December 4, 2025 • 38 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian reveal what wealthy families are doing in December that most people completely overlook. While many go into coast mode during the holidays, high-net-worth individuals are making smart year-end moves—rebalancing their portfolios, harvesting tax losses (and gains), and donating appreciated assets through donor-advised funds.
They’ll also explain why December is the perfect time to talk to your kids about your estate plan, how to take advantage of qualified charitable distributions from your IRA if you're over age 70½, and how to gift money to your family now—completely tax-free. Plus, they tie it all together with a powerful message about using the holidays to pass on your values, not just your wealth.
See omnystudio.com/listener for privacy information.
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Episode Transcript
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Speaker 1 (00:05):
Tonight.
Speaker 2 (00:06):
What wealthy folks tend to do in December that a
lot of people don't even think about. This is simply
money presented by all Worth Financial on bop sponseller along
with Brian James. For a lot of folks, December is
just put it in coast mode month, finish the year,
take a breath, and deal with finances in January. But
here's a little secret. December is when the wealthy lean in.
(00:29):
They make money moves now that quietly protect their wealth,
reduce their taxes and set up for twenty twenty six
and beyond. Brian, let's get into what some of the
smart rich people are doing.
Speaker 1 (00:42):
Well.
Speaker 3 (00:42):
One thing that happens this time of year is rebalancing.
Everybody else is coasting and just enjoying the third year
in a row of double digit gains. Fingers cross. Hopefully
we'll stick with this. But if you haven't looked at
that allocation since January, odds are portfolio is probably drifted
a little bit because some things just run faster than others.
Maybe take mylogy has blown past what you wanted it
to be. That's a very really good chance of that.
(01:04):
Maybe bonds have bounced back somewhat. December is a great
time to kind of trim those over performers and then
sell it the high and then add to the low
of the other positions that maybe haven't done so well.
Get everything back in terms with your your longer term plan.
And here's a kicker though, you're not really just maintaining discipline.
You're selling gains at the end of the year. When
you know your tax picture right, you're not waiting for
surprises in April because you've already will have looked at.
Speaker 2 (01:26):
This telling your money what to do in advance. That's
the key, and that's the key to planning. All right,
let's talk about tax loss harvesting and maybe tax gain
harvesting too. And we've been banging the drum on this
topic for months and months now, but you know, if
you've got taxable accounts, it really is time to take
(01:46):
a look at updating things to twenty twenty five. And
what I'm talking about here is having a tax loss
harvesting strategy going on in the background with your portfolio
to take advantage of this. And for a couple of reasons, One,
you can really make your portfolio more tax efficient even
(02:07):
if you don't pull any money out at all, but
most importantly, offsetting some gains with losses helps do that
rebalancing that you just talked about, but do it in
a much more tax responsible way and keep Uncle Sam
out of your wallet at the same time.
Speaker 3 (02:24):
And then we move on to charitable giving. Obviously, it
is the season to think of others, and so charitable
giving is a big topic right now. So let's say,
you know, if you do the math, you might be
donating ten thousand bucks a year to your church, your
alma mater, whatever you're doing, you know, on a monthly basis.
Maybe instead of spreading that out over four years, give
forty thousand dollars in one year and itemize those deductions.
(02:45):
Don't forget. Yeah, it's harder to get to an actual
tax benefit nowadays. If you're simply doing a monthly contribution,
probably not gonna you know, not too strong of a
chance you're gonna beat that standard deduction. So you're not
really getting it. You're not losing the deduction, you just
don't have to do the charity to get it. But
on the other hand, if you use something called a
donor advised fund, you can bunch all of those contributions
(03:05):
into one year and get a tax deduction. What that
means now, is you con pair that right, if I
want a big fat tax deduction, well, the best time
to do that is when I might have a big
fat tax bill. Maybe I have a retirement plan like
a four to fifty seven or something that unwound and
created a bunch of taxation or some other kind of
windfall inherited money something like that. Well, if I want
to offset those income taxes and very important, and I
(03:27):
was going to do these charitable contributions anyway, then pull
them all, pull them forward in time, do them all now,
donate them to a donor advised fund, and that means
you'll get a deduction this year. But then you will
not be making those those contributions in the in years two, three, four,
five and on, because you'll simply be actually granting those
dollars during those years. So you're your benefactors, the places
(03:49):
that you are benefiting will not know any difference. They're
still seeing dollars flowing in from you, so they don't
know that there's a difference that you made that contribution,
you know, all in one year, but you will get
the tax benefit for that year well, and.
Speaker 2 (04:02):
In terms of a double whammy tax benefit, if you
are able to do what Brian has said, bunch some
of these contributions, you know, four years worth into one year,
use the donor advice fund, get the itemized deduction. If
you use appreciated stock or mutual fund or ETF shares
to do this, you also avoid all the capital income
or capital gains on those holdings if they've been held
(04:25):
by over one year. That can be a wonderful way
to accomplish your tax and charitable goals and be very
tax efficient, super tax efficient at the same time. Brian,
we also have to mention for our listeners over EGE
seventy and a half, please don't forget about qualified charitable
distributions directly from your IRA. This is a big one
(04:47):
that a lot of people miss. They are never made
aware of it. And these qualified charitable distributions, they do
count toward your required minimum distributions. And anything that goes
directly to a charity is not taxable at all. It
doesn't hit your tax return. That's a huge win if
you don't need the money to live off of and
(05:08):
you're gonna be giving money to charity or your church anyway.
Speaker 3 (05:11):
Yeah, and I think the hidden part of these qualified
charitable distributions whether there's a couple. Bob said the age
seventy and a half, and some people will go, well,
wait a minute, that's not r MD age anymore. RMD
age is seventy three. That is correct. They did not
update the qualified charitable distribution age to seventy three. It was.
It was never locked directly to the RMD age. It's
(05:32):
just been set at seventy and a half since that
was the rmd A. So, yes, that is a kind
of a funky thing. You don't have to have a
requirement ofum distribution in your situation to take advantage of it,
as long as you're seventy and a half. But the
other thing I wanted to say Bob is not only
obviously yes, you're getting a tax benefit from this, you're
gonna give the money away and you're basically not paying
taxes on it, but more importantly, it doesn't even push
(05:53):
you up in the bracket. Right, So the income itself
is not taxable, most people get that, but it doesn't
even count in terms of pushing you upwards in the bracket.
So therefore your other taxable income streams are going to
get taxed at a lower rate. That's kind of crazy
for people to get their heads around, because we all
want to say, well, here's my income, I add it
all up and then here's the bracket. Well, yeah, that'll
put you in the bracket. But it doesn't necessarily mean
(06:15):
that every last little piece of your income counts. This
is why we have modified adjusted gross income, adjusted gross income,
we have provisional income. There's all kinds of different flavors
of income. And this is why tax preparers have careers.
And this is why we will never be doing our
taxes on a postcard as we were promised several years ago.
Speaker 2 (06:33):
All right, and then another one that we want to
talk about here. For some families that can afford to
do this, and it just makes sense to do this,
Start giving some money to your kids or grandkids now
while you're alive, you know, rather than waiting until you
pass away. Just a reminder, you are allowed without any
tax consequences, you know whatsoever, in terms of gift taxes.
(06:55):
You can give up the nineteen thousand dollars per year
to any human being on the planet. So if you're
giving money to let's say your son and his wife,
you know, eighteen or nineteen times too. Last time I
checked is thirty eight thousand dollars. You can start to
shift some money, help them with down payments for a house,
college tuition, help.
Speaker 1 (07:15):
Them out now.
Speaker 2 (07:16):
As long as they are handling their money responsibly, it
could make a big difference in some of those young kids'
life now, especially folks starting out starting a family, rather
than just waiting for them to inherit. You know, a
few million dollars when you die and they're in their
sixties something to think about. And some people think about
(07:36):
actually doing this, but you got to do it before
the end of the year. You can't wait until April
fifteenth for this one.
Speaker 3 (07:42):
Yeah, and I think let's dispel some some things too.
So yeah, you can give people more than the nineteen
thousand dollars. That's the annual, no harm, no foul, don't
even have to report it. You can write anybody a
check for anap to nineteen thousand dollars, anybody walking down
the street. So that so that's the easy part. That
doesn't mean you can't give somebody fifty thousand if you
(08:02):
really wanted to. Played by the rules. That simply means
you have to file a gift tax return, which doesn't
even mean you're going to pay taxes. There's something else
out there called a lifetime your lifetime gift maximum that's
a million dollars. And if you were to give in
that example, if you were to give fifty thousand, well,
the nineteen goes free as part of your annual. The
remaining thirty one thousand, well that counts down from your million.
(08:25):
Again still not taxable, but you do have to start
tracking that on a lifetime basis. But as Bob was
talking about, there are very easy ways to avoid this.
If you are married, then each is Bob mentioned, then
each you and your spouse can give nineteen thousand to
one individual. If that individual maybe it's your son or daughter.
If that person is married and important, and and you
trust the spouse, well then you can give the spouse.
(08:47):
You can each give that spouse your son or daughter
in law a nineteen thousand as well. So we can
get four gifts of nineteen thousand from a married couple
to a married couple without running a foul of any
of the annual gifting rules.
Speaker 2 (09:01):
Here's another thing to think about, and again, most people
don't even want to think about this or talk about this.
But you know, let's face it, the holidays are times
when families are together, and that happens, you know, less
frequently than before. Actually getting everybody together in the same room.
I think this is the perfect time if you want
(09:21):
to get out in front of some of this stuff,
to sit down and actually talk to your kids about
your estate plan. Talk to them in advance about what's
going to happen. You don't, you can't. You can either
share or not share the exact dollar amounts, but get
the family together. Talk about powers of attorney for health care,
power powers of attorney for you know, financial matters. Talk
(09:43):
to them, you know, in generalities, about how the whole
estate plan is going to work. If you own a
family business or you own real estate where maybe one
kid's gonna get one asset and the other kids are
gonna get other assets, this is a great time to
kick those conversations around in advance and just get a
reaction and see if this is going to create family
(10:04):
discord or misunderstanding, or if you've got to smooth some
things out with family members based on how your whole
estate plan is going to go down. You know, when
that time comes against people, most families don't do this.
I always urge people to do it. It's better to
have those conversations now, then wait until something happens and
(10:25):
then possibly have some family discord down the road. That strategy, Brian.
I know this doesn't involve watching football.
Speaker 3 (10:33):
Games, right, Well, you can have the football game on
in the background with this, but I wanted to kind
of tap into.
Speaker 2 (10:39):
A football and generation skipping taxes. That's how I want
to spend my Christmas Eve.
Speaker 3 (10:43):
That's a party, Bob. I look forward to not attending
the spond Seller holiday celebration, but no, I want to
link a couple of things together. So end of year reviews,
you know, and that's always good for at least a
married couple to go through just kind of just test
the water and see what's going on and to make
sure everybody's on the same page. But for if you
are charitably inclined and that's something you're thinking about you'd
(11:05):
like to pass on to your children. Well, we already
talked about the Donor Advice Fund, right, that's an annual
review thing. Anyway, maybe you're putting money into it for
tax planning purposes this year, or maybe it's time to
decide what grants you're going to give you. If you
are somebody who wants to involve the family, you want
to kind of pass on that legacy of charitable giving,
then you might bring the family in. Somebody at some
point is going to have to decide where those donor
(11:26):
advice funds are going and the benefit of that. By
the way, a donor advice fund, you are not naming
the beneficiary the charity upfront. You're just parking it and
basically an escrow until you have decided. It can be
any five oh one c three, and it can change
from year to year, very much a game time decision.
Bring the family in. I have clients who will they'll
have a nice, nice dinner at a nice restaurant or
at somebody's house or whatever, and other than the normal
(11:49):
holiday togetherness. Everybody knows that on the agenda is going
to be let's talk about what charities we want to
benefit with this donor advice fund, and then you will
be instilling your goals and your values into your own show,
in your own family and the way that you would
will want wanted to and they will have a clear
picture of how you wanted your assets treated, not only
to benefit them, but to benefit others as well. So
(12:09):
make that part of the holiday tradition if you are
so inclined.
Speaker 2 (12:12):
Wonderful idea, Brian. If you host your family dinner at
the precinct, can I come and just be a part
of it and eat steak and watch you talk to
your family?
Speaker 3 (12:21):
Absolutely, Bob, and we'll let you well. I'll even throw
a steak on the floor for you and you can
you can have no on the bone.
Speaker 1 (12:27):
Thank you.
Speaker 2 (12:28):
Here's the all Worth advice. December isn't just the end
of the year. It's your final chance to make strategic
moves that protect your wealth and set the tone for
everything coming ahead. Some of you have money that will
literally disappear if you don't use it in the next
few weeks. We'll talk about that next and why Elon
Musks thinks people won't have to work anymore. You're listening
(12:52):
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 on Bob Sponsorer along with
Brian James.
Speaker 1 (13:09):
Pay off the house or let that low.
Speaker 2 (13:12):
Interest rate ride. What if your spouse totally disagrees and
does paying off debt always make you feel richer or
could it cost you in the long run. We'll sort
all of that stuff out straight ahead. At six forty three.
We do have a very important reminder for those of
you with a flexible spending account. Spend the money before
the end of the year, or you are literally throwing
(13:35):
it in the trash can Brian. There's a couple of
nuances to this rule, but this is one of the
things that I like because it's kind of black and white.
Do this or that happens, but walk us through it.
Speaker 3 (13:46):
Flexible spending accounts, this is fsa flexible use it or
lose it. If you don't spend the money you contributed
this year and you've got a few weeks left to
do it, it may just vanish right back to your employer.
Some companies they are going to give you a grace
period into early twenty or maybe let you roll over
a small amount, but you need to check your plan
rules to know for sure. The one thing that is
for sure is that you cannot treat it like a
(14:07):
health savings account. You can't just keep it forever, so
this is the time of year, you know, go out
and buy four pairs of glasses or get your prescription
sunglasses or whatever. Those dollars are going to disappear. These
are the kind of things you can you can You
can also cover copays. You can cover prescription glasses, contact lenses,
dental cleanings, over the counter meds. If you've got receipts
for stuff that you've paid for, then go ahead and
(14:27):
take a distribution, right because you can pull these dollar
amounts out and then you do whatever you want with them.
You already spent the money, You're just reimbursing yourself.
Speaker 2 (14:34):
Well, Brian, I know you were asking me about this yesterday.
I know you you want to squeeze in one more
pedicure before the end of the year, and we're trying
to use your flexible spending account for to pay for that.
And I did check with the IRS and they did say, hey,
if your primary care physician prescribes that pedicure, you can
go ahead and use your flexible spending account. Just wanted
(14:56):
to let you know before you book the appointment.
Speaker 3 (14:57):
I'm way too pretty for just one pet, Bob. I
am high maintenance.
Speaker 2 (15:03):
I knew that, all right, let's talk about something new
on the policy books that just might matter and matter
greatly if you have young kids or grandkids. Something called
Trump accounts. I actually like this. I think there's some
nuances to it that are yet to be worked out.
It was part of the you know, one big beautiful bill.
But believe it or not, a child that was born
(15:24):
between January first of this year and December thirty first
of twenty twenty eight another reason to run out and
have kids. The federal government is going to seed a
something called a Trump account with the first one thousand
dollars from their parents, guardians, even employers or other family
members can contribute to that account each year up to
(15:46):
a total of five thousand dollars per year. The employer
contributions are capped at twenty five hundred toward that cap.
Speaker 1 (15:54):
Brian, I think, I think this is good.
Speaker 2 (15:57):
I think what the administration is trying to do here
is is promote financial literacy. And I think nothing promotes
financial literacy, you know, better than having some actual skin
in the game. I think if these accounts are handled responsibly,
getting people started with you know, owning a piece of
the action, so to speak. I think if again, if
(16:17):
handled properly, it could be a wonderful educational opportunity for
families and get them you know, started financially off on
the right foot as well.
Speaker 3 (16:26):
Yeah, and this this does create a receptacle into which
you know, you can put more money in. This is
the federal government, I think is just trying to to
to to goose the system here and just get people
get it going and seeding the account I think is
a great you know, you're not having to do the
farming here. It's gonna just it's gonna exist, and you'll
have to sign up for jump through some hoops, of course,
but you don't have to find your own dollars, uh,
(16:47):
to to get it going. But from there anybody can
throw money into it. It's an invested in a somewhat
conservative way, a low cost US stock index funds, exchange
traded funds, those kinds of things.
Speaker 2 (16:58):
Uh.
Speaker 3 (16:58):
They're locked up until till the child turns eighteen, and
then at that point it starts to behave a little
bit like an IRA. Obviously, you know, this is the
first year of it, so we will we will talk
about that in eighteen years about exactly what these things
are looking like. But at that point, withdrawals can be
used for just about anything education, first home, maybe starting
a business, or whatever that person decides as a young adult.
(17:18):
You know, there are downsides to this too, just like
anything else, because the account is structured a little bit
like an investment, kind of somewhere between an investment and
an IRA. Money's not guaranteed. It's going to go up
and down, just like anything else. But the sooner people
get used to that happening, the better. That's just reality.
Withdraws after eighteen are taxed as ordinary income. There could
be early withdraw rules if you pull those dollars out
(17:40):
too early, or you don't use them for you know,
approved reasons, which again there's a lot of approved reasons.
But then let's worry about this again in eighteen years
when this has grown to a point where you want
to pull it out.
Speaker 2 (17:49):
Yeah, they're scheduling these accounts to happen on Independence Day
of twenty twenty six America is two hundred and fiftieth birthday,
So more to come on that. I want to make
sure we talk about this one Brian billionaire where Elon
Musk is signaling that artificial intelligence and robotics could eliminate
totally the need to even work within the next few decades.
Speaker 3 (18:10):
Well, that sounds intriguing and also can somewhat concerning. Obviously,
that's going to have an impact here and there. So
this is coming from the US Saudi Investment Forum that
he had attended. He participated in a panel and was
asked about the long term impacts of robotics and AI
on the workforce, and he gave us a pretty bold prediction.
He basically said, I don't know what long term is.
Maybe it's ten twenty ars something like that, but my
(18:32):
prediction is that work will be optional. And then he
went on to say that money could eventually stop being
relevant if the future is dominated by AI and robotics
and all that. And he had said that positive AI
future money no often no longer exists in books out there.
So this is a lot of this stuff. It's kind
of up in the clouds. We'll see what comes of this. Obviously,
(18:52):
power electricity, the kind of things that they're going to run.
All these brains, all these fake brains out there that
are going to think for us. There's a lot to
think about here, and I don't know. I'm still in
the phase of let's wait and see what actually happens
before we really commit to the results that are going
to occur.
Speaker 2 (19:09):
Brian, if money no longer exists, what happens to the
Simply Money radio show? I mean I would really miss too,
we'll just call it simply I would miss what about
Joe Strecker and that wonderful bumper music he plays? So
that would all go away too? I think it would.
Speaker 1 (19:25):
I would.
Speaker 2 (19:26):
I think it would be horrible. I still want to
work and I still want to have a reason to
talk about money.
Speaker 1 (19:30):
What do you call it?
Speaker 3 (19:31):
Simply Joe? And he's gonna have a microphone and he's
gonna give us his sage like wisdom.
Speaker 2 (19:36):
He'll just become a DJ and play music for us.
Maybe that's even better, all right? Coming up next, why
sudden money can actually make you broke and how to
make sure your windfall doesn't just blow away. You're listening
to Simply presented by all Worth Financial on fifty five KRC,
the talk station. You're listening to Simply Money presented by
(19:59):
all Words Financial on Bob Sponseller along with Brian James. Well,
everyone dreams of a big financial windfall, a sudden inheritance
a business sale, maybe that stock you've been sitting on
that finally goes through the roof. But new research shows
that suddenly sudden money, you know, money that you can
get your hands on quickly, can actually destroy wealth faster
(20:23):
than it creates it. Brian, there's some new research out there,
and walk us through it today.
Speaker 3 (20:29):
Yep, newsflash, new research. One in five people who inherit
a million dollars or more lose half of it within
five years. Well, every now, we hear these stories every
now and then from people who you know, win the lottery,
those kinds of things, and you hear the horror stories
about how they just weren't prepared for it and just
couldn't their brains simply couldn't handle that situation. That's not
bad luck, it's normally bad behavior, bad decision making. This
(20:51):
isn't just lottery winners though, Bob. It's people who sell
a business, you know, really, anybody who has some kind
of a massive windfall where a bunch of cash falls
out of the sky with no strings attached at a
relatively short period of time. This can be cashing out
of a career, getting a large inheritance, those kinds of things.
The faster the money comes, Bob, and all the faster
it can leave. So we're gonna kind of jump into
(21:11):
the different effects here that can happen and how to
handle it. So if you're in the situation, we're gonna
we'll start off with the first one, the windfall effect.
Speaker 1 (21:19):
Here.
Speaker 3 (21:20):
What really happens when you get a windfall, Well, psychologists
have actually done some work on this. They call it
sudden wealth syndrome, which sounds completely fake, but this is
a real thing. You literally go from thinking in terms
of thousands of dollars to thinking in millions overnight, and
this will give your brain whiplash. Think of it this way.
You've been driving a nice, compact, reasonable car for twenty years,
and all of a sudden you have the keys to
a Formula one race car that you have all the
(21:42):
complete freedom to go do whatever you want to do with.
Obviously it's pretty powerful and fast, but if you don't
know how to drive that kind of car, you're gonna
you're gonna have some kind of accident. So it happens financially,
the rains come off, and all of a sudden you
don't have the same sets of habits and the guardrails
because everything just drops. You think I can afford it,
and you can. We see this all the time with
(22:03):
this kind of a windfall. It's very easy to throw
money at problems when there is money around with which
to do so. But then if that gets baked into
the ongoing spending, you know, that can come alongside the investment,
start to get riskier because I feel like I've got
a bigger cushion, I can afford some riskier stuff, and
a lot of the discipline that you had that got
you to this pace starts to go away. So eventually
(22:23):
you get to a point where that money is controlling
you instead.
Speaker 1 (22:26):
Of vice versa.
Speaker 2 (22:28):
It's funny you brought up that Formula one race car
analogy because that reminds me of an actual client situation.
You know, business sale, millions of dollars coming in the door,
and this client went from buying one kind of exotic
collector car to now they own like eight to ten.
Speaker 1 (22:46):
Well, what happened after that?
Speaker 2 (22:47):
They needed to build a big barn or garage to
hold all the cars, and then you've got the trips
going to custom car shows transporting these cars. You know,
it becomes a lifestyle out with people that can afford
you know, eight ten different cars and shipping them all
over the country, and it leads to our less our
(23:07):
our next example, which is just lifestyle creep or lifestyle inflation.
You treat yourself a little bit and then all of
a sudden you've really ramped up into an overall lifestyle
that costs thousands and thousands more dollars per year, and
some people forget to just check and say, can we
really afford this? Is this sustainable?
Speaker 1 (23:29):
Brian?
Speaker 3 (23:30):
Yeah, that that that big house comes along a lot
of times with maybe it's a it's a homeowners association
fee that you didn't really account for. Definitely, property taxes
can sneak up. And I'll throw another one out there.
I ever spent fifteen thousand dollars on a tractor to
mow your your new acreage. You know, there are lots
of things out there that can you don't You don't
really see coming and until you're actually living in this situation.
(23:52):
So we've seen people spend like that when the lottery,
except they really didn't. They inherited a million or more
and it became ten million in their minds. And then
not to mention when you have to pay taxes on
all these things, so it's not nearly you know, is
a bottomless supply of money, as it seems like. It's
kind of like eating your Thanksgiving dinner every night. It
sounds great at first, but eventually it's gonna make you
throw up. So indulging ourselves too much can kind of
(24:15):
ruin the fund that comes along with it.
Speaker 2 (24:17):
All right, here's another big behavioral area to look out for. It.
Speaker 1 (24:20):
It's just the area of overconfidence.
Speaker 2 (24:22):
People that make a lot of money or have sold
a business for a big chunk of money, you know,
their mind says, hey, I made a fortune, I'm really
good with money. But Brian, you and I know this
all too well. There is a big difference between the
ability to make money in some other industry versus actually
managing money once you've got it in your account, and
(24:46):
a lot of people have to learn that lesson the
hard way. They jump into a bunch of private investment deals,
you know, get over allocated to crypto or high risk startups.
They forget that wealth preservation is a completely different skill set.
And I think sometimes Brian, these people are bored by
just you know, traditional a set allocation stuff they're addicted
(25:09):
to the adrenaline rush, and they always constantly need to
be going out and taking risk, and you just got
to put the governor switch on that sometimes to keep
from losing something that you've spent a lifetime building.
Speaker 3 (25:22):
Making money is not the same as keeping money. It's
two different, very two different mindsets, two different approaches. So
people who build wealth over decades, these might be entrepreneurs, savers,
or just disciplined investors pumping money into their four O,
one k's, four or three b's for years. They tend
to respect money more because they know how hard it
was to earn. Then we see, you know that sometimes
it's generation too that doesn't have that same benefit of
(25:45):
having built it from nothing and so doesn't value it
as much. It appears to them to have been easy
to acquire, therefore they treat it as such. So what
should we do?
Speaker 1 (25:53):
First?
Speaker 3 (25:53):
Step up, Build a team, make sure you've got people
around you, a financial planner to quarterback everything, a CPA
or a some kind of accounting outlet to help you
with the taxes, and an estate planning attorney. If this
is truly a significant pile of money, not the people
selling you something. These are people who behave in fiduciary
manners on what will help you with their future. So
the next step is figure out what you want. Once
(26:13):
you've got your team in place, now think about what
it is that you want. And this also assumes that
we didn't go out and do a bunch of things immediately. Really,
I'm gonna call it Step zero is don't do anything,
just stop and think before you build that team. Then
you need to have that discussion about what is it
that I want. Do I want to use this to
retire earlier? Do I want to benefit myself my family?
You know, maybe charities or something like that. Generational wealth
(26:36):
without some kind of purpose, money tends to get spent
just because it's sitting there.
Speaker 2 (26:41):
Here's the all Worth advice. Wealth is not a finish line.
It's a responsibility. The more you have, the more discipline
it takes to keep it. You've built up two million dollars,
how do you protect it without missing growth? We'll cover risk,
income and a little peace of mind 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
(27:09):
Simply Money present I buy all worth Financial on Bob
Sponseller along with Brian James. Do you have a 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 on the iHeart app. Simply record your question and
it will come straight to us, all right, Brian Derek
in Oakley leads us off tonight. He says, our advisor
keeps suggesting private equity and private credit. How do we
(27:32):
tell if these alternatives are true diversification or just higher
risk along with a sales pitch yep.
Speaker 3 (27:40):
So we want to make sure that whenever these things
are coming up more and more often lately, and we
want to make sure we understand the moving parts that
are involved when these types of questions come up. So
private equity, what are we talking about? While we're talking
about investing in small businesses that are not publicly traded
kind of sort of the same thing as buying stocks,
but these are not out there on markets. You're just
literally connecting with somebody who has run a business. There
(28:02):
are funds and things that will do this for you,
and that's presumably what Derek is referring to here. So
private equity fundraising hit over one point two trillion dollars
globally in twenty four, slowing down a little bit, but
still probably going to be out there. So the kind
of questions you want to ask, you want to make
sure you understand what the lock up period is? Can
you get your money back out? Liquidity is always going
(28:22):
to be going to be a factor for these things.
What is the fee structure? These are going to be expensive.
Don't look for the no load version of private equity
doesn't exist. These things are expensive because there's a lot
going into them and there's a lot of people wanting
to make money off of them. And so how do
you verify the returns? Are these audited self reported valuations?
Are there default rates, recovery rates on the private credit side?
(28:45):
What information can you get so that you can understand
what you're looking at. These can be very valuable tools,
but you can also hurt yourself with them, So just
do your research, be careful what you're getting into. All right,
We're going to move south to Marty down in Florence,
who says they have a big unrealized game in their
brokerage account. First off, congratulations, that's a common problem these days,
(29:05):
and Marty wants to know if there's anything they can
do to trim those positions without taking that huge hit
tax hit all at once.
Speaker 2 (29:10):
What do you think, Bob, Well, Marty, there's definitely ways
to trim the positions without taking a huge tax hit.
So good of you to ask the question before you
just took the tax hit. So you know, I don't
know from your question whether this big gain is in
one heavily concentrated position or whether you've just been sitting
on a bunch of you know, mutual funds and ETFs
(29:31):
over years that you know, you got a bunch of
positions with a lot of unrealized capital gains. So depending
on what your situation is, the first thing, get that
stuff into a tax managed to count where you've got
some tax loss harvesting going on in the background. Direct
indexing strategies are out there, and indexed exchange programs are
(29:52):
out there. And what this really means is you can
go slow. You can harvest some short term losses in
a diversified port and use that to gradually trim those
gains in your positions. If you are sitting on one
big concentrated stock positions, that's where things like collars selling
(30:12):
a covered call and buying a protective put on the
downside might come into play, and that way you could
protect your gains in that position and kind of have
the options market pay to do that for you. So
a lot of different options out there. The best thing
to do is probably sit down with a good fiduciary
advisor and walk through some of those options and get
(30:34):
you set up. Hope that helps all right. Eric in
Westchester says, our kids are in their thirties and they're successful,
but they don't know much about money. What's the best
way to start involving them in family financial discussions?
Speaker 1 (30:47):
Brian, this is a great question.
Speaker 3 (30:49):
More and more common question these days as wealth is
reaching new heights, and you know a lot of people
who are in their fifties and sixties and that have
been themselves successful now have kids who are doing okay
and successful as well. But they're starting to worry that
that these kids are not have not quite been through
the wealth management you know, and training and you know,
(31:09):
financial planning those kinds of things that they themselves have.
So why this is important, Well, there's trillions of dollars
are going to change hands the next twenty years about
eighty four trillion is going to move from Baby boomers
to Gen X and millennials by twenty forty five, and
so that this often comes along with people change. Either
the kids will change who they want to talk to
in terms of working with a financial advisor or if
(31:31):
they want to at all, because those conversations haven't simply
haven't occurred. So here's here's a couple steps to start
bringing them in. Start with values and not the numbers.
Talk about how you built, what you built, why it's
important to you, and it connect them to their history.
They're going to remember some of the stories you told
them because it would have affected them along the way.
Sometimes it's good to have a family State of the
Union meeting. A lot of families do this around the holidays,
(31:54):
just to talk about here's what we've built, here's here's
the goals that mom and I have or dad and
I have. Here's what we're thinking about, and here's why
we're thinking it. And let them share in the in
the feedback of that, and they'll they'll start to hear
how you've gotten to that point, and you know, eventually
get to the point where you do show them open
the vault, show them what's in there. If you trust
that they can handle it, then I think it's really
(32:14):
valuable to understand why it is that you are able
to live the way that you do, what is behind
all that, rather than having them assume it's just plain easy.
So in any case, I hope that helps. And big
discussions here coming up during the holidays. One more here
from from Janet down in Fort Thomas. Thank you for
defending our forts. Down there, Janet and her husband are
(32:35):
having a discussion about their mortgage. He apparently want wants
to just offload the debt, not think about it anymore,
and she wants to keep those dollars free to invest.
So how do we think about that in terms of
financial planning? How do you evaluate that trade off?
Speaker 2 (32:47):
Bob Well, Janet used the word how do we evaluate
the trade off?
Speaker 1 (32:52):
Logically?
Speaker 2 (32:53):
And that's always that's always an interesting topic logically, because listen,
there's a logical way to handle this stuff, and there's
always an emotional reason why people make any kind of decisions.
So I tend to look at this two ways. One,
if you do want to look at it logically, look
at the after tax rate of return that you can
expect based on your personal risk tolerance you're in your
(33:16):
husband on how you invest money, and then compare that
to your mortgage rate. So you know, if you're a
growth investor, and even if you're netting on average, you know,
say seven eight percent a year, and you're sitting on
a two and a half two point seventy five two
point eight percent mortgage, you know, it doesn't logically makes
(33:37):
sense to pay that off because you're earning more money
keeping your money invested. However, if the psychological part of
this is just causing one spouse to lose sleep at night,
it it, you know, to keep marital harmony and keep
peace in the family, it might make sense to just
knock this thing out. So I think it's important to
look at it logically from a net rate of return standpoint,
(34:01):
and then also discuss risk tolerance and hopefully you can
come up with a good decision together. All Right, Wall
Street's newest game lets you bet on real world events.
Is it investing or just high stakes fun? We'll sort
all that out next. You're listening to Simply Money, presented
by Allworth Financial on fifty five KRC the talk station.
(34:24):
You're listening to Simply Money presented by Allworth Financial on
Bob Sponseller along with Brian James. Well, for decades, if
you wanted to place a bet, you had to go
to Las Vegas, flashing lights, free drinks in a weekend
you probably don't tell your accounting about. But now you
don't even have to leave the couch. Vegas might still
have the shows and the buffets, but the action, the
(34:46):
real betting action, it's all moving online, and not just
to sports betting sites like DraftKings or fan duels. It's
actually moving right into Wall Street's neighborhood. Brian, Hey, I've
seen Khmer on this often in recent days. I think
on Interactive Brokerage is running these commercials.
Speaker 1 (35:06):
Tell uh, tell us about.
Speaker 2 (35:07):
What's going on, about the opportunity to make bets on what's.
Speaker 1 (35:11):
Going to happen next in the economy.
Speaker 3 (35:13):
Well, first off, we're not calling them bets, Bob, that's
a dirty world. We're calling these prediction markets. Come on,
get with the times, all right. This is a whole
new word. I mean, it's it's betting. It's gambling, just
like anything else. You're you're betting on a certain outcome.
I think it's going to be a not b and
I'm going to bet twenty bucks on it. This is
a whole new world where people are trading contracts on
just these real world events. Who wins an election, when
(35:34):
or if the Fed is going to cut rates, how
far they're going to cut rates, or even who takes
home the super Bowl. That last one's pretty common. But these, these,
these next, these other ones come from just playing the headlines.
Speaker 2 (35:44):
Could this be while why Jerome Powell is not cutting
interest rates because he's got some futures bets?
Speaker 1 (35:50):
I'd already placed that happening.
Speaker 3 (35:52):
That could very well be Bob. And maybe that's something
that we should have a We should have an election
or an elected committee investigation to make sure.
Speaker 2 (36:00):
All right, well I digress. Please walk us through what.
Speaker 3 (36:03):
The actual top these These aren't technically bets, right, this
is the the the regulatory bodies don't don't consider this gambling.
These are financial instruments called event contracts. They sound like
bets to me anyway. Regularly these aren't regulated by the
gaming boards, but rather by the Commodity Futures Trading Commission,
which is really the closest government body to UH since
(36:24):
since things like oil, corn, and currency futures are really
only worth what people think they're worth. There aren't. They
don't have their own profits, they don't spit out dividends,
they don't create their own products. This is as close
to these these types of events as we can possibly get. Therefore,
that's why it's the same folks who oversee oil, corn,
and currency futures are the ones who are looking at this.
So for example, there's there's just how big this is
(36:45):
the Intercontinental Exchange, which is which happens you probably never
heard of, same company that owns the New York Stock Exchange,
which probably have heard of. They're investing up to two
billion dollars in a platform called Polymarket. And one you
may have heard of. Another one out there is Robinhood.
Robin is already pretty popular with the with the smaller
investors already trading more than four billion of these event contracts.
(37:07):
So so think of this way. The reason that they're
doing this, Well, you can open your Robinhood app, buy
some stock and Apple or whatever other company in the
exact same session, invest in whether the FED is going
to cut rates next quarter via these these event type vets.
Speaker 2 (37:20):
Well, look, while the horses seemingly already left the barn here.
The Commodities, Futures and Trading Commission is still trying to
figure out how to regulate these things. So imagine that
let's let's let let's get everybody involved in this and
then add the regulation later. What could possibly go wrong?
I'm thinking back to the housing crisis, but again one
(37:41):
company Calshe tried to launch a political event market and
got stopped cold by regulators. But in terms of the
risk here, the thing we got to call out is
liquidity and pricing. These aren't like stocks with billions of
dollars in daily volume. These are pretty low volume trades
and positions you can get in and out at bad prices.
(38:05):
In other words, there's big spreads between the bid and
ass on these things, and you might not realize that,
you know, when you get into it.
Speaker 3 (38:12):
Yeah, and remember the taxation is also a question. It's
unclear how this is gonna be tax These are short
term types of things. I'm gonna bet that the Fed's
gonna do something this or that next week, and that
may or may not happen. Well, that's a short term hold.
And there are plenty of examples where the IRS taxes
obscure things a little differently than what you expect.
Speaker 2 (38:28):
Here's the Allworth advice when Wall Street starts to look
like Vegas, remember the house usually always wins. Don't make
your retirement part of the show. Thanks for listening tonight.
You've been listening to Simply Money, presented by all Worth
Financial on fifty five KRC, the talk station
Tonight.
Speaker 2 (00:06):
What wealthy folks tend to do in December that a
lot of people don't even think about. This is simply
money presented by all Worth Financial on bop sponseller along
with Brian James. For a lot of folks, December is
just put it in coast mode month, finish the year,
take a breath, and deal with finances in January. But
here's a little secret. December is when the wealthy lean in.
(00:29):
They make money moves now that quietly protect their wealth,
reduce their taxes and set up for twenty twenty six
and beyond. Brian, let's get into what some of the
smart rich people are doing.
Speaker 1 (00:42):
Well.
Speaker 3 (00:42):
One thing that happens this time of year is rebalancing.
Everybody else is coasting and just enjoying the third year
in a row of double digit gains. Fingers cross. Hopefully
we'll stick with this. But if you haven't looked at
that allocation since January, odds are portfolio is probably drifted
a little bit because some things just run faster than others.
Maybe take mylogy has blown past what you wanted it
to be. That's a very really good chance of that.
(01:04):
Maybe bonds have bounced back somewhat. December is a great
time to kind of trim those over performers and then
sell it the high and then add to the low
of the other positions that maybe haven't done so well.
Get everything back in terms with your your longer term plan.
And here's a kicker though, you're not really just maintaining discipline.
You're selling gains at the end of the year. When
you know your tax picture right, you're not waiting for
surprises in April because you've already will have looked at.
Speaker 2 (01:26):
This telling your money what to do in advance. That's
the key, and that's the key to planning. All right,
let's talk about tax loss harvesting and maybe tax gain
harvesting too. And we've been banging the drum on this
topic for months and months now, but you know, if
you've got taxable accounts, it really is time to take
(01:46):
a look at updating things to twenty twenty five. And
what I'm talking about here is having a tax loss
harvesting strategy going on in the background with your portfolio
to take advantage of this. And for a couple of reasons, One,
you can really make your portfolio more tax efficient even
(02:07):
if you don't pull any money out at all, but
most importantly, offsetting some gains with losses helps do that
rebalancing that you just talked about, but do it in
a much more tax responsible way and keep Uncle Sam
out of your wallet at the same time.
Speaker 3 (02:24):
And then we move on to charitable giving. Obviously, it
is the season to think of others, and so charitable
giving is a big topic right now. So let's say,
you know, if you do the math, you might be
donating ten thousand bucks a year to your church, your
alma mater, whatever you're doing, you know, on a monthly basis.
Maybe instead of spreading that out over four years, give
forty thousand dollars in one year and itemize those deductions.
(02:45):
Don't forget. Yeah, it's harder to get to an actual
tax benefit nowadays. If you're simply doing a monthly contribution,
probably not gonna you know, not too strong of a
chance you're gonna beat that standard deduction. So you're not
really getting it. You're not losing the deduction, you just
don't have to do the charity to get it. But
on the other hand, if you use something called a
donor advised fund, you can bunch all of those contributions
(03:05):
into one year and get a tax deduction. What that
means now, is you con pair that right, if I
want a big fat tax deduction, well, the best time
to do that is when I might have a big
fat tax bill. Maybe I have a retirement plan like
a four to fifty seven or something that unwound and
created a bunch of taxation or some other kind of
windfall inherited money something like that. Well, if I want
to offset those income taxes and very important, and I
(03:27):
was going to do these charitable contributions anyway, then pull
them all, pull them forward in time, do them all now,
donate them to a donor advised fund, and that means
you'll get a deduction this year. But then you will
not be making those those contributions in the in years two, three, four,
five and on, because you'll simply be actually granting those
dollars during those years. So you're your benefactors, the places
(03:49):
that you are benefiting will not know any difference. They're
still seeing dollars flowing in from you, so they don't
know that there's a difference that you made that contribution,
you know, all in one year, but you will get
the tax benefit for that year well, and.
Speaker 2 (04:02):
In terms of a double whammy tax benefit, if you
are able to do what Brian has said, bunch some
of these contributions, you know, four years worth into one year,
use the donor advice fund, get the itemized deduction. If
you use appreciated stock or mutual fund or ETF shares
to do this, you also avoid all the capital income
or capital gains on those holdings if they've been held
(04:25):
by over one year. That can be a wonderful way
to accomplish your tax and charitable goals and be very
tax efficient, super tax efficient at the same time. Brian,
we also have to mention for our listeners over EGE
seventy and a half, please don't forget about qualified charitable
distributions directly from your IRA. This is a big one
(04:47):
that a lot of people miss. They are never made
aware of it. And these qualified charitable distributions, they do
count toward your required minimum distributions. And anything that goes
directly to a charity is not taxable at all. It
doesn't hit your tax return. That's a huge win if
you don't need the money to live off of and
(05:08):
you're gonna be giving money to charity or your church anyway.
Speaker 3 (05:11):
Yeah, and I think the hidden part of these qualified
charitable distributions whether there's a couple. Bob said the age
seventy and a half, and some people will go, well,
wait a minute, that's not r MD age anymore. RMD
age is seventy three. That is correct. They did not
update the qualified charitable distribution age to seventy three. It was.
It was never locked directly to the RMD age. It's
(05:32):
just been set at seventy and a half since that
was the rmd A. So, yes, that is a kind
of a funky thing. You don't have to have a
requirement ofum distribution in your situation to take advantage of it,
as long as you're seventy and a half. But the
other thing I wanted to say Bob is not only
obviously yes, you're getting a tax benefit from this, you're
gonna give the money away and you're basically not paying
taxes on it, but more importantly, it doesn't even push
(05:53):
you up in the bracket. Right, So the income itself
is not taxable, most people get that, but it doesn't
even count in terms of pushing you upwards in the bracket.
So therefore your other taxable income streams are going to
get taxed at a lower rate. That's kind of crazy
for people to get their heads around, because we all
want to say, well, here's my income, I add it
all up and then here's the bracket. Well, yeah, that'll
put you in the bracket. But it doesn't necessarily mean
(06:15):
that every last little piece of your income counts. This
is why we have modified adjusted gross income, adjusted gross income,
we have provisional income. There's all kinds of different flavors
of income. And this is why tax preparers have careers.
And this is why we will never be doing our
taxes on a postcard as we were promised several years ago.
Speaker 2 (06:33):
All right, and then another one that we want to
talk about here. For some families that can afford to
do this, and it just makes sense to do this,
Start giving some money to your kids or grandkids now
while you're alive, you know, rather than waiting until you
pass away. Just a reminder, you are allowed without any
tax consequences, you know whatsoever, in terms of gift taxes.
(06:55):
You can give up the nineteen thousand dollars per year
to any human being on the planet. So if you're
giving money to let's say your son and his wife,
you know, eighteen or nineteen times too. Last time I
checked is thirty eight thousand dollars. You can start to
shift some money, help them with down payments for a house,
college tuition, help.
Speaker 1 (07:15):
Them out now.
Speaker 2 (07:16):
As long as they are handling their money responsibly, it
could make a big difference in some of those young kids'
life now, especially folks starting out starting a family, rather
than just waiting for them to inherit. You know, a
few million dollars when you die and they're in their
sixties something to think about. And some people think about
(07:36):
actually doing this, but you got to do it before
the end of the year. You can't wait until April
fifteenth for this one.
Speaker 3 (07:42):
Yeah, and I think let's dispel some some things too.
So yeah, you can give people more than the nineteen
thousand dollars. That's the annual, no harm, no foul, don't
even have to report it. You can write anybody a
check for anap to nineteen thousand dollars, anybody walking down
the street. So that so that's the easy part. That
doesn't mean you can't give somebody fifty thousand if you
(08:02):
really wanted to. Played by the rules. That simply means
you have to file a gift tax return, which doesn't
even mean you're going to pay taxes. There's something else
out there called a lifetime your lifetime gift maximum that's
a million dollars. And if you were to give in
that example, if you were to give fifty thousand, well,
the nineteen goes free as part of your annual. The
remaining thirty one thousand, well that counts down from your million.
(08:25):
Again still not taxable, but you do have to start
tracking that on a lifetime basis. But as Bob was
talking about, there are very easy ways to avoid this.
If you are married, then each is Bob mentioned, then
each you and your spouse can give nineteen thousand to
one individual. If that individual maybe it's your son or daughter.
If that person is married and important, and and you
trust the spouse, well then you can give the spouse.
(08:47):
You can each give that spouse your son or daughter
in law a nineteen thousand as well. So we can
get four gifts of nineteen thousand from a married couple
to a married couple without running a foul of any
of the annual gifting rules.
Speaker 2 (09:01):
Here's another thing to think about, and again, most people
don't even want to think about this or talk about this.
But you know, let's face it, the holidays are times
when families are together, and that happens, you know, less
frequently than before. Actually getting everybody together in the same room.
I think this is the perfect time if you want
(09:21):
to get out in front of some of this stuff,
to sit down and actually talk to your kids about
your estate plan. Talk to them in advance about what's
going to happen. You don't, you can't. You can either
share or not share the exact dollar amounts, but get
the family together. Talk about powers of attorney for health care,
power powers of attorney for you know, financial matters. Talk
(09:43):
to them, you know, in generalities, about how the whole
estate plan is going to work. If you own a
family business or you own real estate where maybe one
kid's gonna get one asset and the other kids are
gonna get other assets, this is a great time to
kick those conversations around in advance and just get a
reaction and see if this is going to create family
(10:04):
discord or misunderstanding, or if you've got to smooth some
things out with family members based on how your whole
estate plan is going to go down. You know, when
that time comes against people, most families don't do this.
I always urge people to do it. It's better to
have those conversations now, then wait until something happens and
(10:25):
then possibly have some family discord down the road. That strategy, Brian.
I know this doesn't involve watching football.
Speaker 3 (10:33):
Games, right, Well, you can have the football game on
in the background with this, but I wanted to kind
of tap into.
Speaker 2 (10:39):
A football and generation skipping taxes. That's how I want
to spend my Christmas Eve.
Speaker 3 (10:43):
That's a party, Bob. I look forward to not attending
the spond Seller holiday celebration, but no, I want to
link a couple of things together. So end of year reviews,
you know, and that's always good for at least a
married couple to go through just kind of just test
the water and see what's going on and to make
sure everybody's on the same page. But for if you
are charitably inclined and that's something you're thinking about you'd
(11:05):
like to pass on to your children. Well, we already
talked about the Donor Advice Fund, right, that's an annual
review thing. Anyway, maybe you're putting money into it for
tax planning purposes this year, or maybe it's time to
decide what grants you're going to give you. If you
are somebody who wants to involve the family, you want
to kind of pass on that legacy of charitable giving,
then you might bring the family in. Somebody at some
point is going to have to decide where those donor
(11:26):
advice funds are going and the benefit of that. By
the way, a donor advice fund, you are not naming
the beneficiary the charity upfront. You're just parking it and
basically an escrow until you have decided. It can be
any five oh one c three, and it can change
from year to year, very much a game time decision.
Bring the family in. I have clients who will they'll
have a nice, nice dinner at a nice restaurant or
at somebody's house or whatever, and other than the normal
(11:49):
holiday togetherness. Everybody knows that on the agenda is going
to be let's talk about what charities we want to
benefit with this donor advice fund, and then you will
be instilling your goals and your values into your own show,
in your own family and the way that you would
will want wanted to and they will have a clear
picture of how you wanted your assets treated, not only
to benefit them, but to benefit others as well. So
(12:09):
make that part of the holiday tradition if you are
so inclined.
Speaker 2 (12:12):
Wonderful idea, Brian. If you host your family dinner at
the precinct, can I come and just be a part
of it and eat steak and watch you talk to
your family?
Speaker 3 (12:21):
Absolutely, Bob, and we'll let you well. I'll even throw
a steak on the floor for you and you can
you can have no on the bone.
Speaker 1 (12:27):
Thank you.
Speaker 2 (12:28):
Here's the all Worth advice. December isn't just the end
of the year. It's your final chance to make strategic
moves that protect your wealth and set the tone for
everything coming ahead. Some of you have money that will
literally disappear if you don't use it in the next
few weeks. We'll talk about that next and why Elon
Musks thinks people won't have to work anymore. You're listening
(12:52):
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 on Bob Sponsorer along with
Brian James.
Speaker 1 (13:09):
Pay off the house or let that low.
Speaker 2 (13:12):
Interest rate ride. What if your spouse totally disagrees and
does paying off debt always make you feel richer or
could it cost you in the long run. We'll sort
all of that stuff out straight ahead. At six forty three.
We do have a very important reminder for those of
you with a flexible spending account. Spend the money before
the end of the year, or you are literally throwing
(13:35):
it in the trash can Brian. There's a couple of
nuances to this rule, but this is one of the
things that I like because it's kind of black and white.
Do this or that happens, but walk us through it.
Speaker 3 (13:46):
Flexible spending accounts, this is fsa flexible use it or
lose it. If you don't spend the money you contributed
this year and you've got a few weeks left to
do it, it may just vanish right back to your employer.
Some companies they are going to give you a grace
period into early twenty or maybe let you roll over
a small amount, but you need to check your plan
rules to know for sure. The one thing that is
for sure is that you cannot treat it like a
(14:07):
health savings account. You can't just keep it forever, so
this is the time of year, you know, go out
and buy four pairs of glasses or get your prescription
sunglasses or whatever. Those dollars are going to disappear. These
are the kind of things you can you can You
can also cover copays. You can cover prescription glasses, contact lenses,
dental cleanings, over the counter meds. If you've got receipts
for stuff that you've paid for, then go ahead and
(14:27):
take a distribution, right because you can pull these dollar
amounts out and then you do whatever you want with them.
You already spent the money, You're just reimbursing yourself.
Speaker 2 (14:34):
Well, Brian, I know you were asking me about this yesterday.
I know you you want to squeeze in one more
pedicure before the end of the year, and we're trying
to use your flexible spending account for to pay for that.
And I did check with the IRS and they did say, hey,
if your primary care physician prescribes that pedicure, you can
go ahead and use your flexible spending account. Just wanted
(14:56):
to let you know before you book the appointment.
Speaker 3 (14:57):
I'm way too pretty for just one pet, Bob. I
am high maintenance.
Speaker 2 (15:03):
I knew that, all right, let's talk about something new
on the policy books that just might matter and matter
greatly if you have young kids or grandkids. Something called
Trump accounts. I actually like this. I think there's some
nuances to it that are yet to be worked out.
It was part of the you know, one big beautiful bill.
But believe it or not, a child that was born
(15:24):
between January first of this year and December thirty first
of twenty twenty eight another reason to run out and
have kids. The federal government is going to seed a
something called a Trump account with the first one thousand
dollars from their parents, guardians, even employers or other family
members can contribute to that account each year up to
(15:46):
a total of five thousand dollars per year. The employer
contributions are capped at twenty five hundred toward that cap.
Speaker 1 (15:54):
Brian, I think, I think this is good.
Speaker 2 (15:57):
I think what the administration is trying to do here
is is promote financial literacy. And I think nothing promotes
financial literacy, you know, better than having some actual skin
in the game. I think if these accounts are handled responsibly,
getting people started with you know, owning a piece of
the action, so to speak. I think if again, if
(16:17):
handled properly, it could be a wonderful educational opportunity for
families and get them you know, started financially off on
the right foot as well.
Speaker 3 (16:26):
Yeah, and this this does create a receptacle into which
you know, you can put more money in. This is
the federal government, I think is just trying to to
to to goose the system here and just get people
get it going and seeding the account I think is
a great you know, you're not having to do the
farming here. It's gonna just it's gonna exist, and you'll
have to sign up for jump through some hoops, of course,
but you don't have to find your own dollars, uh,
(16:47):
to to get it going. But from there anybody can
throw money into it. It's an invested in a somewhat
conservative way, a low cost US stock index funds, exchange
traded funds, those kinds of things.
Speaker 2 (16:58):
Uh.
Speaker 3 (16:58):
They're locked up until till the child turns eighteen, and
then at that point it starts to behave a little
bit like an IRA. Obviously, you know, this is the
first year of it, so we will we will talk
about that in eighteen years about exactly what these things
are looking like. But at that point, withdrawals can be
used for just about anything education, first home, maybe starting
a business, or whatever that person decides as a young adult.
(17:18):
You know, there are downsides to this too, just like
anything else, because the account is structured a little bit
like an investment, kind of somewhere between an investment and
an IRA. Money's not guaranteed. It's going to go up
and down, just like anything else. But the sooner people
get used to that happening, the better. That's just reality.
Withdraws after eighteen are taxed as ordinary income. There could
be early withdraw rules if you pull those dollars out
(17:40):
too early, or you don't use them for you know,
approved reasons, which again there's a lot of approved reasons.
But then let's worry about this again in eighteen years
when this has grown to a point where you want
to pull it out.
Speaker 2 (17:49):
Yeah, they're scheduling these accounts to happen on Independence Day
of twenty twenty six America is two hundred and fiftieth birthday,
So more to come on that. I want to make
sure we talk about this one Brian billionaire where Elon
Musk is signaling that artificial intelligence and robotics could eliminate
totally the need to even work within the next few decades.
Speaker 3 (18:10):
Well, that sounds intriguing and also can somewhat concerning. Obviously,
that's going to have an impact here and there. So
this is coming from the US Saudi Investment Forum that
he had attended. He participated in a panel and was
asked about the long term impacts of robotics and AI
on the workforce, and he gave us a pretty bold prediction.
He basically said, I don't know what long term is.
Maybe it's ten twenty ars something like that, but my
(18:32):
prediction is that work will be optional. And then he
went on to say that money could eventually stop being
relevant if the future is dominated by AI and robotics
and all that. And he had said that positive AI
future money no often no longer exists in books out there.
So this is a lot of this stuff. It's kind
of up in the clouds. We'll see what comes of this. Obviously,
(18:52):
power electricity, the kind of things that they're going to run.
All these brains, all these fake brains out there that
are going to think for us. There's a lot to
think about here, and I don't know. I'm still in
the phase of let's wait and see what actually happens
before we really commit to the results that are going
to occur.
Speaker 2 (19:09):
Brian, if money no longer exists, what happens to the
Simply Money radio show? I mean I would really miss too,
we'll just call it simply I would miss what about
Joe Strecker and that wonderful bumper music he plays? So
that would all go away too? I think it would.
Speaker 1 (19:25):
I would.
Speaker 2 (19:26):
I think it would be horrible. I still want to
work and I still want to have a reason to
talk about money.
Speaker 1 (19:30):
What do you call it?
Speaker 3 (19:31):
Simply Joe? And he's gonna have a microphone and he's
gonna give us his sage like wisdom.
Speaker 2 (19:36):
He'll just become a DJ and play music for us.
Maybe that's even better, all right? Coming up next, why
sudden money can actually make you broke and how to
make sure your windfall doesn't just blow away. You're listening
to Simply presented by all Worth Financial on fifty five KRC,
the talk station. You're listening to Simply Money presented by
(19:59):
all Words Financial on Bob Sponseller along with Brian James. Well,
everyone dreams of a big financial windfall, a sudden inheritance
a business sale, maybe that stock you've been sitting on
that finally goes through the roof. But new research shows
that suddenly sudden money, you know, money that you can
get your hands on quickly, can actually destroy wealth faster
(20:23):
than it creates it. Brian, there's some new research out there,
and walk us through it today.
Speaker 3 (20:29):
Yep, newsflash, new research. One in five people who inherit
a million dollars or more lose half of it within
five years. Well, every now, we hear these stories every
now and then from people who you know, win the lottery,
those kinds of things, and you hear the horror stories
about how they just weren't prepared for it and just
couldn't their brains simply couldn't handle that situation. That's not
bad luck, it's normally bad behavior, bad decision making. This
(20:51):
isn't just lottery winners though, Bob. It's people who sell
a business, you know, really, anybody who has some kind
of a massive windfall where a bunch of cash falls
out of the sky with no strings attached at a
relatively short period of time. This can be cashing out
of a career, getting a large inheritance, those kinds of things.
The faster the money comes, Bob, and all the faster
it can leave. So we're gonna kind of jump into
(21:11):
the different effects here that can happen and how to
handle it. So if you're in the situation, we're gonna
we'll start off with the first one, the windfall effect.
Speaker 1 (21:19):
Here.
Speaker 3 (21:20):
What really happens when you get a windfall, Well, psychologists
have actually done some work on this. They call it
sudden wealth syndrome, which sounds completely fake, but this is
a real thing. You literally go from thinking in terms
of thousands of dollars to thinking in millions overnight, and
this will give your brain whiplash. Think of it this way.
You've been driving a nice, compact, reasonable car for twenty years,
and all of a sudden you have the keys to
a Formula one race car that you have all the
(21:42):
complete freedom to go do whatever you want to do with.
Obviously it's pretty powerful and fast, but if you don't
know how to drive that kind of car, you're gonna
you're gonna have some kind of accident. So it happens financially,
the rains come off, and all of a sudden you
don't have the same sets of habits and the guardrails
because everything just drops. You think I can afford it,
and you can. We see this all the time with
(22:03):
this kind of a windfall. It's very easy to throw
money at problems when there is money around with which
to do so. But then if that gets baked into
the ongoing spending, you know, that can come alongside the investment,
start to get riskier because I feel like I've got
a bigger cushion, I can afford some riskier stuff, and
a lot of the discipline that you had that got
you to this pace starts to go away. So eventually
(22:23):
you get to a point where that money is controlling
you instead.
Speaker 1 (22:26):
Of vice versa.
Speaker 2 (22:28):
It's funny you brought up that Formula one race car
analogy because that reminds me of an actual client situation.
You know, business sale, millions of dollars coming in the door,
and this client went from buying one kind of exotic
collector car to now they own like eight to ten.
Speaker 1 (22:46):
Well, what happened after that?
Speaker 2 (22:47):
They needed to build a big barn or garage to
hold all the cars, and then you've got the trips
going to custom car shows transporting these cars. You know,
it becomes a lifestyle out with people that can afford
you know, eight ten different cars and shipping them all
over the country, and it leads to our less our
(23:07):
our next example, which is just lifestyle creep or lifestyle inflation.
You treat yourself a little bit and then all of
a sudden you've really ramped up into an overall lifestyle
that costs thousands and thousands more dollars per year, and
some people forget to just check and say, can we
really afford this? Is this sustainable?
Speaker 1 (23:29):
Brian?
Speaker 3 (23:30):
Yeah, that that that big house comes along a lot
of times with maybe it's a it's a homeowners association
fee that you didn't really account for. Definitely, property taxes
can sneak up. And I'll throw another one out there.
I ever spent fifteen thousand dollars on a tractor to
mow your your new acreage. You know, there are lots
of things out there that can you don't You don't
really see coming and until you're actually living in this situation.
(23:52):
So we've seen people spend like that when the lottery,
except they really didn't. They inherited a million or more
and it became ten million in their minds. And then
not to mention when you have to pay taxes on
all these things, so it's not nearly you know, is
a bottomless supply of money, as it seems like. It's
kind of like eating your Thanksgiving dinner every night. It
sounds great at first, but eventually it's gonna make you
throw up. So indulging ourselves too much can kind of
(24:15):
ruin the fund that comes along with it.
Speaker 2 (24:17):
All right, here's another big behavioral area to look out for. It.
Speaker 1 (24:20):
It's just the area of overconfidence.
Speaker 2 (24:22):
People that make a lot of money or have sold
a business for a big chunk of money, you know,
their mind says, hey, I made a fortune, I'm really
good with money. But Brian, you and I know this
all too well. There is a big difference between the
ability to make money in some other industry versus actually
managing money once you've got it in your account, and
(24:46):
a lot of people have to learn that lesson the
hard way. They jump into a bunch of private investment deals,
you know, get over allocated to crypto or high risk startups.
They forget that wealth preservation is a completely different skill set.
And I think sometimes Brian, these people are bored by
just you know, traditional a set allocation stuff they're addicted
(25:09):
to the adrenaline rush, and they always constantly need to
be going out and taking risk, and you just got
to put the governor switch on that sometimes to keep
from losing something that you've spent a lifetime building.
Speaker 3 (25:22):
Making money is not the same as keeping money. It's
two different, very two different mindsets, two different approaches. So
people who build wealth over decades, these might be entrepreneurs, savers,
or just disciplined investors pumping money into their four O,
one k's, four or three b's for years. They tend
to respect money more because they know how hard it
was to earn. Then we see, you know that sometimes
it's generation too that doesn't have that same benefit of
(25:45):
having built it from nothing and so doesn't value it
as much. It appears to them to have been easy
to acquire, therefore they treat it as such. So what
should we do?
Speaker 1 (25:53):
First?
Speaker 3 (25:53):
Step up, Build a team, make sure you've got people
around you, a financial planner to quarterback everything, a CPA
or a some kind of accounting outlet to help you
with the taxes, and an estate planning attorney. If this
is truly a significant pile of money, not the people
selling you something. These are people who behave in fiduciary
manners on what will help you with their future. So
the next step is figure out what you want. Once
(26:13):
you've got your team in place, now think about what
it is that you want. And this also assumes that
we didn't go out and do a bunch of things immediately. Really,
I'm gonna call it Step zero is don't do anything,
just stop and think before you build that team. Then
you need to have that discussion about what is it
that I want. Do I want to use this to
retire earlier? Do I want to benefit myself my family?
You know, maybe charities or something like that. Generational wealth
(26:36):
without some kind of purpose, money tends to get spent
just because it's sitting there.
Speaker 2 (26:41):
Here's the all Worth advice. Wealth is not a finish line.
It's a responsibility. The more you have, the more discipline
it takes to keep it. You've built up two million dollars,
how do you protect it without missing growth? We'll cover risk,
income and a little peace of mind 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
(27:09):
Simply Money present I buy all worth Financial on Bob
Sponseller along with Brian James. Do you have a 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 on the iHeart app. Simply record your question and
it will come straight to us, all right, Brian Derek
in Oakley leads us off tonight. He says, our advisor
keeps suggesting private equity and private credit. How do we
(27:32):
tell if these alternatives are true diversification or just higher
risk along with a sales pitch yep.
Speaker 3 (27:40):
So we want to make sure that whenever these things
are coming up more and more often lately, and we
want to make sure we understand the moving parts that
are involved when these types of questions come up. So
private equity, what are we talking about? While we're talking
about investing in small businesses that are not publicly traded
kind of sort of the same thing as buying stocks,
but these are not out there on markets. You're just
literally connecting with somebody who has run a business. There
(28:02):
are funds and things that will do this for you,
and that's presumably what Derek is referring to here. So
private equity fundraising hit over one point two trillion dollars
globally in twenty four, slowing down a little bit, but
still probably going to be out there. So the kind
of questions you want to ask, you want to make
sure you understand what the lock up period is? Can
you get your money back out? Liquidity is always going
(28:22):
to be going to be a factor for these things.
What is the fee structure? These are going to be expensive.
Don't look for the no load version of private equity
doesn't exist. These things are expensive because there's a lot
going into them and there's a lot of people wanting
to make money off of them. And so how do
you verify the returns? Are these audited self reported valuations?
Are there default rates, recovery rates on the private credit side?
(28:45):
What information can you get so that you can understand
what you're looking at. These can be very valuable tools,
but you can also hurt yourself with them, So just
do your research, be careful what you're getting into. All right,
We're going to move south to Marty down in Florence,
who says they have a big unrealized game in their
brokerage account. First off, congratulations, that's a common problem these days,
(29:05):
and Marty wants to know if there's anything they can
do to trim those positions without taking that huge hit
tax hit all at once.
Speaker 2 (29:10):
What do you think, Bob, Well, Marty, there's definitely ways
to trim the positions without taking a huge tax hit.
So good of you to ask the question before you
just took the tax hit. So you know, I don't
know from your question whether this big gain is in
one heavily concentrated position or whether you've just been sitting
on a bunch of you know, mutual funds and ETFs
(29:31):
over years that you know, you got a bunch of
positions with a lot of unrealized capital gains. So depending
on what your situation is, the first thing, get that
stuff into a tax managed to count where you've got
some tax loss harvesting going on in the background. Direct
indexing strategies are out there, and indexed exchange programs are
(29:52):
out there. And what this really means is you can
go slow. You can harvest some short term losses in
a diversified port and use that to gradually trim those
gains in your positions. If you are sitting on one
big concentrated stock positions, that's where things like collars selling
(30:12):
a covered call and buying a protective put on the
downside might come into play, and that way you could
protect your gains in that position and kind of have
the options market pay to do that for you. So
a lot of different options out there. The best thing
to do is probably sit down with a good fiduciary
advisor and walk through some of those options and get
(30:34):
you set up. Hope that helps all right. Eric in
Westchester says, our kids are in their thirties and they're successful,
but they don't know much about money. What's the best
way to start involving them in family financial discussions?
Speaker 1 (30:47):
Brian, this is a great question.
Speaker 3 (30:49):
More and more common question these days as wealth is
reaching new heights, and you know a lot of people
who are in their fifties and sixties and that have
been themselves successful now have kids who are doing okay
and successful as well. But they're starting to worry that
that these kids are not have not quite been through
the wealth management you know, and training and you know,
(31:09):
financial planning those kinds of things that they themselves have.
So why this is important, Well, there's trillions of dollars
are going to change hands the next twenty years about
eighty four trillion is going to move from Baby boomers
to Gen X and millennials by twenty forty five, and
so that this often comes along with people change. Either
the kids will change who they want to talk to
in terms of working with a financial advisor or if
(31:31):
they want to at all, because those conversations haven't simply
haven't occurred. So here's here's a couple steps to start
bringing them in. Start with values and not the numbers.
Talk about how you built, what you built, why it's
important to you, and it connect them to their history.
They're going to remember some of the stories you told
them because it would have affected them along the way.
Sometimes it's good to have a family State of the
Union meeting. A lot of families do this around the holidays,
(31:54):
just to talk about here's what we've built, here's here's
the goals that mom and I have or dad and
I have. Here's what we're thinking about, and here's why
we're thinking it. And let them share in the in
the feedback of that, and they'll they'll start to hear
how you've gotten to that point, and you know, eventually
get to the point where you do show them open
the vault, show them what's in there. If you trust
that they can handle it, then I think it's really
(32:14):
valuable to understand why it is that you are able
to live the way that you do, what is behind
all that, rather than having them assume it's just plain easy.
So in any case, I hope that helps. And big
discussions here coming up during the holidays. One more here
from from Janet down in Fort Thomas. Thank you for
defending our forts. Down there, Janet and her husband are
(32:35):
having a discussion about their mortgage. He apparently want wants
to just offload the debt, not think about it anymore,
and she wants to keep those dollars free to invest.
So how do we think about that in terms of
financial planning? How do you evaluate that trade off?
Speaker 2 (32:47):
Bob Well, Janet used the word how do we evaluate
the trade off?
Speaker 1 (32:52):
Logically?
Speaker 2 (32:53):
And that's always that's always an interesting topic logically, because listen,
there's a logical way to handle this stuff, and there's
always an emotional reason why people make any kind of decisions.
So I tend to look at this two ways. One,
if you do want to look at it logically, look
at the after tax rate of return that you can
expect based on your personal risk tolerance you're in your
(33:16):
husband on how you invest money, and then compare that
to your mortgage rate. So you know, if you're a
growth investor, and even if you're netting on average, you know,
say seven eight percent a year, and you're sitting on
a two and a half two point seventy five two
point eight percent mortgage, you know, it doesn't logically makes
(33:37):
sense to pay that off because you're earning more money
keeping your money invested. However, if the psychological part of
this is just causing one spouse to lose sleep at night,
it it, you know, to keep marital harmony and keep
peace in the family, it might make sense to just
knock this thing out. So I think it's important to
look at it logically from a net rate of return standpoint,
(34:01):
and then also discuss risk tolerance and hopefully you can
come up with a good decision together. All Right, Wall
Street's newest game lets you bet on real world events.
Is it investing or just high stakes fun? We'll sort
all that out next. You're listening to Simply Money, presented
by Allworth Financial on fifty five KRC the talk station.
(34:24):
You're listening to Simply Money presented by Allworth Financial on
Bob Sponseller along with Brian James. Well, for decades, if
you wanted to place a bet, you had to go
to Las Vegas, flashing lights, free drinks in a weekend
you probably don't tell your accounting about. But now you
don't even have to leave the couch. Vegas might still
have the shows and the buffets, but the action, the
(34:46):
real betting action, it's all moving online, and not just
to sports betting sites like DraftKings or fan duels. It's
actually moving right into Wall Street's neighborhood. Brian, Hey, I've
seen Khmer on this often in recent days. I think
on Interactive Brokerage is running these commercials.
Speaker 1 (35:06):
Tell uh, tell us about.
Speaker 2 (35:07):
What's going on, about the opportunity to make bets on what's.
Speaker 1 (35:11):
Going to happen next in the economy.
Speaker 3 (35:13):
Well, first off, we're not calling them bets, Bob, that's
a dirty world. We're calling these prediction markets. Come on,
get with the times, all right. This is a whole
new word. I mean, it's it's betting. It's gambling, just
like anything else. You're you're betting on a certain outcome.
I think it's going to be a not b and
I'm going to bet twenty bucks on it. This is
a whole new world where people are trading contracts on
just these real world events. Who wins an election, when
(35:34):
or if the Fed is going to cut rates, how
far they're going to cut rates, or even who takes
home the super Bowl. That last one's pretty common. But these, these,
these next, these other ones come from just playing the headlines.
Speaker 2 (35:44):
Could this be while why Jerome Powell is not cutting
interest rates because he's got some futures bets?
Speaker 1 (35:50):
I'd already placed that happening.
Speaker 3 (35:52):
That could very well be Bob. And maybe that's something
that we should have a We should have an election
or an elected committee investigation to make sure.
Speaker 2 (36:00):
All right, well I digress. Please walk us through what.
Speaker 3 (36:03):
The actual top these These aren't technically bets, right, this
is the the the regulatory bodies don't don't consider this gambling.
These are financial instruments called event contracts. They sound like
bets to me anyway. Regularly these aren't regulated by the
gaming boards, but rather by the Commodity Futures Trading Commission,
which is really the closest government body to UH since
(36:24):
since things like oil, corn, and currency futures are really
only worth what people think they're worth. There aren't. They
don't have their own profits, they don't spit out dividends,
they don't create their own products. This is as close
to these these types of events as we can possibly get. Therefore,
that's why it's the same folks who oversee oil, corn,
and currency futures are the ones who are looking at this.
So for example, there's there's just how big this is
(36:45):
the Intercontinental Exchange, which is which happens you probably never
heard of, same company that owns the New York Stock Exchange,
which probably have heard of. They're investing up to two
billion dollars in a platform called Polymarket. And one you
may have heard of. Another one out there is Robinhood.
Robin is already pretty popular with the with the smaller
investors already trading more than four billion of these event contracts.
(37:07):
So so think of this way. The reason that they're
doing this, Well, you can open your Robinhood app, buy
some stock and Apple or whatever other company in the
exact same session, invest in whether the FED is going
to cut rates next quarter via these these event type vets.
Speaker 2 (37:20):
Well, look, while the horses seemingly already left the barn here.
The Commodities, Futures and Trading Commission is still trying to
figure out how to regulate these things. So imagine that
let's let's let let's get everybody involved in this and
then add the regulation later. What could possibly go wrong?
I'm thinking back to the housing crisis, but again one
(37:41):
company Calshe tried to launch a political event market and
got stopped cold by regulators. But in terms of the
risk here, the thing we got to call out is
liquidity and pricing. These aren't like stocks with billions of
dollars in daily volume. These are pretty low volume trades
and positions you can get in and out at bad prices.
(38:05):
In other words, there's big spreads between the bid and
ass on these things, and you might not realize that,
you know, when you get into it.
Speaker 3 (38:12):
Yeah, and remember the taxation is also a question. It's
unclear how this is gonna be tax These are short
term types of things. I'm gonna bet that the Fed's
gonna do something this or that next week, and that
may or may not happen. Well, that's a short term hold.
And there are plenty of examples where the IRS taxes
obscure things a little differently than what you expect.
Speaker 2 (38:28):
Here's the Allworth advice when Wall Street starts to look
like Vegas, remember the house usually always wins. Don't make
your retirement part of the show. Thanks for listening tonight.
You've been listening to Simply Money, presented by all Worth
Financial on fifty five KRC, the talk station
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