Simply Money

Episode Transcript

Speaker 1 (00:06):
Tonight the world could seem like a scary place out there.
Is it time to fail from the market. You're listening
to Simply Money by all Worth Financial. I'm Bob's sponseller
along with Brian James. From wars to terror attacks to
political bickering, seems like every time the world shakes a
little bit, some investors get spooked. But does history say

(00:29):
you should pull all your money out of the market.
Let's look at the current situation, for example, in the
Middle East. The markets have been pretty darn calm since
this whole conflict unfolded, But there are some out there
who wonder is this just is this turbulence just a mirage?
And is the bottom about to fall out? Brian, Let's
look back at some actual history to give us some

(00:51):
perspective on what typically happens during situations like what a
lot of folks are worried about.

Speaker 2 (00:57):
Bob. I think this is so important for people to
unders market history and ups and downs are really you
know that that's up there with having an emergency fund
in terms of getting started with your financial plan. People
will wander around for ten fifteen years trying to figure
out how to how to protect themselves from the ups
and downs of the market, you know, and it really

(01:17):
just doesn't matter as long as you understand the history.
The way to get around this is to know how
the market reacts to certain things and understand the whole cycle. So, yeah,
let's go through some detail. In twenty twenty three, Hamas
attacked Israel, Right, it's sort of similar to what's going on,
except in the opposite. So when after this happened, the markets,
of course dipped. Energy spike that that always happens whenever
something happens in the Middle East. Oil goes up because

(01:39):
the assumption is that the oil supply is going to
be cut off for at least some time period and
everybody's going to be in a snit for a while.
By the end of that year, though, the S and
P five hundred was up twenty four percent, and that's
not only because that that conflict at that time was resolved.
There's other stuff that happens in the world. That's when AI,
alternative artificial intelligence rather became the buzzword and that drove

(02:02):
that rally. But the point is the world keeps revolving
even though there are conflicts out there. So even in
a war, markets will still move forward. And you can
even look at World War two for that. Right, most
of the years of World War Two, the stock markets
were positive. The whole stretch was stressful. Of course, we
don't ever want to go through that again. But it's
not like the market goes to zero everybody stops doing

(02:22):
business until the war is over. That does not happen.
It ends up being a catalyst. General Motors and all
these companies we all remember these stories, all switched to
wartime footing where they started producing tanks and we started
pulling in rubber to send to the military and all
that kind of stuff.

Speaker 1 (02:37):
Those are still.

Speaker 2 (02:38):
Businesses doing what they do. They just change what their
approach is. So we need to separate our concerns with
what's going on in the world, with the overall concerns
about our finances.

Speaker 1 (02:48):
Well, let's look back at twenty twenty two. I mean,
that was a rough year for a whole bunch of reasons.
The Fed raised interest rates seven times, as we all remember,
but that was also the year Russia invaded Ukraine. Very
similar situation to what you just talked about. You know,
tanks rolled into Ukraine, oil prices shoot up, global supply chain,

(03:09):
takes a hit and the Nasdaq entered, actually entered bear
market territory. But for investors who stayed disciplined, they saw
major rebounds. From October of twenty twenty two through July
of twenty twenty three, the SMP five hundred gained twenty
six percent. But if you panicked in early of twenty

(03:31):
twenty two and sat out and said, well, I'm gonna
just sit this one out and wait until the world
seems more settled, you missed it. You missed that nice rally.
And then twenty twenty we all remember the COVID nineteen pandemic,
the fastest bear market in history. The S and P
five hundred dropped thirty four percent in thirty three days.

(03:52):
That was real fear. But here's the twist. By August
of the same year, the market had recovered every thing
in the full year return for the S and P
five hundred plus eighteen point four percent.

Speaker 2 (04:06):
Brian, Yeah, I want to go back to twenty twenty
two for a second, because I think that that is
That was a fascinating year. Don't get me wrong, it
was a pain. I don't want to go through it again.
It wasn't any fun, but having done this for close
to thirty years, you know, stuff happens, we move on.
I just had a meeting yesterday with some young people
are who are friends of one of my favorite clients.
We can't do anything directly for them because they're just
getting started, but we focused for about an hour on

(04:27):
just what is market history? How do I do this?
Why does my four one K move up and down?
And all this stuff? And I have a chart that
I use for people to help them understand the overall
market history. And we all know nothing makes for better
radio than describing a charts. That's what I'm gonna do
right now. Anyway, what this does it? I have a chartyment.
It was made by Andy Stoutter, chief investment officer, and

(04:48):
it basically just lays out every year going back to
nineteen thirty eight, how bad was it to how good
was it? The five worst market years in since nineteen
thirty eight were two thousand and eight, nineteen thirty seven,
nineteen seventy four, two thousand and two, and believe it
or not, twenty twenty two. Four of those, I can
shout out a year and people will instantly remember, oh,

(05:10):
that's when such and such happened two thousand and two, Well,
that must have been a reaction to nine to eleven. Yes,
it was, and there was some other things too, tech
bubble burst and so forth. Nineteen seventy four, all we
had just impeached to president. We had a lot of
social unrest, there was stagflation. Nineteen thirty seven obviously was
a great depression. Two thousand and eight that was the
great recession. That was the financial crisis. People who are
not financial professionals can recognize those years and remember historically

(05:31):
what happened. But when I say twenty twenty two, people go, oh,
the markets sucked that year. Really what happened and there
was no catalyst. It was really just the unwinding of things.
There is an event, an event. It doesn't have a
name like the other four, but it was one of
the five worst market years. So if you think about it,
the last five years, Bob have been a perfect sort
of a micro environment of what the market does the

(05:52):
best in the worst. Twenty twenty two is one of
the worst years we've ever had. Twenty three and twenty
four were among the best. So if you survived those
without then you kind of get it. Historically speaking, we
saw all of it in the last five years. Just
buckle up and be ready for it. And you don't
you when you get used to that, you won't need
to panic when we see these moves.

Speaker 1 (06:10):
Yeah, I think the point you're making here, and I
put that same chart in front of clients when I
talk to folks who are nervous and want to pull out.
And I don't know about you, but I've had you know,
every year, I've got two or three clients and they're
different ones, you know, depending on who's in the White
House and what their biases are, that come in and say, hey,
why don't we just set things out for a while

(06:32):
and think until things calm down. And you put that
same chart that you just reference in front of them
and say, all right, go back to nineteen thirty eight.
You you look at that chart and put your finger
on the day when the coast looks clear, when everything's safe,
nothing could possibly go wrong in the world. Put your
finger on that chart, and tell me when it's time

(06:53):
to get back in. And obviously the response is kind
of deer in the headlights. I don't know, And that's
kind of the whole point. Nobody knows, but lo and behold,
you look up and the market keeps averaging nine ten
percent a year, and you've got to stay invested. But
stay invested with a plan. You're listening to Simply Money,
presented by all Worth Financial on Bob Sponseller along with

(07:13):
Brian James. Brian, let's pivot now to what smart investors
did during these historical periods of volatility and what should
folks be doing right now in terms of responsible financial
planning and asset allocation.

Speaker 2 (07:28):
Well, smart investor if they were already in the right
position before whatever the event was happened, they stayed diversified.
Most of these indexes are the major indexes in the US.
They quickly shrug off these conflicts. Stuff happens, and you
write about the headlines. Here's another fun trick you can do.
Go go to Google and type in show me the
headlines from March ninth of two thousand and nine. That

(07:49):
was the bottom of the two thousand and eight financial crisis.
We hit the market hit bottom on March nine, two
thousand and nine. If you look at a chart, that's
the bottom point of the downturn. That you'll see the
market turned and by the summer we have back a
good chunk of what had been lost. But if you
look at the headlines from March ninth, and even in
the days, weeks and the months following, nothing was positive.
The market tries to anticipate, and it's usually wrong, but

(08:11):
eventually it's right. That's why we have the bouncing up
and down. But the headlines didn't turn positive, and then
the market went up. The market anticipated that the headlines
were going to improve at some point in the future,
and it anticipated and bounced back up. So if you
are a long term investor and you have had the
structured your financial planned the right way, then none of
these swings should really cause you to change to change

(08:32):
your approach. At the end of the day, the stock
market is full of companies that are simply trying to
make more money than they spent. They're trying to make
a profit, and they will find creative ways to do
it again and again and again. There are centuries worth
of history that prove this is the case.

Speaker 1 (08:45):
And another good point I think that's worth calling out here.
Trying to time the market during periods of either real
or perceive volatility is one of the costliest mistakes an
investor can make, and I'll just cite some data from
our very own chief investment officer here at all Worth,
Andy Stout. He said, just missing the ten best days

(09:08):
over the last twenty years, you know, with a assuming
you're taking a one million dollar position in just the
S and P five hundred, if you missed the ten
best market days over a twenty year period of time,
you missed out on three million dollars of lost earnings.
That's a ton of money. Brian, just expand that time

(09:28):
to get cute and time the market.

Speaker 2 (09:30):
Over that twenty years, that's seventy three hundred days, and
Andy is highlighting ten of them. That's how risky it
is to try to time the market if you missed
those great days. And we've had some of those types
of days here very recently as the market has kind
of recovered from things. That's the way it always worked.
Most of the time. The market just wanders up and down.
It goes up up a little bit, down a little
bit day after day after day, but eventually we'll have

(09:52):
a huge spike. And if you were waiting for the
bus or sitting on the sidelines not participating in it,
then yeah, you missed out. And at some point we had.
I have to learn from this history and just move on.
It's not about trying to tap dance through it and
avoid all the risk. It's about being able to be
flexible and make sure your financial plan allows you to
take that risk in the first place. And we do
that by making sure that the money we need in

(10:13):
the short term. Right I'm going to buy a house,
therefore I need a down payment, or we know we
know sometime this year we're going to put one hundred
thousand into im adding a room or I don't know,
improving the kitchen, bathroom, whatever. That money shouldn't be exposed
because we know we're going to expend it. So if
you are in that situation right now, I'm telling you
the market is basically at back at an all time high.
Close enough, go ahead and pull those dollars out if

(10:34):
you know that you're going to be spending them.

Speaker 1 (10:37):
Yeah, just one more point on market timing, and Brian,
I just took a look at this, you know, earlier
this morning, I looked at the price of oil, and
you cited some of these historical data with some of
the geopolitical events that have happened and the potential oil
shocks believe it or not, over the last week, the
price of oil is down twelve point five percent. So
for those who want to load up on defense stocks

(10:59):
thinking we're going to buy more bombs here over the
next you know, thirty days, or get cute by piling
into oil. You can get whipsawt around pretty darn quickly
if you try to get cute here with market timing.
Here's the financial here's the all Worth advice. If your
financial plan is solid, the best move during geopolitical chaos

(11:19):
is usually nothing at all. Coming up next, Americans are
moving billions of dollars into a single retirement vehicle. Find
out why and find out whether you should join the crowd.
You're listening to Simply Money presented by all Worth Financial
on fifty five KRC, the talk station. You're listening to

(11:44):
Simply Money presented by all Worth Financial on Bob Sponseller
along with Brian James. If you can't listen to Simply
Money every night, subscribe and get our daily podcasts. Just
search Simply Money on the iHeart app or wherever you
find your straight Ahead. At six forty three, we are
opening the inbox and answering your questions. The real actual

(12:08):
questions that real families are asking right now about retirement, taxes,
investing and more. All right, Brian, Annuity sales just cross
the one hundred billion dollar mark again in the first
quarter of twenty twenty five, this time north of one
hundred and five billion dollars, keeping the streak alive for

(12:29):
a six consecutive quarter. It's a sign that investors are
hungry for income guarantees and protection. I mean, amid economic uncertainty,
but our annuities the right move for your family, or
just the trendy thing to buy a lot to talk
about here, Brian, what say you?

Speaker 2 (12:50):
Well, Bob, I'm not a huge fan of annuities. I
don't think they're all evil. They are a tool, just
like anything else. If I have a hammer, I can
build a birdhouse or I can hit myself in a
head with It depends what I'm trying to do. What
am I trying to get done with this tool that
I'm holding in my hand. So annuities, I think in
the right situation where we have got to have guaranteed income,
or perhaps there's somebody we're trying to support who maybe

(13:11):
can't make their own decisions, or something like that, just
needs some predictability. I think, though, that's of this hundred
billion dollars. Granted, let's bear in mind the timeframe we're
in here. We're talking about the first quarter of twenty
twenty five, which was one of the more volatile, scary
quarters when it came to headlines and a just a
reordering of the world order kind of thing.

Speaker 1 (13:31):
That's scary stuff.

Speaker 2 (13:32):
So I'm gonna go ahead and guess that this hundred
billion dollars is not people being.

Speaker 1 (13:35):
Fiduciaries for the disabled or anything like that.

Speaker 2 (13:38):
It's people that's convincing themselves that they have got to
have some kind of guarantee, and that then, first of all,
honestly that these guarantees exist in the first place. I
think people buy these things sometimes because we want to
convince ourselves that it says the word guarantee on it
that way. That means, if the entire economy collapses and
we're living in caves, I'll still have this annuity insurance
company paying me money. So we sort of plan for

(13:58):
these extremes, and I don't even know how likely they are,
but anyway, so the kind of annuities that people are
looking into are called registered index linked annuities. They're up
twenty to twenty one percent in terms of sales, to
about seventeen point four billion, and that's new people who
never owned one before, people who want downside cushioning, you know.
And a lot of these annuities, of course, have different

(14:18):
riders and things that they'll tack on. There are income
riders out there, Bob that and you know these, You
see them all the time too. Income riders out there
that will promise to pay you, you know, six percent
guaranteed or something like that, from the day that you
start pulling money out until you die. But there are
caps to how much you can pull out, and they
limit what you can invest in. I would love, Bob

(14:40):
for somebody to tell me has one of these income
riders ever paid off in terms of the You have
to spend your own money first, right, Your own money
has to go to zero, then the insurance company picks up.
I don't think that has ever happened in history where
an annuity has actually paid from the insurance company's pocket
rather than the client.

Speaker 1 (14:59):
Yeah, I've got thoughts on this, and you know, I
started off in this industry back in nineteen ninety one
with an insurance based broker dealer. So you know, needless
to say, we were incentivized, we were paid well to
sell insurance and annuity products. And a lot of times
these people out there, I'll just say, most of the
time annuities are sold rather than bought, Meaning somebody is

(15:23):
getting paid very well to convince someone and point out
all the benefits of buying one of these things. And
that's where you know, that's why I'm doing what I'm
doing now being in an actual fiduciary advisor. Here's what
I mean. A lot of times these caps I mean
when you look at what the insurance companies can do,
and by caps, I mean there's a participation rate on

(15:46):
these products. If we're talking about indices, they'll give you
a percentage here's the percentage of the S and P
upside you can participate in. But there's a cap a
percentage of that cap. And what a lot of times
does not get disclosed or explain in a manner that
somebody can understand it is the insurance company reserves the
right to move that cap based on the experience that

(16:08):
they've got and what the market does. And by the
time you start letting the insurance company monkey around with
these cap rates, you know, all in return for paying
a high fee to get some type of protection. On
the downside, you might as well at the end of
the day, it just bought a treasury bond or regular
O bond fund with about twenty five percent of the

(16:31):
fees and a lot more flexibility. Brian, That's the concern
I've got with these things, among others. Rather you ever
run into similar situations with your.

Speaker 2 (16:41):
Clients, Oh, absolutely. And people will see these things and
they look attractive. I understand the attraction. It looks like
it's going to make things predictable. We spend all of
our lives trying to make the financial markets make a
plus B equal C make it predictable, and like other things,
we just want control over. It's something that we simply
can't control. But that's why we're attracted to these things
that purport to have guarantees. People will come in with

(17:01):
a phone book that is the perspectus of this annuity
that they're looking at, and there's a reason that that
phone book is so thick because of all the things
you just mentioned. So, yes, the insurance companies can move
those cap rates. And by the way, what that means
if it kind of flew by two fests. If, for example,
if the S and P five hundred goes up ten percent,
you might have a cap rate of seventy percent of
the upside. That means you're only going to get seven

(17:23):
percent of that ten percent gain. So that that's obviously
how the insurance company is going to keep the difference.
That's one of the ways that they make money. Rest assured,
the insurance company is going to be concerned about their
profit margin first, less the clients and policy owners come second.
That's absolutely how this is going to work. And some
of that obviously, every business in the United States wants

(17:45):
to make a profit. There's nothing wrong with that. That's
how it works. Some of it is regulatory driven. They
must maintain if they're going to have all these guarantees.
The government does regulate how they can do it, how
they can calculate it, so they do have to have
a certain profit margin. They can't put themselves at risk
because that can put everybody systemically at risk when it's
a big insurance company. So it's not as simple as
just saying, hey, they're greedy. There's more moving parts to that.
But some of the other things you'll run into with

(18:06):
these things is a surrender period. You might be sitting
in a scary period right now. These people who just
did this in the first quarter of this year because
the market in the world looked kind of scary, well,
they just signed them up for seven to ten years.
Surrender periods not always. There's some out there that don't
have these, but a lot of the ones that are
being sold, especially the ones that pay fat commissions to
the quote unquote advisor, those are the ones that are

(18:27):
going to tie that money up for a decade, sometimes
even more. And we are going to go through so
many ups and downs, Bob, over a decade, that guarantee
is going to feel good and that eventually it's going
to feel like an anchor because you see the market
is doing great and your annuity is underperforming, and that's
because of that cap rate, all in exchange for a
relatively brief period of chaos, which the world sees from
time to time.

Speaker 1 (18:46):
Yeah, And as you talk about the surrender periods and
lock ups, I can't help but go back to an
example that I saw earlier this year with one of
our colleagues and her client in the office where somebody
had taken this woman who just retired from the City
of Cincinnati. Worked her whole life. She's seventy something years

(19:06):
old and was ready to retire. They took eighty percent
of this lady's retirement plan and put it into one
of these annuities loaded with surrender charges. All this woman
wanted to do was spend ten to fifteen thousand dollars
to remodel her kitchen, and she couldn't get to her
own money without paying a ten to twelve percent surrender charge.

(19:26):
It was ridiculous and I would say financial malpractice. All right,
here's the all Worth advice. Just because everyone else seems
like they're buying annuities, it doesn't mean that you should
choose investments built for your goals, not for a salesman's
pocketbook or commission. Coming up next, should you be using

(19:48):
AI to help you buy stuff online? Our cybersecurity expert
is in to discuss this. Next. You're listening to Simply
Money presented by all Worth Financial on fifty five KRC
EAT talk stations. You're listening to Simply Money presented by
all Worth Financial. Lawnbompspond Seller along with Brian James, joined

(20:11):
today by our tech and AI and cybersecurity guru, mister
Dave Hatter. Dave, I can't wait to get your thoughts
on this topic. We came across an article recently where
these AI tools now you can tell them, for example,
go out and find me the best pair of jym

(20:32):
shoes for under one hundred dollars. Find the best quality
pair of GYM shoes, find it, buy it, ship it
to us, put it on my visa card. Dave, I'll
tell you right now, there's no way in hell I'm
gonna let some computer do that for me. What say you?
And what could possibly go wrong with this kind of
quote unquote new and exciting technology out there?

Speaker 3 (20:55):
Well, guys, as always, thanks for having me on and
I think I'm glad you guys came up with this
as a topic to discuss because it touches on a
couple of things. There's this whole sort of new ish
field and AI called agentic AI or a AI agentics.
You'll hear people say it both ways. And this goes
beyond things like chat ept or CROC or other chatbot

(21:17):
type systems where you sit down and type in a prompt.
The idea of agentic AI is it essentially can act
like a human being and take action on tasks. It
has agency, right, hence the name agentic. And this is
sort of all the rage and the business. Now when
you hear people talk about how AI is going to

(21:38):
put people out of work and so forth, and when
they're not talking about super intelligence and artificial general intelligence,
they're generally talking about agentic AI, that these things are
going to be set up in this AI will talk
to that AI and it'll do all of this stuff
and work and we won't need people anymore. Now, will
we get there eventually? Maybe I'm calling bs on it
at the moment, And to answer your questions, typically, Bob, No,

(22:01):
there is absolutely not a chance in hell I would
give any sort of AI agent access to my bank
accounts or any financial system and then let it act
on my behalf. And I'll tell you why so, guys,
I spent twenty five years in this business before I
sort of transitioned into cybersecurity. As a software engineer, I

(22:23):
wrote millions of lines of code, built every kind of
thing you could imagine. And how many times do you
think I created a bug in software? And there were
unintended consequences. The answer is a lot. I don't know
how many. How many times do you think I did
that on purpose? Well, the answer is never. But I'm
a human being. I make mistakes. And you know, one
of the key problems with AI to date is you

(22:46):
have this idea of hallucinations or confabulations where they just
make things up. So the idea that I'm going to
trust some AI that's a black box. I can't know
what it does or why it does it to control
my money and take actions on my behalf that involve
my financie dances as far as I'm concerned, completely insane,
and there is no chance I would do that.

Speaker 1 (23:04):
Kind of like asking Brian how many times he's taken
a client's money and put it in the stock market
and implied that there's no way you could lose money,
and then the stock market goes down eight percent? Is
that kind of what you're talking about.

Speaker 3 (23:16):
Well, I don't know if I'd put Brian on the
spot like that, but yeah.

Speaker 1 (23:20):
Be right back.

Speaker 2 (23:20):
I got to cancel a lot of calls here.

Speaker 3 (23:24):
I'm not saying there may not come a time in
the future I mean where I might trust something like this.
Although I'm super skeptical and again spent twenty five years
writing software right now, not AI software, but writing software.
And in many cases, despite extensive testing, there were still
things that didn't work quite right, just miss something over here,
or someone used the software in a way I did

(23:46):
not anticipate, and thus it didn't do what I expected
and something bad happened. So the idea that I'm going
to have a black box where I can't really know
how it works and it has known faults, right, So
from this article it came from MarketWatch, urge people they
should go read this for themselves if they're thinking this
is a good idea. They do a really good job
of touching on many of the problems I would see

(24:07):
with something like this. But I just want to read
this to you. The tendency for AI to makes seemingly
confident but potentially wrong assumptions is getting worse again. This
is the idea of hallucination or confabulation, that they just
make things up. Recent analysis by The New York Times
reveals a troubling paradox. The most advanced AI systems are
becoming more convincing, yet are still more prone to hallucination.
Open AI's newest quote or reasoning models unquote invent facts

(24:31):
fifty one to seventy nine percent of the time, compared
with forty four percent for older version. While Google engineers
report they're reducing hallucination, is now the quote fundamental blocker
unquote to wider AI deployment. So when you know this
going into it, and you know that often it will
not only hallucinate, this is all well documented. Guys will
not only hallucinate, but then work hard to convince you

(24:52):
what it's telling you, which is patently false, is correct.
As a problem, not to mention the privacy issues of this,
the issues with these things being hacked, the idea that
you know, if a hacker could somehow get into your account,
whether they hack the back end of the agentic AI
or they just take over your account, but suddenly you
could have an avalanche of spending. You know, are these

(25:13):
things really making the best decisions on your behalf or
are there a bias in the models where they're actually
picking more expensive things rather than buying the thing that
would be the best fit for you. Hard to say,
those are all risks, And again, guys, I'm just telling
you now. Everyone that knows me knows I'm the ten
foil hat guy. I'm always the doom guy because I
know how this stuff works to a large extent, I've

(25:34):
been doing this for a long time. Again, at some
point in the future, would there become a time where
I might trust something like this. Maybe, But we are
still barely in the infancy of this, and I there
is absolutely zero chance I would let any sort of
AI agent act on my behalf with anything financial.

Speaker 2 (25:51):
So first thing I want to say is I do
use AI. I use chat, GPT, we use copilots sometimes.
It really is a wonderful tool for like Google and
stare roids, when trying to put a puzzle together for somebody,
or answer questions about how something works or whatever. It
is a fantastic tool for that. However, can you imagine
choosing a surgeon or some kind of medical advisor whose
stated goal in the short term is to reduce the hallucinations?

(26:15):
It really seems like not the greatest idea. But I
want to take this in a slightly different direction. So, Dave,
you've expressed your concerns from the technological standpoint, and that
makes a heck of.

Speaker 1 (26:22):
A lot of sense.

Speaker 2 (26:23):
We appreciate you're on this side with us to help
us understand that part my brain goes to the regulatory stuff,
so I am not permitted to send out an email
to all of my clients without it being having it
being reviewed by you know a lot of compliance departments
and legal people who help us protect ourselves and our
clients and so forth. You know, there are good processes

(26:44):
in place for that. I have to get. I have
take continuing education to keep up on my Certified Financial
Planner degree and all these other things. Some people are licensed,
and there's lots of requirements there who at some point
one regulatory body, and there are many of them. The
sec or fin or whoever is going to have to say, hey,
wait a minute, these robots are providing advice and people
are apparently listening to it. We probably got to have

(27:05):
eyeballs on that. And then they're going to look under
the hood to figure out what is the motivation. So
I'm looking at this part of this article that refers
to sponsored results, meaning what stops somebody from throwing a
language model out there that will gear somebody towards certain products.
That's illegal for a fiduciary advisor to do. But what
stops a computer you know, the regulators are going to

(27:25):
have to step in on this. Have you heard anything
on the regulatory side of that kind of thing.

Speaker 3 (27:29):
Not specifically, but I'll answer that at a second. You
brought up a really good point. You know, I use
this stuff myself. I prefer rock in general, you know,
copilots built into the Microsoft platform. And I would tell
folks from a chatbot perspective again, forget these automated agents.
You know, if you understand the risks of your data
being exposed through the model to someone else, of getting

(27:52):
you know, false answers and things like that, they can
be like rocket fuel for you from a productivity standpoint.
So I'm not suggesting to people there's no vague you
in this or they should avoid AI in general. In fact,
I encourage everyone check it out for themselves. You'll have
a better understanding of where this stuff is at. But
this agentic AI again, this black box thing that's going
to act on your behalf. And then to your point,

(28:12):
Brian about the fiduciary angle of this, Yeah, I mean
this whole agentic thing is still new.

Speaker 1 (28:17):
I've not heard any sort of rumblings.

Speaker 3 (28:19):
About the fiduciary aspect and regulation around the financial interface
of this. I mean, for the most part, all this
stuff is still the wild wild West. You know, we're
kind of in a race with other adversarial nations like
China to try to be first on some of this
stuff so that it doesn't become a strategic advantage and
potentially a military advantage. But you know, there's really almost

(28:39):
no regulation around any of this, and I think you
make a really good point the whole idea in that article.
They call it sponsored results risk.

Speaker 2 (28:47):
Yeah.

Speaker 3 (28:47):
Again, these things are a black box and even if
you didn't have algorithmic bias in the agent, there might
be bias in the training data or someone behind the scenes,
because it would be very difficult to figure out. I mean,
that's one of the risks they point out, and I
think a legitimate one and another reason why I would
never use anything like this in the near future.

Speaker 1 (29:04):
If as always from our tech expert Dave Hatter, thanks
as always for joining us. 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 on
Bob Sponseller along with Brian James. Do you have a

(29:24):
financial question you'd like for us to answer. There's a
red button you can click while you're listening to the
show right there on the iHeart app. Simply record your
question and it'll come straight to us. Speaking of questions,
we've got one from Rich in Westchester. Should we are
just our international holdings given a geopolitical tension in the
Middle East?

Speaker 2 (29:45):
Yeah, great and very common question. Rich, Thanks for hitting
that red button with it. Yeah, so, most portfolios, unless
you proactively made a decision to wait it heavily in
the Middle East, then that there's probably not a lot
of exposure there because we all know what comes out
of the Middle East. Obviously the largest oil producers on
the face of the Earth. But it's not like there
are major technology companies or consumer goods companies or anything

(30:09):
like that. So you're, by default, if you have a
standard diversified portfolio, there's probably not a lot of exposure there.
Where you do get your exposures in companies that you
happen you might happen to own via the indexes. The
large oil companies here in the United States, they themselves
know how to deal with oil price fluctuations and craziness.
So I mean I think. The quick answer is, unless
you consciously made a decision to invest there, you probably

(30:30):
aren't as exposed as you might think. But let's start
with figure out what that looks like in the first place.
Look under the hood of your portfolio and see if
it looks out of balance in any case, and if
you need help with that, that's what a professional advisor
can can help you do. So let's move on to
David who has a question Adam Mason.

Speaker 1 (30:45):
With bunching donations this year provide a bigger tax bank
for our buck if itemizing disappears or becomes less valuable later. Well, David,
I like the way you're thinking here, and the answer
is possibly. And this is where you need to look
at what your deductions are, what your plans are from
a tax standpoint. And yet we see that happen a
lot of times with our clients with this higher standard deduction,

(31:10):
especially for married couples. So sometimes, yes, if you've got
charitable giving that you want to do and you want
to bunch those, this is a great opportunity to use
something like a donor advised fund where you can bunch
some donations into one year, get the tax deduction, avoid
the capital gains on appreciated stocks and mutual fund positions

(31:30):
and kind of warehouse those donations and get the tax
benefits now and then you can dole them out to
chosen charities over a period of time. It's a great
strategy where it makes sense, you know, for a given
client situation. So again, I like the way you're thinking here.
Have someone sit down with you and figure out whether
it makes sense for you in your situation. All right,

(31:53):
Candy and fort Wright has another question about taxes. Is
there a way to lower taxes without just giving everything
to charity?

Speaker 2 (32:02):
Candy, first off, I want to thank you for being
in Fort Wright and defending us from the mongol hordes
that occasionally invade from Florence, Kentucky, along with Fort Mitchell
and Fort Thomas. Love those forts down there. Yeah, the
lowering taxes without just giving everything to charity, it really
depends on your situation. The way things changed due to
the Tax Cuts and Jobs Act of twenty seventeen. For
a lot of people, we didn't really lose a deduction.

(32:25):
The standard deduction went up. With standard deduction simply means
you don't have to do anything and you're gonna get
a bigger deduction, so we didn't really again lose a
deduction for donating to charity the way you might be
perceiving it just means that you've got to give a
lot more to go over and above the deduction that
you're getting handed from the IRS anyway, So not a
ton for for the average individual to do, other than

(32:45):
you know, make sure you're maxing out if deductions are important,
to make sure you're maxing out your your pre tax
four oh one k, you may be able to do
a traditional iray. On top of that, there are income
limitations there, and also there's another question of it is
pre tax the right right option for you? It could
be wroth as well, so it's not always about reducing
your taxes now. It could be about reducing taxes in
the future. So yeah, there's a few ways. But you're

(33:07):
what you're running into is the fact that the standard
deduction went up a good chunk, So that just makes
it makes a hurtle a little bit higher to get
to deductible types of contributions. Let's move on to the
fantastically named Brian who lives downtown.

Speaker 1 (33:20):
Do we need umbrella insurance if we have two million
dollars saved, Brian, Yes you do. And I'd say the
more money you have saved, the more you need umbrella insurances.
Here's and here's why. The whole reason primarily for umbrella
insurance is to make sure you're protected if you get sued.
And the good news if you bundle your home and

(33:40):
auto insurance. And this is a good time to talk
to your property and casually insurance agent about this. Remarkably,
this umbrella insurance is not terribly expensive. I mean just
for three four hundred dollars extra per year per million
dollars of umbrella coverage, you can add a nice umbrella
policy to your city situation and protect yourself over and

(34:02):
above what liability you know, coverage you have inherent you
know already embedded in your auto policy. So yes, umbrella
insurance is something you want to have the more money
you have saved, just to protect what you've worked so
hard to build. All Right, We've got one final question
from Ed and Sandra and Hyde Park. We both have

(34:24):
long term care policies from years ago. Should we keep them? So?

Speaker 2 (34:28):
This is sometimes one of my favorite things to talk
to to talk to clients about people who bought long
term care policies a long time ago. Obviously the risk
is still there, just like with any insurance. If the
risk is there, you might need insurance. Risk for long
term care is there until we're in the ground, so
we know that's there. I would say, if the if
the premiums are not really impacting your cash flow, then

(34:48):
those can be really valuable things to have, because sometimes
sometimes they were there were locked in in terms of
the benefits they provide, and it might be the cheapest
coverage you're ever going to get. So I would look
long and hard at that before you let it go.
In addition, what I would throw in there is you
may have a traditional life insurance policy that has cash value.
A lot of times we make it to the you know,
the kids are up and out, the mortgage is paid off,

(35:10):
we don't really need it anymore. If you've got a
cash value life insurance policy that can be converted without
paying any taxes, without really moving anything around at all,
at least the way it will feel to something that
will pay long term care instead of a death benefit
or in addition to a death menefit, that can be
a good thing to look at, but look closely at
those old policies. They may be the best thing going
before you let it go.

Speaker 1 (35:29):
Coming up next, I've got my two cents, and I
guess it's going to be a mini rant, an additional
rant about these variable annuities 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

(35:51):
presented by all Worth Financial on Bobs Bond Seller along
with Brian James. All Right, Brian, we reran out of
time in our prior segment on annuities to cover this topic,
but I think it's an important one, so I want
to spend a couple of minutes on it here. And
it's just the flexibility you give up from a text
planning standpoint by having too much of your money tied

(36:12):
up in these variable annuities. And here's what I mean.
I don't care what kind of riders, what kind of protection,
what bells and whistles you've got on these things. The
thing to remember about any kind of annuity is any
gain you've gotten this thing is always, always, always, always
going to be taxed at ordinary income rates. And that
takes away a ton of flexibility. And that's why I'd

(36:35):
say the more the higher net worth you are and
the higher your asset base is, the more you should
really think twice about getting involved with these things, because
when you look at all the other opportunities available to
us outside the annuity world, you know, things like tax
free municipal bonds, or separating qualified dividends from ordinary dividends,

(36:59):
or tax loss harvesting within a well diversified stock portfolio.
There's a lot of things we can do on the
text side of things that you completely forfeit and give
away when you stop too much money into one of
these variable annuities. Yeah.

Speaker 2 (37:14):
By one of the scary things that I see, or
when people are most disappointed, is when I explained to them, yeah,
this annuity you bought fifteen twenty years ago, it has
grown an awful lot, but this was non qualified money,
meaning not an IRA, not a four to one K,
just plain old, quote unquote taxable money, and there is
no step up in cost basis. So you invested in
something in these cases where you were you were investing
in the growth of the market. There are index funds

(37:35):
available available inside of annuities. They can be very similar
to the stuff you invest in outside of an annuity,
outside of annuity, when you pass, it's as if your children,
your heirs bought those assets the day you died. In
terms of price, that's the step up in cost basis.
In other words, all the gain is wiped away. They
will not pay taxes if it's inside of an annuity.
There is no such thing. They will pay income taxes

(37:56):
when that annuity is distributed, and it's going to be
a fat chunk. So a lot of times what we
do is we convert, unintentionally, we convert capital gains taxable
assets into ordinary income taxable assets, going from the more
favorable taxation to the least to our least favorite kind
of tax at all.

Speaker 1 (38:12):
Well, and I'll give you an example of what I'm
talking about here. I'm dealing with a couple right now.
This gentleman is about to retire at the end of
the month, and we've done all the planning. We've set
aside this three month buffer, you know, using assets in
a variable annuity contract with which to you know, protect
us from downside risk. But he's got to pay taxes

(38:33):
on pulling this money out to convert this to cash
flow next year. And we've got to do some careful
planning here to make sure he doesn't jump tax brackets
during the rest of this year and next year. And
that could have all been avoided if he had never
been in this darn annuity in the first place. Thanks
for listening. Tune in tomorrow and we're going to talk
about a big change that could cost some retirement savers

(38:56):
a key tax break. You've been listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
talk station