any free money on the table.
Let's get to K ask this question. They are in
Fort Thomas. What are your thoughts on having cryptocurrency in
your four to oh one K I.
Speaker 2 (18:31):
Love the question. This is kind of fun. This is
a fun one. I mean our thoughts on cryptocurrency. It
really doesn't matter where you invest. You know which vehicle
you use, but you know if you are going to
use crypto. One of the advantages of doing it in
a four to oh one K plan or an IRA
is all the gains, assuming you have some, are tax deferred.
(18:53):
So my only caution with a four to oh one
K plan because a lot of times you got to
be in a position to get in and out of
this stuff during the trading day, you know, not at
the end of every trading day. To me, if you're
going to do this in a four to one K plan.
Make sure you're doing it in a self directed brokerage
account that you can log into and do what you
(19:13):
need to do throughout the day. Talk about loss productivity
following up.
Speaker 1 (19:21):
Cool.
Speaker 2 (19:21):
Yeah, be careful here because if you're trying to daytate
day trade cryptocurrency, you might not be getting your job
done and that could have other consequences that you might
not have thought about.
Speaker 1 (19:34):
Wasn't in all honesty, I don't love the concept of
cryptocurrency in your four oh one K. I'm not saying
I'm against it as an investor, but I think this
is money that you have in the side that you
are not counting on for your retirement. If, however, you
are adamant about putting it in your four oh one K,
I would say, make sure that there's only a certain portion, right,
(19:57):
a small percentage of your overall portfolio that is going
into that. Coming up next, all Worth Chief Investment Officer
andy'st doubt next with some strategies for the investor who's
looking to be a little more tax efficient. You're listening
to Simply Money presented by all Worth Financial here in
fifty five KRC the talk station. You're listening to your
(20:23):
simply money. Then I'm by all Worth Financial Enemy Wagner
along with Bobs bond Seller. Many times we'll get someone
coming into our office. Maybe they've worked with other advisors
in the past, or they are di I wires and
they really understand investment philosophies. You know, they're trying to
figure out how they can get the highest possible return,
(20:43):
and off in the conversation I have with them is
what about taxes? Have you been keeping an eye on
taxes when you're investing in the look at the late
strangest look on their face, and then I bring up
this term called tax alpha and they're like, what exactly
are you talking about? Joining us tonight with I think
some great perspective on why all investors need to be
(21:04):
focusing on tax alpha. As our chief investment officer, Andy Stout, Andy,
let's just start with what tax alpha is for investors
who've maybe never thought about it before.
Speaker 3 (21:14):
When you think about the words tax and alpha, one
is good, one is bad, right, tax is bad? Alpha
is good? What alpha is? Think of alpha as just
excess return above some level. So tax alpha that is
really just the extra return investors can get from being
tax conscious or tax aware investing, So think of it
(21:36):
as that extra return by minimizing tax liabilities rather than
just by thinking about returns in isolation. You want to
take into consideration ways that you can lower your taxes.
Speaker 2 (21:49):
Andy, I'm curious just as an advisor in our office,
and I know you have the unenviable task of having
all of us come to you with all of our
client problems and say, Andy, help us fix it. So,
you know, when you think of some of the more
complex situations you see it come across your desk that
advisors bring to you. You know, for folks that maybe
(22:11):
have a little bit higher net worth and higher complex situation.
What are some of the more common things that you're
asking you're being asked to solve for or fix.
Speaker 3 (22:23):
Well, a lot of it might be related to concentrated stock.
They have so much and you know Procter and Gamble
in the in they but they have a large tax
or you know, small tax basis, meaning they would have
to pay a lot of taxes to sell out of it.
They're also concerned about, you know, I have this need
for income, I don't want to pay taxes. How can
(22:45):
we get some you know, some tax free income. Uh,
there's also just the idea of when you take that
money out. So you have clients who want to start
withdrawing money, that's where you want to start thinking about
the sequencing of those returns. And then you also have
people who might be charitably inclined, So how can you
(23:06):
how can you line up the idea to actually donate
the charity but doing it in such a way that
you know, it's almost like a double win. So rather
than just donating money out of your bank account, right,
you have other gifting strategies that could also reduce your
tax taxical incomes. So those are the things that I
see a lot.
Speaker 2 (23:26):
So when you talk about dovetailing a good investment strategy
with generating some tax alpha and tax efficiency. What have
been a couple of the key strategies that you've seen
come into our industry within the last say five to
ten years, and even specifically to some of the strategies
we have here at all Worth that you're excited about.
(23:46):
You know, things were able to bring to the table
to help people with these situations.
Speaker 3 (23:50):
Right, So, I mean there's a lot of things and
some of these have been around longer than five or
ten years. But just at a high level, I'll start
with asset low and this is where you take advantage
of putting some invest certain investments in tax bile accounts
and certain investments in non taxbile accounts. So, for instance,
what you might want to do is put your fixed
(24:14):
income or your bonds in a non taxbile a count
because that way you're not paying in your income tax
rate on the income that comes in from bonds. So
depending on what your tax rate is, you know, you
can look at what's called asset location, so locating your
investments and certain types of accounts to minimize your tax liability. Now,
(24:36):
also one thing to keep in mind, if you do
have some large positions in your you've held it for
maybe ten months or eleven months, and you're kind of
on the fence, it might be worth considering waiting another
month or two so you've held it for at least
a year, and now instead of paying a short term
capital gain, you're paying a longer term capital gain tax
(24:57):
rate which is much much lower, and that's going to
save you a lot of money. You could I mentioned
gifting a little bit ago abob, so using like a
donor advised fund or donating your most highly appreciated stocks
to whatever charity you have in mind. That way, you
lower your overall basis and you're essentially making a very
(25:19):
conscious decision that you know aligns with your values. And
we can get more complex things. I mean, there's some
complex tax loss harvesting that you could do with things
investments called direct indexes, which is a way to really
just give a lot of tax alpha. So a direct
index is really a passive investment, means it tries to
(25:41):
match an index return. However it does this through aggressive
tax loss harvesting. For example, maybe the fund owns both
home depot and lows. It might buy one and sell
another just to generate losses, but you still have that
similar type of exposure. There's lots of other things we
can get into, I mean, alternative assets like a ten
(26:01):
thirty one DST Delaware Statutory Trust fund that's it great
for tax deferral. There's KEYBOZ funds, qualified qualified opportunity zone funds.
You can also get into things like a long short
strategy where you look to generate a lot of tax
afas on if the market's going up or down, and
(26:22):
then those tax losses can be used offset gains in
other areas. So there's lots of ways that you can do.
Just make sure that it's right for your situation.
Speaker 1 (26:30):
Oh, we're Chief Investment Officer Andy Stout joining us tonight
with an I on being really tax efficient, going through
some great strategies that investors can think through. Andy, I've
gotten many many people in my office who are you know,
coming on board as a client of mine, who have
maybe not you know, some significant assets built up in
(26:51):
taxable accounts, and I will bring up the concept of
tax loss harvesting and they don't know what I'm talking
about right there? What do you what do you speaking of?
Let's they explinch them. They're like, yes, yes, sign me
up for that. That makes a lot of sense. Let's
walk through that from an investor's perspective and talk about
how that can really help, especially when you're getting to
(27:11):
the point of maybe taking distributions from those accounts, maybe
in retirement or whenever you need those. Yeah.
Speaker 3 (27:19):
So what tax loss harvesting is, And if you're not
familiar with it, it might sound like it's not a great thing, like, oh,
I have a loss. That's bad. Right, Well, markets and
investments they go up and down over time. Over the
long run, markets tend to move higher. We know that.
But what we can do is we can take advantage
of those pullbacks. So let's just say, hypothetically, you have
(27:42):
an investment in a large cap index fund. Let's just
say it's the S and P five hundred index fund
for my shares, and let's just say it drops in
value because the market pulls back, which is normal. What
you can do is you could sell that at that
time after it drops and essentially lock in the losses
(28:03):
and you can use those losses to offset gains in
other areas. But you still want to have that broad
exposure to large cap socks. So then you could look
at maybe something that's similar but not the same. You
don't want to buy the same fund, but maybe instead
you buy instead of the I shares S and P
five hundred fun you would buy a Vanguard as an example,
(28:23):
or State Street Total US Market or a Russell one
thousand fund. So it's also kind of in a large
cap space, but different fund family, different underlying index, and
you're getting a similar exposure, and that would allow you
to get that same large cap exposure, but you've banked
those losses and you can use those losses to offset
(28:44):
gains in other areas. You can also use up to
three thousand dollars of losses in a given counter year
to lower your taxable income.
Speaker 1 (28:51):
These are just important strategies for investors to think through,
and you know, not just only focus on what kind
of returns am I getting, but also how being as
tax efficient as possible, especially for those who are getting
closer to retirement, because I've seen a huge difference in
how much you can keep in your pocket versus how
much you're paying out to Uncle Sam. Great perspective, of
(29:11):
course from our chief investment officer, Andy Stout. You're listening
to Simply Money presented by all Worth Financial here on
fifty five krs the talk station. You're listening to Simply
Money presented by all Worth Financial. I mean you Wagner
along with Bob spons Allar. Do you have a financial
question you need a little help with. There's a red
button you can click them while you're listening to the show.
It's right there on the iHeart opp record your question.
(29:33):
It's coming straight to us and it is time to
play fact or fiction. Bob. Let's get right to it.
Fact or fiction. Once you reach kind of a certain point. Right,
your money has gotten to a certain point, it becomes
real money to you. Active management is always better than
passive investing.
Speaker 2 (29:52):
That is fiction, and that's something that has always surprised me.
You know, over the decades, I've been doing this as
people fall under the mistaken notion that now that they
have more money, their investments need to get more complicated
and therefore more expensive, and that's just not true. Oftentimes,
all of the great things people did to save and
(30:14):
invest and get themselves to the point where they had
have enough money and have a nice net worth saved
up or exactly the things that we should continue to
do in retirement. So in other words, if it ain't broke,
don't fix it.
Speaker 1 (30:29):
Yeah, I think there's a lot of smoke and mirrors
kind of involved in this. And I'll get some people
into my office who've talked to maybe some other advisors,
and they talk about all these complex strategies that they
think need to be applied. And I haven't doned the
show for a long time. I've looked at so much research,
and time after time after time again, passive investing, right
(30:50):
just tracking the markets and the indexes tend to land
you better than someone who's paid a lot of money
on Wall Street to keep their fingers in the pod
in and sell things all day every day. I think
you like the idea of having someone in there buying
and selling things, but often it just the research points
this out. It does not end up. You don't get
(31:12):
a higher return, you know, by by investing that way
than just having passive investing. Here's another one for you,
fact or fiction. Hedge funds, right, this is a big buzzword.
Do not guarantee better returns than passive investments. In fact,
many underperform if you're looking taking fees into.
Speaker 2 (31:29):
Account, that's a fact, and that feeds right into the
point that you were just making. You know, amy the
more complex these investments get, you know, they can have
lock up provisions, they almost always have higher fees. So
again it's important to understand what these things do, why
you want to even consider having them in your portfolio.
(31:51):
And that's another good reason to sit down with a
fiduciary advisor that actually knows how these investments work. They
can explain the pros and cons and you know, sometimes
keep you out of harm's way, so to speak.
Speaker 1 (32:04):
Well, and going back to what we just talked about
with our Chief investment officer, Andy Stout. When you have
more money saved and you've seen your net worth grow,
more than focusing on getting more complex in your strategies,
I think the focus also needs to be on how
to be more tax efficient in how you've invested, in
how you're taking these distributions out. So, yes, there are
(32:26):
things need to be thinking about, but it's not getting
like fancier or sexier or more complex in how you're investing.
Here's another one for you, Bob, fact or fiction. A
trust completely will shield your assets from any estate taxes.
Speaker 2 (32:42):
That's fiction, and estate taxes are becoming less and less
of an issue these days. For example, the state of
Ohio does not have an inheritance tax anymore. And the
federal estate tax you know, for a married filing joint couple,
you know that's done basic wills and trust. You know
you can shelter up to almost twenty eight million dollars
(33:03):
from federal estate taxes now. So what a trust really
does is it shields your assets from probate and then
as importantly, it allows you to get much more specific
about the timing over which you want to have your
airrors inherit your assets. So that's a reason to consider
a trust probate and just more customization of your estate
(33:28):
distribution strategy, not estate taxes factor fiction.
Speaker 1 (33:32):
Real estate always a better investment than stocks or equities
if you have maybe saved more money.
Speaker 2 (33:39):
Another fiction, and you know, without getting into the nitty
gritty details here, I mean, you have to evaluate everything
that you buy and invest in for a net rate
of return. And what I find is a lot of
times when you get into real estate, whether it be
your primary residence or a second home or vacation home,
emotion starts to creep into it and we try to
(34:02):
justify or rationalize the reason why we own real estate
and aren't really honest with ourselves about the true net
rate of return after expenses and you know, management fees
and everything else that goes into owning property.
Speaker 1 (34:18):
If you look at how the S and P. Five
hundred has done over the past one hundred years versus
real estate, right just on a chart, you will see
that the stock market has outperformed the real estate market. Now,
in this post pandemic world, rite post COVID, things are
a little bit all over the place. I mean, anecdotally.
(34:39):
The stories are, you know, the house down the street
from me just sold for you know, fifty thousand dollars
more than what it was worth, you know, a year ago.
I think those kinds of stories might, you know, over time,
not necessarily be true anymore.
Speaker 2 (34:54):
So.
Speaker 1 (34:54):
I think what you have to figure out is what
do you need your investment to do for you? Right
and look at it from that person instead. Coming up next,
we're going to take you inside Bob's world of wealth.
You're going to want to stick around for that. You're
listening to Simply Money presented by all Worth Financial here
in fifty five KRZ the talk station. You're listening to
(35:19):
Simply Money presented by all Worth Financial. I mean you
Wagner along with Bob's sponsaler. That music means one thing.
It is time to walk into Bob's world of wealth
where we are all going to learn something. What have
you got for us?
Speaker 2 (35:31):
Bob? Well Amy, you and I both talked about this
topic in recent days and weeks, and that's the fact
that we are often surprised when clients come into our
office preparing for retirement and they actually have no idea
what they're planning to spend.
Speaker 1 (35:46):
In retirement happens all the time.
Speaker 2 (35:49):
You know, we could talk about tax alfa, you know,
internal management expenses, all that kind of sexy stuff to
talk about, But at the end of the day, the
biggest number that's going to really move the needle and
determine the viability of retirement of your retirement plan is
how much are you going to spend? So you know,
I've made comments on this, so I wanted to dig
(36:09):
into this for just a couple of minutes. This is
what I mean in terms of what we all need
to be talking about in preparation for retirement and talking
about this with your spouse or significant significant other. We
all know the basic, you know, operating costs of operating
a household, but the things that change and evolve over time,
(36:29):
especially in those retirement years, are are things like, hey,
are the kids still living with you? Are you still
paying for college costs? And are those costs going to
disappear at some point? How's that going to impact your
overall budget. The other thing is travel. When people stop working,
they have more time, and you know, people have been
(36:49):
dreaming for years about having the opportunity to go travel
and do some things you need to You need to
figure out what that travel budget looks like and have
that be part of your plan. The other thing is grandkids.
You know, when grandkids show up, grandma and grandpa like
to spend money on them. And I've had a couple
(37:10):
of clients say, you know, Bob, no matter what our
retirement plan looks like, we are going to pay for
our grandkids private high school or college education. And I'm like, well,
have we talked about what that costs and is that
going to make you cash poor and retirement. Another thing
is aging parents. You know, and this is just real life.
(37:31):
About the time we get our kids raised, our parents
are starting to get to the age where they're having
health problems and depending on their financial situation and their
need for care, that can involve some expenses as well.
You've got to factor that into your retirement planning budget.
And then the last thing I wanted to bring up
is just long term care costs. Amy. We talked about
(37:52):
this on the show last week. It's a very important
topic that very few people ever talk about and bring
up with their advisor, and that could be a real
game changer in terms of how much money flies out
of your bank account and investment accounts in your latter years.
Speaker 1 (38:10):
I was standing in the lobby with one of my
clients last week and he said, you know, a few
years ago, I had the assumption that when I retired,
my expenses were going to be lower. And he said,
now that I'm getting closer to retirement, I realized they're
not going to be And I said, yes, that's exactly right.
I spend more money on the weekends because I have
more free time. What is retirement It is more free time.
It is more time to travel, to spoil the grandkids,
(38:32):
to do the things that you like. And that's going
to be likely more expensive than the cost of your
commute or your dry cleaning or whatever it was that
everyone thought was so much more expensive when they're working.
Important to understand these things. Thanks for listening, even listening
to Simply Money presented by all Worth Financial here in
fifty five krs. The talk station
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