Simply Money

Episode Transcript

Speaker 1 (00:07):
Seasonal stock market patterns, smart strategy or just silly superstition.
You're listening to Simply Money, presented by all Worth Financial.
I'm Bob Sponseller along with Steve Ruby, who's in for
Amy Wagner. Tonight, Well, welcome to the fifth month of
twenty twenty five. You probably heard the phrase sell in
May and go away, or maybe you've heard the one

(00:29):
about the Santa Claus rally, or the idea that January
sets the tone for the entire year in terms of
stock market returns. These seasonal stock market patterns often get
a lot of attention, especially in the media. But how
much truth is there really behind them?

Speaker 2 (00:46):
Steve about none? About that these things are so so
stupid to me. There's really no other ways, well, no
other way to put it, I mean, selling May and
go away. The theory is simple. Posedly, historically, the stock
market has underperformed from May through October, so the idea
is that investors should sell their stocks in May and

(01:09):
get back in around Halloween. This idea has been around
for decades. There's periods, of course, where if you cherry
pick the data, you could argue that this would have worked.
But what's what gets left out. Is that really all
it is is that the summer months have been weaker
on average, but the market still tends to rise during

(01:31):
those months, just not as strongly. In other words, sell
in May and miss out on gains is what it
should be.

Speaker 1 (01:38):
Yeah, and I think with the advent of you know,
almost twenty four to seven trading now and people constantly
rebalancing their portfolios, and the tax loss harvesting and things
that go on, to say nothing of political, socio economic
or political events that seem to be cropping up, you know,

(01:59):
on a day, I think.

Speaker 2 (02:01):
This is kind of a silly strategy to follow. This
is justifying market timing, and market timing is is never
a good IDEA time in the market is better than
market timing. And every single one of these things we're
going to talk about today and quite frankly debunked spoiler alert.
It's it's ways to justify market timing based on cherry
picking data from past numbers.

Speaker 1 (02:21):
Talk about the January effect. We hear about that one
all the time at the beginning of the year.

Speaker 2 (02:26):
Yeah, pay attention. These are frustrating because you know, I've
said it before, but once upon a time I was
I was in a customer service role for a major
four to one K provider, and people would call in
and say, hey, move me to cash, and I just
without my without being a financial advisor, just get my
foot in the industry, not having any securities licenses or
my CFP. I'd have to say, yeah, happy to help.

(02:48):
You're in the right place. Anything else I could do
for you, And sometimes the justification would be nonsense like this.
So don't get sucked into a trap of thinking that
you need to act and time the market based on
some of this weird stuf. Like you mentioned the January effect.
The idea there is that small cap stocks and whatever,
sometimes the broader market I guess, tend to outperform in

(03:09):
January and the States back to the seventies when when
researchers noticed a consistent bump in returns earlier in the year.
But let's pull the curtain back a little bit, you know.

Speaker 1 (03:19):
Let's talk about why that historically has happened, or people
think it happens. You know. The theory is investors sell
losing stocks in December to you know, capture and harvest
that tax loss, and then in January they rebuy or
re enter the market. And then year end bonuses, new

(03:39):
cash hits, investors pockets, contributions to retirement plans are all
made in January, and portfolio managers tend to like the
phrase is window dressing, you know, at the end of
the year to make those monthly and end of year
account statements look pretty The theory is they'll sell their
losers so they don't show up the statement at the

(04:00):
end of the month or the end of the year,
and then buy, you know, gainers in January or re
enter the market. Steve, I think that's kind of dated stuff.
I think all this is going on all the time now,
particularly with the opportunity to do tax loss harvesting in
ets and other strategies that we talk about all the
time on this show.

Speaker 2 (04:21):
People learned from that and they capitalized on it, and
it's got a way Yeah, essentially because based on everything
you just explained, there were ways to kind of get
ahead and plan accordingly. But these that this is antiquated
is what I would say. This is not something you
need to act on because there are now strategies that
tax los harvests through throughout the year. Sometimes you know

(04:42):
direct indexing for example. You can tax los harvest almost
every day in a taxable account. And this is the
reason why the January effect was ever anything at all,
is because there weren't those automated systems. It was happening
in December. Yeah.

Speaker 1 (04:58):
I think another factor the evolution of our industry over
the last five, ten, fifteen years is the and it's
a continual shift away from mutual funds and towards ETFs. Sure,
because of the tax impact of mutual funds. Every year
in the fourth quarter, they know they have to declare

(05:18):
capital gains, and every shareholder in those funds mutually participates
in that taxable gain distribution, whether or not they actually
experienced that or not, and that can tend to drive
people towards certain behaviors that you do not have to
engage in when you're in a diversified portfolio of ETFs.

Speaker 2 (05:41):
Yeah, I would argue that many of the fiduciary financial
advisors I know don't use a whole lot of mutual
funds inside of taxable accounts these days. For what you
just explained, that the lack of tax efficiency and the
markets can be down and you'll have to realize those
pass through capital gains from the mutual funds, which is frustrating.
Santa Claus rally is another one. Yeah, go over that.

Speaker 1 (06:04):
Yeah, seven, seven to ten days.

Speaker 2 (06:06):
We're going to base all our decisions on that. Yeah,
I know right. It's it's literally what it is is
the market. It's just silly even explaining these things. It's
just frustrating to me. The market rises during the last
five trading days in December, in the first two of January,
so literally, like you said, a seven day window. Why

(06:27):
people think this happens is optimism around the holidays. Plus,
this is interesting, big institutional investors are often on vacation,
leaving the field to retail investors who are typically more bullish.
That's that's the argument.

Speaker 1 (06:41):
You're listening to, simply money presented by all with financial
I'm Bob sponsorer along with Steve Ruby. Steve, you got
a good chuckle out of that. Santa Claus rally theory.
Talk to us about the September slump. So the September
slump statistically, again cherry picking data, the worst performing month
for the SMP five hundred going back decades on average,

(07:04):
I guess the market declines during September.

Speaker 2 (07:06):
Whatever. Does that mean that we need to use that
every single year to make decisions with our investments. No,
you know, this goes back again to mutual funds begin
their tax loss selling, where that passes through to investors.
You know, investors reassess risk. As the summertime ends, trading
volumes returned to normal. There's a lot of reasons why

(07:27):
you can pull back the curtain and explain why historically
this may have been a catalyst for a September slump,
but it's not. Past performance is not an indication of
what will happen. So making big, real money decisions with
your portfolio with these cherry picked numbers is never going

(07:47):
to be recommended by a fiduciary financial advice. Yeah.

Speaker 1 (07:50):
And either way, you know, even if we do have
a bit of a September slump, the historical data suggests
the average drop in the market is pretty minor, and
then those gameanes are quickly recovered, you know, by staying
fully invested, which is what we advise all our clients
to do. Let's cover the October scare.

Speaker 2 (08:08):
Talk about that. So October simply has a bad reputation
because the markets crashed in nineteen twenty nine, the nineteen
eighty seven crash, the two thousand and eight financial crisis
had some major events in the October timeframe. You know,
we remember these more than we remember the slow recoveries

(08:28):
that happened after. So it almost feels like October could
be dangerous if you're thinking too much about the fact that, yes,
we have had some major crashes that just happened to
fall in October.

Speaker 1 (08:41):
Wouldn't you agree that because of when these you know,
the nineteen twenty nine crash, the eighty seven crash, and
even all the disaster we saw back in two thousand
and eight with the financial crisis, a lot was going
on during the month of October, and therefore people subconsciously
hardwire their brain to expect bad things in October. And

(09:02):
you know, let's face it, human nature, we're wired to
fear potential danger more than gravitate towards stability.

Speaker 2 (09:12):
Yeah, the October scare is something candidly, I've never had
a client ask me about, which is good. But that
doesn't mean you may not come across it in you know,
an article online or a news report. You know, just
when you hear something like this, realize that it holds
no water. I mean, I would argue that October based

(09:33):
on this data is more of a turnaround month because
it marked the end of a bear market when when
you pull back and look from from a distance, that
was the bottom and you don't want to sell at
the bottom. If you do that, then then you're selling
low and waiting to buy high.

Speaker 1 (09:48):
Yep, and that leads us to the last you know,
myth we want to cover today, the quote unquote best
six month strategy. Some market timers say the market does
best between November and April, which overlaps with that whole
inverse of sell in May and go away theme, and
they argue you should only be in the market during

(10:08):
those six months and then sit and cash the rest
of the year.

Speaker 2 (10:12):
So that's even more stupid than the selling may go
away that that that is ridiculous to me. Any of
these to try to justify market timing. You know, if somebody,
if an advisor tries to say something like this to you,
run the other way. Please. You know that this is
not something that none of what we've talked about holds

(10:32):
anyway whatsoever. That's why we're debunking all of them. Even
if they did, it would assume that you to even
capitalize on it, you would have to still have a
crystal ball to guess the perfect day. You're also ignoring taxes,
transaction costs, misdividend payments. Yeah, just steer clear making decisions

(10:53):
based on these interesting fact picked or you know, data
pick stories.

Speaker 1 (11:00):
What can happen when you make these huge moves in
and out of the market, with some of which you
just covered in most of them all the time. It's
not a good thing to do. All right, here's the
all Worth advice. Do not let calendar myths drive your
investment strategy. Stay invested, stay diversified, and let long term discipline,

(11:20):
not short term superstition, guide your success. Coming up next,
why people are swinging and missing on one of the
biggest financial decisions you'll ever make. You're listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
talk station. You're listening to Simply Money presented by all

(11:43):
Worth Financial. I'm Bob sponsor along with Steve Ruby, who
is in for Amy Wagner tonight. If you can't listen
to Simply Money live every night, subscribe subscribe to our
daily podcast. You can listen on your way to work
every day or at the gym, and if you think
your friends could use some financial advice, tell them about
it too. Just search simply Money on the iHeart app

(12:07):
or wherever you find your podcast. Straight Ahead at six
forty three, we delve into the world of dividend investing.
See if it works for you. All right, Steve, there
were a lot of people who panicked during COVID and
not only move to cash, they took their Social Security
benefits early as well. It turns out we're in a

(12:30):
period right now where people are doing the same thing,
taking their Social Security early, and not because of a pandemic.
According to the Social Security Administration, the number of Americans
taking Social Security before their full retirement age is climbing
yet again, what's going on, Steve?

Speaker 2 (12:48):
So The latest numbers out show that nearly thirty percent
of new retirement age folks in twenty three are collecting
their benefits starting at sixty two. This is a three high. Remember,
sixty two is the youngest that you can collect Social
Security benefits unless it's disability. The question is why now?
So One big reason a lot of people would argue

(13:11):
is inflation fatigue. People are saying, I've waited long enough,
I simply need the money now. But the catch is
that with the early check it's smaller. I mean it's
significantly smaller for life.

Speaker 1 (13:24):
Yeah, claiming social Security at age sixty two means you're
locking in a thirty percent lower monthly benefit than if
you waited just until your full retirement age. And if
you can, and if it does make sense to wait
until seventy, you'd get seventy six more income each month
from Social Security than if you claimed at sixty two.

(13:47):
That's not just a little bit of a bump. That's
a significant difference. Yeah, it's a big percentage change.

Speaker 2 (13:52):
I mean, that's a lot of money over a twenty
to thirty times twenty to thirty year time span that
we could need those dollars for in retirement. You know,
a lot of people treat social Security and the ability
to collect it kind of like a break glass in
case of emergency account instead of part of the long
term income strategy, which is scary. It really is because

(14:13):
the you know, when when when we sit down and
build plans and when you work with other fiduciary advisors
that that map out income strategies, sometimes we need that
bigger payment in order for the rest of our assets
to last. Longer than we do. That's the reality of
the situation, and collecting early can throw a wrench in
your ability to have those dollars more when you to

(14:36):
have more dollars later when you need them.

Speaker 1 (14:39):
Yeah, I think Steve, the key here is to have
a plan, like you said, And if people don't have
a plan and they're not looking at the long term
impact of their decisions they want to make today, that's
where you know, people could get in trouble. And by
the way, we're not making light at all of inflation fatigue.

Speaker 2 (14:57):
That is real.

Speaker 1 (14:58):
I mean, the cost of every day goods and services
has gone up significantly in the last four or five years,
as everybody knows. And yeah, if things are tight and
you're able to just make a couple mouse clicks or
a phone call and turn on a monthly check, now
that's awfully enticing to people.

Speaker 2 (15:16):
Yeah. It's the challenge though, is that if you live
until you're you know, let's say you hit sixty five
years old, there's a twenty five percent chance that a
man hits ninety two, a twenty five percent chance that
a woman hits ninety four years old. So if you're
collecting early, maybe you're going to enjoy things a little
bit more when you're sixty two to sixty seven years old.
But what happens if you run into a situation where, yes,

(15:40):
there is cola cost of living adjustments built into Social Security?
You get excuse me, you get those little bumps that
are oftentimes eaten right up by the bumps and the
premium that you pay for Medicare. So you could put
yourself in a situation where these significantly lower payments that
you're locking in for life mean that you're not living
the way that you want to from the ages of
I don't know, seventy five to ninety four years old.

Speaker 1 (16:03):
I'm interested, Steve, when you sit down and meet with
your clients and you start talking about a social Security
claiming strategy, how many of your clients are telling you, like,
there's no way, Steve, I'm going to live to be
ninety two to ninety four years old. Is that conversation
coming up a lot?

Speaker 2 (16:21):
People will usually share their initial concern with using those
numbers until I explain that we are stress testing the
plan against events that could throw a wrench in your
financial security and your financial future. We're looking at things
like stress testing for longevity, poor market performance, bad timing,

(16:44):
higher spending, and when, in other words, you're helping them
build a plan. Exactly when your plan works in light
of all of these potential curve balls, then that usually
brings peace of mind. The other thing I'll ask is,
who's the oldest person you've ever known? Great, because most
of us have known somebody that have lived into their nineties,
some of us even into their hundreds. So people have

(17:07):
that initial reaction, they sometimes pull back a little bit
until we talk about it because we do need to
plan for longevity.

Speaker 1 (17:15):
Yep, longevity is a risk when it comes to finances.

Speaker 2 (17:19):
Oh, you better believe it.

Speaker 1 (17:20):
You're listening to Simply Money, presented by all Worth Financial
Lombob sponsorer along with Steve Ruby. So Steve, let's talk
about when it might make sense to take social Security early.
There are situations where that does in fact make a
lot of sense.

Speaker 2 (17:33):
Yeah. So, unfortunately, sometimes when we bring up longevity, people
have really real unfortunate situations to share about the fact
that they do have some kind of a health issue
that will not lead to longevity. You know, Shortened life
expectancy is what I'm talking about here. So if you
have some kind of serious medical condition, it could certainly

(17:55):
make sense to collect early to get the most out
of Social Security while you can. You know, it's an
interesting spectrum in my opinion, because there are people that
haven't had an opportunity to save as much as they
should have to build that traditional three legged stool, you know, pension,
social security investments. Maybe today it's one and a half

(18:17):
legs with investments and social security. But you know, some
of these people that they quite simply cannot pay the
bills and keep a roof over their head and food
and their bellies without collecting social Security. So if you
absolutely positively need to do it, you do it. There's
no ifsends or butts about that. The other end of
the spectrum are the folks who scoff at the idea

(18:37):
of how little their Social Security payments are compared to
the rest of their wealth. Those folks have an opportunity
to hedge against future challenges with social Security because right
now we've all heard statistics around, you know, reduce benefits
by twenty percent and maybe twenty thirty four because of
the trust fund being not being replenished quickly enough so

(19:00):
that truly need it immediately or people that quite frankly
never really will need it. They can hedge against future
challenges for maybe means testing by collecting as early as possible. Yeah.

Speaker 1 (19:12):
Another situation that crops up, you know, not all the time,
but it does happen occasionally, is someone loses their job.
I mean if they are downsized and they had a
plan to retire at a certain age and then the
company comes along and says, hey, we're offering you a
package to leave early, and all of a sudden their
plan changes. Social security can be that short term financial bridge,

(19:34):
you know, from a cash flow standpoint between when you
had planned to retire and when you're now forced to retire.
Here's the all Worth advice. The lesson here isn't don't
ever take it early. The lesson is don't take it
early just because you can have a reason to do
it and have a plan. Coming up next, Amy is

(19:57):
back with all Worth Chief Investment Officer Andy Stout as
we dive into investment solutions designed for those who want
their portfolios.

Speaker 2 (20:06):
To align with their values.

Speaker 1 (20:08):
You're listening to Simply Money, presented by all Worth Financial
on fifty five KARC, the talk station.

Speaker 3 (20:19):
You're listening to your simply money. I mean you Wagner
along with Bob's spond seller.

Speaker 4 (20:24):
Several times throughout the years, I've ended up across the
table from someone or talking to an investor who is like, listen,
I fully understand that I want to be in the markets.
I see that that's the best way to outpace inflation
over time. But and this is a big butt for them,
there are certain companies or certain sectors that I don't

(20:45):
believe in. Maybe it's because of their faith whatever. That
looks like they don't want to be invested in those companies.
How do you navigate those waters as an investor? Joining
us is our chief investment officer, Andy Stout.

Speaker 3 (20:59):
Andy, interestingly, we do.

Speaker 4 (21:01):
Have conversations with investors about these things, and also we
have some options for them.

Speaker 5 (21:07):
Yeah, if you think about your investment needs, and maybe
the typical investor who might say, I just go go
invest me in a manner that you think is going
to help me meet my financial goals. Okay, we can,
any any advisor you know can absolutely do that. But
having options that are specific to someone's needs are really important. So,

(21:29):
you know, it might be something as simple as I
want more income, how can I have a diversified approach
when I can generate more income because I'm getting ready
to retire. Right, it could be something along the lines of,
you know, I only want passive investing, or I only
want active and passive, or you know, as you just
alluded to, maybe it's something along the lines of faith based.

(21:51):
Maybe someone is really wants to invest alongside their maybe
their Christian values as an example, you know, having strategies
built around that, so you can essentially set yourself up
for retirement or if you are retired, you know, stay
retired and still be able to generate positive returns while

(22:13):
investing alongside your value. So having an option like religious
based investing that you know matches how you feel about
the world. It's going to help you, you know, sleep better.
And that doesn't mean you'll get better or worse returns.
I mean, you know, anything can happen, but you know,
over a full market cycle, you know, we do believe
that most strategies will do relatively similarly. And being able

(22:37):
to have that peace of mind amy where you can
really focus on your investments and knowing and knowing in
your heart that this is how you see the world
can make a world of difference.

Speaker 6 (22:52):
Andy, I've got a question about that because I've got many,
you know, Christian clients that feel very strongly about certain things,
and some of them asked to have their portfolio screened
for things that are important, you know, to them and.

Speaker 2 (23:06):
To their faith.

Speaker 1 (23:07):
And Andy, as somebody who actually runs the portfolio, I'm
always interested to know how to what extent can you
actually screen out these companies to align with someone's Christian faith.
Is it just what industry the company's in, what products
they make, or does it go down to things like
the behavior and character of the CEO and board of directors.

(23:29):
To what extent can you actually feel good that you
screen these companies out so that we can actually fulfill
what our client is asking for in the way of screening.

Speaker 5 (23:42):
So you know, it's not really just about avoiding investments
that may not align like you know, your sin stocks
or whatever. It's really about also seeking opportunities that reflect
the values of whether it be Christian value. And there's
other besides for Christian I mean, there's a lot of
people who you know seek what's called ESG. I know

(24:06):
that's kind of gotten a bad rap lately, and that's fine,
no judge. One way or another, but just having options
for you know, whether it be Christian values or ESG.

Speaker 4 (24:16):
Really focusing on quickly what ESG is when you're talking
about that.

Speaker 5 (24:21):
Yes, sure, environmental social and governance policy, So thinking about
the risk factors associated with companies that don't have good environmental,
social or governance policy controls. If fuel governess is like
you know, Kroger, for instance, their CEO left for personal reasons,

(24:43):
that would be a poor that's an example of poor governance.

Speaker 2 (24:46):
Right.

Speaker 5 (24:47):
Uh. So uh, societal and environment kind of speak for themselves.
But so when you look at those frameworks, having value
investing strategies or investment strategies that align with those values
is really critical. And we can do that, you know, Bob,
in a couple of ways. One we can proactively screen

(25:08):
on individual stocks that essentially highlight that or also equities
that avoid certain industries. So we want to maybe stay
away from certain industries that maybe not align with whether
it be Christian values or ESG or whatever it is.

Speaker 2 (25:23):
Uh.

Speaker 5 (25:24):
And what we can do is we can do that
at a fund level. There's lots of what's called exchange
trade of funds or mutual funds that focus specifically on that.
So you know, we have our own internal portfolios that
we've built around those, you know, exchange traded funds and
mutual funds to really highlight you know, Christian values as

(25:44):
an example or highlight you know, whatever value you might
have want. Now, we can also go the direction of
individual equity. So there are investment options called what's called
it's called direct indexing, so essentially where you would be
owning a bunch of different into visual stocks, and then
we would actually screen out for certain things that are

(26:06):
known to not align with whatever value set you want
to look at or want to make sure that you
know you're able to sleep at night. So whether or
not it's the fund route or whether or not it's
the individual stock route, you know, that's how we would
go about doing to make sure that investing alongside your
values is something that is attainable.

Speaker 4 (26:26):
Andy, I wonder if there's anyone listening who might say, oh, actually,
I never thought about this, right, I just put money
into my four O one K every month, and you know,
I don't even think about necessarily how these companies are
run or what they produce. But now that I think
about it, I am a Christian and this is something
that's important to me. You know, as we throw around

(26:48):
maybe the kinds of companies that they may not be comfortable.

Speaker 3 (26:52):
With, like give us some examples. For instance, I've had
clients in the past that don't want to invest in
tobacco companies or companies that produce alcohol.

Speaker 4 (27:03):
What are some other examples, right of people who are saying, listen,
I want to invest according to my faith, and this
is counter to that.

Speaker 5 (27:13):
Well, there's you know, a lot of different ways. And
when we look at that, you know, it is about
screening out alcohol. It's it could be about screening out
you know some companies that are you know, taking advantage.
I think it's going to be a lot of your
sin companies, right, tobacco, probably some other you know, gambling
as you mentioned there, it's I mean, in all on

(27:35):
it's the amy. You kind of hit the nail on
the head. I don't really have too much more to
add on that one. So, you know, without getting into
the you know, the individual equities, and I don't really
want to go down and say this.

Speaker 3 (27:47):
Is no, we don't want to particular company.

Speaker 5 (27:50):
Yeah, yeah, because I think it's really just making sure
they align the right way. Because even companies that you
know might be considered a sin company, you know they
have still this order produce positive returns. So it's really
just a matter of you know, whether or not you
want to try to get those positive returns and any
manner necessary, or do you want to focus alongside your values?

(28:11):
And there's no right or wrong answers, that's just an
answer that you have to come up with, right, what
do you feel good about and making sure that you
work with someone that can provide you with whether something
alongside I mean Christian values, or maybe it's something allowing
you to increase your income, or maybe it's ESG or
you know, maybe it's focusing on just passive or active

(28:34):
or whatever. Passive means are trying to just meet a
benchmark and active means are trying to outperform it. By
the way, so just having these different investment options is
really important because if you're not invested what you're comfortable
investing with, you're not going to have a long relationship
with that advisor. Yeah, right, you got to make sure
you're doing what's right.

Speaker 4 (28:55):
I think the key is to know as an investor
to have this conversation if it is something that's important
to you bring it up to.

Speaker 1 (29:02):
Your advisoryeh to know you have options.

Speaker 4 (29:04):
Yes, yeah, you do have an option, and so to say, hey,
I want to be invested, but I also need to
be invested.

Speaker 3 (29:10):
In a way that actually mirrors what I believe. You
do have that option.

Speaker 4 (29:14):
It's a conversation you should be having with your advisor
if this is something that's important you great, great perspective,
Andy Andy Stalder, Chief investment Officer. Here at Allworth you're
listening to Simply Money presented by all Worth Financial.

Speaker 3 (29:25):
Here in fifty five krs the talk station.

Speaker 1 (29:33):
You're listening to Simply Money presented by all Worth Financial.
I'm Bob sponseller along with Steve Ruby. Do you have
a financial question you'd like for us to answer? There
is a red button you can click right there on
the Ihearthart app. While you're listening to the show. Hit
that button, record your question. It'll come straight to us,
all right. Steve, our producer, read something the other day

(29:55):
that said dividend paying stocks are the financial world's version
of a golden goose. In other words, do nothing and
dividend stocks will just keep laying golden eggs. What's the
appeal of dividend investing Steve.

Speaker 2 (30:11):
Well, I mean, the appeal is just that it's it's income,
you know, steady cash flow based on assets that you hold.
This is particularly attention grabbing for a lot of folks
who struggle to make the transition from receiving a regular
paycheck to how the heck am I going to generate
a paycheck now that I'm no longer working. So the

(30:33):
idea there is that if you've got a million dollar
portfolio and it's it's you know, laying golden eggs of
three percent dividends for the year, that's thirty thousand dollars
without having to actually sell a single share. So the
whole idea there is that do nothing get paid.

Speaker 1 (30:50):
Well in a lot of these companies, and we call
them the dividend aristocrats. And there are a list of
companies that have his you know, raised their dividend every
year for like twenty to twenty five years. I mean,
it's a badge of honor for those companies to do that.
Investors rely on that, and that could be a good
thing because those dividends rise over time.

Speaker 5 (31:12):
You know.

Speaker 1 (31:13):
The theory is have your dividends go up at it
roughly the rate of inflation, so you get a cost
of living rays built into owning your stocks. It could
be a great thing for a piece of your portfolio,
and in fact it's something we use and almost all
of our portfolios here at all worth.

Speaker 2 (31:27):
Yeah, and a blended diversified portfolio, and not I mean,
sure there are strategies that could deploy dividend investments solely,
but that's you know, I honestly I prefer more of
a diversified mix, not just all dividend stocks, which we'll
get into. But the whole thought is that, you know,
some of these dividend stocks not only are they paying

(31:48):
you those those dividends, but they can add some stability
because a lot of these companies are older, more established businesses.
You know, they've they've been around long enough to weather
economic storms.

Speaker 1 (32:00):
Yeah, they tend to have lower pe ratios, they've weathered
economic storms. They tend to be very large, well established,
well managed companies. So the risk of something really going haywire,
you know, with one of these high dividend aristocrat kind
of companies, tends to be way less than some of

(32:20):
these upstart high tech, high tech you know, ultra growth companies.

Speaker 2 (32:25):
Yeah, but of course, there are downsides here. You know,
dividends are not guaranteed. Companies can cut or eliminate them
at any time, and we especially see this in downturns.
A bunch of blue chip companies slash payouts in twenty twenty,
for example, which was a bit of a wake up
call for a lot of people that were focused solely
on dividends. Yeah.

Speaker 1 (32:42):
I think people are sometimes surprised. You know, they buy
these dividend companies and they think they're safe and stable
and all that. They seem to forget that they can
go down in price due to an earnings announcement. Sometimes
these stocks can move quite a bit based on how
interest rates move. I mean, if you go back to

(33:02):
twenty twenty two, when rates went up seven times this year,
dividend stocks took quite a hit because now you're in
a period of time where as interest rates go up.
Now these dividend stocks have to compete with bonds.

Speaker 2 (33:17):
You know, you can lock.

Speaker 1 (33:19):
In a bond ladder, you know, at a certain interest rate,
and now people are like, well, I can get that
interest rate without the volatility risk of a stock, and
lo and behold the price of those stocks, you know,
go down because people sell.

Speaker 2 (33:32):
Them exactly, So it's easy to make that pivot in
a time where there's rising and you know, changes in
interest rates. Now on the flip side, this is an
interesting point that I've heard, and that's the fact that
dividends can sometimes actually mask weak growth because a company
that's paying you six percent, they might actually be doing
it because they don't know what else to do with

(33:53):
the money, meaning they're not reinvesting it back into their business,
so they're just returning those those dollars to shareholders rather
than investing in their own futures. Yeah.

Speaker 1 (34:05):
I mean that's been an ongoing criticism of like a
company like Apple for years. I mean, they have this
huge cash hoard and people were complaining about that, like
why don't you return some of that cash to investors?
And then they started paying out a small dividend, And
to your point, Steve, they're sitting there with that huge
cash hoard saying.

Speaker 2 (34:24):
What do we do with this cash?

Speaker 1 (34:26):
And people get concerned because there's no strategy to actually
return the company to the exponential growth that people were
used to in the first place when they bought Apple
stock exactly.

Speaker 2 (34:37):
Yeah, and don't don't forget that these These are dividends
that are taxable, So this isn't some magic way to
avoid paying taxes. You know, depending on your financial situation
in your current tax rates, there can certainly be some benefits.
Another issue is that if you're chasing high yields for
some of these dividend stocks that are paying you know,

(34:57):
extravagant figures eight nine percent, you have to ask why.
Sometimes it's because the company's price is tanked. The business
is actually in trouble, so they're trying to lure you in. Yep,
here's the all Worth advice.

Speaker 1 (35:09):
Dividends investing can be and is a great way to
generate income and reduce volatility, but it is not fool
proof and it's definitely not the only way to build
wealth and the only way to structure your long term
retirement portfolio. Coming up next, a gem of advice from
our very own Steve Ruby, who's going to teach us

(35:31):
why not all financial advisors are the same. You are
listening to Simply Money presented by all Worth Financial on
fifty five KARC the talk station Black. You're listening to
the Simply Money presented by all Worth Financial. I'm bob'spontseller

(35:51):
along with Steve Ruby, and it's time for everybody's favorite segment,
Ruby's Gem of Advice.

Speaker 2 (36:00):
If you're shopping around for financial advisors, obviously it's important
to do your research, talk to multiple people. It's an
interesting world out there because there are different types of advisors.
Now I've talked about this before based on my own background.
I was born and raised at a big brokerage firm.
When you're at a brokerage firm, it's a sales organization.
In that situation, oftentimes you're getting a low salary and

(36:23):
then you're being forced to sell your own products or
solutions to ensure that, yeah, we're helping clients. Actually, where
I worked, they called them customers, which was kind of
a red flag in and of itself, customers instead of
clients or I don't know, human beings, but it's interesting

(36:43):
to think about where you would assume that everybody has
your best interest in mind, but quite frankly, simply putting,
not everybody is a fiduciary. Not everybody's a fiduciary at all.

Speaker 1 (36:54):
And I came up in this business with insurance based
broker dealer too, and I remember vividly how my compensation
package or structure was directly tied to how many proprietary
products manufactured by that particular company went out the door.
I mean, it was an inherent conflict of interest, and

(37:16):
that's why I, you know, got out of there the first.

Speaker 2 (37:18):
Chance I got. Yeah, it's interesting. A lot of us
will do a little tour before and I'm talking about
a tour of different types of companies before we land
at a registered investment advisor firm. You know, when when
we're certified financial planners, like, hey, we actually want to
be for Douce siaries and do financial planning. You know,
I also worked for a big, a big bank, and
this bank owned a major company that you all have

(37:40):
heard of. But those advisors are one hundred percent commission
and if they're not cross selling their own investment products
or the bank solutions to very stringent and high goals,
then your compensation will actually go down year over year.
So you're forced to behave a certain way based on

(38:00):
how you're compensated. Whereas a lot of registered investment advisory
firms will pay you a salary for the most the
biggest part of your compensation package and no commission for
anything because you're not tied to one particular company's products
or solutions. Thanks for listening.

Speaker 1 (38:19):
You've been listening to Simply Money, presented by all Worth
Financial on fifty five krc V talk station