Simply Money

Episode Transcript

Speaker 1 (00:06):
Tonight what investors safe risk is and what it actually
means for your money. You're listening to Simply Money, presented
by all Worth Financial. I'm Bob Sponsorer along with Brian James.
Let's talk a little bit about that four letter word
in investing risk. The moment the market drops a few
percentage points, the headlines start to scream, emotions run high,

(00:29):
and some people start wondering if they should move to
cash by gold or bury their money in a coffee
can in the backyard. But here's the truth. What most
people think is risk isn't and that misunderstanding can cost
you more than a market downturn. Ever will what say you, Brian?

Speaker 2 (00:46):
So let's talk about the difference between volatility and risk.
Volatility is stuff going up and down in a day
to day basis. And I'm not even limitating that, limiting
that to the stock market. That's life, Bob. Sometimes we
have good days, we have bad days. We have good
mornings and good afternoons and vice versa and so forth.

Speaker 1 (01:01):
I like to have all good days, Brian.

Speaker 2 (01:03):
Okay, well, you keep hanging in your hat on that
and tell me how that works out. As we know,
we all need to be flexible. Things don't go our
way one hundred percent of the time. Sometimes we fail
seventy eighty percent of the time, like a baseball player.
But anyway, the difference between volatility and risk volatility again,
it's just those ups and down. Risk is really the
idea that something permanent can happen. So you know what

(01:26):
I mean by that is, let's bring that to the.

Speaker 1 (01:29):
Market, right.

Speaker 2 (01:29):
So, every now and then we'll run across as a
client who maybe they have kids, or somebody who's new
to investing. He hasn't really thought about it. And everybody
has the same story. Bob, I'm sure you've heard this too. Well,
so and so invested in the market and they lost everything.
And my first in my mind, I go, okay, bs,
because I can show you a chart of the stock
the stock market, the S and P five hundred. It
has gone up, not down for you know, a many,

(01:52):
many many decades now. It has never gone to zero.
So if SO and so lost all their money quote
unquote in the stock market, that means so and so
is investing in things that to permanently go away. That
could be options, It could be you know, it could
be penny stocks, those kinds of things that really do
go poof in the middle of the night. That does
happen out there. But if you're investing in the diversified portfolio,
then you were experiencing volatility, not risk.

Speaker 1 (02:14):
Yeah, I always say the same exact thing to clients, Brian,
I quickly like to differentiate between risk and volatility. And
you said it, risk is, hey, I'm gonna put money
in something and it's going to completely evaporate. I mean,
none of the stuff that we do for clients, and
I know all good fiduciary advisors do for their client,
they're not putting their retirement money into something that can

(02:35):
evaporate or go away. And that's completely different than the
person that says, hey, I tried out the market and
I lost it all. I mean maybe they went out
and put one hundred grand in game, stop thinking it
was going to go to three hundred bucks in two weeks.
That's a whole different ballgame than what we're doing. We're
talking about volatility, and that's the variation in the return,
not the risk of completely blowing the whole thing up.

Speaker 2 (02:57):
Exactly, And there are risks other than the ups and
downs of the market that happens every single day. Real
risk is somebody who you know retires with a three
million dollar portfolio and on paper you want to go, hey,
this person's in good shape. But then they're spending like
they have ten million dollars. That is real risk. So
needing one hundred thousand dollars a year but only planning
for seventy thousand, right, that's overspending.

Speaker 1 (03:17):
That is real, real risk.

Speaker 2 (03:19):
And that's the kind of stuff that doesn't surface until
it's way, way, way too late to do anything about it.
If you live that way for ten, fifteen, twenty years
of your retirement, you're going to have a problem in
the future. So that means we need to be thinking
about now about the risk of not knowing what our
budget is like and what are what it's going to
cost to maintain our lifestyle.

Speaker 1 (03:36):
Yeah, no matter what that top you know, that top
number is, that pile of money is, You've got to
temper that spending up front by understanding what that plan
will support. Because oftentimes that big number might seem like
a comfortable way to proceed, but when you look at
spending at a certain amount for five, ten, fifteen, thirty years,

(03:58):
it can go away quickly. If you're not careful. Yeah.

Speaker 2 (04:01):
Now, let's talk about a third topic of risk here,
and that's the idea of playing it too safe, you know,
as one of our old friends around here used to say,
going broke safely. So a lot of smart discipline savers
out there maybe can be a little too conservative and
perhaps a little, you know, a little too unaccepting of
how reality can be. So after two thousand and eight,

(04:23):
a lot of people out there did make the choice
to shift to CDs and annuities are sitting in cash
for a while, And the bottom of the two thousand
and eight market was March of two thousand and nine,
and a lot of people sat on the sidelines until
twelve thirteen, fourteen, fifteen.

Speaker 3 (04:37):
Sometimes.

Speaker 2 (04:38):
Matter of fact, I have clients who did not come
on back on board till twenty twenty one.

Speaker 3 (04:42):
That was when we got to know them.

Speaker 2 (04:43):
They sat in cash for literally fifteen years and missed
out on They probably should have had three times what
they had even invested conservatively, had they stayed invested over
that time period. And of course, the way the market,
the market thinks it's funny, so is somebody who reinvested
in twenty twenty one, what happened to them, Bob, immediately
over cliff in twenty two, right, so we took it again.
The stock market has a bad, bad, nasty habit of

(05:05):
punishing people twice for trying to time well.

Speaker 1 (05:08):
And we don't ignore the year twenty twenty. I mean,
you have people sitting out of the market, and then
we have a little thing called COVID come along the
way where the market fell what thirty eight to forty
percent about three weeks. That'll scare some people off as well. Absolutely,
that's true.

Speaker 2 (05:23):
The way I think of that though, that was over
and done within within thirty days. Was the up to
the top to bottom of the market, and then we
had it all back by the summer. Nobody remembers that though, Bob,
because we were all hiding in our basements thinking we
were going to die. If you remember what the attitude
back then was, twenty two was a little different.

Speaker 3 (05:37):
That's when we had the great unwinding of all that stuff.

Speaker 1 (05:40):
Yeah. I think a lot of times the reason people
go to cash and stay there is perhaps they were
over allocated to two risky stocks or too heavy of
a concentrated position to begin with. Going into that kind
of situation and yeah, when everything tanks fifty to sixty
percent because you're not well diversified, that can't carry you

(06:01):
off for a few years. You're listening to Simply Money,
presented by all Worth Financial on Bob Sponseller along with
Brian James. All right, let's get into some real life
examples here using some real math. What can we and
should we be doing uh to understand and factor volatility
into a responsible retirement plan in portfolio?

Speaker 3 (06:20):
Okay, Bob, let's set the scene.

Speaker 2 (06:22):
You retired ten years ago and you had two million
dollars back then. He said, you know what, I really
can't stomach the the ups and downs on the roller
coaster ride of the stock market. So I'm just going
to stick to the stuff that's predictable CDs and treasuries,
and I'm good to go. I'm never going to read
a headline again. At the time, it feels responsible, like
a good, solid, safe move. But let's do the math
behind it. Well, a sixty forty portfolio, right, and that
means sixty percent stocks forty percent bonds. That's kind of

(06:44):
the dried and true conservative ish goldilock zone portfolio that
might have returned about seven eight seven to eight percent
every year over that decade, and that those are real numbers.
That's not that that's just the way things have come
out historically speaking. If you're focusing on that cash heavy
approach or the CDs, remember we said ten years ago,
we haven't had these high rates for all ten years,
So you'd be averaging closer to one to two percent

(07:05):
in exchange for not having had to worry about the headlines.
So on a two million dollar portfolio, that's a difference
of a million bucks, Bob. If you average seventy eight percent,
you're gonna wind up with somewhere over three million dollars
in that range. But if you're only getting that one too,
it's not even gonna come anywhere close to that. And
you have to factor in two. We've got inflation hiding
in the background, right. If we're going to keep up

(07:26):
with inflation, we can't, you know, we can't stick to
only the safe stuff and predictable. We've got to let
something grow that can keep up with inflation. Well, using
my simple Green Hills High School math, Brian, a million
dollars profit on two million dollars, I mean, that's fifty
percent return over ten years, that's a game changer in
terms of a long term wealth plan. Yes, and it's

(07:47):
not a huge amount. It's not a huge amount of return.
That's a conservative portfolio.

Speaker 1 (07:51):
And this isn't saying we're stock picking gurus and we
picked the right stocks at the right time. This is
just basic blocking and tackling, doing the right things, having
a good sound acid allocation strategy, and letting it work
over time. The difference is measurable huge.

Speaker 2 (08:07):
And let's circle back to the whole point of this
particular segment, which is the difference between risk and volatility.
Risk again, is the idea of not allowing your assets
to keep up with inflation so that you can maintain
your lifestyle. Volatility is just the idea of knowing that
if I want these seven eight percent returns so that
I can deal with inflation over the rest of my life,
then volatility is just knowing that sometimes it rains.

Speaker 3 (08:29):
It is not the weather man's job to help you
avoid the rain.

Speaker 2 (08:32):
That's not the case. It's the weatherman's job to help
you navigate it. Make sure you know what might be
coming and what should you do.

Speaker 1 (08:38):
To prepare well. And here's the real point here. I
think it takes sitting down, running numbers, looking at what
amount of risk in return your plan needs to achieve
and tolerate in order to meet your long term objectives.
And if you don't do that and you leave it
all to chance, then everybody, I don't care who you are,
you leave it to emotion and that's where fee you're

(09:00):
in greed run in it could because you don't have
a plan, You don't look fifteen, twenty thirty years out.
And that's what we want to try to help people avoid.
Tonight is just that bury your head in the sand
and forget it kind of mentality.

Speaker 2 (09:12):
Yeah, and remember if you if your safe money is
growing by two percent and inflation is more like four,
you're actually losing money in terms of purchasing bout.

Speaker 1 (09:20):
Here's the all Worth advice. The riskiest thing you could
do with your money is not understand what risk really is.
Coming up next, our take on a headline that suggests
we should embrace stock market bubbles. 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

(09:50):
all Worth Financial. I'm Bob Sponseller along with Brian James
trying not to laugh at that intro music from our
buddy jokes Trekker. Hey, if you can't listen to Simply
Money every night, subscribe to get our daily podcasts. And
if you think your friends could use some financial advice,
tell them about us as well. Search Simply Money on

(10:10):
the iHeart app or wherever you find your podcasts. Should
you be doing roth conversions even though you don't need
the money yet. It's one of the questions you asked
us to tackle, and we're going to answer that one
straight ahead. At six forty three, there's a provocative headline
making its way around the financial media right now, why

(10:31):
we should welcome stock market bubbles? Brian, who is making
this claim? And what's going on here?

Speaker 2 (10:38):
Yet another provocative headlines And it seems like all the
headlines are provocative, But then again, I guess that's what
makes them headlines.

Speaker 3 (10:44):
We want to grab eyeballs and you know, and sell advertisement.

Speaker 2 (10:47):
So anyway, this particular claim is coming from Mark Hulbert,
and he makes it.

Speaker 3 (10:50):
He does make a fair point.

Speaker 2 (10:52):
Some of these the transformative technologies that we've seen have
happened during stock market bubbles. There's something there's a catalyst
that's causing you know, rebubble has something inside of it.
It's either the real estate bubble from you know, from
twenty years ago, that's when it began. We had the
tech bubble before that, when the Internet first came on
the scene. We also had there was sort of another
bubble when when mobile phones and smartphones became a thing,

(11:14):
and nowadays we're talking about AI. There's always a catalyst
underneath these kinds of things. So on one hand, that
that's how we grow the market. A new some kind
of new environment, some kind of new tool out there
that can help people be more productive, be more efficient,
can help companies make more money. But at the same time,
just like anything, we overreact to it as investors. We
inflate it too much and then we panic too much

(11:35):
on the downside.

Speaker 1 (11:36):
Yeah, I think, I think the word momentum trade comes,
you know, comes to mind. And we can talk a
little bit about AI stocks here over the last few years.
I mean, we've talked about this many times. The S
and P five hundred. If you look at the index,
thirty to thirty five percent of the market cap of
the S and P is weighted in just seven companies
the quote unquote magnificent seven. They've had a great ride,

(11:58):
and then you know, we go back to we go
back to you know, earlier and things, the legs can
come out from under some of those stocks. You have
big market volatility in the short term. In other words,
people can ride a momentum trade longer than they need
to and not properly diversified, and that's where they can
get hurt by this, you know, quote unquote bubble and Brian,

(12:20):
I don't know about you. This is why I always
like to have a little dry powder. I like to
have a little cash on hand because I agree with
Mark Holbert, when things start to tank and go down,
that's usually a tremendous buying opportunity to buy things that
got oversold on the downside. Yeah, and I think I
think these periods can be extremely educational, not only for

(12:42):
people who are just experienced in the market for the
first time, but also for people who are sneaking up
on retirement or who have retired and then all of
a sudden they're now having to navigate the ups and
downs of the market that have always been there, but
they haven't paid attention because they're too busy working, raising
kids and so forth. Now they've got the time to
pay attention, and they feel like they've got more to
risk because the nest egg is bigger, of course, and

(13:04):
it's coming closer and closer to the time where we
need to tap into it well and emotionally and financially,
people don't care as much about volatility when you're earning
money and putting money away because you got your paycheck
supporting you every month, and you know long term. People
know long term, if they buy and hold and let
it go, it eventually quote unquote comes back. But I

(13:26):
think a lot of people get over they get over
comfortable with large stock concentrations as well concentrated positions. And
then when you do retire and you've got to turn
that portfolio into a paycheck, that's where you can be
left with more potential volatility than you might think you have.
And then if one of these bubbles rear their ugly

(13:47):
head and you're not prepared for it, it can really
derail a good long term plan.

Speaker 3 (13:52):
Right exactly.

Speaker 2 (13:53):
And that's the bad side of the bubble. But where
the bad decision making comes in usually comes during the
inflation period of the bubble. Can encourage some bad behavior.
Just from a behavioral finance standpoint, bubbles can be dangerous
because they that means stuff is going up, and sometimes
we own that stuff and we're celebrating it, or other
other times we're watching people other people that maybe we

(14:13):
work with or family members, whatever, who are talking about
these kinds of things at the cocktail parties. That creates
the fear of missing out. So if you've got one
to five million dollars, you know that that's a really
really big deal, because that can if you get sucked
into those kinds of things, that can be a massive
loss when that bubble pops.

Speaker 1 (14:29):
Well, one of my favorite sayings is, you only need
to get rich once. Brian. You know you don't want
to do all this work, do all this saving, do
all this responsible investing and saving and discipline for twenty thirty,
forty fifty years and then fall into that fear of
missing out trap, you know, overweighting the magnificent seven stocks
or thinking you're going to get cute with cryptocurrency in

(14:52):
the short term and then you completely ruin what you've
spent thirty to fifty years building. It's something we've got
to help people watch out for.

Speaker 2 (15:00):
Absolutely And an another way that can sneak in is, Hey,
my brother in law wants to open a restaurant. I've
got a good chunk of money here, stated, I'll throw
a little thing something at this, you know, because I
can afford to do it. Those kinds of things can
really sneak up. Again, it's that that fear of missing
out that can really catch up to us.

Speaker 1 (15:13):
Well, we've all read stories about professional athletes that do
just that, right, they get these huge signing bonuses, or
people that win the lottery, people that have a bunch
of money, you know, on hand and have you know,
they want to look it a way to double or
triple that bunch of money, and they go and make
risky decisions and then have it have it there. Then

(15:34):
they're surprised and disappointed how quickly some of that money
can disappear on them. Yeah.

Speaker 3 (15:38):
So, now that we've beaten that horse to death, what
should we do about it?

Speaker 1 (15:42):
Right?

Speaker 2 (15:42):
So, how do we bubble proof our financial plans? Really
the first thing, and this isn't the most interesting of
advice necessarily, but stay diversified, don't wander away from you know,
the dance with the one that brung you, of course,
which is a diversified portfolio is going to keep you stable.
If you want to dabble in things that you think
that you're interested in or that you think might have
a you know, it might might have a nice pop here,

(16:03):
that's fine, go ahead and do that with a small
portion of your money. But think about it this way.
If you already have a solid nest egg, then you
certainly wouldn't take it to the casino to gamble it.
But some of these more speculative things, that's literally what
you're doing. But it's okay to take a small portion.
And if you you know, take one percent of your
portfolio and you hit it right and it becomes three percent,
that's great, but it's not a life changing event.

Speaker 3 (16:24):
On the other hand, if you put fifty percent.

Speaker 2 (16:26):
Of your portfolio in and it drops fifty seventy five percent,
that is a life changing event. So so weigh the
risk of the way the risk versus the return. Is
this really going to move the needle for me and
change my life or am I just doing this for fun.

Speaker 1 (16:38):
What we're talking about here, Brian, in the midst of
doing a responsible and building a responsible retirement plan is
putting some guardrails about your portfolio, around your portfolio. What
do I mean We talk about this all the time.
Stress test the thing, look at your goals, look at
your income sources, look at what you've got, and then
run various scenarios about what can and likely will happen

(17:00):
in the future. Interest rates will go up, interest rates
will go down, We'll have low growth periods in the market,
high growth periods of the market. Kind of simulate that,
kind of those all those situations in advance. And the
nice thing is a lot of this good software that
we use with clients. I mean it goes back and
looks at historical volatility going back seventy years. We're not

(17:21):
going to be one hundred percent accurate, but we could
at least put enough guardrails around a portfolio to keep
the plan from going off the rails and then really
putting someone in a dangerous spot.

Speaker 2 (17:32):
Yeah, and as advisors, we're subject to this stuff too.
We're human as well. So I'll share a quick little
personal story. So, so my family decided recently to make
a slightly off the beaten path investment in a kind
of a private arrangement that is very different from the
from the other ninety eight percent of our portfolio, which
is a diversified like we normally would do.

Speaker 3 (17:53):
And frankly, it's Andy Stouts problem.

Speaker 2 (17:54):
He's the one who manages all just along with the
rest of all works twenty six billion or so. But
in any case, this I had a conversation with the
CPA about how does this work?

Speaker 3 (18:03):
What am I?

Speaker 2 (18:03):
You know, I'm a financial advisor, I'm not a CPA,
so what are the things I'm not thinking of? And
I got the bright idea of, hey, we could do
a little more if we used our IRA dollars for
this and the ants. I'll never forget. This is one
of those things that stuck in my brain. It wasn't
that long ago, just a few months. His answer to
that was because that's not a simple thing to do.
You can do those kinds of things, but there's a
lot of moving parts to investing iras in things that

(18:24):
are not publicly traded. The quick thing he said to
me was why do you want a complicated life? And Bob,
that knocked me back on my heels and I thought,
my god, what really what I am I doing? Is
it really worth jumping through all these hoops just to
get this done, you know, for a very small portion
of my portfolio, because it's something my family is interested in.
And that, yes, that made me take a breath and go, Okay,
let's think about what I'm really trying to accomplish here

(18:45):
and why do why do I want a complicated life?

Speaker 1 (18:48):
Well, and the good the big point here is you
were willing to swallow your pride and your excitement a
little bit and get a second set of eyes on
the whole situation, get an objective viewpoint on something you
and your family are considering in advance of pulling the
trigger and making the decision. And that enabled you, you know,
through getting that good advice and a second set of eyes,

(19:10):
it enabled you to maybe avoid a huge mistake.

Speaker 2 (19:13):
We all need that financial Jiminy cricket. So find somebody
out there who thinks the same way as you do
and bounce your ideas off and see what they say.

Speaker 3 (19:20):
They're in armslength the way they might make a different decision.

Speaker 1 (19:22):
Here's the all Worth advice. Bubbles may fund innovation, but
they often deflate retirements. Stick with the plan, not the
hype from riches to rags. What the Vanderbilt family can
teach your family about preserving wealth across generations. You're listening
to Simply Money, presented by all Worth Financial on fifty

(19:42):
five KRC, the talk station. You're listening to Simply Money
presented by all Worth Financial. I'm selling along with Brian James.
It's one of the most famous stories of lost wealth
in American history. The Vanderbilt family, once among the richest

(20:06):
dynasties in the world, built a fortune that would be
worth over two hundred billion dollars in today's dollars. Brian,
Yet within just two generations that wealth was essentially gone, evaporated.
What happened?

Speaker 2 (20:21):
Yeah, this is kind of an American story on the
way up and on the way down. So Cornelius Vanderbilt,
you've heard of him, You've heard of the family. There's
a university named after him. Down to Tennessee, there's the
Builtmore Estate, which was the gigantic house that they all
lived in. Now, all that money came from railroads and shipping,
and at the peak Cornelius Vanderbilt was the richest man
in America. His son carried on the reputation and doubled

(20:43):
that fortune. But by the nineteen seventies, when there was
one hundred and twenty Vanderbilt descendants all gathered at one reunion,
not a single seven digit millionaire in the room. Everybody
had kind of nobody.

Speaker 3 (20:56):
Had carried the torch forward from that point.

Speaker 2 (20:58):
So what happened? Why did this happen? A lot of
poor planning, people just not thinking ahead. And I can imagine, Bob,
but this isn't necessarily This isn't a difference between good
and bad people. This is just people having been raised
in an environment of the opposite of scarcity. I don't
have to worry about things. Therefore I don't worry about things,
and I don't necessarily think about the future because it's
not really a problem.

Speaker 3 (21:18):
So lack of purpose around money.

Speaker 2 (21:20):
But really what it was, Bob, was the absence of
the financial education and discussions between generations. It just got
quieter and quieter until the the wealth just kind of
went away.

Speaker 1 (21:31):
Yeah, and we could talk about a potential two hundred
billion dollar fortune going away, and people might think, well,
that's an extreme case. I mean, let's bring this back
to real life, because we do deal with this with
folks that come into our office every once in a while,
and you know, it comes down to the adult children
with no financial boundaries. You know, maybe you're helping a
thirty five year old quote unquote get back on their

(21:54):
feet for like the fourth time, or you're covering all
your grandkids' expenses because you want to be a great
grandma and grandpa even though their parents are fully capable
of doing it. We tend to want to help make
life super super easy for everyone, and that leads to
some you know, expensive you know, doling out of money

(22:14):
that can We think we're helping, but sometimes we're just
enabling bad behavior, or not even bad behavior, but just
not preparing the next generation to be self sufficient and
responsible from the money standpoint.

Speaker 2 (22:27):
Sometimes not helping can be the best help you can
give anyone, you know the old Give me a fish
and I'm good for a day. Teach me to fish
and I'm good for a lifetime. This also can cause
rifts between families, and that's kind of the opposite, right.
A family that is financially stable and doesn't have to
worry about money so much really should be a happy place, right,
That's what we all strive for. But in a lot
of cases, it can cause strife between the generations because

(22:50):
mom and dad or grandma and Grandpa, the ones who
originally built the wealth to provide all of that security
for everyone who comes after them, They view it very,
very differently. They view it as their life work, their blood,
sweat and tears and so forth. But the further down
the generations we go, the less impactful that can be. Now,
now there's ways to avoid that. It's basically telling the story.

(23:11):
Make sure everybody knows the story of this family and
how we got where we are, what sacrifices were made
along the way, What were the things that we really, really,
in a heartbroken manner, had to choose not to do
over time because we know we had to. We had
to make that sacrifice at the time. And then how
are the new generations reacting to that? Are they able
to make those same types of decisions.

Speaker 1 (23:31):
You're listening to Simply Money presented by all Worth Financial
on Bob Sponsler along with Brian James. Yeah, Brian. Sometimes
I run into folks who you know, who have worked
very hard. They came from very modest beginnings, They earned
every dime that they have and worked extremely hard, and
sometimes folks will say, I just I just want to

(23:51):
make things a little easier for my kids, and my grandkids,
And I understand the sentiment. I feel that way sometimes too,
but that's often not the best way to go about it.
I mean, you got we got to allow people to
earn it and go through some of life's trials and tribulations,
because that's that's what builds character and it builds financial literacy.

Speaker 2 (24:12):
Okay, Bob, blocking and tackling. So how do we do this?
How do we avoid that that that curse of the Vanderbilts. Well,
first off, focus on the values, not the dollars. If
you teach the right values, the dollars will follow. Help
people understand exactly what it means to to to work hard. Right.
That's that kind of goes without saying we all know
the harder your work, the better off you'll be. But
at the same time, that sacrifice quote unquote can be

(24:34):
simply you know what you need to not spend one
hundred percent of your take home pay because you know
there are there are bigger things to worry about. That
is a sacrifice for a very young person who's just
getting started and now finally has money for their own
for the first time. You know that can be the
standard ten percent of your four one k or maybe
make it twenty percent, But that's that's a way. Again
you're focusing on the values, not the dollars. Also use

(24:56):
trust in a smart manner, right, If you have a trust,
it's not inten only to protect those assets. It can
also distribute money based on what you want to happen.
So that might mean that whatever wealth you have at
the day of your passing, you know, without anything else
in place, that might drop out of the sky on
top of someone's head, is that individual prepared to handle

(25:16):
that sum of money if not, or if you want
them to kind of earn it a little more, you know, Bob,
I've known of trust in my past that would pay
different amounts of money based on different things that that
a person had accomplished over time, different careers.

Speaker 3 (25:28):
They might choose.

Speaker 2 (25:28):
You choose become a teacher or some kind of public servant,
you might get a little more for that. If you
want to become a business person. There were restrictions on
you know, how you could how you could receive it,
those kinds of things. That's a moving target and things
can change and can get complicated. But again that's the
purpose of a trust. You're not just trying to protect
it from somebody who might want to sue you outside
the family. You're trying to protect the family itself.

Speaker 1 (25:49):
Yeah, I want to go back to maybe an example
of it, and I'm going back to you know, I'm
old Brian, but going back to that first paper route
at nine years old, I remember my parents sitting down
with me and saying, Hey, you're going to go out
collect this cash. Here's what you're gonna do with it.
You're gonna split it into thirds. A third of it
you're gonna save, a third of it you can spend
now on whatever you want, and a third of it

(26:10):
you're gonna give away. And I'm like, what you know,
give away? But fast forward to today, and I think
this is a full proof way to go about it.
Out of every dollar you earn, give ten percent away
to someone else, save twenty percent, pay taxes on and
spend the rest of it. If you follow that plan
for thirty or forty years, you're gonna live a great

(26:31):
life and have plenty of money.

Speaker 3 (26:32):
Yeah.

Speaker 2 (26:32):
My parents got a hold of me when I was
probably ten years old and I was the same age,
so I had a paper out walking up and down
jessep Road, I would collect my money and I would
spend it immediately at Whistles Deli and Drug Palace and
Supreme Nut and Candy there up on Cheviot Road.

Speaker 3 (26:45):
Didn't bring home a dime.

Speaker 2 (26:46):
Did that for several months, and mom and Dad finally
noticed that I never had any money even though I
was delivering papers, you know, once a week, and we
had a little discussion about exactly what are we accomplishing here?

Speaker 1 (26:55):
But isn't it Isn't it interesting? You know how as
both of us age and we work in the industry,
we both remember those stories. For me, we both had
parents that instilled those values in it and it sticks
with us, you know, to this day. All Right, here's
the all Worth Advice. The best estate plan passes down
not just money, but meaning structure and values. All Right,

(27:18):
you've got questions, We've got answers, our ask the advisor
segment is coming up next. You're listening to Simply Money
presented by all Worth Financial on fifty five KRC the
talk station. You're listening to Simply Money presented by all
Worth Financial. I'm Bob Sponseller along with Brian James. Do

(27:39):
you have a financial question for us? There is a
red button you can click while you're listening to the
show right on the iHeart app. Simply record your question
and it will come straight to us. All right, Brian,
let's get into it. Let's hear from Susan in Montgomery.

Speaker 3 (27:54):
My husband and I was sixty three. I'm recently retired.
We have a two point four million dollar portfolio.

Speaker 1 (28:00):
Should we be using Roth conversions even that we don't
need the money yet?

Speaker 3 (28:04):
Yeah, that's great.

Speaker 2 (28:05):
That's a great question, sus I'm glad you're thinking about
this because Roth conversions. A lot of people will roll
in and just say, you know what, I'm retired, it's
time to convert to Roth. Let's just do the paperwork
and be done with it. Well, Roth conversions, let's be clear,
very very very much an intelligently decided sacrifice in exchange
for a benefit. Sometimes it's appropriate, sometimes it's not. What
I would be saying is it doesn't have anything to

(28:26):
do with you needing the money with that size of
a portfolio. Susan doesn't give us the detail how much
of this is in pre tax dollars, but we'll just
assume you know, most of it is. That's a good thing, right,
They worked hard, but at the same time, what they're
looking at in about twelve years, when they turn seventy five,
they're gonna have required minimum distributions that's going to put
them they'll have basically a solid six digit income, probably

(28:48):
two hundred thousand dollars at that time from then on,
meaning they're always they're never going to be in a
low bracket again. So what she's thinking about is, Okay,
we're in a low bracket now, we just retired, we
have lower income than we've had in a long time.
Answer to that is unqualified. Yes, you should learn about it, right,
do it not do it? That's different. It differs by situation.
You should definitely learn about it. And the important key

(29:08):
to all this for anybody considering it is that you
want to be able to ideally pay those taxes that
will come do the year you do the conversion. Pay
them out of non IRA money. You don't want to
pay taxes on money for the purpose of turning around
and paying taxes again. Use your non IRA money to
pay those taxes. Get that conversion done, all right, So
let's move on to James and Anderson Township, who's got

(29:30):
another question for us.

Speaker 3 (29:31):
My wife and I want to give each of our
kids twenty thousand dollars this year to help for a
home down payment.

Speaker 1 (29:37):
Is that the best way to do it, or should
we be looking at trusts or something? Well, James, I
like to keep things pretty simple, so I'm gonna. I'm gonna.
I don't think you need to get too complicated with
a trust or some exotic instrument like that. On The
one number I want to point out is the twenty
thousand the gift tax limit, the limit you can give
to any human being at any time, for any reason

(29:59):
in only twenty five is nineteen thousand dollars. If your
kid is married, you can double that if you're willing
to give nineteen thousand to his or her spouse as well,
so you can give up the thirty eight thousand. But
you can't give twenty thousand dollars to any one kid
without having to file a giftax return, which you know
we don't need to get into, you know, doing that
if we can avoid it. The other thing I would

(30:20):
point out is before you do all this, you got
to look at the timing of when your kids are
going to be looking at buying the house. So if
it's in the short term here. Make sure that you're
coordinating all this with your kid's lender of choice, because
sometimes the lenders will have a little bit of a
look back period, you know, when they underwrite the loan, saying,

(30:40):
all right, how much of this down payment came from
mom and dad. And sometimes they don't like that. They
don't like twenty thousand dollars hitting that bank account the
month before we pulled the trigger on a loan application.
So I'd keep it simple. I'd give them the money.
I don't think you need to put it in a trust,
but check to make sure that there's still going to
qualify for that loan that they need or want, you know,

(31:03):
factoring in the gifts that you and your wife are
giving to them. All right, let's hear from Rick in Westchester.

Speaker 3 (31:09):
I have a one point seven million dollar IRA, and
I'm charitably inclined. I've heard about qualified charitable and distributions.

Speaker 1 (31:16):
How do those work? And what should I start easing them? Rick?

Speaker 2 (31:19):
I'm glad to hear that the not only are you
charitably inclient, that's obviously honorable, but that you started with that.
A lot of people are looking for all these different
tax techniques that how can I get a deduction right
now without sacrificing anything.

Speaker 3 (31:31):
Well, there's not a heck of a lot that you
can do anymore.

Speaker 2 (31:33):
However, if you are if you start from a standpoint
of yes, I give money to charity anyway, then there
are definitely many, many steps and techniques you can look
at that can give you even more of a tax
benefit than just the plane you know, deduction you might
get for delivering a load of stuff.

Speaker 3 (31:47):
The Goodwill, for example.

Speaker 2 (31:48):
So what Rick's talking about is a qualified charitable distribution,
that is a distribution from an IRA. This is an actual,
differently coded thing that would appear on your ten ninety
nine are qualified charitble distributions are looted from your taxable income.
They do not count as income, So this means it
doesn't it's not going to affect your Medicare premium surcharge,
it will not reduce taxation on Social Security benefits, and

(32:09):
it can keep you in that lower tax bracket. It
does count towards your required minimum distribution. So if you
are a seventy three or a seventy five, if you
were born after nineteen sixty, then that IRA is going
to be required to start to distribute money to the
tune of about four to five percent in the year
after starting the year after you turn those respective ages.

(32:30):
So the whole point of this is you designate to
your IRA custodian that's the financial institution who holds your money,
that this official distribution is a qualified charitable distribution and
here is the five oh one C three charity to
whom it is going. So that means you have fulfilled
your required minimum distribution requirements that you'll have to do. Anyway,
the money goes straight to the charity. You don't pay
any income taxes on it, and of course neither does

(32:53):
the charity, because that's the whole point of being a
five oh one C three. So again, if you start
like rick is, I guess I already give money to
the too, to these charities, then this is a way
you can do it without incurring any taxes all at all,
to free up those dollars to give to the charity.
Great idea, right, all right, So now we're going to
move on one more question.

Speaker 1 (33:09):
Here.

Speaker 2 (33:10):
We're talking to Danielle in Blue Ash who's got a
question about rental properties.

Speaker 3 (33:13):
We just sold a rental property and are sitting on
four hundred and fifty thousand dollars in cash. We really
don't need the income right now. What's the smartest way
to invest this?

Speaker 1 (33:23):
Well, my honest answer, Danielle is I have no idea.
How's that for a qualified answer from a heck of
a job today, Bob, heck of a job. But no,
my real answer is don't let that money burn a
hole in your pocket. And what I mean by that
is put that four hundred and fifty thousand dollars in
cash in a safe you know, savings account or cash equivalent,

(33:44):
and then go sit down with a good fiduciary financial
advisor who can look at both your short and long
term goals and devise a plan and a strategy on
how to deploy that money responsibly for the long term.
All right, coming up next Brian's bottom Line, where Brian
is going to attempt to practice law without a law
license and talk about estate planning. You're listening to Simply

(34:07):
Money presented by all Worth Financial on fifty five KRC
the talk station. At this moment. You're listening to Simply
Money presented by all Worth Financial. I'm Bob sponsorer along
with Brian James, and it's time for Brian's.

Speaker 2 (34:24):
Bottom line Brian's bucket of Babbel. All right, I'm not
a lawyer, but I'm playing one on the radio today.
So I want to talk about some basic estate planning
steps again, talking to clients during the financial planning process,
which involves a lot more than just investments. Right, that's
a tiny piece of everything that a financial plan encompasses. Eventually,
the conversation turns around to what happens to all of
this when I or we pass on, And there are

(34:46):
some very basic steps that everyone should take. And a
reason I'm bringing this up, Bob, The reason this is
important is because a lot of people.

Speaker 3 (34:52):
Just assume, oh, my gosh, I got to bring in
a lawyer for this.

Speaker 2 (34:54):
I got to Oh, that's going to be thousands of
dollars and a lot of work, and he's gonna use
fancy words that I don't understand, and I don't want
to do it today.

Speaker 3 (34:59):
Well, worry about it in a few months.

Speaker 2 (35:01):
That's the wrong approach, because anything can happen in those
few months, and we've all have those horror stories. Anyway,
easy things you can do. The easiest thing everyone can
and should do is name beneficiaries on everything that you can.
Primarily in the easiest, absolute easiest place to do it
is all your financial accounts. Here I raise your four
oh one ks. That's relatively obvious because it's shoved into

(35:22):
your face. On those retirement accounts, right, you kind of
have to name a beneficiary to get those open.

Speaker 3 (35:27):
So but always make sure they're up to date.

Speaker 2 (35:30):
And when your company changes four o one K providers
or they change the hware HR software system, double check
that because I think I've seen at least five times
in my life where somebody changed the software package of
my beneficiaries.

Speaker 1 (35:41):
What's a big one. I've seen that as well.

Speaker 2 (35:42):
It happens very frequently, or sometimes our clients while we're
doing a financial plan, they'll log into their four oh
one K and the hey, you know, before we get
the investments click that beneficiary is like, let's just see
what it says. Make sure it makes sense anyway. That's
the easy side because it's kind of shoved in your face. However,
where you can also do it, it's very easy, but
you kind of have to ask for it is your
non retirement accounts, and I'm talking like a joint investment
account or an individual brokerage account, and we're talking non ira,

(36:06):
non roth, that kind of thing.

Speaker 3 (36:08):
You can ask your financial institution for what's called.

Speaker 2 (36:10):
A transfer on death TOOD form, which does the exact
same thing. That does not change the ownership, but it
will establish beneficiaries on those taxicle accounts banks different from
investments banks called a POD payable on death. But it's
just a piece of paper where you're naming beneficiaries. If
you accomplish these steps on all of your financial assets,
then those instantly will bypass probate. You don't need a

(36:33):
fancy trust. Matter of fact, they bypassed the will too.
The will might say my investment account XYZ goes to
my dog, but if the beneficiary is listed on the account,
the beneficiary that is listed wins out. Doesn't matter what
the will says. A will is still important. I'm not
at all implying that. But at the same time, the
will exists to cover anything where you can't clearly name
a beneficiary.

Speaker 3 (36:53):
If you can name it on the.

Speaker 2 (36:54):
Asset itself, via the title or the account or the whatever,
or your house deed, then you should do so. All
that stuff bypasses probate. And these are easy, simple steps
that everyone should take.

Speaker 1 (37:04):
Yeah, good stuff, Brian. I actually had this come up
yesterday in a meeting with a client. They had done
all the beneficiary work on their iras but completely ignored
their bank accounts, so we were able to walk through
how to get their six different beneficiary set up through
a pod you know, just by going into the bank
and getting it done. Good stuff. Thanks for listening everyone.
You've been listening to Simply Money, presented by all Worth

(37:26):
Financial on fifty five KRC, the talk station