December 12, 2025 • 38 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian are joined by a very special guest: Dr. Loretta Mester, former President of the Federal Reserve Bank of Cleveland and one of the most influential voices in monetary policy. Alongside Allworth's Chief Investment Officer Andy Stout, the team gets Dr. Mester’s exclusive insight on the Fed’s recent rate cut, where inflation is really headed, and what she sees for the economy in 2026. Plus, she pulls back the curtain on what it’s actually like inside a divided Fed when key policy decisions are being made. Later, Bob and Brian break down why your once-smart financial tools—like whole life insurance, muni bonds, or annuities—could now be holding you back. And, could 12-year-olds be the next big investors? They explore a surprising trend among today’s youngest market participants.
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Speaker 1 (00:05):
Tonight perspective on the latest Federal Reserve interest rate decision
that you literally won't get anywhere else locally. You're listening
to Simply Money, presented by Alworth Talon, Bob Sponseller along
with Brian James and Alworth Chief Investment Officer Andy Stout.
We're also joined tonight and this is a real treat
by Loretta Mester, who served as the President of the
(00:29):
Federal Reserve Bank of Cleveland for many years, where she
literally cast votes the directly shaped interest rate policy and
therefore the direction of the United States economy. And just
as a reminder, the Cleveland Fed has a branch right
here in downtown Cincinnati. Doctor Mester currently is a full
adjunct professor of finance at the Wharton School of the
(00:51):
University of Pennsylvania. Prior to joining the Cleveland Fed, she
served at the Federal Reserve Bank of Philadelphia, so a
ton of experience. It's here visiting with us tonight, Doctor Mester.
It is a real treat to have you with us
once again tonight. Thank you so much for making time
for us, especially during this busy holiday season.
Speaker 2 (01:12):
Well thanks for having me on your show.
Speaker 3 (01:14):
Hey, doctor mister, this is a Andy steu here, really
excited to have you. And we all know that the
FED cut rates yesterday by a quarter point. Obviously, we
have a significant data vacuum from the shutdown. We know generally, though,
that inflation is still well above the Fed's target. There
are cracks in the labor market, and some argue we
(01:35):
haven't even seen the full effects of tariffs, while others
believe differently. So it's clear the FED is in a
tough spot when it comes to its mandates of stable
prices and full employment. With that general backdrop, do you
think the FED should have cut rates yesterday?
Speaker 4 (01:51):
Well, you know, it's hard to pick help in the
meeting because you don't sort of hear the whole discussion.
Speaker 2 (01:58):
But I guess my feeling is I'm a.
Speaker 4 (02:00):
Little more concerned about inflation than perhaps share pal is
at this point. If you listen to his press conference,
he really thinks that most of what's happening in the
inflation realm is terror related, and then if you know,
once that passes through, if you will, inflation will be
(02:22):
on its way back to two percent. I'm a little
more concerned about that because I think not all of
what's going on in the inflation part of the FEDS
do Manaid is terror related. If you look at service
prices and takeout housing, which of course we know is
housing prices have been rooted down, or at least housing.
Speaker 2 (02:41):
Services part of inflation is moving down. The rest of
it has been really sticky.
Speaker 4 (02:47):
And some of those prices have been moving up, not
moving down. So I'm a little more concerned about inflation
than it appears share Palace at this point.
Speaker 2 (02:57):
And I'm also thinking that a lot of what we're
seeing the lame market.
Speaker 4 (03:00):
I agree that, you know, the labor market is not
necessarily the way we want it. It's pretty static right now.
You know, young people very difficult to find a job.
And what's unusual is higher educated people are getting more.
Speaker 2 (03:17):
Softening in the labor market than typical.
Speaker 4 (03:21):
So again it's a softer labor market. But a lot
of it has to do with the fact that labor
supply is constrained by immigration policy and people not entering
the labor force, and that's really not anything monetary policy,
industry policy can address, you.
Speaker 3 (03:39):
Know, the fat that's a very good point with inflation.
I mean, there's definitely differing views out there, and that's
you know, why the FED is in a really tough spot.
I mean, the FED has a tough job, right, but
to their credit, you know, you avoided double dip recession.
They've essentially navigated a soft landing, which pretty much every
talking head out there said it was going to be impossible.
(04:02):
When the interest rate hikes began. It's like, oh, and
the recessions right around the corner. But you know, recessions happen, right,
I mean, business cycles are normal, and of course a
lot can change over the next over the next few weeks,
few months, and things can change pretty quickly, you know,
with the labor market where it is may somewhat tenuous,
(04:23):
recessions still elevated, and some call rates still restrictive, you know,
some think they may not be restrictive enough.
Speaker 1 (04:31):
You know.
Speaker 3 (04:32):
With that, you know, in economic environment in right now,
do you think there's a real chance that we do
see a recession over the next you know, six months
or twelve months. I mean, the further you go out,
obviously the higher the chances are. But what do you
see as like the real economic risks out there?
Speaker 4 (04:51):
So I honestly think that we might see growth pick
up next early next year in the first part half
of the year not go into recession.
Speaker 2 (05:01):
I don't have a recession in my.
Speaker 4 (05:04):
Forecast. And if you actually look, the FED put out
their projections for the economy for the next three years,
and they actually revised up their forecast for next year
in terms of growth.
Speaker 2 (05:18):
And part of that's because.
Speaker 4 (05:20):
You know, in spite of all the uncertainty out there,
firms have been investing a lot of its AI investment
but in other things as well, and the consumers held
up better than I.
Speaker 2 (05:32):
Think many expected.
Speaker 4 (05:34):
The consumer too, They're spending you know, lower income consumers
are feeling the real burden of higher prices. So that's unfortunate.
And that's why I think inflation.
Speaker 2 (05:48):
Should still keep you know, that needs to keep both
parts of its mandate and its finder.
Speaker 4 (05:53):
But I think that the economy is going to do,
you know, start to actually improve next year. Part of
it it's because the Fed has lowered its rate, and
part of it's because you know, if you think about
the stock market and other financial conditions.
Speaker 2 (06:08):
They've eased off this year.
Speaker 4 (06:10):
Stock market prices have gone up and that helps wealth,
so as you would know being the investment officer.
Speaker 2 (06:16):
So again, you.
Speaker 4 (06:17):
Know, I think we're going to see some pick up
in the economy next year. We could still see the
labor market, you know, continue to soften gradually, and that's
what the FED has to navigate. It has to balance
the inflation risk versus the labor market risks, and it
is a challenging economy for the FED to navigate. But
(06:39):
it has done well. I think you're right in the
sense that the most dire predictions have not come to
pass and things are actually looking up. I think people
will be a little surprised to get bigger refunds also
from their taxes next.
Speaker 2 (06:53):
Year because of the.
Speaker 4 (06:55):
Government policy of the you know, the Big Beautiful Bill
or whatever they've now that tax relief and I think
people will see it a little bit bigger refund and
that also will help at least boy confidence a little bit.
Consumer confidence has been low, but that'll help.
Speaker 5 (07:14):
Yeah.
Speaker 3 (07:15):
I think that makes a lot of sense. And the
Big Beautiful Bill, I mean, that's some very very interesting
marketing because you hear it and you're like okay, and
you hear over and over and again you're like, Okay,
maybe it is big and beautiful. To your point, the
tax refunds, I think will be a big boon, especially
in Q one, and you also have the government reopening.
There's going to be some rebound effects from that. Totally
(07:38):
on board with everything you're saying. Here's honestly the thing
I'm most excited to talk to you about, and that's
a little bit of inside baseball. Yesterday's meeting showed some
real fractures inside the FAD. There were three formal descents obviously,
you know, two against and one for you know something.
Even more then, there were what we call in total,
six silent descents. So that's in the form of the
(07:59):
top lot where members who didn't want to cut still
went along with it, and some of those obviously were
non voting members. So you take that for what it is.
But regardless, that looks like a committee that is deeply
split on the policy path. We can just dissect this
in many, many ways, but what I'm interested in from
your experience is what is it like behind the curtain?
(08:23):
In other words, what are those conversations actually like when
the chair is pushing a direction that many members don't support.
Speaker 4 (08:33):
Well, you know, it's a great collegial group, and you know,
it's not like.
Speaker 2 (08:38):
One of these drag out, you know fights.
Speaker 4 (08:41):
You know, you know, I don't agree with you, and
it's very polite, and it's very much based on the
rationale for whatever policy choice you're supporting.
Speaker 2 (08:53):
And you know, the chair is very good.
Speaker 4 (08:55):
Chair pala is very good about listening and allowing everyone
and to speak, and then they have to come together,
because the way the committee works is you have to
come together and come up with a consensus that has
the right you know, economic.
Speaker 2 (09:11):
Rationale for it.
Speaker 4 (09:13):
And you know, some people who see it differently and
feel strongly enough about it will decide to dissent.
Speaker 2 (09:21):
And I've just sent it. In my time at the FAT,
It's never something I really wanted to do.
Speaker 4 (09:25):
I wanted to support, you know, the consensusy, but sometimes
you feel like you need to lodge.
Speaker 2 (09:32):
A descent because you have different views.
Speaker 4 (09:35):
And frankly, as we just were talking about how challenging
this economic environment is, with you know, downward pressure on
one part of the mandate, the employment part of the mandate,
downward risk and upward pressure on prices and inflation the
other part of the mandate, I would be more worried
if we weren't.
Speaker 2 (09:56):
Seeing some descents around that.
Speaker 4 (09:59):
Table, because as then you'd be worried that they all
are seeing things exactly the same way. They're not thinking,
you know that other possibilities could occur. In this environment,
you should always be thinking about, well, what if the
economy doesn't evolve the way I expect it to.
Speaker 2 (10:15):
You don't want to be caught out that way. And
so seeing that they're you know, it's manifesting itself with
some descents.
Speaker 4 (10:23):
And as you say, some people lodge no change in
the funds rate this year, which obviously meant that.
Speaker 2 (10:30):
They weren't really in support.
Speaker 4 (10:33):
Of a cut at the December meeting. Still that's a
good thing in this environment. You want to see that
kind of.
Speaker 2 (10:41):
Of healthy debate, if you will, because it.
Speaker 4 (10:44):
Means they're thinking about alternatives of healthy economy could perform,
and therefore keeping their policy well positioned to once we
know how the economy is involving, to be able to
change policy they have to or keep policy where it
is if they have to, given how the economy is evolving.
(11:06):
So I think of it as positive, and it isn't.
It isn't really contentious in the meetings, but people will
say their views about not only how they're seeing the economy,
which is the first go round around that table when
you get a chance to speak, but also how they
see policy. And it's the other thing for people to
(11:26):
understand is it's not always about the current decision. It's
really about, Okay, how are you expecting the economy to
evolve over the next six months, and how do you
see policy needing to be set to sort of achieve
those dual mandate goals? And so you're always thinking about
(11:47):
not only to the current decision, but the path of
policy going forward.
Speaker 1 (11:52):
All Right, fascinating insight on how the sausage is literally
made at the Federal Reserve. The good news here is
doctor Mester is going to hold over for another segment
here as Christmas comes early for Andy Stout, he gets
to send spend another seven to eight minutes with a
Fed governor. Coming up next, you're listening to Simply Money
presented by all Worth Chelon fifty five KRC the talk station.
(12:23):
You're listening to Simply Money presented by all Worth Financial
I Bob Sponsller along with Brian James and all Worth
Chief Investment Officer Andy Stout. And thankfully we get to
spend another few minutes with doctor Loretta Mester, who served
as president of the Federal Reserve Bank of Cleveland for years.
Fascinating discussion that we're going to continue right along here
(12:46):
for a few more minutes. Andy, the floor is yours, sir.
Speaker 3 (12:50):
All right, thanks again, doctor Mester for joining us. I
know you're very busy. I was watching you yesterday an
interview you did where you were discussing how the next
BET chair because as it may not be too widely know,
but I mean, obviously it's it's still pretty widely known
that Chair Palce term ends in May of twenty twenty six,
(13:10):
and we're heading into a year when the White House
has openly discussed steering the FED more dubbishly. And historically,
you know, the FED independence has been a you know,
it's just been a stable right, it just has been
what it is. And there's been some pressure from President
Trump on the current BET chair, and there's been talks
about who the next Betchair might be. I mean, it
(13:31):
seems like right now that Bessent appears to be the
front runner, but you know, things can change. My question
for you, how worried are you that the political expectations
are going to shape the Fed's decisions next year?
Speaker 2 (13:50):
Well, you know, the FED got people on the FED
that I know none of them will allow politics to
guide their decisions.
Speaker 4 (14:03):
I mean, I don't know Stephen Maren, but he's putting
out at least economic reason rationales for his viewpoint, and
of course he was appointed temporarily to a governorship.
Speaker 2 (14:14):
But all the people around the.
Speaker 4 (14:16):
Table who were there when I was there, I know
they will not allow politics into that room. And that
has been the tradition of the FED. You know, you've
got to make monetary policy decisions based on what you
think is the best policy to achieve the congressionally mandated
goals of maximum employment and price stability, and you know
(14:40):
you don't let politics guide.
Speaker 2 (14:42):
Your decisions, and rightfully so. I mean, it would be
a very.
Speaker 4 (14:47):
Bad for the economy if political considerations were influencing FED decisions.
Speaker 2 (14:55):
Because the FED has to look long term.
Speaker 4 (14:57):
It's policy, monetary policy. It doesn't affect the economy quickly.
It takes some time, so they have to be looking out,
you know, down you know, how's the economy expected to
evolve and there's always risks around that, and how what
are the uncertainties affecting the economy and sending policy to
achieve price tovily imaction, unemployment and having short run political
(15:23):
considerations affect monetary policy. It's been shown in country after
country and study after study. When that happens, it actually
means that you have higher inflation, which nobody benefits from,
and you don't really get a better labor market. It
doesn't improve the labor market side of things. So it's
(15:45):
not a win if you have politics under that room.
Speaker 2 (15:49):
In fact, you're better off having.
Speaker 4 (15:51):
What's called independence and monetary policy making meaning and dependent
from political considerations, and you end up with the better
economy as a result.
Speaker 2 (16:01):
So whether that.
Speaker 4 (16:04):
Traditional end or not with new appointees, I can't tell
you because I can't see in the future.
Speaker 2 (16:10):
But this, this FED right has been.
Speaker 4 (16:15):
Based its decisions on economics and not politics, and it's
to everyone's benefit of that continues.
Speaker 3 (16:24):
Yeah, that makes a lot of sense to me. One
more kind of related follow up question regarding independence to
a degree when the FED is making these decisions, and
obviously there's been some talk of you know what they
did yesterday with q wasn't really QB. I agree with that,
But the government has a growing deficit. Does the FED
take into consideration treasury issuance when it considers possibly restarting
(16:49):
quantitative easing for real, as opposed to i'll call a
you know, a minor adjustment what they did yesterday. What
do those conversation look like. Does the treasury issuance come
into consideration at all when you think about what the
FED is doing for possibly buying bonds in the future.
Speaker 4 (17:09):
Yeah, so when the FED has done quantitative easing, and
you're exactly right, what.
Speaker 2 (17:13):
They announced yesterday is not quantitative easing. It's really reserved management.
Speaker 4 (17:19):
And we can talk about that if you if you
think anyone would be interested in it really a technic No.
Speaker 2 (17:25):
Probably not that.
Speaker 3 (17:26):
I'm just really curious about, like, do they do they
Does the treasury issuance come into play at all? Because
we know they're going to issue a lot more bonds.
Speaker 4 (17:34):
Now, what what comes into play is, you know, once
interest rates, once the Fed is lowered interest rates to
zero and it feels that it still needs to add
more monetary accommodation because the economy is really not in
a good place, it will buy rasuries and some other
kinds of securities, mortgage backed securities in order to really
(17:56):
ease financial conditions to another, to another words, support that
it doesn't take into account these kind of fiscal you know,
determinants in terms of sort of issuance.
Speaker 2 (18:09):
You know.
Speaker 4 (18:09):
Where it does have to think about what's happening in
the financial markets is when it has to intervene because
they're just there's disruption in the financial markets, and sometimes
that disruption has shown up in the treasury market. If
you remember, at the beginning of the pandemic, right there
was very much a seizing up in financial markets, including
(18:33):
the all important, the globally important treasure US treasury market.
And then the FED does intervene to try to ease
that pressure by buying assets.
Speaker 2 (18:43):
But that's not monetary policy.
Speaker 4 (18:45):
That's about financial stability and market functioning. And so I
know it's confusing because it's sort of the same tool, right,
buying assets, you know, financial assets, but it's for a
different purpose. And that's where you'll have to look at
what's happening in the financial market to see whether it's
necessary for the SAID.
Speaker 2 (19:06):
To intervene or not because of market dysfunction.
Speaker 4 (19:09):
But when it's about que quantitative easing to support the economy,
that's not about.
Speaker 2 (19:16):
The amount of treasuries out there.
Speaker 4 (19:18):
That's about the economy isn't performing well and if that
needs to add more monetary accommodation to support the economy.
Speaker 1 (19:26):
All right, doctor Mester, We're going to leave it there tonight.
We want to be very respectful of your time and
we so appreciate you joining us tonight. Thanks so much again,
and we hope you have a wonderful holiday season.
Speaker 4 (19:38):
Well, it's a pleasure to be with you, and I
wish you and all your listeners of wonderful holiday season
as well.
Speaker 1 (19:45):
Thank you, doctor mister. The investment you love ten years
ago could now be quietly draining your wealth, even if
it's been good for you in the past. You're listening
to Simply Money presented by all Worth Financial on fifty
five KRC the talk station. You're listening to Simply Money
(20:05):
presented by all Worth Financial on Bob Sponseller along with
Brian James. You know that feeling when you've had the
same car for a decade. It's reliable, it's familiar, but
one day you realize, eh, maybe this thing is costing
me more than it's worth. Well, your financial tools can
act in the same way, Brian. Let's walk through a
(20:25):
couple of examples.
Speaker 5 (20:27):
Yeah, a lot of people have, you know, bring in
their statements.
Speaker 6 (20:29):
When we do a full financial plan, you know, bring
on a new client or whatever, we kind of get
the garbage bag full of every piece of paper that
was every cent and let's just go through and figure
out what matters and what doesn't. So one of these
things is often whole life insurance, which is often sold
as a way to build cash value and lock in
a death benefit.
Speaker 5 (20:47):
And for some it can make sense.
Speaker 6 (20:49):
But now that you're sixty five, your kids are grown,
and darn at all, you didn't die, so the death
benefit maybe isn't quite as necessary as it used to be.
Maybe the estate is under the tax limit, which is
ginormous nowadays, right talking eleven million dollars per person, So
maybe that's not a thing for you and yourself insured,
meaning you've just got enough of your own assets to
cover those needs. So we see that very frequently, Bob,
(21:09):
sometimes with you know, maybe somebody has two two to
four million dollars in net worth and they've got a
whole life policy they bought in their forties when it
made sense to have such a thing. They don't need
it anymore, but they're so emotionally tied to it. Because
they've paid into it for so long and pulling the
money out feels like a defeat. Not to mention, I
know there's taxes in there somewhere. I don't understand how
they work, but that just makes me want to ignore
all of it.
Speaker 1 (21:30):
Well, the good thing about the death benefit on these
policies is they are tax free. But I think to
the point you're making, as that cash value continues to grow,
and look as people get into their seventies and eighties,
that cash value in that policy can grow up to
very close to the death benefit amount. So it kind
of turns into a tax free return on your money.
(21:51):
And there's not a whole lot of leverage in there anymore.
And perhaps, you know, depending on everyone's situation, perhaps that
asset could be used differently. I think that it's the
point you're making. You've talked about this, Brian oftentimes on
the show. Sometimes you can convert this policy into a
long term care kind of doing double duty, and that
(22:11):
that can make sense for some folks. Yeah, other things
you can.
Speaker 5 (22:15):
Do, Yeah, do it's gonna say, let's drill into that
little bit.
Speaker 6 (22:18):
Just make sure people understand, because that's usually the first
thing that that we go to if you've got a
life insurance policy with a decent amount of cash value
in it.
Speaker 5 (22:25):
First of all, it wasn't a mistake.
Speaker 6 (22:27):
You bought it when you need a death benefit, the
kids were young, and now you just don't need it anymore.
So what what is a way we could redeploy those
assets into something I actually do need. You can always
pull the cash out and stick it in your pocket
and do whatever you want to do. That's always on
the table, but you're going to get taxed as income
ordinary income on whatever the gain has been, you know,
and maybe that's not ideal anyway, if you've already got
enough cash in other places. So yeah, what Bob's referring
(22:48):
to there is something called a ten thirty five exchange,
which is a tax free transfer of a pile of
money inside one life insurance policy that goes to another.
And in this intent, you would be looking for a
policy that's got a long term care rid on it
still a life insurance policy, so there'd still be some
kind of minimal death benefit, but that's not its main
role anymore. Now it's pivoting to cover long term care.
So this can be a way to take some assets
(23:10):
that felt untouchable and also unnecessary if we don't need
death benefit, and put it into something that will make
you sleep a little better at night because you'll know
that you have coverage for something that may actually happen
to you, that you could need, and you will have
done it in a tax free manner, just filled out
a bunch of paperwork and taken some tests to do it,
So that can be worth looking into it.
Speaker 1 (23:28):
Another thing to look at is a bond portfolio. Sometimes
people come into the office, Brian, and they've held bonds,
you know, individual bonds for years and years and years,
and then in this example we're talking about municipal bonds,
I mean ten years ago. UNI bonds might have made
a lot of sense for high income investors. You know,
obviously the income is federally tax free, and if they
(23:51):
are state of Ohio or state of Kentucky or wherever
you live, you know, if you buy them in the
state you live, state income tax free. Yes, people love
the words tax free, but you've got to always evaluate
what we'll call yield to maturity, what are we really
getting out of this on a net basis Once you
factor in the fact that they're tax free, and factor
(24:11):
in inflation and factor in the current yield environment. I mean,
let's say you've been sitting on ten year mini bonds
paying two to two and a half percent. Well, right
now US treasuries are yielding nearly four. So it just
makes sense to take a look at that bond portfolio.
And this is why we're big proponents of laddering bond portfolios.
So you don't tie up a bunch of money for
(24:34):
ten years and then you can't really pivot very easily sometimes,
you know, if you need to or want to with
a changing interest rate environment. So we got to evaluate
both the yield and maturity, and we got to factor
that in in light of a given client's tax situation.
And a lot of times people just put this on
autopilot and don't look at it, and they're literally leaving
(24:56):
money on the table.
Speaker 6 (24:57):
Yeah, and on the assumption that they're poking the IR
in the eye. And sometimes for some people that's the goal.
They might be in an eight percent effective tax bracket,
but they're still getting tax free income and they're willing
to sacrifice.
Speaker 5 (25:07):
It makes no sense to me, but to each their own.
Speaker 6 (25:09):
So something else that we find out in sometimes in
back in the deep in the financial closet is an
old annuity that was bought purchase ten to fifteen, maybe
twenty years ago.
Speaker 5 (25:18):
These can be very tricky. The word annuity is like
the word kleenex.
Speaker 6 (25:20):
It covers every single brand out there, and sometimes it
gets a bad rap. There are lots of flavors, right,
so fixed annuities, variablenudies, index buffer. Sometimes you work for
a company that gave you a pension and they call
it an annuity.
Speaker 5 (25:32):
That's a little bit different. But but here's a common scenario.
Speaker 6 (25:35):
You might have bought a variable annuity with some pretty
high fees back in two thousand and nine because you
were reacting to two thousand and eight. Annuities come along
with some guarantees, and for a lot of people that
felt like a smart thing to do after market like
two thousand and eight. But now we've been through the ringer.
We survived O eight. We saw twenty two come around,
and it didn't. While it was equally as crazy, it
didn't feel as intense. And I can say that as
an advisor who answered the phone. Oh eight was a
(25:56):
lot scarier than twenty two. But now you know, so
you're comfort with that, or maybe there's a there's a
living benefit rider that you're not even using on it,
paying for guarantees you no longer need because your portfolio
has grown so much. So you know, here's what this
could look like. There might be a three hundred thousand
dollars annuity out there. You're paying close to three percent
and fees on it, whether you know it or not.
Haven't added money in years. Your plan shows you really
(26:16):
didn't need the income rider anyway. And I would love
to hear the first insurance companies say that one of
their one of their annuities went to zero and the
annuity rider kicked in. I don't think those that ever
happens mathematically anyway. Good advisor is going to walk you
through a tax efficient exit strategy which does not include
let's dump all this, pay the taxes and just eat that,
but it can mean over time it might be a
(26:37):
better way to kind of liquidate out of things to
reduce those fees. Simplify your retirement income situation too.
Speaker 1 (26:43):
Here's the all Worth advice. What was once a smart
investment might not be smart right now or smart forever.
The advice here is to review all of your tools
in your toolbox regularly with a fiduciary advisor to make
sure everything you've got still fits your current needs and
goals of your financial plan. Next, we'll tackle your real
(27:04):
life money questions, from structured products to diversification myth and
why a set it and forget it approach might be
doing your portfolio more harm than good. 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
(27:25):
by all Worth Financial on Bob Sponsller 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. If you're listening on the
iHeart app, simply record your question and of course it
will come straight to us. All right. Brian Mark in
Blue Ash leads us off tonight. He says, our tax
(27:46):
bill keeps creeping up even though our income hasn't changed much.
How do you figure out whether it's our investments, our distributions,
something else causing it. What's causing the damage here, Brian, Well, I've.
Speaker 6 (27:59):
Ben sound a little under the hood, it seems like,
and find that squeaky part. So here's some here's three
things you should be looking for to see if this
is where it's coming from. So, perhaps you've got some
portfolio turnover going on. If you have actively managed mutual
funds in there, those very frequently distribute capital gains right
around this time of year. This is literally happening now.
It's almost always a December type of arrangement because mutual
(28:21):
funds are required by law to distribute any capital gains
they've generated during the year. And this may happen whether
you yourself sold shares of the fund. There are holdings inside
the fund that we're talking about. So look back at
last year's ten ninety nine DIIV. It's probably in the
stack of papers that you gave to your accountant or
uploaded to TurboTax or whatever. Without looking at the details
ten ninety nine di IV. Focus on box two A.
(28:42):
That's your capital gain distributions. If that line is rising
over the years, then now you know it's your portfolio,
not your spending that's driving the tax bill. So also
embedded gains can become realized too. So if you trim
positions or rebalanced even small trades, right, maybe you pulled
the trigger when the market got a little crazy back
in April when we panicked about tariffs briefly, and you
might have rebalanced at that point. That's not a bad thing,
(29:05):
but that activity probably resulted in some gains. So for
that one, you're gonna want to look at scheduled D
year over year are your realized gains? This is where
you are selling, not where it's been passed through to you.
You proactively sold something that's scheduled D. And another one
taxable income from distribution. So if you've got bond funds,
rates and other high yielding equity funds out there, those
can increase ordinary income exposure as well. So again, go
(29:28):
through your tax reports that are coming off of your investment,
your investment statements, and figure out where and what type
of income is coming.
Speaker 5 (29:34):
Through Rachel Westchester.
Speaker 6 (29:36):
She says they're debating downsizing, but she's just not ready
emotionally to leave that house, Bob. So she wants to
know how how have other people made financial decisions when
the math and the heart disagree.
Speaker 1 (29:46):
Rachel's a bit of a poet, well, wonderful question. Rachel
and Brian feel free to weigh in here, but here's
my take on first, and I always tell people, especially
in this situation, know your why. Here's what I mean.
What are you trying to accomplish. Are you really hoping
to come out of this with pulling some equity out
(30:06):
of the house you're going to sell and result in
living in a lower cost house that frees up some
money for investment, or are you just simply looking to
get into a newer home. Know your why? And here's
why I bring this up. A lot of times people
think they're going to quote unquote downsize, move into a
smaller home, smaller footprint, but when you factor all the
(30:28):
costs in, I rarely see people actually walk away spending
less money in this situation. So Rachel, I'd say sit
down with your husband and really talk about what we're
really trying to accomplish here, and make sure you price
out ahead of time where you think you're going to
go or want to go in terms of a living situation,
(30:48):
and what that's really going to cost, and make sure
you're not surprised on the back end, because at the
end of the day, especially if you love the home
and you're emotionally tied to it, and that's where a
lot of memories have been made, and that's all great
stuff that we don't just want to sweep under the
rug and forget about. Make sure there's actually a benefit
coming out of making this move if you're gonna give
(31:10):
up some things emotionally in terms of memories. Hope that
makes sense, Brian. Anything to add there, because I'm sure
this comes up for you know, for you with your
clients as well.
Speaker 6 (31:19):
You know, but I don't know if you remember the
old movie City Slickers with Billy Crystal, and I remember
one of the big points of that was the big
conclusion from it was everybody needs to find that one
thing that matters most of them. So you figure out
what it is, and then all of your other decisions
should somehow support that one thing what is most important
to me.
Speaker 5 (31:36):
I think that's what you just said, saying yeah, it's.
Speaker 1 (31:39):
It's another way of saying no, you're why, you know,
what are we trying to accomplish? I love that, Brian.
All right. Moving on to Tom in Montgomery, he says,
I'm hearing a lot about structured products that quote unquote
buffer downside risk. How do you figure out whether the
partition is worth giving up upside in the way of
capped caped returns.
Speaker 6 (32:00):
Yeah, well, like anything, like any of these financial tools,
they've got their place, but sometimes they can be very
very specific. None of these things is a panacea that
everybody has to own. So the first off, a buffer
is never ever free. Anything that quote unquote absorbs the
first ten to twenty percent of losses has to mathematically
give up something, which is usually participation in strong upmarkets.
So the real question is whether the investor is being
(32:21):
fairly compensated for having sacrificed that in the first place.
So the first thing you want to do when you're
looking at these things is figure out what the buffer
size is. For example, is it going to cover the
first fifteen percent of losses, twenty percent, whatever?
Speaker 5 (32:32):
What is the outcome period?
Speaker 6 (32:33):
You have to understand that, right, these are not things
you should buy and hold and just permanently sit on.
Speaker 5 (32:38):
You need to pay attention. You may not trade them.
Speaker 6 (32:40):
That's not what I'm saying either, But these aren't things
that you just throw in there and sit on it
for twenty years. So that might be a twelve to
twenty four month period or possibly something else. What index
is it tracking s? And P five hundred is obviously
by far the most common. There's also the wrestle two
thousand and some of the larger broader market indexes too.
And then compare that cap to history. So let's say
the cap is a lie seven percent for the year.
(33:01):
We'll compare that to long term returns s and p's
average annual gain is about ten percent, But half of
the market's wealth creation historically BOB comes in that handful
of years that return fifteen percent of more. If you
have a low cap, that means you're giving up a
disproportionate share of the good years to protect against only
part of the bad ones. So I think these are valuable.
They do serve a purpose. But at the same time,
(33:21):
you are sacrificing something. If you are someone who just
gets annoyed and grumbles and maybe drops a bomb on
every now and then when you see that the financial headlines,
but you don't panic and you don't act on it.
Buffer may not be necessary. And maybe you know three
security blankets when you only needed one. So just to
understand market history, and I think you might you might
realize you don't need these kinds of things.
Speaker 1 (33:41):
Well, and this is where it makes sense at least
to me to compare a buffer strategy with maybe just
what we talk about on the show all the time,
a bucket strategy. You know, make sure you've got some
safe assets that you can tap into even when we
get a recession or a down market, because having short
term liquidity will give people the emotional and the economic
(34:02):
peace of mind to hopefully ride this out and participate
in those upside gains that you correctly pointed out. You know,
the market doesn't work in a linear fashion. We don't
want to give up those huge up years.
Speaker 4 (34:14):
Uh.
Speaker 1 (34:14):
And that's why you know, different strategies are out there
to look at to protect yourself in the short term.
All Right, there's some surprising data showing more kids and
young adults diving into investing and spending early. Are their
parents applauding them or are they worried? We'll talk about
what We'll talk about that next. You're listening to Simply
Money presented by all Worth Financial on fifty five KRC,
(34:36):
the talk station. You're listening to Simply Money presented by
all Worth Financial on Bob Sponsorller along with Brian James.
Seventy million dollars. That's how much money kids dumped into
the market in twenty twenty five, using an app that
families are now starting to use to help get their
(34:58):
kids started investing. Brian, I love this talk about this
new app that I guess is becoming a thing out there.
Speaker 6 (35:06):
Well, this is just heartwarming, isn't it, Bob. It's the
holiday season. We're talking about the magic of Christmas and
children's shiny happy faces as they talk to Santa Claus
while they're investing on their phone apps online, apparently to
the tune of seventy million dollars.
Speaker 5 (35:21):
Anyway, So, according to the green.
Speaker 6 (35:22):
Light Family Money app, Kids and Teens updated seventeen also
doubled their recurring automated investments. Now that I like because
it's not about taking a tiny pile of money one
time and throwing it into something and hoping it becomes
a bazillion dollars. So anyway, they increase their average by
trade from just under fifty bucks or to just under
fifty bucks from just under forty bucks in twenty twenty four.
(35:43):
So more repeated investments, and we're increasing the amount average
age among these green Light youth investors. It's twelve years old, Bob,
So these kids are getting started early. I don't think
that's a bad thing at all.
Speaker 1 (35:53):
Hey, getting twelve year olds to harness the concept of
dollar cost averaging is great. I think that that is
a good indicator of where we might be headed into
the future, because someone has to pay for my social
Security down the road. So I'm glad to see these
twelve year olds are starting to build. Well what are
these kids investing in, Brian.
Speaker 6 (36:15):
Well, just like any other investor, kids like to pour
money into what they know and love the best, which is,
of course technology. That's been the shiniest object in the
room for decades now. So top individual stockholdings, Bob, among
these kids are AI chip makers and Nvidia iPhone you know,
of course that's Apple, e commerce mammoth, Amazon, and electric
vehicle maker Tesla. Again according to green Light, so they
(36:37):
also heavily invested in the S and P five hundred.
So somebody's behind them and going, yeah, this is cool,
this is fun stuff, but let's at least build a
core of it. And as we've known, and we talk
about ad nauseum, it's about forty percent in technology is
the S and P five hundred these days. So Bitcoin, of course,
no shocker, crypto got some love this year from the teenagers.
There was a bitcoin ETF that jumped to number twelve
on the list of holdings from twenty one according to
(37:00):
what Greenlight has in their system.
Speaker 1 (37:03):
Here's what I love about this story. How are these
families and kids actually using this money? The top five
reasons kids saved in twenty twenty five a car, college education,
a computer, just saving and accumulating the money, and of
course a bicycle. Brian. These kids are actually being told
by their parents, Hey, if you want to, if you
(37:25):
want a bike, go out and save some money, build
it up in an investment account, and then watch the
money accumulate and experience what it's like to actually go
pay for your bike, rather than just having mom and
dad go out and get one for you. I think
this is all healthy stuff. It's just an evolution from
the old past book savings account that I experienced in
(37:47):
the village of Green Hills, walking up to Eagle Savings
and Loan and just throwing my paper route money into account.
Now we're using apps, we're buying crypto, we're buying s
and p ETFs. The whole thing's just evolving. I think
it's good stuff.
Speaker 6 (38:03):
Yeah, I agree too. And let me throw this out
there too. It's the end of the year. People are
looking for gift ideas. Sometimes high school and college kids
can get tough to buy for because they kind of
already have everything and it's just not as easy as
it used to be. Well, and I'm bringing this up
because I frequently get the question of how can I
fund a roth ira for my kid? Well, your kid
has to have earned income. So if they had a
summer job, earned a few three thousand dollars, yeah, maybe
that's the Christmas gift.
Speaker 5 (38:24):
Give them.
Speaker 6 (38:24):
Give them a three thousand dollars in a roth ira,
help them and you watch them do this, help them
place the buy order in some kind of index fund
or something like that. Get them started. But again, as
long as they have earned income, yes, you can do
a roth ira.
Speaker 1 (38:36):
For Thanks for listening tonight. You've been listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
talk station
Tonight perspective on the latest Federal Reserve interest rate decision
that you literally won't get anywhere else locally. You're listening
to Simply Money, presented by Alworth Talon, Bob Sponseller along
with Brian James and Alworth Chief Investment Officer Andy Stout.
We're also joined tonight and this is a real treat
by Loretta Mester, who served as the President of the
(00:29):
Federal Reserve Bank of Cleveland for many years, where she
literally cast votes the directly shaped interest rate policy and
therefore the direction of the United States economy. And just
as a reminder, the Cleveland Fed has a branch right
here in downtown Cincinnati. Doctor Mester currently is a full
adjunct professor of finance at the Wharton School of the
(00:51):
University of Pennsylvania. Prior to joining the Cleveland Fed, she
served at the Federal Reserve Bank of Philadelphia, so a
ton of experience. It's here visiting with us tonight, Doctor Mester.
It is a real treat to have you with us
once again tonight. Thank you so much for making time
for us, especially during this busy holiday season.
Speaker 2 (01:12):
Well thanks for having me on your show.
Speaker 3 (01:14):
Hey, doctor mister, this is a Andy steu here, really
excited to have you. And we all know that the
FED cut rates yesterday by a quarter point. Obviously, we
have a significant data vacuum from the shutdown. We know generally, though,
that inflation is still well above the Fed's target. There
are cracks in the labor market, and some argue we
(01:35):
haven't even seen the full effects of tariffs, while others
believe differently. So it's clear the FED is in a
tough spot when it comes to its mandates of stable
prices and full employment. With that general backdrop, do you
think the FED should have cut rates yesterday?
Speaker 4 (01:51):
Well, you know, it's hard to pick help in the
meeting because you don't sort of hear the whole discussion.
Speaker 2 (01:58):
But I guess my feeling is I'm a.
Speaker 4 (02:00):
Little more concerned about inflation than perhaps share pal is
at this point. If you listen to his press conference,
he really thinks that most of what's happening in the
inflation realm is terror related, and then if you know,
once that passes through, if you will, inflation will be
(02:22):
on its way back to two percent. I'm a little
more concerned about that because I think not all of
what's going on in the inflation part of the FEDS
do Manaid is terror related. If you look at service
prices and takeout housing, which of course we know is
housing prices have been rooted down, or at least housing.
Speaker 2 (02:41):
Services part of inflation is moving down. The rest of
it has been really sticky.
Speaker 4 (02:47):
And some of those prices have been moving up, not
moving down. So I'm a little more concerned about inflation
than it appears share Palace at this point.
Speaker 2 (02:57):
And I'm also thinking that a lot of what we're
seeing the lame market.
Speaker 4 (03:00):
I agree that, you know, the labor market is not
necessarily the way we want it. It's pretty static right now.
You know, young people very difficult to find a job.
And what's unusual is higher educated people are getting more.
Speaker 2 (03:17):
Softening in the labor market than typical.
Speaker 4 (03:21):
So again it's a softer labor market. But a lot
of it has to do with the fact that labor
supply is constrained by immigration policy and people not entering
the labor force, and that's really not anything monetary policy,
industry policy can address, you.
Speaker 3 (03:39):
Know, the fat that's a very good point with inflation.
I mean, there's definitely differing views out there, and that's
you know, why the FED is in a really tough spot.
I mean, the FED has a tough job, right, but
to their credit, you know, you avoided double dip recession.
They've essentially navigated a soft landing, which pretty much every
talking head out there said it was going to be impossible.
(04:02):
When the interest rate hikes began. It's like, oh, and
the recessions right around the corner. But you know, recessions happen, right,
I mean, business cycles are normal, and of course a
lot can change over the next over the next few weeks,
few months, and things can change pretty quickly, you know,
with the labor market where it is may somewhat tenuous,
(04:23):
recessions still elevated, and some call rates still restrictive, you know,
some think they may not be restrictive enough.
Speaker 1 (04:31):
You know.
Speaker 3 (04:32):
With that, you know, in economic environment in right now,
do you think there's a real chance that we do
see a recession over the next you know, six months
or twelve months. I mean, the further you go out,
obviously the higher the chances are. But what do you
see as like the real economic risks out there?
Speaker 4 (04:51):
So I honestly think that we might see growth pick
up next early next year in the first part half
of the year not go into recession.
Speaker 2 (05:01):
I don't have a recession in my.
Speaker 4 (05:04):
Forecast. And if you actually look, the FED put out
their projections for the economy for the next three years,
and they actually revised up their forecast for next year
in terms of growth.
Speaker 2 (05:18):
And part of that's because.
Speaker 4 (05:20):
You know, in spite of all the uncertainty out there,
firms have been investing a lot of its AI investment
but in other things as well, and the consumers held
up better than I.
Speaker 2 (05:32):
Think many expected.
Speaker 4 (05:34):
The consumer too, They're spending you know, lower income consumers
are feeling the real burden of higher prices. So that's unfortunate.
And that's why I think inflation.
Speaker 2 (05:48):
Should still keep you know, that needs to keep both
parts of its mandate and its finder.
Speaker 4 (05:53):
But I think that the economy is going to do,
you know, start to actually improve next year. Part of
it it's because the Fed has lowered its rate, and
part of it's because you know, if you think about
the stock market and other financial conditions.
Speaker 2 (06:08):
They've eased off this year.
Speaker 4 (06:10):
Stock market prices have gone up and that helps wealth,
so as you would know being the investment officer.
Speaker 2 (06:16):
So again, you.
Speaker 4 (06:17):
Know, I think we're going to see some pick up
in the economy next year. We could still see the
labor market, you know, continue to soften gradually, and that's
what the FED has to navigate. It has to balance
the inflation risk versus the labor market risks, and it
is a challenging economy for the FED to navigate. But
(06:39):
it has done well. I think you're right in the
sense that the most dire predictions have not come to
pass and things are actually looking up. I think people
will be a little surprised to get bigger refunds also
from their taxes next.
Speaker 2 (06:53):
Year because of the.
Speaker 4 (06:55):
Government policy of the you know, the Big Beautiful Bill
or whatever they've now that tax relief and I think
people will see it a little bit bigger refund and
that also will help at least boy confidence a little bit.
Consumer confidence has been low, but that'll help.
Speaker 5 (07:14):
Yeah.
Speaker 3 (07:15):
I think that makes a lot of sense. And the
Big Beautiful Bill, I mean, that's some very very interesting
marketing because you hear it and you're like okay, and
you hear over and over and again you're like, Okay,
maybe it is big and beautiful. To your point, the
tax refunds, I think will be a big boon, especially
in Q one, and you also have the government reopening.
There's going to be some rebound effects from that. Totally
(07:38):
on board with everything you're saying. Here's honestly the thing
I'm most excited to talk to you about, and that's
a little bit of inside baseball. Yesterday's meeting showed some
real fractures inside the FAD. There were three formal descents obviously,
you know, two against and one for you know something.
Even more then, there were what we call in total,
six silent descents. So that's in the form of the
(07:59):
top lot where members who didn't want to cut still
went along with it, and some of those obviously were
non voting members. So you take that for what it is.
But regardless, that looks like a committee that is deeply
split on the policy path. We can just dissect this
in many, many ways, but what I'm interested in from
your experience is what is it like behind the curtain?
(08:23):
In other words, what are those conversations actually like when
the chair is pushing a direction that many members don't support.
Speaker 4 (08:33):
Well, you know, it's a great collegial group, and you know,
it's not like.
Speaker 2 (08:38):
One of these drag out, you know fights.
Speaker 4 (08:41):
You know, you know, I don't agree with you, and
it's very polite, and it's very much based on the
rationale for whatever policy choice you're supporting.
Speaker 2 (08:53):
And you know, the chair is very good.
Speaker 4 (08:55):
Chair pala is very good about listening and allowing everyone
and to speak, and then they have to come together,
because the way the committee works is you have to
come together and come up with a consensus that has
the right you know, economic.
Speaker 2 (09:11):
Rationale for it.
Speaker 4 (09:13):
And you know, some people who see it differently and
feel strongly enough about it will decide to dissent.
Speaker 2 (09:21):
And I've just sent it. In my time at the FAT,
It's never something I really wanted to do.
Speaker 4 (09:25):
I wanted to support, you know, the consensusy, but sometimes
you feel like you need to lodge.
Speaker 2 (09:32):
A descent because you have different views.
Speaker 4 (09:35):
And frankly, as we just were talking about how challenging
this economic environment is, with you know, downward pressure on
one part of the mandate, the employment part of the mandate,
downward risk and upward pressure on prices and inflation the
other part of the mandate, I would be more worried
if we weren't.
Speaker 2 (09:56):
Seeing some descents around that.
Speaker 4 (09:59):
Table, because as then you'd be worried that they all
are seeing things exactly the same way. They're not thinking,
you know that other possibilities could occur. In this environment,
you should always be thinking about, well, what if the
economy doesn't evolve the way I expect it to.
Speaker 2 (10:15):
You don't want to be caught out that way. And
so seeing that they're you know, it's manifesting itself with
some descents.
Speaker 4 (10:23):
And as you say, some people lodge no change in
the funds rate this year, which obviously meant that.
Speaker 2 (10:30):
They weren't really in support.
Speaker 4 (10:33):
Of a cut at the December meeting. Still that's a
good thing in this environment. You want to see that
kind of.
Speaker 2 (10:41):
Of healthy debate, if you will, because it.
Speaker 4 (10:44):
Means they're thinking about alternatives of healthy economy could perform,
and therefore keeping their policy well positioned to once we
know how the economy is involving, to be able to
change policy they have to or keep policy where it
is if they have to, given how the economy is evolving.
(11:06):
So I think of it as positive, and it isn't.
It isn't really contentious in the meetings, but people will
say their views about not only how they're seeing the economy,
which is the first go round around that table when
you get a chance to speak, but also how they
see policy. And it's the other thing for people to
(11:26):
understand is it's not always about the current decision. It's
really about, Okay, how are you expecting the economy to
evolve over the next six months, and how do you
see policy needing to be set to sort of achieve
those dual mandate goals? And so you're always thinking about
(11:47):
not only to the current decision, but the path of
policy going forward.
Speaker 1 (11:52):
All Right, fascinating insight on how the sausage is literally
made at the Federal Reserve. The good news here is
doctor Mester is going to hold over for another segment
here as Christmas comes early for Andy Stout, he gets
to send spend another seven to eight minutes with a
Fed governor. Coming up next, you're listening to Simply Money
presented by all Worth Chelon fifty five KRC the talk station.
(12:23):
You're listening to Simply Money presented by all Worth Financial
I Bob Sponsller along with Brian James and all Worth
Chief Investment Officer Andy Stout. And thankfully we get to
spend another few minutes with doctor Loretta Mester, who served
as president of the Federal Reserve Bank of Cleveland for years.
Fascinating discussion that we're going to continue right along here
(12:46):
for a few more minutes. Andy, the floor is yours, sir.
Speaker 3 (12:50):
All right, thanks again, doctor Mester for joining us. I
know you're very busy. I was watching you yesterday an
interview you did where you were discussing how the next
BET chair because as it may not be too widely know,
but I mean, obviously it's it's still pretty widely known
that Chair Palce term ends in May of twenty twenty six,
(13:10):
and we're heading into a year when the White House
has openly discussed steering the FED more dubbishly. And historically,
you know, the FED independence has been a you know,
it's just been a stable right, it just has been
what it is. And there's been some pressure from President
Trump on the current BET chair, and there's been talks
about who the next Betchair might be. I mean, it
(13:31):
seems like right now that Bessent appears to be the
front runner, but you know, things can change. My question
for you, how worried are you that the political expectations
are going to shape the Fed's decisions next year?
Speaker 2 (13:50):
Well, you know, the FED got people on the FED
that I know none of them will allow politics to
guide their decisions.
Speaker 4 (14:03):
I mean, I don't know Stephen Maren, but he's putting
out at least economic reason rationales for his viewpoint, and
of course he was appointed temporarily to a governorship.
Speaker 2 (14:14):
But all the people around the.
Speaker 4 (14:16):
Table who were there when I was there, I know
they will not allow politics into that room. And that
has been the tradition of the FED. You know, you've
got to make monetary policy decisions based on what you
think is the best policy to achieve the congressionally mandated
goals of maximum employment and price stability, and you know
(14:40):
you don't let politics guide.
Speaker 2 (14:42):
Your decisions, and rightfully so. I mean, it would be
a very.
Speaker 4 (14:47):
Bad for the economy if political considerations were influencing FED decisions.
Speaker 2 (14:55):
Because the FED has to look long term.
Speaker 4 (14:57):
It's policy, monetary policy. It doesn't affect the economy quickly.
It takes some time, so they have to be looking out,
you know, down you know, how's the economy expected to
evolve and there's always risks around that, and how what
are the uncertainties affecting the economy and sending policy to
achieve price tovily imaction, unemployment and having short run political
(15:23):
considerations affect monetary policy. It's been shown in country after
country and study after study. When that happens, it actually
means that you have higher inflation, which nobody benefits from,
and you don't really get a better labor market. It
doesn't improve the labor market side of things. So it's
(15:45):
not a win if you have politics under that room.
Speaker 2 (15:49):
In fact, you're better off having.
Speaker 4 (15:51):
What's called independence and monetary policy making meaning and dependent
from political considerations, and you end up with the better
economy as a result.
Speaker 2 (16:01):
So whether that.
Speaker 4 (16:04):
Traditional end or not with new appointees, I can't tell
you because I can't see in the future.
Speaker 2 (16:10):
But this, this FED right has been.
Speaker 4 (16:15):
Based its decisions on economics and not politics, and it's
to everyone's benefit of that continues.
Speaker 3 (16:24):
Yeah, that makes a lot of sense to me. One
more kind of related follow up question regarding independence to
a degree when the FED is making these decisions, and
obviously there's been some talk of you know what they
did yesterday with q wasn't really QB. I agree with that,
But the government has a growing deficit. Does the FED
take into consideration treasury issuance when it considers possibly restarting
(16:49):
quantitative easing for real, as opposed to i'll call a
you know, a minor adjustment what they did yesterday. What
do those conversation look like. Does the treasury issuance come
into consideration at all when you think about what the
FED is doing for possibly buying bonds in the future.
Speaker 4 (17:09):
Yeah, so when the FED has done quantitative easing, and
you're exactly right, what.
Speaker 2 (17:13):
They announced yesterday is not quantitative easing. It's really reserved management.
Speaker 4 (17:19):
And we can talk about that if you if you
think anyone would be interested in it really a technic No.
Speaker 2 (17:25):
Probably not that.
Speaker 3 (17:26):
I'm just really curious about, like, do they do they
Does the treasury issuance come into play at all? Because
we know they're going to issue a lot more bonds.
Speaker 4 (17:34):
Now, what what comes into play is, you know, once
interest rates, once the Fed is lowered interest rates to
zero and it feels that it still needs to add
more monetary accommodation because the economy is really not in
a good place, it will buy rasuries and some other
kinds of securities, mortgage backed securities in order to really
(17:56):
ease financial conditions to another, to another words, support that
it doesn't take into account these kind of fiscal you know,
determinants in terms of sort of issuance.
Speaker 2 (18:09):
You know.
Speaker 4 (18:09):
Where it does have to think about what's happening in
the financial markets is when it has to intervene because
they're just there's disruption in the financial markets, and sometimes
that disruption has shown up in the treasury market. If
you remember, at the beginning of the pandemic, right there
was very much a seizing up in financial markets, including
(18:33):
the all important, the globally important treasure US treasury market.
And then the FED does intervene to try to ease
that pressure by buying assets.
Speaker 2 (18:43):
But that's not monetary policy.
Speaker 4 (18:45):
That's about financial stability and market functioning. And so I
know it's confusing because it's sort of the same tool, right,
buying assets, you know, financial assets, but it's for a
different purpose. And that's where you'll have to look at
what's happening in the financial market to see whether it's
necessary for the SAID.
Speaker 2 (19:06):
To intervene or not because of market dysfunction.
Speaker 4 (19:09):
But when it's about que quantitative easing to support the economy,
that's not about.
Speaker 2 (19:16):
The amount of treasuries out there.
Speaker 4 (19:18):
That's about the economy isn't performing well and if that
needs to add more monetary accommodation to support the economy.
Speaker 1 (19:26):
All right, doctor Mester, We're going to leave it there tonight.
We want to be very respectful of your time and
we so appreciate you joining us tonight. Thanks so much again,
and we hope you have a wonderful holiday season.
Speaker 4 (19:38):
Well, it's a pleasure to be with you, and I
wish you and all your listeners of wonderful holiday season
as well.
Speaker 1 (19:45):
Thank you, doctor mister. The investment you love ten years
ago could now be quietly draining your wealth, even if
it's been good for you in the past. You're listening
to Simply Money presented by all Worth Financial on fifty
five KRC the talk station. You're listening to Simply Money
(20:05):
presented by all Worth Financial on Bob Sponseller along with
Brian James. You know that feeling when you've had the
same car for a decade. It's reliable, it's familiar, but
one day you realize, eh, maybe this thing is costing
me more than it's worth. Well, your financial tools can
act in the same way, Brian. Let's walk through a
(20:25):
couple of examples.
Speaker 5 (20:27):
Yeah, a lot of people have, you know, bring in
their statements.
Speaker 6 (20:29):
When we do a full financial plan, you know, bring
on a new client or whatever, we kind of get
the garbage bag full of every piece of paper that
was every cent and let's just go through and figure
out what matters and what doesn't. So one of these
things is often whole life insurance, which is often sold
as a way to build cash value and lock in
a death benefit.
Speaker 5 (20:47):
And for some it can make sense.
Speaker 6 (20:49):
But now that you're sixty five, your kids are grown,
and darn at all, you didn't die, so the death
benefit maybe isn't quite as necessary as it used to be.
Maybe the estate is under the tax limit, which is
ginormous nowadays, right talking eleven million dollars per person, So
maybe that's not a thing for you and yourself insured,
meaning you've just got enough of your own assets to
cover those needs. So we see that very frequently, Bob,
(21:09):
sometimes with you know, maybe somebody has two two to
four million dollars in net worth and they've got a
whole life policy they bought in their forties when it
made sense to have such a thing. They don't need
it anymore, but they're so emotionally tied to it. Because
they've paid into it for so long and pulling the
money out feels like a defeat. Not to mention, I
know there's taxes in there somewhere. I don't understand how
they work, but that just makes me want to ignore
all of it.
Speaker 1 (21:30):
Well, the good thing about the death benefit on these
policies is they are tax free. But I think to
the point you're making, as that cash value continues to grow,
and look as people get into their seventies and eighties,
that cash value in that policy can grow up to
very close to the death benefit amount. So it kind
of turns into a tax free return on your money.
(21:51):
And there's not a whole lot of leverage in there anymore.
And perhaps, you know, depending on everyone's situation, perhaps that
asset could be used differently. I think that it's the
point you're making. You've talked about this, Brian oftentimes on
the show. Sometimes you can convert this policy into a
long term care kind of doing double duty, and that
(22:11):
that can make sense for some folks. Yeah, other things
you can.
Speaker 5 (22:15):
Do, Yeah, do it's gonna say, let's drill into that
little bit.
Speaker 6 (22:18):
Just make sure people understand, because that's usually the first
thing that that we go to if you've got a
life insurance policy with a decent amount of cash value
in it.
Speaker 5 (22:25):
First of all, it wasn't a mistake.
Speaker 6 (22:27):
You bought it when you need a death benefit, the
kids were young, and now you just don't need it anymore.
So what what is a way we could redeploy those
assets into something I actually do need. You can always
pull the cash out and stick it in your pocket
and do whatever you want to do. That's always on
the table, but you're going to get taxed as income
ordinary income on whatever the gain has been, you know,
and maybe that's not ideal anyway, if you've already got
enough cash in other places. So yeah, what Bob's referring
(22:48):
to there is something called a ten thirty five exchange,
which is a tax free transfer of a pile of
money inside one life insurance policy that goes to another.
And in this intent, you would be looking for a
policy that's got a long term care rid on it
still a life insurance policy, so there'd still be some
kind of minimal death benefit, but that's not its main
role anymore. Now it's pivoting to cover long term care.
So this can be a way to take some assets
(23:10):
that felt untouchable and also unnecessary if we don't need
death benefit, and put it into something that will make
you sleep a little better at night because you'll know
that you have coverage for something that may actually happen
to you, that you could need, and you will have
done it in a tax free manner, just filled out
a bunch of paperwork and taken some tests to do it,
So that can be worth looking into it.
Speaker 1 (23:28):
Another thing to look at is a bond portfolio. Sometimes
people come into the office, Brian, and they've held bonds,
you know, individual bonds for years and years and years,
and then in this example we're talking about municipal bonds,
I mean ten years ago. UNI bonds might have made
a lot of sense for high income investors. You know,
obviously the income is federally tax free, and if they
(23:51):
are state of Ohio or state of Kentucky or wherever
you live, you know, if you buy them in the
state you live, state income tax free. Yes, people love
the words tax free, but you've got to always evaluate
what we'll call yield to maturity, what are we really
getting out of this on a net basis Once you
factor in the fact that they're tax free, and factor
(24:11):
in inflation and factor in the current yield environment. I mean,
let's say you've been sitting on ten year mini bonds
paying two to two and a half percent. Well, right
now US treasuries are yielding nearly four. So it just
makes sense to take a look at that bond portfolio.
And this is why we're big proponents of laddering bond portfolios.
So you don't tie up a bunch of money for
(24:34):
ten years and then you can't really pivot very easily sometimes,
you know, if you need to or want to with
a changing interest rate environment. So we got to evaluate
both the yield and maturity, and we got to factor
that in in light of a given client's tax situation.
And a lot of times people just put this on
autopilot and don't look at it, and they're literally leaving
(24:56):
money on the table.
Speaker 6 (24:57):
Yeah, and on the assumption that they're poking the IR
in the eye. And sometimes for some people that's the goal.
They might be in an eight percent effective tax bracket,
but they're still getting tax free income and they're willing
to sacrifice.
Speaker 5 (25:07):
It makes no sense to me, but to each their own.
Speaker 6 (25:09):
So something else that we find out in sometimes in
back in the deep in the financial closet is an
old annuity that was bought purchase ten to fifteen, maybe
twenty years ago.
Speaker 5 (25:18):
These can be very tricky. The word annuity is like
the word kleenex.
Speaker 6 (25:20):
It covers every single brand out there, and sometimes it
gets a bad rap. There are lots of flavors, right,
so fixed annuities, variablenudies, index buffer. Sometimes you work for
a company that gave you a pension and they call
it an annuity.
Speaker 5 (25:32):
That's a little bit different. But but here's a common scenario.
Speaker 6 (25:35):
You might have bought a variable annuity with some pretty
high fees back in two thousand and nine because you
were reacting to two thousand and eight. Annuities come along
with some guarantees, and for a lot of people that
felt like a smart thing to do after market like
two thousand and eight. But now we've been through the ringer.
We survived O eight. We saw twenty two come around,
and it didn't. While it was equally as crazy, it
didn't feel as intense. And I can say that as
an advisor who answered the phone. Oh eight was a
(25:56):
lot scarier than twenty two. But now you know, so
you're comfort with that, or maybe there's a there's a
living benefit rider that you're not even using on it,
paying for guarantees you no longer need because your portfolio
has grown so much. So you know, here's what this
could look like. There might be a three hundred thousand
dollars annuity out there. You're paying close to three percent
and fees on it, whether you know it or not.
Haven't added money in years. Your plan shows you really
(26:16):
didn't need the income rider anyway. And I would love
to hear the first insurance companies say that one of
their one of their annuities went to zero and the
annuity rider kicked in. I don't think those that ever
happens mathematically anyway. Good advisor is going to walk you
through a tax efficient exit strategy which does not include
let's dump all this, pay the taxes and just eat that,
but it can mean over time it might be a
(26:37):
better way to kind of liquidate out of things to
reduce those fees. Simplify your retirement income situation too.
Speaker 1 (26:43):
Here's the all Worth advice. What was once a smart
investment might not be smart right now or smart forever.
The advice here is to review all of your tools
in your toolbox regularly with a fiduciary advisor to make
sure everything you've got still fits your current needs and
goals of your financial plan. Next, we'll tackle your real
(27:04):
life money questions, from structured products to diversification myth and
why a set it and forget it approach might be
doing your portfolio more harm than good. 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
(27:25):
by all Worth Financial on Bob Sponsller 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. If you're listening on the
iHeart app, simply record your question and of course it
will come straight to us. All right. Brian Mark in
Blue Ash leads us off tonight. He says, our tax
(27:46):
bill keeps creeping up even though our income hasn't changed much.
How do you figure out whether it's our investments, our distributions,
something else causing it. What's causing the damage here, Brian, Well, I've.
Speaker 6 (27:59):
Ben sound a little under the hood, it seems like,
and find that squeaky part. So here's some here's three
things you should be looking for to see if this
is where it's coming from. So, perhaps you've got some
portfolio turnover going on. If you have actively managed mutual
funds in there, those very frequently distribute capital gains right
around this time of year. This is literally happening now.
It's almost always a December type of arrangement because mutual
(28:21):
funds are required by law to distribute any capital gains
they've generated during the year. And this may happen whether
you yourself sold shares of the fund. There are holdings inside
the fund that we're talking about. So look back at
last year's ten ninety nine DIIV. It's probably in the
stack of papers that you gave to your accountant or
uploaded to TurboTax or whatever. Without looking at the details
ten ninety nine di IV. Focus on box two A.
(28:42):
That's your capital gain distributions. If that line is rising
over the years, then now you know it's your portfolio,
not your spending that's driving the tax bill. So also
embedded gains can become realized too. So if you trim
positions or rebalanced even small trades, right, maybe you pulled
the trigger when the market got a little crazy back
in April when we panicked about tariffs briefly, and you
might have rebalanced at that point. That's not a bad thing,
(29:05):
but that activity probably resulted in some gains. So for
that one, you're gonna want to look at scheduled D
year over year are your realized gains? This is where
you are selling, not where it's been passed through to you.
You proactively sold something that's scheduled D. And another one
taxable income from distribution. So if you've got bond funds,
rates and other high yielding equity funds out there, those
can increase ordinary income exposure as well. So again, go
(29:28):
through your tax reports that are coming off of your investment,
your investment statements, and figure out where and what type
of income is coming.
Speaker 5 (29:34):
Through Rachel Westchester.
Speaker 6 (29:36):
She says they're debating downsizing, but she's just not ready
emotionally to leave that house, Bob. So she wants to
know how how have other people made financial decisions when
the math and the heart disagree.
Speaker 1 (29:46):
Rachel's a bit of a poet, well, wonderful question. Rachel
and Brian feel free to weigh in here, but here's
my take on first, and I always tell people, especially
in this situation, know your why. Here's what I mean.
What are you trying to accomplish. Are you really hoping
to come out of this with pulling some equity out
(30:06):
of the house you're going to sell and result in
living in a lower cost house that frees up some
money for investment, or are you just simply looking to
get into a newer home. Know your why? And here's
why I bring this up. A lot of times people
think they're going to quote unquote downsize, move into a
smaller home, smaller footprint, but when you factor all the
(30:28):
costs in, I rarely see people actually walk away spending
less money in this situation. So Rachel, I'd say sit
down with your husband and really talk about what we're
really trying to accomplish here, and make sure you price
out ahead of time where you think you're going to
go or want to go in terms of a living situation,
(30:48):
and what that's really going to cost, and make sure
you're not surprised on the back end, because at the
end of the day, especially if you love the home
and you're emotionally tied to it, and that's where a
lot of memories have been made, and that's all great
stuff that we don't just want to sweep under the
rug and forget about. Make sure there's actually a benefit
coming out of making this move if you're gonna give
(31:10):
up some things emotionally in terms of memories. Hope that
makes sense, Brian. Anything to add there, because I'm sure
this comes up for you know, for you with your
clients as well.
Speaker 6 (31:19):
You know, but I don't know if you remember the
old movie City Slickers with Billy Crystal, and I remember
one of the big points of that was the big
conclusion from it was everybody needs to find that one
thing that matters most of them. So you figure out
what it is, and then all of your other decisions
should somehow support that one thing what is most important
to me.
Speaker 5 (31:36):
I think that's what you just said, saying yeah, it's.
Speaker 1 (31:39):
It's another way of saying no, you're why, you know,
what are we trying to accomplish? I love that, Brian.
All right. Moving on to Tom in Montgomery, he says,
I'm hearing a lot about structured products that quote unquote
buffer downside risk. How do you figure out whether the
partition is worth giving up upside in the way of
capped caped returns.
Speaker 6 (32:00):
Yeah, well, like anything, like any of these financial tools,
they've got their place, but sometimes they can be very
very specific. None of these things is a panacea that
everybody has to own. So the first off, a buffer
is never ever free. Anything that quote unquote absorbs the
first ten to twenty percent of losses has to mathematically
give up something, which is usually participation in strong upmarkets.
So the real question is whether the investor is being
(32:21):
fairly compensated for having sacrificed that in the first place.
So the first thing you want to do when you're
looking at these things is figure out what the buffer
size is. For example, is it going to cover the
first fifteen percent of losses, twenty percent, whatever?
Speaker 5 (32:32):
What is the outcome period?
Speaker 6 (32:33):
You have to understand that, right, these are not things
you should buy and hold and just permanently sit on.
Speaker 5 (32:38):
You need to pay attention. You may not trade them.
Speaker 6 (32:40):
That's not what I'm saying either, But these aren't things
that you just throw in there and sit on it
for twenty years. So that might be a twelve to
twenty four month period or possibly something else. What index
is it tracking s? And P five hundred is obviously
by far the most common. There's also the wrestle two
thousand and some of the larger broader market indexes too.
And then compare that cap to history. So let's say
the cap is a lie seven percent for the year.
(33:01):
We'll compare that to long term returns s and p's
average annual gain is about ten percent, But half of
the market's wealth creation historically BOB comes in that handful
of years that return fifteen percent of more. If you
have a low cap, that means you're giving up a
disproportionate share of the good years to protect against only
part of the bad ones. So I think these are valuable.
They do serve a purpose. But at the same time,
(33:21):
you are sacrificing something. If you are someone who just
gets annoyed and grumbles and maybe drops a bomb on
every now and then when you see that the financial headlines,
but you don't panic and you don't act on it.
Buffer may not be necessary. And maybe you know three
security blankets when you only needed one. So just to
understand market history, and I think you might you might
realize you don't need these kinds of things.
Speaker 1 (33:41):
Well, and this is where it makes sense at least
to me to compare a buffer strategy with maybe just
what we talk about on the show all the time,
a bucket strategy. You know, make sure you've got some
safe assets that you can tap into even when we
get a recession or a down market, because having short
term liquidity will give people the emotional and the economic
(34:02):
peace of mind to hopefully ride this out and participate
in those upside gains that you correctly pointed out. You know,
the market doesn't work in a linear fashion. We don't
want to give up those huge up years.
Speaker 4 (34:14):
Uh.
Speaker 1 (34:14):
And that's why you know, different strategies are out there
to look at to protect yourself in the short term.
All Right, there's some surprising data showing more kids and
young adults diving into investing and spending early. Are their
parents applauding them or are they worried? We'll talk about
what We'll talk about that next. You're listening to Simply
Money presented by all Worth Financial on fifty five KRC,
(34:36):
the talk station. You're listening to Simply Money presented by
all Worth Financial on Bob Sponsorller along with Brian James.
Seventy million dollars. That's how much money kids dumped into
the market in twenty twenty five, using an app that
families are now starting to use to help get their
(34:58):
kids started investing. Brian, I love this talk about this
new app that I guess is becoming a thing out there.
Speaker 6 (35:06):
Well, this is just heartwarming, isn't it, Bob. It's the
holiday season. We're talking about the magic of Christmas and
children's shiny happy faces as they talk to Santa Claus
while they're investing on their phone apps online, apparently to
the tune of seventy million dollars.
Speaker 5 (35:21):
Anyway, So, according to the green.
Speaker 6 (35:22):
Light Family Money app, Kids and Teens updated seventeen also
doubled their recurring automated investments. Now that I like because
it's not about taking a tiny pile of money one
time and throwing it into something and hoping it becomes
a bazillion dollars. So anyway, they increase their average by
trade from just under fifty bucks or to just under
fifty bucks from just under forty bucks in twenty twenty four.
(35:43):
So more repeated investments, and we're increasing the amount average
age among these green Light youth investors. It's twelve years old, Bob,
So these kids are getting started early. I don't think
that's a bad thing at all.
Speaker 1 (35:53):
Hey, getting twelve year olds to harness the concept of
dollar cost averaging is great. I think that that is
a good indicator of where we might be headed into
the future, because someone has to pay for my social
Security down the road. So I'm glad to see these
twelve year olds are starting to build. Well what are
these kids investing in, Brian.
Speaker 6 (36:15):
Well, just like any other investor, kids like to pour
money into what they know and love the best, which is,
of course technology. That's been the shiniest object in the
room for decades now. So top individual stockholdings, Bob, among
these kids are AI chip makers and Nvidia iPhone you know,
of course that's Apple, e commerce mammoth, Amazon, and electric
vehicle maker Tesla. Again according to green Light, so they
(36:37):
also heavily invested in the S and P five hundred.
So somebody's behind them and going, yeah, this is cool,
this is fun stuff, but let's at least build a
core of it. And as we've known, and we talk
about ad nauseum, it's about forty percent in technology is
the S and P five hundred these days. So Bitcoin, of course,
no shocker, crypto got some love this year from the teenagers.
There was a bitcoin ETF that jumped to number twelve
on the list of holdings from twenty one according to
(37:00):
what Greenlight has in their system.
Speaker 1 (37:03):
Here's what I love about this story. How are these
families and kids actually using this money? The top five
reasons kids saved in twenty twenty five a car, college education,
a computer, just saving and accumulating the money, and of
course a bicycle. Brian. These kids are actually being told
by their parents, Hey, if you want to, if you
(37:25):
want a bike, go out and save some money, build
it up in an investment account, and then watch the
money accumulate and experience what it's like to actually go
pay for your bike, rather than just having mom and
dad go out and get one for you. I think
this is all healthy stuff. It's just an evolution from
the old past book savings account that I experienced in
(37:47):
the village of Green Hills, walking up to Eagle Savings
and Loan and just throwing my paper route money into account.
Now we're using apps, we're buying crypto, we're buying s
and p ETFs. The whole thing's just evolving. I think
it's good stuff.
Speaker 6 (38:03):
Yeah, I agree too. And let me throw this out
there too. It's the end of the year. People are
looking for gift ideas. Sometimes high school and college kids
can get tough to buy for because they kind of
already have everything and it's just not as easy as
it used to be. Well, and I'm bringing this up
because I frequently get the question of how can I
fund a roth ira for my kid? Well, your kid
has to have earned income. So if they had a
summer job, earned a few three thousand dollars, yeah, maybe
that's the Christmas gift.
Speaker 5 (38:24):
Give them.
Speaker 6 (38:24):
Give them a three thousand dollars in a roth ira,
help them and you watch them do this, help them
place the buy order in some kind of index fund
or something like that. Get them started. But again, as
long as they have earned income, yes, you can do
a roth ira.
Speaker 1 (38:36):
For 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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