Simply Money

Episode Transcript

Speaker 1 (00:06):
Tonight, the job market is sending some mixed signals. What
smart investors need to watch out for.

Speaker 2 (00:12):
Next.

Speaker 1 (00:13):
You're listening to Simply Money presented by all Worth Financial.
I'm Bob sponsorer along with Brian James, and it's Monday,
which means it's time to bring in all Worth Chief
Investment Officer, mister Andy Stout and Andy. While the main
jobs report came in a little better than feared, there's
some more things going on under the surface, so to speak.

(00:33):
Let's dig into what that job's report really means for investors,
especially those nearing or in retirement.

Speaker 3 (00:42):
Kay, when we look at the job report, it was
pretty interesting. I mean Wall Street was nervous heading into it.
I mean you saw something earlier in the week with ADP,
which is a big payroll company. They released their monthly
number and it showed that there were only thirty seven
thousand new jobs in make. Now, what we saw, at

(01:04):
least on the positive side, was that that number was
not even close to what actually happened, because what actually happened,
according to the government, at least, was that employers added
one hundred and thirty nine thousand. So not only did
we come in much better, than feared. But we came
in better than what was expected by economists, and they,

(01:24):
because they comments, were looking for one hundred and twenty
six thousand. But when we look, uh, when we zoom
out a little bit and look under the hood of
what we see is though, even though the headline looked
pretty strong, you know, just to be quite honest, it
was a far from perfect print.

Speaker 1 (01:40):
Well, and Andy, can you help just answer a question
for us? I saw the private sector right, correct me
if I'm wrong? The private sector added just thirty seven
thousand jobs.

Speaker 2 (01:50):
The entire report encapsulates private.

Speaker 1 (01:53):
And government jobs, right, I mean were the rest of
the jobs all government jobs?

Speaker 2 (01:58):
Or am I am I misreading the.

Speaker 3 (02:00):
Herey, You're actually looking at two different reports. So that
thirty seven thousand you mentioned comes from ADP, which is
a private company. You know, they're the company that does
payrolls for many many companies around here. So when you
get your pace WCADP written at the top of it,
the one hundred and thirty nine thousand. That is what
the BLS or the Bureau of Labor Statistics does when

(02:22):
they reach out and call businesses and survey businesses and
ask if they've been hiring and that and the government.
They survey the government as well, and that's where that
one hundred and thirty nine thousand, So it's actually two
different reports. Uh So, when you look at it from
that perspective, basically there were, according to the government's report,
one hundred and forty thousand private sector jobs. Government actually

(02:44):
shed one thousand jobs last month.

Speaker 4 (02:48):
That's actually surprisingly low. With the headlines and all of
the slashing and that's happening at the federal level, you know,
a thousand jobs is all that's gone, because I feel
like the headlines, you know, kind of bear that out differently.
Am I missing something there?

Speaker 3 (03:00):
But we see all these things related to the DOGE
and these headlines about DOGE cuts and things like that,
But a lot of the stuff just gets lost in
red tape. And even if these cuts happen, and there
will be some obviously and some have happened, they may
not show up in the payroll report because maybe someone

(03:21):
they found a job, or maybe you know, they're collecting
some other benefits along the way, and there's not showing
up for a variety of reasons. So when you look
at it from that perspective, it is kind of surprising though,
because you would expect, based on these headlines, to see
all these massive job losses and we're just not seeing it.

(03:42):
Some of the reasons are, you know, technical reasons. Other
reasons are that, you know, the economy is still hanging
in there despite everything that's going on on the trade
front and in the doze world and all the other
obstacles we face.

Speaker 4 (03:58):
Okay, so that's the federal side of things. What about
other private sectors? Where are these jobs? What's going on
and what sectors are being impacted most clearly?

Speaker 3 (04:08):
Well, the positive side, it's what we have been seeing.
It's more of the same. It's healthcare leading away. Healthcare
added about seventy eight thousand jobs, and then also leisure
and hospitality industry it was another strong contributor with forty
eight thousand jobs. So that was pretty good. But you know,
on the flip side, manufacturing shed eight thousand positions. Some

(04:31):
of that was due to strikes, temporary help. They saw
twenty thousand fewer jobs. Now, when you look at this
all together, then you might think, well, we see these
job gains every month, why has the unemployment rate been
you know, ticking up, and why has it been I
guess held study for last month, we're held study at
four point two percent. That actually is from a different report,

(04:53):
so it's there's a lot going on. So the government
talks to businesses, that gives us that one hundred and
thirty nine thousand payroll number. The government also talks to
households and that's where we get the unemployment rate. That's
where they're asking, hey, do you got a job, are
you looking for a job? How long you've been looking
for a job, And they put all of this data
together and that's where you get the unemployment rate. And

(05:15):
what we saw under the hood here was it wasn't
really a good report because essentially the unemployment rate remained
where it was, you know, for all the wrong reasons. Specifically,
we saw the number of employed people drop by almost
seven hundred thousand. However, the labor force also shrink by

(05:37):
about six hundred and twenty five thousand, So essentially the
unemployment rate was flat, not because people found jobs, but
because many people just stopped looking.

Speaker 1 (05:47):
Well, andy an any ideas as to why why almost
seven thousand people left the labor force participation? Is it
just you know, voluntary retirements, people getting older or in retiring,
get any any data behind the data so to speak, Yeah, there.

Speaker 3 (06:05):
I mean, there's plenty of data behind the data. But
what I would I would say, let's pull up and
actually look at the trend on these data points, because
because when when you look at the labor force and
you look at the household survey, what you notice is
that it's a very volatile. If you go back just
two months ago, you know, we saw basically the reverse happen,

(06:26):
where you know, the labor force increased by almost by
around six hundred thousand and NFL this month by six
hundred thousand, So you'll see some big swings in these numbers.
So that's why you want to always take a step
back and look at the broad trends. You want to
see what's going on. And that's why, you know, looking
at the unemployment rate's important because that can show you
that broad trend, but you also need to understand what

(06:48):
the drivers are. And I think the big takeaway here
is that the jobs market is hanging in there. It's
not doing great, it's not doing terrible though, and we're
still in a spot where we're seeing enough job growth
to support consumer spending and to support the broad economy.

Speaker 4 (07:09):
Andy with regard to tariffs to switch gears a little bit.
So it seems like we're in the sort of the
eye of the hurricane right now with regard to tariffs,
because it's kind of quiet now that we're in these
kind of holding off periods and that kind of thing.
Are there any new headlines is that driving any of
this or are we focused on other things right now
with moment.

Speaker 3 (07:26):
We are seeing tariffs and trade impacts. Some of the
data last week we got some trade deficit data. If
you remember January February of March, we saw humongous deficits.
We saw a record deficit in March, with one hundred
and thirty eight billion monthly deficit just in that month alone.
What we saw in April. We got this data last week.

(07:48):
By the way, is that that deficit shrink to sixty
two billion, happens to be the lowest level since September
of twenty three. But to be clear, you know, this
isn't you know, any sort of success from trade policy.
It's really just a massive mean reversion from the front
running earlier this year. And when we look at some
other economic data from last week, we get the ism,

(08:10):
which is a company that surveys other companies and asking
how's their business going, and they ask service companies and
they ask manufacturing companies. Unfortunately, on average, both of these
industries showed that because of tariff induced pressure, we saw
them slip into contracting territory. So that's something to watch

(08:34):
out for. And you know, I do want to mention
just because these headlines are you know, popped up today,
is that one thing that's going to be happening, you know,
today and tonight, is that the US and China are
going to resume their trade talks. So they're actually meeting

(08:55):
in London this week or actually today their meeting in
London and looking to essentially, from the US's perspective, have China,
you know, export rare earth materials because we need those
in electronics and cars and things like that. Meanwhile, China
wants us to essentially remove some of the curves on

(09:16):
trade barriers that we've put in place.

Speaker 1 (09:19):
Andy, we've got some CPI data coming out, in other words,
inflation data this week. Correct, what's the general expectation on inflation,
what are we likely to see this week? And then
how does that dovetail into what the Fed may or
may not do in terms of moving interest rates this month.

Speaker 2 (09:39):
Yeah.

Speaker 3 (09:39):
So inflation, it's not going away anytime soon, and we've
seen it pull back a little bit. If you just
look at a big trend, I mean, you can see
the prices of eggs that kind of you know, come
back to your eyeball test and you're going through the
grocery store. But in general, we still see prices rising
quicker than what the Federal Reserve, which our nation social bank,
wants them to. So when you look at what's expected,

(10:03):
you can see that the total inflation numbers forecast to
rise two tenths percent core CPI, which excludes food and
energy prices, so excluding those eggs, which we all still buy,
of course, but excluding those, point three percent is the expectation.
And when we look at the year over year number,
headline or total inflation is expected to tick up, unfortunately,

(10:25):
from two point three to two point five percent, and
core inflation from two eight to two nine. Now here's
the thing on that. That means the Federal Reserve will
likely not be cutting rates anytime soon, because remember, the
Federal Reserve needs the inflation data to be lower than
what it is and they need employment to be strong
employments still, Okay, there's no question about that. I mean,

(10:47):
there's some crack versure, but it's not terrible by any stretch.
But prices are still too high, and so the Federal
Reserve they're not going to look the cut rates until
they see inflation start to come down a bit more
than what it has so andy.

Speaker 4 (10:59):
Historically speaking, the Federal Reserve has wanted to stay in
the two to three percent range for CPI. And I
think a lot of people out there that sort of
think that, well, we want prices to go down, don't we,
because you know, the inflation is bad. We can't have it.
Prices have to go back down. But that's not a
good thing, right, We can't really root for prices to
be going down. That might have some some negative consequences.

Speaker 2 (11:18):
Correct. Yeah.

Speaker 3 (11:19):
The last time we really saw a period of declining prices,
it's two thousand and eight and two thousand and nine.
I don't know about you, but I don't want to
visit that. That was stressful for pretty much everybody in
the entire world. So I'm not a fan of deflation.
Slower price increases, that's fine. I love disinflation to a degree,

(11:41):
and Obviously things have been running too hot, but we
do not want deflation because that opens up a whole
other can of worms that is very challenging to deal with.

Speaker 1 (11:50):
All Right, Andy, thanks as always for being with us today.
We got to leave it there for today. Here's the
all Worth advice. Stay focused on your long term plan,
not the mixed signal in today's economy and the media
that goes along with it. What did Jimmy Buffett's two
hundred and seventy five million dollar estate and your family's
trust or a state plan have in common?

Speaker 2 (12:12):
A lot more than you might think. We'll explain that next.

Speaker 1 (12:15):
You're listening to Simply Money presented by Allworth Financial on
fifty five KRC the talk station. You're listening to Simply
Money presented by all Worth Financial. I'm Bob Spondseller along
with Brian James. If you can't listen to Simply Money
every night live, subscribe to get our daily podcast. Just

(12:37):
search Simply Money on the iHeart app or wherever you
find your podcast. Are you a financial planning wizard or
are you just winging it? We'll play Financial Planning Factor
fiction coming up straight ahead at six forty three.

Speaker 2 (12:53):
When Jimmy Buffett died last year.

Speaker 1 (12:55):
He left behind more than just a legacy of laid
back music and beach bunk vibes. He left a two
hundred and seventy five million dollar estate and now, Brian,
that estate is at the center of a bit of
a legal.

Speaker 2 (13:08):
Tug of war.

Speaker 4 (13:10):
You know, when he died. Before we get into that,
when he died, part of my youth died too. You
remember those days. I remember when one year he came
and did five shows at Riverbed, night after night after night,
back in the heyday of all the parrot heeads down there,
and that was that was a good time. I spent
a lot of time down there, and I still listen
to that music. So he's definitely missed.

Speaker 1 (13:28):
But on to the Yeah, No, my wife and I
were down in Key West. We made our first trip
visit to Key West back in February of this year,
and he's still alive and well. Down there, there's several
Jimmy Buffett bar I mean, that's where he's from, and
you know, there there he's his estates. Still making money
down there. I can guarantee you that.

Speaker 4 (13:48):
Yeah, exactly, And that's what we're here talking about. Today
obviously not only the music that I won't say all
of us, but many of us love, and it goes
with summer nowadays. But obviously he built a business, built
quite a business. Frankly, He's got the Margharitaville restaurants, obviously,
the music catalog. There are airplanes, there's real estate, there's
all kinds of things worth a total of about two

(14:09):
hundred and seventy five million dollars. And so now that's
all controlled by a trust. His widow is one of
the trustees, and there are other attorneys that he has
worked with. Of course, and you got something the size,
there are many people kind of in control there, and
so this is a little bit of a cautionary tale.
When you've got this much money, a trust is a
normal way to kind of deal with it, to make

(14:30):
sure that not too much decision making power lies in
any one person's hands, to kind of establish checks and
balances so that your intents after you are gone or
after you're able to can make decisions and control things.
You want to make sure that your intents are being
followed when there's this much money out there. But that
means it's very very important to be clear on the
trustee you choose to do this. So a trustee is

(14:52):
somebody that you hire to follow your wishes in terms
of whatever you've put into that trust document. There's somebody
out there that will do that for they are a fiduciary,
just like we are. At all worth. That basically means
we have a legal obligation to always be acting in
the best interests of our clients. That's the same thing
for trust. If I'm a trustee, I have a fiduciary
obligation to follow the wishes and do the prudent thing

(15:14):
for the beneficiaries of the trust and the trust itself.
But that means they have to get along. Relationships are
just as important, aren't they, Bob.

Speaker 2 (15:21):
Well, they are, and they don't.

Speaker 1 (15:22):
They don't have to get along, but it's awfully nice
if they do get along. And I think that's the
point we're trying to drive home here. It looks like
mister Buffett's widow is going to court to try to
remove one of the trustees. And Jimmy Buffett used his
business manager as the trustee.

Speaker 2 (15:40):
Of his estate.

Speaker 1 (15:40):
And again we don't know all the details, but you know,
I don't know about you I've been there, you know
a few times in the past, where everybody sets up
this estate and they think it's going to work well,
and if some of the beneficiaries don't like the way
things are being managed on their behalf, you know, they
they get a little combative, and you know, in extreme cases,

(16:01):
go to court. So I think the message here is
if and where possible, just make sure there's clear communication
among all the parties while you're still alive, your trustee,
your heirs, your spouse, anybody that might be involved in
your estate, so we can avoid any misunderstanding or having
to go back to court to get combative after someone

(16:25):
has passed away, because that can create quite a mess
for everybody involved.

Speaker 4 (16:31):
Yeah, I can. And and a trustee again, a lot of
that we associate trust with lawyers and things, and sometimes
a trustee is an attorney, but it can really be anybody.
It can be a trusted family member, a friend of
the family. It can be you know, a sibling of yours,
somebody you trust, that kind of thing. If there is
nobody like that, or you truly want there to be
only a you know, a truly business type relationship there,
then you can hire a corporate trustee. This is where

(16:52):
bank trust departments come from. Also, lawyer CPA sometimes offer
these services as well.

Speaker 1 (16:58):
You're listening to simply money presented by all Worth Financial.
I'm Bob sponseller along with Brian James. Brian, I know,
I mean, I know, we're talking about a two hundred
and seventy five million dollar state in the case of
mister Buffett. But you know, if you've got an a
state I'll say from between one and ten million dollars.
These same kind of issues can arrive if proper planning

(17:19):
and communication hasn't been done despite the number of zeros
or commas that might be in your total net worth.
And there are pros and cons for having corporate trustees,
family members, all that service trustee and again it's about
getting the right people in the right position on the
field here to be able to manage things correctly. For example,

(17:41):
your family members, they may know your wishes intimately, but
they may lack objectivity and emotion comes into the mix.
On the other hand, professional trustees bring financial discipline but
can sometimes lack that personal touch. They lack the relationship
with the heirs of the estate. They can become unresponsive

(18:04):
in some cases, and I think that's what's going on here.
I think mister Buffett's wife is wanting some information or
communication from this professional trustee and not getting it on
a timely manner. And you know, again, lack of communication
can lead to well, I'm going to go to court
and try to fix this myself.

Speaker 4 (18:21):
Yeah, And this is one of the interesting nuances of
this case is she is one.

Speaker 2 (18:24):
Of the trustees. There are co trustees.

Speaker 4 (18:27):
And that's another topic in and of itself that might
feel like the right solution. Let's just put you know,
several people in charge and they'll just all have to
agree on everything, and that can solve some problems. That
can protect, you know, from one person kind of going
rogue or perhaps not making decisions that you would intended.
But it obviously can also cause some It can cause
a lot of red tape. If those trustees cannot agree

(18:49):
on whatever your decisions were, then you can kind of
introduce some risks there as well. So, you know, in
a lot of cases, and I think what mister Buffet
intended here was let's have some people who are connected
to the family make the decisions on my behalf after
him gone. But let's also have a you know, kind
of a corporate person out there, and I suspect this
business manager probably might have been a little too close
to the family too, because you know, had that longtime

(19:11):
business relationship there, as opposed to somebody who came in
completely cold. Sometimes that's a good Somebody who's truly an
arms length away from the history can be a good
move too.

Speaker 2 (19:19):
Here's the all Worth advice.

Speaker 1 (19:21):
Pick a trustee who has both the financial chops and
the emotional intelligence to carry out your wishes, and please
revisit that choice as relationships evolve over time. Coming up next,
all Worth Chief Investment Officer Andy Stout is in to
help those who want to maximize the amount they've got

(19:41):
in their five twenty nine plans for their kids or grandkids.
You're listening to Simply Money presented by Allworth Financial on
fifty five KRC the talk station. You're listening to Simply
Money presented by Allworth Financial.

Speaker 2 (19:59):
I'm Bob's tell.

Speaker 1 (20:00):
Her along with Brian James and our chief investment officer
here at all Worth, Andy Stout joins us again to
talk about five twenty nine plans, a super important topic
that I know a lot of folks are interested in Andy,
explain to us what five twenty nine plans are, and
perhaps a couple of stories and ideas on where they

(20:21):
really work best for folks.

Speaker 3 (20:24):
So five twenty nine plans it's a really good tool
to help you help your kids essentially, or help maybe
a niece, nephew, a grandkid, neighbor's kid if you're really
close with your neighbor. But in playing English, it's a
special savings account for education purposes, and it's run by

(20:47):
the states, so each state has their own. What you
do is you invest dollars after tax dollars and what
happens is those earnings grow tax free and they'll come
out tax free as long as you use the money
for approved cost like tuition or books. And this is

(21:08):
not just colleges. You can use it at colleges for sure,
but you can also use it. You know, in this
greater Cincinnati area there's a lot of private schools, so
you can use it for private school tuition there as well.
Now one thing is that you also, you know, you
stay in charge of the investments. You can choose the
investments and switch moneys between one family member to another

(21:30):
family member. You can even if you happen to save
too much. In these five twenty nine plans, you can
even roll it out into a roth ira if it's
not needed for school. So you have lots of options there.
And the big takeaway is you start saving early for
college for someone that you care about or someone you

(21:52):
want to help. So just in my own personal life,
I have two kids. One is a a daughter at
the University of Tennessee, another is a senior in a
local high school here.

Speaker 2 (22:06):
And one thing that.

Speaker 3 (22:08):
I have been doing along with my wife and just
start financial planning that we do is that, you know,
we talk about being ready for college because those college
bills are huge. I mean you look at an in
state school, I mean even these in state schools can
be like thirty thousand. You go out and say you're
looking at fifty to eighty thousand, and they're tough. It's

(22:31):
a lot of money. One thing to help with that
is just socking away, you know, one hundred and fifty
bucks a month, you know, starting at a very early
age for the kids. Then you get time on your
side because yeah.

Speaker 4 (22:43):
And as our chief investment officer, obviously you're in charge
of worrying about what we own and when and that's
what that's your day job. You have a whole team
underneath you that worries about that. Five twenty nine's though
we're a little bit different. A lot of them have
limitations in terms of how often you can invest what
you invest in. So how do you navigate You mentioned,
obviously you've got these for your own kids. I'm sure
you would want to do things a little differently if

(23:05):
those were You know that those restrictions were removed, So
how do you navigate that, knowing what you know about investments,
given the fact that those can be a little bit limited.

Speaker 3 (23:13):
So, you know, I set it up just from a
plain diversification standpoint, because when you think about how the
investments are, you know, offer to you, some states have
a pretty good offering you. Ohio's isn't bad in all honesty.
Other states I've seen are pretty poor. So when you
look at that, you know you want to build it

(23:34):
out to be pretty diversified. You want exposure to different
areas of the market because you don't want to put
all of your eggs into one basket, and you want
to I mean, I don't want to make this sound
you know, too easy, but you kind of want to
just set it and forget it, because time is on
your side. I mean, there's always going to be something
to worry about, whether it be the trade war, whether

(23:55):
it be you know, whatever is concerning you, inflation, COVID,
financial crises and armageddons. But when you look at it
over a period of time, starting early from when you
start to save, hopefully close to birth, then you can
weather those storms. And what happens is you have a

(24:18):
little bit of a nest egg built up to help
that person.

Speaker 2 (24:23):
Was cool.

Speaker 3 (24:23):
I mean, maybe you've saved enough for half a semester
or a full year, depending on where they go. Maybe
you've been able to save a little bit more.

Speaker 2 (24:32):
You know.

Speaker 3 (24:32):
The question is, though, how much do you save? How
much do you put aside? Because there's no one perfect answer,
because the cost of college is you know, it's rising, obviously,
and it doesn't appear to be following anytime soon, unfortunately,
and unfortunately for me, especially with a senior in the
mix looking to go somewhere. So we'll see where he

(24:53):
ends up. But regardless, you know, I do feel a
little bit better knowing that I've put some money aside
that will cover those costs. It's almost it's like it's
like money that's not there right now because when I
think about it, I don't really think about it because
it's just there sitting over an account, growing tax free,
and when I need it, it's going to be there.
But I don't really think of it as kind of
part of my net worth because I know I'm going

(25:13):
to use it really soon and it just provides some
peace of mind there, all right.

Speaker 1 (25:17):
So in other words, you're not out there day trading
your five twenty nine plans.

Speaker 2 (25:21):
For your kids.

Speaker 1 (25:22):
You've you've you've put a responsible acid allocation plan uh
into effect and you it sounds like you and your
wife have been contributing a little bit of money to
these for years and years and years on a.

Speaker 2 (25:33):
Discipline basis, and that's the way you win. Is that?
Is that summing it? Summing it up pretty correctly, Andy.

Speaker 3 (25:41):
I think you hit the nail on the head there.

Speaker 1 (25:43):
All right, Good stuff, Andy, thanks for joining us today.
You're listening to Simply Money presented by all Worth Financial
on fifty five krc V talk station. You're listening to
Simply Money presented by all Worth Financial on Bob Sponsller
along with Brian James, you have a financial question you'd

(26:05):
like for us to answer. There's a red button you
can click right there on the iHeart app while you're
listening to the show.

Speaker 2 (26:11):
Simply record your question and it'll come straight to us.

Speaker 1 (26:16):
All right, money nerds and armchair advisors out there, it's
time to play financial planning fact or fiction, and Brian,
I'm gonna serve you up a softball question right off
the bat here factor fiction. If you're wealthy, you don't
need to worry about required minimum distributions factor fiction.

Speaker 4 (26:35):
That is a big fat fixtion with a capital F,
because if you're wealthy, you probably it's probably a bigger problem. Now,
that doesn't mean that that you can't avoid them. So
what we're talking about was required minimum distributions or rmds.
What this means is that you've put money into your
IRA or your four oh one K or four or
three B whatever retirement plan you have for your advisor
and the irs. Basically says, the gravy train has come

(26:58):
to us, has come to us when once you reach
either age seventy three or seventy five, depending on when
you were born, But now you just have to start
paying taxes. On it. It's not super painful, but just
give us some scale. What you do is you take
the twelve thirty one balance of the end from the
end of the prior year, and it's gonna be somewhere
in the ballpark of four maybe five percent. That's the

(27:19):
amount you have to take out as income, and you
pay taxes on that. There really isn't that we get.
We get questions all the time, how can I avoid
these taxes? Well, you can't. That's kind of the point.
If these taxes could be avoided, everyone would do so,
and nobody would ever pay taxes on their iras. That's
not going to happen. But the way to plan for
it is well in advance of our MD age, you
need to be looking at things like roth conversions. And

(27:40):
the window to do that might be when you are
you know, when you have retired but not yet turned
on your SOB security. Maybe at some point when you're
in a lower bracket. That's when you want to be
not taking advantage and enjoying the fact that you're paying
no taxes. That's not the best alternative. A lot of times,
it's to go ahead and take some taxation on these
r and ds. Or I'm sorry on these tradition and

(28:00):
a liaries pre tax dollars so that you can reduce
but not avoid your rm ds later. All right, Bob,
your turn right back at you. Fact or fiction. Sequence
of return risk can be mitigated if you have a
cash bucket strategy during the early years of retirement. What
do you think that's a fact?

Speaker 1 (28:15):
And let's just define what we mean by sequence of
return risk. That's the volatility risk that embedded in any
portfolio that's invested in assets that can move up and
down in value temporarily, things like stocks and bonds. So
you know, we talk about this all the time. It's
important to have a cash flow strategy, not just a
bucket of assets, to help mitigate that sequence of return risk.

(28:39):
Because if we have a market, you know, significant market
decline early you know, in your retirement years, and you're
permanently pulling money out to live on, that money obviously
can never go back into the portfolio and recover. So
it's important to have different buckets of money, non volatile
buckets of money to help cushion that blow and make

(29:00):
sure that we can weather any short term financial storm
and still have a long term retirement cash flow strategy
that factors in future volatility in terms of returns. All right, Brian,
factor fiction, High dividend paying stocks are always the best
option for income focused investors factor fiction.

Speaker 4 (29:22):
I knew this was fiction as as I saw the
word always in it. So I am not a fan
of the words always end never, because that leads us
to what we call rules of thumbers. Our old friend
Ed Fink used to call them rules of dumb. There
are there, there, There are a couple, but there are
generally nothing out there is the exact right answer for
everybody at all times. So that's why I don't like

(29:42):
always en never. Anyway, high dividend paying stocks not a
bad thing, but at the same time, that's not the
only thing option you ought to be looking at, because
you still have to deal with inflation. You know, when
we retire, we want income right now, that's kind of
the whole point of having built that nest egg. Dividend
paying stocks can help there, but don't lose site completely
of the growth side. We can't put everything into stuff

(30:02):
that only generates income because we will spend that and
we're not going to have something continuing to grow. Plus,
I'm thinking nowadays Bob, I'm gonna throw this idea out there,
see what you think. But I think nowadays dividends are
not the same focus that they used to be for
those that are running these publicly traded companies. I think,
you know, in the sixties, seventies and eighties, that was
kind of the thing, But now you see a lot

(30:23):
of the compensation plans are based on the value of
the stock, not the cash flow for the people who
are actually in control of these companies. So we're out
there trying to grow or trying to create the new
market and invent the new product and all that kind
of thing. So I don't think dividends are exactly the
same thing that they were twenty and thirty years ago.

Speaker 1 (30:40):
I would agree with that, And it depends on the
company and the industry obviously, which is why to your point,
we don't like to use the word always, but as
kind of a rule of thumb, if you look at
some of these truly high growth, innovative companies that are
out there, the companies that are really moving the needle
here in terms of technology AI, the up and coming
kind of companies, they're paying out little to no dividends

(31:02):
because they're investing their capital back into their company and
generating earnings growth. So to your point, that's why we
want to have a well diversified portfolio of all kinds
of stocks working for you, not just dividend payers.

Speaker 4 (31:17):
All right, coming back your way, your turn here, the
step up in basis at death can significantly reduce capital
gains tax liability for airs, Bob, Is that fact or fiction?

Speaker 1 (31:27):
This is absolutely a fact, and it's a big part
of what we do when we look at a client's
overall coordinated financial plan, and you know, we run across
folks all the time that have these long time concentrated
stock positions with very low cost basis, and yes, people
are reticent to sell those because they don't want to
pay the capital gains taxes during their lifetime.

Speaker 2 (31:49):
And the good news is if you can hold.

Speaker 1 (31:51):
On to those assets or stocks or whatever it be,
you know until you pass away, those capital gains evaporate
and that cost bay steps up and you can leave
that asset to your airs with no capital gains tax exposure.
The only caveat I would put on all that is
make sure your financial plan is stress tested to be

(32:12):
able to really buy and hold some of these assets,
because if you're just trying to let the tax tail
wag the dog, sometimes you can inject more volatility into
your long term income, your retirement income plan than you
might have bargained for. And then you got to you
go back and do some things you might not have
planned or wanted or you know, should have done years

(32:34):
ago to diversify all right, Brian factor fiction. A concentrated
position in any single company stock might be managed using
a collar strategy to protect gains while limiting downside risk.

Speaker 4 (32:48):
Yeah, this is a fact, and this might be something
something that people are hearing kind of for the first time.
So if you have a lot of stock from an
employer or maybe you inherited something something like that, then
you're that's a good thing, but you're little at risk too,
because that company can do anything at any time. A
collar strategy basically puts a ceiling and a floor, so
you're limiting the upside, but you're also more importantly limiting

(33:08):
the downside. So that's a legit strategy to protect yourself
from that concentrated position.

Speaker 1 (33:12):
Well, and that's a strategy that we kind of doved
hill with what we just talked about. You know, if
we want to reduce risk and hold that a big
chunk of that concentrated position. That's where those collar strategies
can put some risk protection into place. So it's it's
marrying one strategy with another. All right, coming up next,
Brian offers his bottom line on I think he's going

(33:33):
to share some actual war stories here on five twenty
nine Plans. You're listening to Simply Money presented by all
Worth Financial on fifty five KARC the talk station. Moment,
you're listening to Simply Money presented by all Worth Financial.
I'm Bob Sponsorer along with Brian James, and it's that

(33:54):
time again, time for Brian's bottom line.

Speaker 4 (33:59):
Yeah, Bob, So.

Speaker 2 (33:59):
Today I got for us a little bit of a
tax hacked.

Speaker 4 (34:02):
There aren't many of these left, but now there's some
things you can do with five twenty nine plans that
I think can deliver on some things that people have
wanted to do for a while. So reminder, five twenty
nine plan is a way, you know that has always
been there for the last twenty years or so, as
a way to fund college in the future. Right, I
have a baby, I got eighteen years to start putting

(34:22):
money away before the college tuition comes due five to
twent nine. Plan allows me to invest that and if
I grow it to whatever I grow to, those capital
gains come out completely income and capital gains tax free
as long as it's used for higher education purposes, which
is room, tuition, board, laptop, anything you can kind of
throw under that. That's what it's been from the beginning.
A lot of people were hesitant that have been hesitant

(34:44):
because they'll say, well, don't this is just a baby.
I don't know if this person's going to go to college,
or if they're going to get a full ride, or
maybe they won't need this money. So therefore I'm hesitant.
I don't want to put money in. While Secure Act
two point zero had added the ability to take the
money and ultimately converted to a roth ira, this is
a new rule that has come out in the past
couple of years where you can take if there's money

(35:06):
left over for a beneficiary, you can take those dollars
and use them as contributions toward wroth iras for that
same individual person. So this takes away the risk that
I'm going to put money away that may not be
used because no matter what, you're either investing in this
person's college education or you're investing in their retirement, and

(35:28):
from day one it would be tax free. So if
I put dollars in you or the month the kid
is born, that money can sit there until they're sixty
some years old and begin to come out tax free. Now,
obviously this isn't this isn't a freebie. There's limits and
all that kind of thing. So let's talk about some
of the rules. The dollars have to have sat in
the five twenty nine plan for fifteen years. Right, that's

(35:48):
a long time to commit. But at the same time,
if you're even remotely thinking about college for very young people,
then that's that's what you're already taking advantage of. Anyway,
there's a lifetime transfer of thirty five thousand dollars per beneficiary.
And remember we're not talking about I sign a piece
of paper and it becomes magically poof, it's an IRA,
it's a roth IRA. That's not the case. It becomes
an annual contribution. So until you've spent that full thirty

(36:11):
five thousand dollars. So we need fifteen years and thirty
five thousand dollars. So here's the hack. People will come
and they'll say, you know what, I want to fund
this for my niece, my nephew, my kid, my whoever.
I want to do a roth Ira for him. Well,
you know, the only way a baby is going to
have earned income is if they're models, and people mention
this all the time. Well, we're gonna get into modeling
and then we'll take pictures of this kid and we'll
have money to put in a roth Ira. You don't

(36:32):
have to do that anymore.

Speaker 2 (36:33):
What you could do is.

Speaker 4 (36:34):
Fund this fund of five twenty nine intentionally with if
you've did the seventy bucks a month or twelve thousand
dollars one time when the kid is a newborn, if
you do that for eighteen years seventy bucks a month,
you'll have thirty five thousand dollars assuming about a six
percent rate of return. And now from that child's age
eighteen going forward, they've got wroth Ira contributions coming. So again,

(36:56):
if you really want to kind of hack this and
take advantage of tax free growth for somebody, even think
about that Bob six. That's sixty years worth of tax
free growth. That is an enormous pile of money that
could start at seventy bucks a month just to put
away into a five twenty nine with the intent of
rolling it into that roth IRA taking advantage of these rules.
So I think this is a This is a great

(37:17):
way for people to really remove the stigma that five
twenty nine can only be used for college. Therefore, that's
too risky. I don't know if that's going to happen.
I don't want to take it. I don't want to
take the risk that these dollars may not get used. Well,
now you have an out. You can get that into
a roth IRA. Now there are some questions out there, right,
so this is a brand new rule and really nobody

(37:37):
has done this yet, but there are some questions out there.
Does it if you change the beneficiary, does that restart
the fifteen year clock? Because you have that right you
can change the beneficiary from one from one kid to
the next, or a niece or nephew or whatever. And
the IRS hasn't been clear on this yet, so we'll
get some more clarity out there.

Speaker 2 (37:55):
Or what if you move it?

Speaker 4 (37:56):
What if you move the the you know, the IRA
is a different custodian. Maybe it's the Ohio Vanguard plan.
You move it somewhere else as a custodian. Does that
change the fifteen year o' clock? No clear guidance on this,
but this is a space to pay attention to if
you are somebody who was worried about the future of
a very young person in your life.

Speaker 1 (38:12):
Now this is good stuff, Brian, and I'm actually starting
to get questions from clients about this balancing out those
two options that you just talked about.

Speaker 2 (38:20):
You know, what should we do.

Speaker 1 (38:22):
Should we give that money as a raw ira to
the one kid that's not going to need it, or
should we just change the beneficiary and use that for
college funds for our kids that are coming up and
going to college.

Speaker 2 (38:33):
Thanks for listening.

Speaker 1 (38:34):
You've been listening to Simply Money, presented by all Worth
Financial on fifty five KARC, the talk station