December 11, 2025 • 38 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian break down the Fed's latest interest rate cut—what it means for mortgages, savings rates, and why younger homebuyers may still feel squeezed. Then, they dive into a critical end-of-year financial planning reminder: take your required minimum distributions (RMDs) by December 31st or risk a 25% IRS penalty. They also tackle a headline-grabbing claim that passive investing is “worse than Marxism” and explain what’s really at stake for your portfolio. Plus, the Better Business Bureau joins to spotlight the biggest holiday scams of 2025, and the guys answer listener questions about tax alpha, benchmarks, and how to unwind capital gains the smart way.
See omnystudio.com/listener for privacy information.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Tonight the Fed lowers interest rates again, and our take
on a claims being floated out there that passive investing is,
believe it or not, worse than Marxism. And we answer
your pressing financial questions. You're listening to Simply Money, presented
by all Worth Financial. I'm Bob Sponseller along with Brian James. Hey, Brian,
(00:27):
it's always interesting in December we get these sensational articles
out there in the financial media. More on that later,
but hey to virtually no one's surprised. The Federal Reserve
decided to cut interest rates a quarter point earlier today,
so the cost to borrow money fell a little bit.
And you know, I we don't know what's going to
(00:50):
happen in January. I think that's what everybody's focused on
right now. Interestingly enough, the ten year interest rate that's
really going to move the needle here as far as
interest rates concerned, it continues to just hover where it is.
It doesn't drop at all. But needless to say, we
got a quarter point cutting rates that might help short
term debt and help corporate profits. What do you think
(01:14):
of the interest rate cut?
Speaker 2 (01:16):
Well, at this point, I'm paying attention to this a
lot lately because there's a lot of people over the
past several years who have gone out and had to
get mortgages at rates that historically aren't that bad really,
I mean, a seven percent mortgage again looking over decades, is.
Speaker 3 (01:30):
Not historically all of that debt.
Speaker 2 (01:32):
But we become very accustomed and we really got super
in love with those really low two and three percent
mortgage rates.
Speaker 3 (01:39):
Those aren't coming back tomorrow.
Speaker 2 (01:41):
But there are a lot of people out there that
who did get mortgages, you know, at that seven maybe
even eight percent rate over the past three four years,
and they're looking for opportunities to refinance. So whenever these
headlines hit, I always reach out to some friends out
in the mortgage industry to see what's going on. And so,
because remember there are two things that the mortgage rates
are not only driven by what the Federal Reserve wants
to do, it's also demand driven. So you can look
(02:02):
at what the bond market does and you can figure out,
like that's why you just cited the ten year.
Speaker 3 (02:07):
Treasury that drives a lot of different interest rates.
Speaker 2 (02:09):
So the Federal Reserve has an impact, of course, but
also market demand for debt as well, and so Actually
the trend for mortgage rates has been down until just
the last few days. The market was kind of anticipating,
you know, the demand on mortgages might pop a little bit,
and so actually mortgage has popped up to six and
a quarter at some banks on the thirty year yesterday.
And looking for not a whole lot of activity based
(02:33):
on the decision today, kind of the one the people
that I've talked to are looking for basically steady, you know,
steady as she goes right now, because the market was
already anticipating.
Speaker 3 (02:41):
It's not really a surprise.
Speaker 1 (02:43):
No, that makes total sense to me. And I know
the Fed has a tough job here, this dual mandate
of unemployment and inflation, and you know, inflation has just
kind of been sticking there all year. It's not spiking,
it's not coming down much at all. You know, you
and I have talked about this, you know, off and
on this show. I think we're both in agreement here.
It's going to be a long time until we see
(03:05):
two percent inflation unless we see a you know, a
massive recession, which will hurt everybody. But I think this
home affordability thing is real, especially for first time home buyers.
I saw recent data Brian that the average homeowner, the
average age of a homeowner in the United States of
America is now forty years of age. That's pretty old.
(03:28):
There might be some reasons for that, which is the
older people. A lot of people have two homes. So
if people own two homes and they're sixty five years old,
that's going to raise the average rate of homeownership. But
you know, younger people trying to get into this market,
get a home, build some equity. You know, obviously they're
(03:49):
facing sky high in a lot of cases, student debt,
interest and student loan balances. You know, it's tricky for
these younger folks to get on their feet and get
into this home market. And supply supply of homes is
still an issue as well. So I don't think the
Federal Reserve is going to be able to fix those
kind of systemic issues in the economy. It'll be interested
(04:11):
to see, interesting to see how this all plays out
in twenty twenty six and beyond.
Speaker 3 (04:16):
Yeah, so let's look at some of the other underlying
factors here.
Speaker 2 (04:19):
So, for example, labor market data, we're getting mixed signals
out of the labor market. Recent rises and job openings
suggest some demand for more workers, but hiring is still
a little bit of weak. And to quit rate, which
is a gauge of worker confidence that has dropped sharply.
Speaker 1 (04:32):
That's just literally.
Speaker 2 (04:33):
People walking away from their jobs because they're just lost
faith in the company or for whatever reason, moving on
to something else. In the private sector, employees reportedly cut
about thirty two thousand jobs in November. That's the third
decline in four months. And so there's going to be
increased pressure on the FED to support the economy, which
that speaks to this rate cut. Maybe let's get businesses
more interested in growth again. And at the same time,
(04:55):
the fed's decision makers always faced uncertainty with government shutdowns disrupted.
Speaker 3 (04:59):
Key data releases.
Speaker 2 (05:00):
We talk about that every day anymore, are we really
are we shooting blind here?
Speaker 1 (05:04):
You know?
Speaker 2 (05:04):
But with without the same data we've had in the past,
but so mixed signals coming out of the other other markets.
I think that's why we're gonna kind of hold steady
on interest rates here for a little bit in terms
of the demand the bond side of this.
Speaker 1 (05:15):
Yeah, and you and I talked to, you know, with
Andy Stout about this earlier in the week in terms
of what kind of data we're actually gonna see come
out between now in the next FED meeting in January.
And there's gonna be a lot of data coming out
to your point that the FED has not had in
their hands when they had to sit in a room
and make, you know, the decision they made today. So
(05:36):
you know, there's gonna be a lot of data coming
down the pike here in the next few weeks. And
you know, in terms of movement of what anybody should
be doing as far as their asset allocation now between
now and the end of the year as a result
of this FED, uh, you know rate cut today, I
don't see any need to make any you know, massive
(05:57):
moves here other than just check the interest rate on
short term savings accounts and CDs and all that, because
the trend continues to come down, and as some of
these CDs mature, or Treasury bills mature, or other short
term instruments that you have mature, you want to be
you know, just not automatically rolling these things. Sit down
with your fiduciary advisor and map out a plan here
(06:20):
on what the best way is to deploy this month.
You know, moving into twenty twenty six according to your
personal financial plan and goals.
Speaker 3 (06:29):
Yeah, I couldn't agree with that, bob up anymore.
Speaker 2 (06:31):
I mean, I think that every topic we talk about
comes down to how does this affect me?
Speaker 3 (06:36):
Well, what was your plan to begin with?
Speaker 2 (06:37):
So make sure you understand what your resources are and
what you're trying to do with them, and then you
can start to think about those guys.
Speaker 1 (06:42):
All right, let's get into something that we can control,
because you and I can't control what the Federal Reserve does.
But this next story is interesting, and I know it's
something you and I are dealing with literally every day
right now here in the month of December with our clients.
And this is the race to get these required minimum
distributions from iras taken care of before the clock strikes
(07:07):
midnight on December thirty first. And for folks that don't
get this rm D done, you know you're looking at
twenty five percent penalties from the IRS. Talk about a
recent survey from Fidelity, which which is very interesting and
it confirms what I'm seeing personally was some of my
clients as I scramble around and get some of this
(07:27):
stuff done between now and the end of the year.
Speaker 2 (07:29):
Yeah, this isn't too surprising to me because you know
what this is. This is what we do during this
time of year. We all know, all advisors know how
many clients they have who have iras and are of
our require minimum distribution age or it's an inherited IRA,
a little different situation, but the same same net got
to get it done by New Year's eve. So we've
all got our lists of clients we have to get
in touch with and make sure that we're on top
of that. But anyway, Fidelity came out with a study,
(07:52):
and obviously Fidelity is one of the trillionaires, one of
the biggest custodians out there, so they would know fifty
three percent of Fidelity and who needed a twenty twenty
five RMD hadn't yet taken one, and about twenty nine
percent of those outstanding rmds are from inherited iras. This
data does not consider possible rm ds from a council
without the firms. This is just Fidelity talking about their
(08:13):
own clients, their own assets. Not surprising on the inherited
iras thing because there are some new requirements there. Specifically,
this is the first year where if you are somebody
who inherited an IRA from a deceased person who passed
after twenty twenty, but was themselves of required minimum distribution age,
then yes, you have ten years to liquidate the whole thing.
Speaker 3 (08:34):
But this year there a new rule.
Speaker 2 (08:36):
There is a required minimal distribution that you still have
to take every year. You can't just let it all
go in that case. Remember that the deceased person had
to have been of RMD age themselves. So I'm going
to go ahead and guess that that is news to
a lot of people, which is why Fidelity is seeing
a higher percentage of those overdated rm ds sitting in
(08:56):
those inherited dirays at this point.
Speaker 1 (08:58):
No, Brian, I think you're absolute spot on, and this
is why I asked you to highlight this topic earlier
in the week, and we're gonna harp on it again
for a couple of minutes right now, because you know,
let's face it, we're down to twenty days left in
the year. We got Christmas mixed in there too. People
are not thinking about this stuff. They're thinking about hanging
up their Christmas lights, finishing up their shopping all that.
(09:19):
But this is a big deal. I'm running into it personally.
You know, people think that they just had ten years,
you know, over which they didn't have to touch these inherited iras.
That is not the case. And again to repeat Brian's point,
if the person you inherited this IRA from was at
rm D age on the date that they die, you
(09:41):
do have to take an R and D this year.
Somebody needs to make this calculation and get it done.
And if accounts moved from firm to firm through the year,
which is what I'm running into right now, in a
few cases, I'm tracking down that December thirty one, twenty
twenty four that from my clients, so I can go
(10:02):
in and manually make this calculation and make sure this
gets done. You know, I implore everyone out there please
check for any inherited iras, make sure you've done this
work here, to take the RMD because again the penalties
are severe twenty five percent penalty taxes from the irs.
If you don't get this done.
Speaker 3 (10:21):
Yeah, big big deal here.
Speaker 2 (10:23):
And remember this, some of this is changing from the
Secure Act two point zero. There was a period here
where some of these iras got a sort of a
period of relief, if you will. That was through the
year twenty four. Well it's not twenty four anymore. It's
twenty five. So make sure you've got time. You've got
several weeks, but make sure that you know what you're doing.
Now you have options here, right. A lot of people
(10:43):
get spooked by this though. First of all, some people
out there think that the require minimum distribution dollar amount
is what the IRS is going to take.
Speaker 3 (10:49):
That's not the case. That's not the taxes.
Speaker 2 (10:52):
That's how much money you must remove from the tax shelter,
and that dollar amount.
Speaker 3 (10:56):
Will be taxed at whatever the rest of your bracket is.
Speaker 2 (10:58):
It gets lumped in with your Social Security and your
pension income, and your investment income any other type of
income you have, and then that's how you'll know what
you'll be tax on it. But you don't have to
the buyer es could care less what you do with it.
You don't have to take it out stick in the bank.
A lot of people do that, which I think is silly,
because now you're just liquidating your portfolio systematically because the
IRSTLS you have to. So what a lot of clients
(11:19):
do if they don't need the money. I mean, first
of all, if you need the money, you got an
expense coming up, you know sometime next few months, we'll
just take it stick in the bank and then write
a check out of it and just be happy that
you were able to do that. But if you truly
did not need the money for that, then you can
move it to simply a taxable account. Because then the
next question we get is, well should I do this
early in the year. What's the right timing for this? Well,
if we're going to keep it invested and just move
it from the IRA to the taxable account, really doesn't
(11:42):
make any difference because it's only going to be uninvested
for maybe a twenty four hour period while it moves
from one account to another.
Speaker 3 (11:47):
While you fulfill your obligation there.
Speaker 2 (11:49):
So just figure out exactly how the rules work, what
do you need, and then don't worry too much about it.
It's not nearly as complicated and scary as it might seem.
Speaker 1 (11:57):
Here's to go with advice. It's simple, is simple. Tonight
take your R and D by December thirty first, or
face possible severe financial consequences. Coming up next, we've got
our take on acclaim out there by one fund manager
affirm that passive investing is quote unquote worse than Marxism.
(12:19):
Listening to Simply Money presented by all Worth Financial on
fifty five KRC, the talk station.
Speaker 3 (12:32):
A US.
Speaker 4 (12:34):
You're listening to Simply Money presented by all Worth Financial.
I'm Bob sponseller along with Brian James. If you can't
listen to Simply Money every night, subscribe and get our
daily podcast. Just search Simply Money on the iHeart app
or wherever you find your podcast. Straight ahead of six
forty three, we're answering questions about managing appreciated stock, surprise
(12:55):
taxes from mutual fund and a bond ladder. That's U
seeing the anxiety some and more. All right, love that
bumper music from Joe Strecker, our executive producer. Back in
the USSR, Brian, there is one active management firm out
there that is implying that passive investing is the same
(13:19):
thing as Marxism. I find some of these headline stories comical,
but rather than go off on a rant, tell us
what's really going.
Speaker 1 (13:30):
On with this story.
Speaker 2 (13:31):
What's really going on with this is financial pornography. It's
something to read, it's something that catches our eye. We
need to talk about these things because there are people
out there who will react to these types of headlines
and make decisions based off of it because it is
an eye catching headline. And we are definitely in a mood,
you know, we're in a mood where we're looking for
anything because things just feel dicey. You know, everybody's on
(13:51):
edge politically and all that other stuff, and it just
feels like, actually, this is one of those times where
there is a danger of action feeling so much more
comfortable than in action. Therefore, I have to find something
to do, a button to push, a lever to pull,
and you know, sometimes these crazy headlines get people to
move when they should.
Speaker 3 (14:07):
So anyway, here's what's going on. This is a gentleman
who is.
Speaker 2 (14:13):
The co head of institutional Solutions for Alliance Bernstein. This
is not a small company, big old mutual fun company
been around for a long time in ago Fraser Jenkins,
and his argument is that the rise of passive investments
and investing has morphed into something a little more dangerous
than just a simple cost savvy trend.
Speaker 3 (14:29):
Right.
Speaker 2 (14:29):
This is what he's talking about is indexing here and
the idea of buying you know, super cheap type investments
that just follow an index as opposed to someone sitting
on the top of a pile of money making decisions
about this is a good investment, this is a bad investment.
In other words, simply own a broad swath of the market.
So his point is that this type of passive investing
that has gotten so big over the past several decades
creates a dystopian symbiosis, right, that's that's what That's a word.
Speaker 3 (14:52):
That I woke up thinking I was going to be
talking about today.
Speaker 2 (14:55):
It would because it dominates, It allows a few of
these megacap tech companies to dominate another.
Speaker 3 (15:00):
It's a bigger you are, the more money you get.
Speaker 2 (15:01):
Because every time somebody gets paid, you know they're they're
gonna put money into their four O one K and
that's gonna flow ultimately into an index fund. And indexes
are largely cap weighted, which means the biggest companies get
the lion's share of the assets there.
Speaker 3 (15:15):
So when trillions flow.
Speaker 2 (15:16):
Into these index funds ETFs, these are these are the
funds that simply mirror index weights, and that's mostly what
you're seeing in your four O one ks nowadays. That
capital just ends up getting dumped into these bigger companies,
just regardless of how they how well they.
Speaker 3 (15:27):
Actually perform or innovate. You know, this is already very measurable.
Speaker 2 (15:31):
So we we talk often on these airwaves, Bob, about
how some of these major industries, the top ten companies
can account for roughly forty percent of the total value
of the index, depending on the one you're talking about.
Speaker 1 (15:42):
Yeah, and and just to cut the chase here, all right,
you and I have been covering this topic for weeks
and months. We don't we just don't use these complex,
multi syllable words like you know, mister Fraser Jenkins, Yeah, yeah,
stuff like that, you know. But again, we've talked about
the concentration in the S and P five hundred. To
(16:03):
get a little bit serious here for a minute, because
you and I have been talking about this for weeks
and months now. It's we're not heading into a Marxist economy.
We're just calling out the fact that the S and
P five hundred does not give you quite the diversified
risk adjusted acid allocation that it used to. I mean,
(16:25):
you mentioned ten companies accounting for roughly forty percent of
the indexes value. Shoot, Brian, I think about the top
three or four companies account for ten percent of the
indexes value. So the point here is you can't just
sit there, well you can, but you know, the advice
is not just to sit there with an S and
(16:46):
P five hundred index fund with your entire portfolio, because
if and when and it always happens, even to the
best sectors, the best companies, market corrections happen, and I
think people in for are a rude awakening. If and
when we get a correction in some of these big,
big cap tech stocks, their portfolio is gonna have way
(17:08):
more volatility to the downside. People don't mind upside volatility,
by the way, They only get concerned when the market
goes down. And it's a reason to have a more
diversified portfolio with things other than just big cap indicies.
That's really the point here, and it's a point we've
been driving home for weeks and months now.
Speaker 2 (17:28):
Yeah, So let's take this from the point of view
of a fiduciary advisor, which is what you should be
working with anyway, if you're gonna pay anybody.
Speaker 3 (17:34):
To help you with this stuff.
Speaker 2 (17:35):
So, I mean, there's a little bit of merit to this,
and you know, in a sense really, what we're saying
here is the biggest companies out there are going to
essentially get the most dollars regardless of whether they appear
to be on the right track or not, just because
that's you know, that that's just the way those market
cap weighted in nex ones work. So but that doesn't
mean that that this is bad for every investor. You know,
(17:57):
some people just don't have time, interest resources picking vigual stocks.
Passive index funds are going to remain a low cost, diversified,
efficient way. Nobody's gonna go out there and dump everything
they own and suddenly switch into active investing. And you know,
I'm not exactly sure what mister Fraser Jenkins's ultimate goal
was in getting this out there, other than they got
our attention. We're talking about it, so I guess there's
(18:19):
a little bit of publicity involved in it.
Speaker 1 (18:21):
Well, his goal is he works for an actively managed
mutual fund company, So the goal is to drive more
assets into actively managed funds. That's what I think the
goal is. But please continue, Brian.
Speaker 3 (18:32):
No, I would agree with you. I mean, at the
end of the day, all these talking every.
Speaker 1 (18:35):
Time these people go on television or write these articles,
they're they're they're talking their book and sometimes rarely they're
trying to help individual investors, but they're always trying to
help their book or their business.
Speaker 5 (18:48):
Uh.
Speaker 1 (18:48):
There, I did slip in a rant there, but go ahead, Brian.
Speaker 2 (18:51):
No, no, no, you rant away. This is that is
the season for Bob Randt. So no, I know, I
get it anyway. At the end of the day. This
is just another example of those types of articles that
grab your tension and make you feel like this might
be that black and white thing that I should grab
a hold of and look at and go make some
changes so that I can scratch the itch that I
should be doing more than I am. And a lot
of people have that concern. It's not without merit. We
(19:12):
all feel like we should be doing more than we are.
We worry that we're going to miss opportunities. However, getting
too wound up about that risk of missing perceived opportunities
can actually cost you in other opportunities.
Speaker 3 (19:24):
Sometimes the opportunity is to leave it alone.
Speaker 1 (19:27):
Here's the all Worth advice. Work with a fiduciary advisor
to tailor your investment allocation to your goals, your risk
and your long term plan. Whatever the components of that
portfolio need to be from fake delivery text to luxury knockoffs.
We're breaking down the latest holiday scams you need to
(19:47):
watch out for. 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 pres outed by all Worth
Financial on Bobs Fonseller along with Brian James, joined tonight
by the president of the Greater Cincinnati Better Business Bureau,
(20:08):
our good friend, Josile Erlik Josial Happy holidays to you,
and we know we can only imagine with Black Friday
and Cyber Monday and everybody just you know, pounding away
at their smartphones looking at the latest deals that are
out there. These scammers are taking full advantage or trying to.
(20:29):
So update this here with about fourteen days left before Christmas.
What's going on out there in scam world. I can
only imagine what you're finding, what you and your team
are finding out there.
Speaker 5 (20:42):
So the first bit of advice is don't let your
guard down. Now. Things are crazy out there. This is
a season everybody's doing a ton of online shopping, more
packages are being delivered. Scammers know this and they use
this chaos to trick you with the fake package scam.
Here's how it works. You get a text that looks
(21:02):
like it's from a delivery driver saying they can't find
your house and please call them if you hesitate. They're
going to try to convince you that the package is
a gift from your friend or a relative. You know
it's a package you don't want to miss, so of
course you're going to cooperate so you can get this package.
These guys are going to sound really friendly, really engaging,
(21:23):
really professional. It's just a way to disarm you and
win your trust. It's just an act to get you
to disclose your personal information. In another version of the scam,
you get a text claiming that your package can't be
delivered because your address isn't accurate, or you need to
reschedule delivery, or you have to pay a delivery fee
for some odd reason. The text tells you to click
(21:45):
a link and correct whatever the issue is. The link
is going to take you to a very official looking
website with a very official looking ups FedEx or Amazon
logo and very polished language.
Speaker 3 (21:58):
Desil credit card numbers. What are they trying to steal here?
Speaker 5 (22:03):
They're strying to get your personal information whatever. They can
get your name, your address to, your phone number, your
website or not, your email address, and your credit card information.
Hence the you have to pay a delivery fee if
you click the link. The scammers are going to collect
this information, possibly your credit card information as well, or
(22:26):
maybe the link is going to install malware that's going
to monitor your online activity, including your passwords, your bank password,
your credit card password, and your contact list. They will
have access to that. The fact is there is no package.
It's all just a phishing attempt, so scammers can steal
your identity or worse. Keep track of what you've ordered
(22:48):
and when it's coming, and remember that delivery companies won't
send you random texts or ask for your personal information.
Speaker 3 (22:57):
Now.
Speaker 5 (22:57):
Another thing that's really hot right now and has been
for a number of years is the secret Sister gift exchange.
It's another scam that keeps getting recycled, especially this time
of year. It may sound fun and harmless. You send
one gift and supposedly you're going to get a few
dozen gifts in return. These gift exchanges are often seemed
(23:18):
maybe you're supposed to send bottles of wine and you're
going to get a whole arsenal of wine back, or
maybe you're supposed to send just a small ten dollars gift.
Another popular version is you send a dog toy and
you get dog toys in return. Here's the problem. It's
just an online version of the old fashioned pyramid scheme.
(23:39):
Back then, you mailed a dollar to the first name
on the list. You added your name to the bottom
of the list. You sent the letter to ten friends,
and they were supposed to do the same.
Speaker 2 (23:49):
Joseille, you lost me after arsenal of wine, and I'm
furiously googling for how I can sign up for an
arsenal of wine.
Speaker 3 (23:56):
So this is a safe thing, right, I really got excited.
Speaker 5 (24:00):
It's absolutely not safe. It's a pyramid scheme. It's a
pyramid scheme. People at the top of the pyramid might
get the gifts, might get the wine. Eventually, you're going
to run out of people to provide the wine.
Speaker 1 (24:14):
So Bryant, I have to interject here, take your focus
off of wine here and focus on the big picture
secret sister, because I know for a fact, if either
you or myself ever have a secret sister of any kind,
We're gonna end up getting divorced and it's just not
worth it. So this is another example of why I'm
so blessed to have been married to a great wife,
(24:35):
wife for thirty five years, who does virtually all of
our Christmas shopping. I will never fall prey to the
Sister Sister, Secret, Sister scam. Joe Sial. Please continue, though,
I will.
Speaker 5 (24:49):
Tell you that your advice is probably even more important
than anything I could say right now. Don't fall victims. Now,
let's not mention that this is also illegal. Postal inspectors
consider this gambling. You could be fined or even charged
with mail fraud, which might not be as bad as
having to deal with your wife. But let's keep going.
(25:10):
We have the luxury brand scam. Luxury and tech brands
are a big target for scammers, especially now think Apple, Coach, Nintendo,
you name it. Names people trust. These guys are creating
fake websites and ads that look almost identical to the
real thing. They use the fancy logos, the professional language,
(25:31):
even fake customer reviews to make it all seem legitimate.
Here's what's going on here. You see a social media
ad for a flash sale on a designer bag or
the latest gaming console at a price that you can't
pass up. You click, you land on the site that
looks official, You order, and you pay, but it never arrives,
(25:52):
or worse, you get a cheap knockoff and your credit
card info is now in the hands of scammers. BBBS
Scam Tracker has received thousands of reports of these fake
websites impersonating luxury brands, and they ramp up this time
of year, so be careful. The best way to protect
yourself is to stick to official websites, avoid clicking on
(26:14):
ads for deals that seem too good to be true.
The caution here is if you're looking for the official site,
it likely isn't going to be the first one that
pops up on a Google list, so check the web
address closely before you assume that you're on the right website.
Speaker 1 (26:32):
All right, great advice as always, Josio, thank you so
much for joining us tonight. You're listening to Simply Money
presented by Allworth Financial on fifty five KRC the talkstation.
You're listening to Simply Money presented by Allworth Financial on
pop Sponsller along with Brian James. You have a financial
(26:53):
question you'd like for us to answer. There's a red
button you can click if you're listening to the show
on the iHeart app. Simply we're hoard your question and
it will come straight to us. Paul and Mason leads
us off tonight. Brian, he says, our taxes are starting
to become a bigger drag than fees. How do you
calculate your portfolio's tax alpha to see if tax efficiency
(27:17):
is adding or subtracting value each year from his portfolio?
Great question.
Speaker 2 (27:23):
Yeah, so tax alpha, you know, that's another term that
gets financial term he gets thrown around a little bit.
Speaker 3 (27:27):
But what that's talking about, that's.
Speaker 2 (27:28):
The portion of your portfolio is ready to return that
comes from smart tax management rather than just market performance
ups and downs of whatever the investments are doing.
Speaker 3 (27:36):
Inside.
Speaker 2 (27:37):
So a lot of people watch fees and performance. That's
you know, kind of the most some of the most
impactful things you want to pay attention to when it
comes to performance. But as that account gets bigger, taxes
become that hidden cost that can overwhelm both of those.
Depending on what's happening, especially this time of year, we
got capital gain distribution, So think of it this way. First,
off measure that pre tax return for the year, What
did the portfolio earn before any distributions were tax there's
(27:58):
your baseline. Then figure out what your after tax return was.
It's gonna be a little tough to do this till
you've actually done your taxes. This is going to be
a sharpen some pencils and and and find some time
to sit at the table and do this, but you're
what you're going to do is make an estimate of
what taxes are going to get paid off off of
the dividends that have been generated, interest and realize gains.
All those things get taxed, probably differently at different rates,
(28:20):
but you can use your real marginal rates, don't use
averages on those, and you can get those off of
your tax return. You should hopefully have a summary that
shows what you roughly what your effective rates are off.
Speaker 3 (28:30):
Of your various income sources.
Speaker 2 (28:32):
And then if you reinvestment, remember you pretend you have
to pay the tax anyway, even though you're not seeing
the dollars, you still have to pay the taxes on
the stuff that's getting reinvested. And then third, compare that
after tax return with a tax aware benchmarks. So for example,
take the same index or the same allocation you've been
investing in and adjust it for the taxes. It would
reasonably incur. You can find sources out there for this
on the internet. And then so therefore the difference between
(28:55):
your after tax return and that benchmarks after tax return
is whatever your tax alpha is. Is it worth me
doing whatever I'm doing? Am I getting the benefit of
the of this investment process after taxes? So hopefully that helps.
Again a little bit of work there, but it sounds
like you wanted to. We were looking for a little
bit of work there, Paul, So hopefully that helps. Now
we're going to move back to a move down to
a Rich and fort Wright and he's asking about the
(29:16):
S and P five hundred. He's always used that as
a best as a benchmark, but now he's got a
portfolio of bonds, alternatives, global stocks.
Speaker 3 (29:23):
He just owns a lot more than just the largest five.
Speaker 2 (29:25):
Hundred companies in the United States, and so he's wondering,
is that still the best benchmark? What do you do
when you have a multi asset portfolio in terms of
benchmarking about.
Speaker 1 (29:34):
Well, speaking of doing a little work again, great question
from Rich. You know, here's my take on this, they're there.
The reason people want to look at benchmarks typically or
twofold one. They want to evaluate fees. Are the managers
that are you know, managing certain components of your you
know account? Are they adding value net of the fees
(29:55):
they're charging to manage the money? And then the second
how how is my overall performance doing? So I agree
with you Rich if you've got a more diversified portfolio,
and good for you for doing that. Yeah, you don't
want to just compare this to the S and P
five hundred. That's kind of comparing apples to oranges, you
know at this point, especially if you've got a significant
(30:17):
allocation to bonds and alternatives. So there's a couple of
ways to do this. One you can peel out each
component of your portfolio, say the bond component or the
large cap growth component, and go compare that to a
given index for that asset class and see if you're
getting value add you know, out of that asset class.
(30:39):
The other thing that most people never talk about, and
what you know, Brian and I always like to remind
people of, is the reason you're doing diversification in the
first place, and an asset allocation strategy is not just
to manage return, it's to manage risk adjusted return. But
back to your question, the other thing you can do
(30:59):
is there are blended bendmarks out there, if you can
go find one that's roughly similar to how your portfolio
is constructed. You know, there are sixty forties, seventy thirty
benchmarks out there if you're interested just to evaluate performance.
That's another thing that you can do out there. It
takes a little work, takes a little searching, but those
(31:21):
are the two reasons people you know usually benchmark their portfolio,
and a couple of ideas or ways to do that.
Hope that helps. Let's go to Evan and Edgewood. He says,
We've got a lot of appreciated positions in our taxable account,
and I'm worried about the compounding effect of capital gains drag.
How do you unwind gains strategically, Brian without blowing up
(31:46):
your tax return?
Speaker 2 (31:48):
Yeah, you know, Evan, what you're running into is what
a lot of people see is that every time, you know,
I'm built up a sizeable portfolio in a taxable account,
and maybe I want to pull some money out to
buy a car or do something with a family, or
accomplish some funny as a goal, playoff, some debt or whatever.
But the very first thing I get smacked in the
face with is what's something that feels like a tax penalty?
If I want to access my own money, I'm going
to have to write a check to the irs and
(32:09):
give them a cut of it. This leads to people
just ignoring those assets, but it doesn't make any sense.
You're going to pay taxes one way or another, and
this money is not here to stare at, so you
may as well figure out what the impact is.
Speaker 3 (32:19):
I think that's what Evans is running into there.
Speaker 2 (32:21):
So the challenge here is that, of course that every
sale feels like that tax penalty, but the real risk
is there is not letting that stop you from executing
your financial plans. So start with diagnosing what the real
issue is. Make sure you know what each position's cost
basis is unrealized gain and get that down to the
tax lot. You probably have more than one tax lot
in each of these. The tax lot is literally that
(32:42):
you know you reinvested a dividend in March of two
thousand and seven, and that that particular pile of shares
is now worth this gain or that loss or whatever.
Make sure you understand that level, and then layer your
sales over calendar years, harvest just enough each year to
fill those lower brackets, but stop just before your marginal
rate jumps. So this is an ideal time to do it.
You've got a few weeks left in this year, but
(33:05):
just in a month, we're going to be in a
second tax year, and if you tack on another twelve months,
we'll be in a third. So literally over a thirteen
month time period right now, Evan, you can get into
three different tax years. But it all starts with knowing
what you're trying to accomplish in the first place. Don't
don't face this with the idea of I must not
have any taxes. Taxes or evil. They're gonna You're gonna
pay taxes no matter what. You're not looking to avoid,
(33:26):
you're looking to mitigate. So take advantage of the time
that you have to go ahead and spread that into
those three different tax years.
Speaker 1 (33:34):
Coming up next, Brian has his bottom line from a
practical standpoint on how to navigate this ever changing interest
rate environment. You're listening to Simply Money presented by all
Worth Financial on fifty five KRC. The talk station you're
listening to Simply Money presided by all Worth Financial. I'm
(33:55):
Bob sponsorller along with Brian James. And speaking of Brian James,
Brian has his bottom line with some great practical common
sense advice on how to navigate this seemingly ever changing
interest rate environment. What do you have for us tonight, Brian.
Speaker 2 (34:11):
Well, we talked earlier in the show Bob about you know,
today's interest rate cut and which is which is not
the first one of the year.
Speaker 3 (34:17):
We've had a few now.
Speaker 2 (34:18):
And you know a lot of people are really looking
forward to getting back to those two to three percent
mortgages when rate interest rates were on the floor and
stayed there for a very long time. Well, you know
what we're seeing now is that that that is not
likely to return. The market doesn't believe that we're headed
back that way in general, but that doesn't mean that
there aren't There isn't a way to be thinking about this.
(34:40):
I want to talk today about the new interest rate normal.
Are we investing where for a world where four to
five percent might be here to stay for these more
liquid types of assets, and so about for about fifteen
years ever since the financial crisis of two thousand and eight,
we had this ultra low rate environment, right, so, mortgages
were three percent, savings accounts were under one, and people's
thinking about the ability to earn money on their depository assets.
(35:03):
Bonds were barely yielding more than inflation. But after that
inflation shock of twenty one to twenty three, we kind
of entered a different environment. Federal Reserve started fighting with inflation,
and now this is resulting in a place where interest
rates may stay structurally higher. In practice, this means that
four to five percent short term rates may be the norm,
not the exception for years. So the Fed has slowed
(35:24):
but not stopped rate cuts.
Speaker 3 (35:26):
Right, we didn't.
Speaker 2 (35:26):
We haven't come screaming back down to zero like we
thought we might after all the political rhetoric in a
presidential year. Bond markets are recalibrating this so ten year
treasuries have spent months between four point three, say four
point seven percent. Those are levels that we have not
seen for the last decade. Banks across the region have
finally begun raising deposit rates. I remember I was sitting
(35:47):
in the room, Bob, when one of the leaders of
a local bank said, we are not going to be
the first to raise interest rates on depository accounts just
because rates are going up. This goes back ten twelve
years when we had a headfake on interest rates going up.
But anyway, banks were really, really in love with those
low rates, and as soon as we got a spike
in mortgage rates, they could earn a little bit more
in the spread. And so but now they're finally reacting.
(36:08):
Those big banks, the big brick and mortars, are finally
raising depository rates. That's how you know that those are
the last ones to go corporate borrowing costs or resetting
a little bit higher, and you know that kind of
changes the calculus for stocks because that's going to change profitability.
So what should you be doing about this, Well, make
sure you rebuild that safe bucket with real yield. For
the first time in years, high quality bonds are producing
(36:30):
positive real income, meaning even inflation adjusted, it's still a
better better outcome for you. Short term treasury CDs money markets,
you can still get four sometimes five percent in those,
you know, but I would think about locking some of
that in if you've got a significant pile of cash
that you've considered your emergency fund and you've been enjoying
the fact that it's completely liquid and you're getting that
four to five percent. Well, we are seeing declines and
(36:52):
rates and that might be closer to three percent now.
So you might consider locking that in up put some
kind of maybe a CD ladder or something together one, two,
three years, so that you know, as we continue to
go down in interest rates, if they continue to slip downward,
you're still going to have something locked in over a
period of time. Bob, Are you seeing the same thing,
same concerns from from your clients.
Speaker 3 (37:11):
Yeah.
Speaker 1 (37:11):
I think the main thing here is to just pay attention.
And we've talked about this. I mean, and I'm not
slamming banks here. I mean they run a business like
everyone else. They got to make a profit. And you
you already brought up you know the fact that their
profit in general comes from the spread between short term
rates that they grant to depositors and longer term rates
(37:32):
that they charge to people to borrow money. And I
think banks, like everyone else, have to compete here, and
they don't give if they if they give people too
low of a rate, people are going to take their
money out of that bank and put it somewhere else,
and we've seen that happen here over the last few years.
And I think banks are in a tough spot right
now because you know, they still they still want to
(37:55):
and need to make money, but you know it's a
competitive environment out there. So again, don't just sit there
and ignore your short term savings and checking shop it
around and work with your advisor to make sure you
don't have too much money sitting in cash at a
very low interest rate if your financial plan allows for it.
And to Bryan's point, if you're willing to take a
(38:17):
little bit more risk on the credit side and get
into some of these attractive bond opportunities and ladder the maturities,
there's a way to juice that yield a little bit
without putting too much risk into your portfolio. Thanks for
listening tonight. You've been listening to Simply Money, presented by
all Worth Financial on fifty five KRC, the talk station
Tonight the Fed lowers interest rates again, and our take
on a claims being floated out there that passive investing is,
believe it or not, worse than Marxism. And we answer
your pressing financial questions. You're listening to Simply Money, presented
by all Worth Financial. I'm Bob Sponseller along with Brian James. Hey, Brian,
(00:27):
it's always interesting in December we get these sensational articles
out there in the financial media. More on that later,
but hey to virtually no one's surprised. The Federal Reserve
decided to cut interest rates a quarter point earlier today,
so the cost to borrow money fell a little bit.
And you know, I we don't know what's going to
(00:50):
happen in January. I think that's what everybody's focused on
right now. Interestingly enough, the ten year interest rate that's
really going to move the needle here as far as
interest rates concerned, it continues to just hover where it is.
It doesn't drop at all. But needless to say, we
got a quarter point cutting rates that might help short
term debt and help corporate profits. What do you think
(01:14):
of the interest rate cut?
Speaker 2 (01:16):
Well, at this point, I'm paying attention to this a
lot lately because there's a lot of people over the
past several years who have gone out and had to
get mortgages at rates that historically aren't that bad really,
I mean, a seven percent mortgage again looking over decades, is.
Speaker 3 (01:30):
Not historically all of that debt.
Speaker 2 (01:32):
But we become very accustomed and we really got super
in love with those really low two and three percent
mortgage rates.
Speaker 3 (01:39):
Those aren't coming back tomorrow.
Speaker 2 (01:41):
But there are a lot of people out there that
who did get mortgages, you know, at that seven maybe
even eight percent rate over the past three four years,
and they're looking for opportunities to refinance. So whenever these
headlines hit, I always reach out to some friends out
in the mortgage industry to see what's going on. And so,
because remember there are two things that the mortgage rates
are not only driven by what the Federal Reserve wants
to do, it's also demand driven. So you can look
(02:02):
at what the bond market does and you can figure out,
like that's why you just cited the ten year.
Speaker 3 (02:07):
Treasury that drives a lot of different interest rates.
Speaker 2 (02:09):
So the Federal Reserve has an impact, of course, but
also market demand for debt as well, and so Actually
the trend for mortgage rates has been down until just
the last few days. The market was kind of anticipating,
you know, the demand on mortgages might pop a little bit,
and so actually mortgage has popped up to six and
a quarter at some banks on the thirty year yesterday.
And looking for not a whole lot of activity based
(02:33):
on the decision today, kind of the one the people
that I've talked to are looking for basically steady, you know,
steady as she goes right now, because the market was
already anticipating.
Speaker 3 (02:41):
It's not really a surprise.
Speaker 1 (02:43):
No, that makes total sense to me. And I know
the Fed has a tough job here, this dual mandate
of unemployment and inflation, and you know, inflation has just
kind of been sticking there all year. It's not spiking,
it's not coming down much at all. You know, you
and I have talked about this, you know, off and
on this show. I think we're both in agreement here.
It's going to be a long time until we see
(03:05):
two percent inflation unless we see a you know, a
massive recession, which will hurt everybody. But I think this
home affordability thing is real, especially for first time home buyers.
I saw recent data Brian that the average homeowner, the
average age of a homeowner in the United States of
America is now forty years of age. That's pretty old.
(03:28):
There might be some reasons for that, which is the
older people. A lot of people have two homes. So
if people own two homes and they're sixty five years old,
that's going to raise the average rate of homeownership. But
you know, younger people trying to get into this market,
get a home, build some equity. You know, obviously they're
(03:49):
facing sky high in a lot of cases, student debt,
interest and student loan balances. You know, it's tricky for
these younger folks to get on their feet and get
into this home market. And supply supply of homes is
still an issue as well. So I don't think the
Federal Reserve is going to be able to fix those
kind of systemic issues in the economy. It'll be interested
(04:11):
to see, interesting to see how this all plays out
in twenty twenty six and beyond.
Speaker 3 (04:16):
Yeah, so let's look at some of the other underlying
factors here.
Speaker 2 (04:19):
So, for example, labor market data, we're getting mixed signals
out of the labor market. Recent rises and job openings
suggest some demand for more workers, but hiring is still
a little bit of weak. And to quit rate, which
is a gauge of worker confidence that has dropped sharply.
Speaker 1 (04:32):
That's just literally.
Speaker 2 (04:33):
People walking away from their jobs because they're just lost
faith in the company or for whatever reason, moving on
to something else. In the private sector, employees reportedly cut
about thirty two thousand jobs in November. That's the third
decline in four months. And so there's going to be
increased pressure on the FED to support the economy, which
that speaks to this rate cut. Maybe let's get businesses
more interested in growth again. And at the same time,
(04:55):
the fed's decision makers always faced uncertainty with government shutdowns disrupted.
Speaker 3 (04:59):
Key data releases.
Speaker 2 (05:00):
We talk about that every day anymore, are we really
are we shooting blind here?
Speaker 1 (05:04):
You know?
Speaker 2 (05:04):
But with without the same data we've had in the past,
but so mixed signals coming out of the other other markets.
I think that's why we're gonna kind of hold steady
on interest rates here for a little bit in terms
of the demand the bond side of this.
Speaker 1 (05:15):
Yeah, and you and I talked to, you know, with
Andy Stout about this earlier in the week in terms
of what kind of data we're actually gonna see come
out between now in the next FED meeting in January.
And there's gonna be a lot of data coming out
to your point that the FED has not had in
their hands when they had to sit in a room
and make, you know, the decision they made today. So
(05:36):
you know, there's gonna be a lot of data coming
down the pike here in the next few weeks. And
you know, in terms of movement of what anybody should
be doing as far as their asset allocation now between
now and the end of the year as a result
of this FED, uh, you know rate cut today, I
don't see any need to make any you know, massive
(05:57):
moves here other than just check the interest rate on
short term savings accounts and CDs and all that, because
the trend continues to come down, and as some of
these CDs mature, or Treasury bills mature, or other short
term instruments that you have mature, you want to be
you know, just not automatically rolling these things. Sit down
with your fiduciary advisor and map out a plan here
(06:20):
on what the best way is to deploy this month.
You know, moving into twenty twenty six according to your
personal financial plan and goals.
Speaker 3 (06:29):
Yeah, I couldn't agree with that, bob up anymore.
Speaker 2 (06:31):
I mean, I think that every topic we talk about
comes down to how does this affect me?
Speaker 3 (06:36):
Well, what was your plan to begin with?
Speaker 2 (06:37):
So make sure you understand what your resources are and
what you're trying to do with them, and then you
can start to think about those guys.
Speaker 1 (06:42):
All right, let's get into something that we can control,
because you and I can't control what the Federal Reserve does.
But this next story is interesting, and I know it's
something you and I are dealing with literally every day
right now here in the month of December with our clients.
And this is the race to get these required minimum
distributions from iras taken care of before the clock strikes
(07:07):
midnight on December thirty first. And for folks that don't
get this rm D done, you know you're looking at
twenty five percent penalties from the IRS. Talk about a
recent survey from Fidelity, which which is very interesting and
it confirms what I'm seeing personally was some of my
clients as I scramble around and get some of this
(07:27):
stuff done between now and the end of the year.
Speaker 2 (07:29):
Yeah, this isn't too surprising to me because you know
what this is. This is what we do during this
time of year. We all know, all advisors know how
many clients they have who have iras and are of
our require minimum distribution age or it's an inherited IRA,
a little different situation, but the same same net got
to get it done by New Year's eve. So we've
all got our lists of clients we have to get
in touch with and make sure that we're on top
of that. But anyway, Fidelity came out with a study,
(07:52):
and obviously Fidelity is one of the trillionaires, one of
the biggest custodians out there, so they would know fifty
three percent of Fidelity and who needed a twenty twenty
five RMD hadn't yet taken one, and about twenty nine
percent of those outstanding rmds are from inherited iras. This
data does not consider possible rm ds from a council
without the firms. This is just Fidelity talking about their
(08:13):
own clients, their own assets. Not surprising on the inherited
iras thing because there are some new requirements there. Specifically,
this is the first year where if you are somebody
who inherited an IRA from a deceased person who passed
after twenty twenty, but was themselves of required minimum distribution age,
then yes, you have ten years to liquidate the whole thing.
Speaker 3 (08:34):
But this year there a new rule.
Speaker 2 (08:36):
There is a required minimal distribution that you still have
to take every year. You can't just let it all
go in that case. Remember that the deceased person had
to have been of RMD age themselves. So I'm going
to go ahead and guess that that is news to
a lot of people, which is why Fidelity is seeing
a higher percentage of those overdated rm ds sitting in
(08:56):
those inherited dirays at this point.
Speaker 1 (08:58):
No, Brian, I think you're absolute spot on, and this
is why I asked you to highlight this topic earlier
in the week, and we're gonna harp on it again
for a couple of minutes right now, because you know,
let's face it, we're down to twenty days left in
the year. We got Christmas mixed in there too. People
are not thinking about this stuff. They're thinking about hanging
up their Christmas lights, finishing up their shopping all that.
(09:19):
But this is a big deal. I'm running into it personally.
You know, people think that they just had ten years,
you know, over which they didn't have to touch these inherited iras.
That is not the case. And again to repeat Brian's point,
if the person you inherited this IRA from was at
rm D age on the date that they die, you
(09:41):
do have to take an R and D this year.
Somebody needs to make this calculation and get it done.
And if accounts moved from firm to firm through the year,
which is what I'm running into right now, in a
few cases, I'm tracking down that December thirty one, twenty
twenty four that from my clients, so I can go
(10:02):
in and manually make this calculation and make sure this
gets done. You know, I implore everyone out there please
check for any inherited iras, make sure you've done this
work here, to take the RMD because again the penalties
are severe twenty five percent penalty taxes from the irs.
If you don't get this done.
Speaker 3 (10:21):
Yeah, big big deal here.
Speaker 2 (10:23):
And remember this, some of this is changing from the
Secure Act two point zero. There was a period here
where some of these iras got a sort of a
period of relief, if you will. That was through the
year twenty four. Well it's not twenty four anymore. It's
twenty five. So make sure you've got time. You've got
several weeks, but make sure that you know what you're doing.
Now you have options here, right. A lot of people
(10:43):
get spooked by this though. First of all, some people
out there think that the require minimum distribution dollar amount
is what the IRS is going to take.
Speaker 3 (10:49):
That's not the case. That's not the taxes.
Speaker 2 (10:52):
That's how much money you must remove from the tax shelter,
and that dollar amount.
Speaker 3 (10:56):
Will be taxed at whatever the rest of your bracket is.
Speaker 2 (10:58):
It gets lumped in with your Social Security and your
pension income, and your investment income any other type of
income you have, and then that's how you'll know what
you'll be tax on it. But you don't have to
the buyer es could care less what you do with it.
You don't have to take it out stick in the bank.
A lot of people do that, which I think is silly,
because now you're just liquidating your portfolio systematically because the
IRSTLS you have to. So what a lot of clients
(11:19):
do if they don't need the money. I mean, first
of all, if you need the money, you got an
expense coming up, you know sometime next few months, we'll
just take it stick in the bank and then write
a check out of it and just be happy that
you were able to do that. But if you truly
did not need the money for that, then you can
move it to simply a taxable account. Because then the
next question we get is, well should I do this
early in the year. What's the right timing for this? Well,
if we're going to keep it invested and just move
it from the IRA to the taxable account, really doesn't
(11:42):
make any difference because it's only going to be uninvested
for maybe a twenty four hour period while it moves
from one account to another.
Speaker 3 (11:47):
While you fulfill your obligation there.
Speaker 2 (11:49):
So just figure out exactly how the rules work, what
do you need, and then don't worry too much about it.
It's not nearly as complicated and scary as it might seem.
Speaker 1 (11:57):
Here's to go with advice. It's simple, is simple. Tonight
take your R and D by December thirty first, or
face possible severe financial consequences. Coming up next, we've got
our take on acclaim out there by one fund manager
affirm that passive investing is quote unquote worse than Marxism.
(12:19):
Listening to Simply Money presented by all Worth Financial on
fifty five KRC, the talk station.
Speaker 3 (12:32):
A US.
Speaker 4 (12:34):
You're listening to Simply Money presented by all Worth Financial.
I'm Bob sponseller along with Brian James. If you can't
listen to Simply Money every night, subscribe and get our
daily podcast. Just search Simply Money on the iHeart app
or wherever you find your podcast. Straight ahead of six
forty three, we're answering questions about managing appreciated stock, surprise
(12:55):
taxes from mutual fund and a bond ladder. That's U
seeing the anxiety some and more. All right, love that
bumper music from Joe Strecker, our executive producer. Back in
the USSR, Brian, there is one active management firm out
there that is implying that passive investing is the same
(13:19):
thing as Marxism. I find some of these headline stories comical,
but rather than go off on a rant, tell us
what's really going.
Speaker 1 (13:30):
On with this story.
Speaker 2 (13:31):
What's really going on with this is financial pornography. It's
something to read, it's something that catches our eye. We
need to talk about these things because there are people
out there who will react to these types of headlines
and make decisions based off of it because it is
an eye catching headline. And we are definitely in a mood,
you know, we're in a mood where we're looking for
anything because things just feel dicey. You know, everybody's on
(13:51):
edge politically and all that other stuff, and it just
feels like, actually, this is one of those times where
there is a danger of action feeling so much more
comfortable than in action. Therefore, I have to find something
to do, a button to push, a lever to pull,
and you know, sometimes these crazy headlines get people to
move when they should.
Speaker 3 (14:07):
So anyway, here's what's going on. This is a gentleman
who is.
Speaker 2 (14:13):
The co head of institutional Solutions for Alliance Bernstein. This
is not a small company, big old mutual fun company
been around for a long time in ago Fraser Jenkins,
and his argument is that the rise of passive investments
and investing has morphed into something a little more dangerous
than just a simple cost savvy trend.
Speaker 3 (14:29):
Right.
Speaker 2 (14:29):
This is what he's talking about is indexing here and
the idea of buying you know, super cheap type investments
that just follow an index as opposed to someone sitting
on the top of a pile of money making decisions
about this is a good investment, this is a bad investment.
In other words, simply own a broad swath of the market.
So his point is that this type of passive investing
that has gotten so big over the past several decades
creates a dystopian symbiosis, right, that's that's what That's a word.
Speaker 3 (14:52):
That I woke up thinking I was going to be
talking about today.
Speaker 2 (14:55):
It would because it dominates, It allows a few of
these megacap tech companies to dominate another.
Speaker 3 (15:00):
It's a bigger you are, the more money you get.
Speaker 2 (15:01):
Because every time somebody gets paid, you know they're they're
gonna put money into their four O one K and
that's gonna flow ultimately into an index fund. And indexes
are largely cap weighted, which means the biggest companies get
the lion's share of the assets there.
Speaker 3 (15:15):
So when trillions flow.
Speaker 2 (15:16):
Into these index funds ETFs, these are these are the
funds that simply mirror index weights, and that's mostly what
you're seeing in your four O one ks nowadays. That
capital just ends up getting dumped into these bigger companies,
just regardless of how they how well they.
Speaker 3 (15:27):
Actually perform or innovate. You know, this is already very measurable.
Speaker 2 (15:31):
So we we talk often on these airwaves, Bob, about
how some of these major industries, the top ten companies
can account for roughly forty percent of the total value
of the index, depending on the one you're talking about.
Speaker 1 (15:42):
Yeah, and and just to cut the chase here, all right,
you and I have been covering this topic for weeks
and months. We don't we just don't use these complex,
multi syllable words like you know, mister Fraser Jenkins, Yeah, yeah,
stuff like that, you know. But again, we've talked about
the concentration in the S and P five hundred. To
(16:03):
get a little bit serious here for a minute, because
you and I have been talking about this for weeks
and months now. It's we're not heading into a Marxist economy.
We're just calling out the fact that the S and
P five hundred does not give you quite the diversified
risk adjusted acid allocation that it used to. I mean,
(16:25):
you mentioned ten companies accounting for roughly forty percent of
the indexes value. Shoot, Brian, I think about the top
three or four companies account for ten percent of the
indexes value. So the point here is you can't just
sit there, well you can, but you know, the advice
is not just to sit there with an S and
(16:46):
P five hundred index fund with your entire portfolio, because
if and when and it always happens, even to the
best sectors, the best companies, market corrections happen, and I
think people in for are a rude awakening. If and
when we get a correction in some of these big,
big cap tech stocks, their portfolio is gonna have way
(17:08):
more volatility to the downside. People don't mind upside volatility,
by the way, They only get concerned when the market
goes down. And it's a reason to have a more
diversified portfolio with things other than just big cap indicies.
That's really the point here, and it's a point we've
been driving home for weeks and months now.
Speaker 2 (17:28):
Yeah, So let's take this from the point of view
of a fiduciary advisor, which is what you should be
working with anyway, if you're gonna pay anybody.
Speaker 3 (17:34):
To help you with this stuff.
Speaker 2 (17:35):
So, I mean, there's a little bit of merit to this,
and you know, in a sense really, what we're saying
here is the biggest companies out there are going to
essentially get the most dollars regardless of whether they appear
to be on the right track or not, just because
that's you know, that that's just the way those market
cap weighted in nex ones work. So but that doesn't
mean that that this is bad for every investor. You know,
(17:57):
some people just don't have time, interest resources picking vigual stocks.
Passive index funds are going to remain a low cost, diversified,
efficient way. Nobody's gonna go out there and dump everything
they own and suddenly switch into active investing. And you know,
I'm not exactly sure what mister Fraser Jenkins's ultimate goal
was in getting this out there, other than they got
our attention. We're talking about it, so I guess there's
(18:19):
a little bit of publicity involved in it.
Speaker 1 (18:21):
Well, his goal is he works for an actively managed
mutual fund company, So the goal is to drive more
assets into actively managed funds. That's what I think the
goal is. But please continue, Brian.
Speaker 3 (18:32):
No, I would agree with you. I mean, at the
end of the day, all these talking every.
Speaker 1 (18:35):
Time these people go on television or write these articles,
they're they're they're talking their book and sometimes rarely they're
trying to help individual investors, but they're always trying to
help their book or their business.
Speaker 5 (18:48):
Uh.
Speaker 1 (18:48):
There, I did slip in a rant there, but go ahead, Brian.
Speaker 2 (18:51):
No, no, no, you rant away. This is that is
the season for Bob Randt. So no, I know, I
get it anyway. At the end of the day. This
is just another example of those types of articles that
grab your tension and make you feel like this might
be that black and white thing that I should grab
a hold of and look at and go make some
changes so that I can scratch the itch that I
should be doing more than I am. And a lot
of people have that concern. It's not without merit. We
(19:12):
all feel like we should be doing more than we are.
We worry that we're going to miss opportunities. However, getting
too wound up about that risk of missing perceived opportunities
can actually cost you in other opportunities.
Speaker 3 (19:24):
Sometimes the opportunity is to leave it alone.
Speaker 1 (19:27):
Here's the all Worth advice. Work with a fiduciary advisor
to tailor your investment allocation to your goals, your risk
and your long term plan. Whatever the components of that
portfolio need to be from fake delivery text to luxury knockoffs.
We're breaking down the latest holiday scams you need to
(19:47):
watch out for. 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 pres outed by all Worth
Financial on Bobs Fonseller along with Brian James, joined tonight
by the president of the Greater Cincinnati Better Business Bureau,
(20:08):
our good friend, Josile Erlik Josial Happy holidays to you,
and we know we can only imagine with Black Friday
and Cyber Monday and everybody just you know, pounding away
at their smartphones looking at the latest deals that are
out there. These scammers are taking full advantage or trying to.
(20:29):
So update this here with about fourteen days left before Christmas.
What's going on out there in scam world. I can
only imagine what you're finding, what you and your team
are finding out there.
Speaker 5 (20:42):
So the first bit of advice is don't let your
guard down. Now. Things are crazy out there. This is
a season everybody's doing a ton of online shopping, more
packages are being delivered. Scammers know this and they use
this chaos to trick you with the fake package scam.
Here's how it works. You get a text that looks
(21:02):
like it's from a delivery driver saying they can't find
your house and please call them if you hesitate. They're
going to try to convince you that the package is
a gift from your friend or a relative. You know
it's a package you don't want to miss, so of
course you're going to cooperate so you can get this package.
These guys are going to sound really friendly, really engaging,
(21:23):
really professional. It's just a way to disarm you and
win your trust. It's just an act to get you
to disclose your personal information. In another version of the scam,
you get a text claiming that your package can't be
delivered because your address isn't accurate, or you need to
reschedule delivery, or you have to pay a delivery fee
for some odd reason. The text tells you to click
(21:45):
a link and correct whatever the issue is. The link
is going to take you to a very official looking
website with a very official looking ups FedEx or Amazon
logo and very polished language.
Speaker 3 (21:58):
Desil credit card numbers. What are they trying to steal here?
Speaker 5 (22:03):
They're strying to get your personal information whatever. They can
get your name, your address to, your phone number, your
website or not, your email address, and your credit card information.
Hence the you have to pay a delivery fee if
you click the link. The scammers are going to collect
this information, possibly your credit card information as well, or
(22:26):
maybe the link is going to install malware that's going
to monitor your online activity, including your passwords, your bank password,
your credit card password, and your contact list. They will
have access to that. The fact is there is no package.
It's all just a phishing attempt, so scammers can steal
your identity or worse. Keep track of what you've ordered
(22:48):
and when it's coming, and remember that delivery companies won't
send you random texts or ask for your personal information.
Speaker 3 (22:57):
Now.
Speaker 5 (22:57):
Another thing that's really hot right now and has been
for a number of years is the secret Sister gift exchange.
It's another scam that keeps getting recycled, especially this time
of year. It may sound fun and harmless. You send
one gift and supposedly you're going to get a few
dozen gifts in return. These gift exchanges are often seemed
(23:18):
maybe you're supposed to send bottles of wine and you're
going to get a whole arsenal of wine back, or
maybe you're supposed to send just a small ten dollars gift.
Another popular version is you send a dog toy and
you get dog toys in return. Here's the problem. It's
just an online version of the old fashioned pyramid scheme.
(23:39):
Back then, you mailed a dollar to the first name
on the list. You added your name to the bottom
of the list. You sent the letter to ten friends,
and they were supposed to do the same.
Speaker 2 (23:49):
Joseille, you lost me after arsenal of wine, and I'm
furiously googling for how I can sign up for an
arsenal of wine.
Speaker 3 (23:56):
So this is a safe thing, right, I really got excited.
Speaker 5 (24:00):
It's absolutely not safe. It's a pyramid scheme. It's a
pyramid scheme. People at the top of the pyramid might
get the gifts, might get the wine. Eventually, you're going
to run out of people to provide the wine.
Speaker 1 (24:14):
So Bryant, I have to interject here, take your focus
off of wine here and focus on the big picture
secret sister, because I know for a fact, if either
you or myself ever have a secret sister of any kind,
We're gonna end up getting divorced and it's just not
worth it. So this is another example of why I'm
so blessed to have been married to a great wife,
(24:35):
wife for thirty five years, who does virtually all of
our Christmas shopping. I will never fall prey to the
Sister Sister, Secret, Sister scam. Joe Sial. Please continue, though,
I will.
Speaker 5 (24:49):
Tell you that your advice is probably even more important
than anything I could say right now. Don't fall victims. Now,
let's not mention that this is also illegal. Postal inspectors
consider this gambling. You could be fined or even charged
with mail fraud, which might not be as bad as
having to deal with your wife. But let's keep going.
(25:10):
We have the luxury brand scam. Luxury and tech brands
are a big target for scammers, especially now think Apple, Coach, Nintendo,
you name it. Names people trust. These guys are creating
fake websites and ads that look almost identical to the
real thing. They use the fancy logos, the professional language,
(25:31):
even fake customer reviews to make it all seem legitimate.
Here's what's going on here. You see a social media
ad for a flash sale on a designer bag or
the latest gaming console at a price that you can't
pass up. You click, you land on the site that
looks official, You order, and you pay, but it never arrives,
(25:52):
or worse, you get a cheap knockoff and your credit
card info is now in the hands of scammers. BBBS
Scam Tracker has received thousands of reports of these fake
websites impersonating luxury brands, and they ramp up this time
of year, so be careful. The best way to protect
yourself is to stick to official websites, avoid clicking on
(26:14):
ads for deals that seem too good to be true.
The caution here is if you're looking for the official site,
it likely isn't going to be the first one that
pops up on a Google list, so check the web
address closely before you assume that you're on the right website.
Speaker 1 (26:32):
All right, great advice as always, Josio, thank you so
much for joining us tonight. You're listening to Simply Money
presented by Allworth Financial on fifty five KRC the talkstation.
You're listening to Simply Money presented by Allworth Financial on
pop Sponsller along with Brian James. You have a financial
(26:53):
question you'd like for us to answer. There's a red
button you can click if you're listening to the show
on the iHeart app. Simply we're hoard your question and
it will come straight to us. Paul and Mason leads
us off tonight. Brian, he says, our taxes are starting
to become a bigger drag than fees. How do you
calculate your portfolio's tax alpha to see if tax efficiency
(27:17):
is adding or subtracting value each year from his portfolio?
Great question.
Speaker 2 (27:23):
Yeah, so tax alpha, you know, that's another term that
gets financial term he gets thrown around a little bit.
Speaker 3 (27:27):
But what that's talking about, that's.
Speaker 2 (27:28):
The portion of your portfolio is ready to return that
comes from smart tax management rather than just market performance
ups and downs of whatever the investments are doing.
Speaker 3 (27:36):
Inside.
Speaker 2 (27:37):
So a lot of people watch fees and performance. That's
you know, kind of the most some of the most
impactful things you want to pay attention to when it
comes to performance. But as that account gets bigger, taxes
become that hidden cost that can overwhelm both of those.
Depending on what's happening, especially this time of year, we
got capital gain distribution, So think of it this way. First,
off measure that pre tax return for the year, What
did the portfolio earn before any distributions were tax there's
(27:58):
your baseline. Then figure out what your after tax return was.
It's gonna be a little tough to do this till
you've actually done your taxes. This is going to be
a sharpen some pencils and and and find some time
to sit at the table and do this, but you're
what you're going to do is make an estimate of
what taxes are going to get paid off off of
the dividends that have been generated, interest and realize gains.
All those things get taxed, probably differently at different rates,
(28:20):
but you can use your real marginal rates, don't use
averages on those, and you can get those off of
your tax return. You should hopefully have a summary that
shows what you roughly what your effective rates are off.
Speaker 3 (28:30):
Of your various income sources.
Speaker 2 (28:32):
And then if you reinvestment, remember you pretend you have
to pay the tax anyway, even though you're not seeing
the dollars, you still have to pay the taxes on
the stuff that's getting reinvested. And then third, compare that
after tax return with a tax aware benchmarks. So for example,
take the same index or the same allocation you've been
investing in and adjust it for the taxes. It would
reasonably incur. You can find sources out there for this
on the internet. And then so therefore the difference between
(28:55):
your after tax return and that benchmarks after tax return
is whatever your tax alpha is. Is it worth me
doing whatever I'm doing? Am I getting the benefit of
the of this investment process after taxes? So hopefully that helps.
Again a little bit of work there, but it sounds
like you wanted to. We were looking for a little
bit of work there, Paul, So hopefully that helps. Now
we're going to move back to a move down to
a Rich and fort Wright and he's asking about the
(29:16):
S and P five hundred. He's always used that as
a best as a benchmark, but now he's got a
portfolio of bonds, alternatives, global stocks.
Speaker 3 (29:23):
He just owns a lot more than just the largest five.
Speaker 2 (29:25):
Hundred companies in the United States, and so he's wondering,
is that still the best benchmark? What do you do
when you have a multi asset portfolio in terms of
benchmarking about.
Speaker 1 (29:34):
Well, speaking of doing a little work again, great question
from Rich. You know, here's my take on this, they're there.
The reason people want to look at benchmarks typically or
twofold one. They want to evaluate fees. Are the managers
that are you know, managing certain components of your you
know account? Are they adding value net of the fees
(29:55):
they're charging to manage the money? And then the second
how how is my overall performance doing? So I agree
with you Rich if you've got a more diversified portfolio,
and good for you for doing that. Yeah, you don't
want to just compare this to the S and P
five hundred. That's kind of comparing apples to oranges, you
know at this point, especially if you've got a significant
(30:17):
allocation to bonds and alternatives. So there's a couple of
ways to do this. One you can peel out each
component of your portfolio, say the bond component or the
large cap growth component, and go compare that to a
given index for that asset class and see if you're
getting value add you know, out of that asset class.
(30:39):
The other thing that most people never talk about, and
what you know, Brian and I always like to remind
people of, is the reason you're doing diversification in the
first place, and an asset allocation strategy is not just
to manage return, it's to manage risk adjusted return. But
back to your question, the other thing you can do
(30:59):
is there are blended bendmarks out there, if you can
go find one that's roughly similar to how your portfolio
is constructed. You know, there are sixty forties, seventy thirty
benchmarks out there if you're interested just to evaluate performance.
That's another thing that you can do out there. It
takes a little work, takes a little searching, but those
(31:21):
are the two reasons people you know usually benchmark their portfolio,
and a couple of ideas or ways to do that.
Hope that helps. Let's go to Evan and Edgewood. He says,
We've got a lot of appreciated positions in our taxable account,
and I'm worried about the compounding effect of capital gains drag.
How do you unwind gains strategically, Brian without blowing up
(31:46):
your tax return?
Speaker 2 (31:48):
Yeah, you know, Evan, what you're running into is what
a lot of people see is that every time, you know,
I'm built up a sizeable portfolio in a taxable account,
and maybe I want to pull some money out to
buy a car or do something with a family, or
accomplish some funny as a goal, playoff, some debt or whatever.
But the very first thing I get smacked in the
face with is what's something that feels like a tax penalty?
If I want to access my own money, I'm going
to have to write a check to the irs and
(32:09):
give them a cut of it. This leads to people
just ignoring those assets, but it doesn't make any sense.
You're going to pay taxes one way or another, and
this money is not here to stare at, so you
may as well figure out what the impact is.
Speaker 3 (32:19):
I think that's what Evans is running into there.
Speaker 2 (32:21):
So the challenge here is that, of course that every
sale feels like that tax penalty, but the real risk
is there is not letting that stop you from executing
your financial plans. So start with diagnosing what the real
issue is. Make sure you know what each position's cost
basis is unrealized gain and get that down to the
tax lot. You probably have more than one tax lot
in each of these. The tax lot is literally that
(32:42):
you know you reinvested a dividend in March of two
thousand and seven, and that that particular pile of shares
is now worth this gain or that loss or whatever.
Make sure you understand that level, and then layer your
sales over calendar years, harvest just enough each year to
fill those lower brackets, but stop just before your marginal
rate jumps. So this is an ideal time to do it.
You've got a few weeks left in this year, but
(33:05):
just in a month, we're going to be in a
second tax year, and if you tack on another twelve months,
we'll be in a third. So literally over a thirteen
month time period right now, Evan, you can get into
three different tax years. But it all starts with knowing
what you're trying to accomplish in the first place. Don't
don't face this with the idea of I must not
have any taxes. Taxes or evil. They're gonna You're gonna
pay taxes no matter what. You're not looking to avoid,
(33:26):
you're looking to mitigate. So take advantage of the time
that you have to go ahead and spread that into
those three different tax years.
Speaker 1 (33:34):
Coming up next, Brian has his bottom line from a
practical standpoint on how to navigate this ever changing interest
rate environment. You're listening to Simply Money presented by all
Worth Financial on fifty five KRC. The talk station you're
listening to Simply Money presided by all Worth Financial. I'm
(33:55):
Bob sponsorller along with Brian James. And speaking of Brian James,
Brian has his bottom line with some great practical common
sense advice on how to navigate this seemingly ever changing
interest rate environment. What do you have for us tonight, Brian.
Speaker 2 (34:11):
Well, we talked earlier in the show Bob about you know,
today's interest rate cut and which is which is not
the first one of the year.
Speaker 3 (34:17):
We've had a few now.
Speaker 2 (34:18):
And you know a lot of people are really looking
forward to getting back to those two to three percent
mortgages when rate interest rates were on the floor and
stayed there for a very long time. Well, you know
what we're seeing now is that that that is not
likely to return. The market doesn't believe that we're headed
back that way in general, but that doesn't mean that
there aren't There isn't a way to be thinking about this.
(34:40):
I want to talk today about the new interest rate normal.
Are we investing where for a world where four to
five percent might be here to stay for these more
liquid types of assets, and so about for about fifteen
years ever since the financial crisis of two thousand and eight,
we had this ultra low rate environment, right, so, mortgages
were three percent, savings accounts were under one, and people's
thinking about the ability to earn money on their depository assets.
(35:03):
Bonds were barely yielding more than inflation. But after that
inflation shock of twenty one to twenty three, we kind
of entered a different environment. Federal Reserve started fighting with inflation,
and now this is resulting in a place where interest
rates may stay structurally higher. In practice, this means that
four to five percent short term rates may be the norm,
not the exception for years. So the Fed has slowed
(35:24):
but not stopped rate cuts.
Speaker 3 (35:26):
Right, we didn't.
Speaker 2 (35:26):
We haven't come screaming back down to zero like we
thought we might after all the political rhetoric in a
presidential year. Bond markets are recalibrating this so ten year
treasuries have spent months between four point three, say four
point seven percent. Those are levels that we have not
seen for the last decade. Banks across the region have
finally begun raising deposit rates. I remember I was sitting
(35:47):
in the room, Bob, when one of the leaders of
a local bank said, we are not going to be
the first to raise interest rates on depository accounts just
because rates are going up. This goes back ten twelve
years when we had a headfake on interest rates going up.
But anyway, banks were really, really in love with those
low rates, and as soon as we got a spike
in mortgage rates, they could earn a little bit more
in the spread. And so but now they're finally reacting.
(36:08):
Those big banks, the big brick and mortars, are finally
raising depository rates. That's how you know that those are
the last ones to go corporate borrowing costs or resetting
a little bit higher, and you know that kind of
changes the calculus for stocks because that's going to change profitability.
So what should you be doing about this, Well, make
sure you rebuild that safe bucket with real yield. For
the first time in years, high quality bonds are producing
(36:30):
positive real income, meaning even inflation adjusted, it's still a
better better outcome for you. Short term treasury CDs money markets,
you can still get four sometimes five percent in those,
you know, but I would think about locking some of
that in if you've got a significant pile of cash
that you've considered your emergency fund and you've been enjoying
the fact that it's completely liquid and you're getting that
four to five percent. Well, we are seeing declines and
(36:52):
rates and that might be closer to three percent now.
So you might consider locking that in up put some
kind of maybe a CD ladder or something together one, two,
three years, so that you know, as we continue to
go down in interest rates, if they continue to slip downward,
you're still going to have something locked in over a
period of time. Bob, Are you seeing the same thing,
same concerns from from your clients.
Speaker 3 (37:11):
Yeah.
Speaker 1 (37:11):
I think the main thing here is to just pay attention.
And we've talked about this. I mean, and I'm not
slamming banks here. I mean they run a business like
everyone else. They got to make a profit. And you
you already brought up you know the fact that their
profit in general comes from the spread between short term
rates that they grant to depositors and longer term rates
(37:32):
that they charge to people to borrow money. And I
think banks, like everyone else, have to compete here, and
they don't give if they if they give people too
low of a rate, people are going to take their
money out of that bank and put it somewhere else,
and we've seen that happen here over the last few years.
And I think banks are in a tough spot right
now because you know, they still they still want to
(37:55):
and need to make money, but you know it's a
competitive environment out there. So again, don't just sit there
and ignore your short term savings and checking shop it
around and work with your advisor to make sure you
don't have too much money sitting in cash at a
very low interest rate if your financial plan allows for it.
And to Bryan's point, if you're willing to take a
(38:17):
little bit more risk on the credit side and get
into some of these attractive bond opportunities and ladder the maturities,
there's a way to juice that yield a little bit
without putting too much risk into your portfolio. Thanks for
listening tonight. You've been listening to Simply Money, presented by
all Worth Financial on fifty five KRC, the talk station
Simply Money News
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