December 23, 2025 • 39 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian are joined by Allworth’s Chief Investment Officer Andy Stout to unpack why the latest inflation report might not be as positive as it seemed — including how a government shutdown may have warped the data. Plus, what the SEC just approved that could revolutionize how traditional investments are processed, and how Robinhood’s latest move blurs the line between gambling and investing. Later, the guys dig into the generational divide on fixing Social Security and answer your smart money questions — from multi-account withdrawal strategies to understanding bond fund risk.
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Speaker 1 (00:06):
Tonight, skepticism over the latest inflation report, what the government
just approved that could impact markets, and we answer your
pressing money questions. You're listening to simply Money, all Worth
Financial and Bob Spondseller along with Brian James. Well, a
few days ago, people were cheering over the November inflation report.
(00:28):
It was a softer report than any of the economists predicted.
And now there might be a reason why All Wors
Chief investment Officer Andy Stout joins us tonight. Andy, some
are talking about taking issue with the validity of these
latest inflation numbers. What's the deal here, Yeah.
Speaker 2 (00:48):
Let's take a step back and actually look at the data.
When we saw the headline data from the government last week,
it was really good, right. It showed that inflation was
two point seven percent higher over the past year in
core prices, which exclude food and energy, and of course
they matter, but economists look at it. That showed that
prices were two point six percent higher over the past year. Clearly,
(01:11):
when you look at that on a graph, it looks
like the inflation rates moving lower and lower.
Speaker 3 (01:17):
And that's a good thing.
Speaker 2 (01:18):
However, there are so many anomalies in the data. I mean,
you can't ignore it completely, but you certainly don't want
to give it too much credit. The issue really stems
from how they had to handle the data collection. Essentially,
when the government collects the data, they do it in
real time. And guess what, the government was shut down
(01:41):
during October, so they couldn't do a real time collection,
if you will. So what they had to do was
basically they kept October prices flat, so essentially no change
in prices from September to October, and they looked at
what the change with a one month change in November
would have been. So essentially they're kind of like cramming
into two months of actual data just one month of
(02:05):
price changes. Now, this will kind of sort itself out
in December. For most of the inflation data, except for
the biggest category that's shelter inflation and sold inflation is
about thirty five percent of the total CPI or inflation basket.
Speaker 4 (02:24):
Hey Andy, hold my hand and make me feel better
about this, because I am looking at on the BLS
site the percent changes and see this is CPIU, so
all urban consumers. But there are literally three categories that
have anything at all. There's gasoline and there's new vehicles
and used cars and trucks, every single other category for
(02:45):
both October and November, there is no data period. End
of story is that this is what you're referring to, right.
Speaker 2 (02:51):
Well, yes, and now you're looking at the one month change.
So there's not going to be a one month change
for October or November because there's no Tober data. This
data that you see on the BLS which is the
Bureau of Labor Statistics site, that's data that they can't
actually collect by looking at the sticker prices from you know,
various retailers, if you will, they can see what car
(03:12):
prices are, like you were saying, but a lot of
the data like Shelter, is based on surveys where they
reach out to individuals and to see what the rent
is of certain properties and things like that and to
figure it out. Now, the thing with rent, which is
thirty five percent of total inflation, we're not going to
see any clean data on that probably now because of
(03:32):
this anomaly. Probably at least it's going to be impacting
inflation through at least next April. Because what they do
is they look technically, they look at six month changes
in rent prices. So because we don't have this October data,
We're going to probably see inflation artificially lower for the
next six months when you look at that year of
a year numbers.
Speaker 1 (03:54):
Andy, you know, we Brian took us into the labor
you know, stuff which we want to definitely talk about.
Butt's let's go back to inflation numbers for a minute.
I tried to listen to you carefully here, Am I
correct in assuming that we're just going to basically from
a data standpoint, pretend like October didn't happen. We have
no October data. Will we ever get October data? Will
(04:17):
that factor into perhaps some revisions with December data, or
is just October just gone, you know, never never to
be seen or heard from again.
Speaker 3 (04:27):
October's gone.
Speaker 2 (04:28):
Other than like the data that Brian was pointing out,
which they the BLS can collect from you know, different
retailers based on the sticker prices, but that is just
gone because it's collected in real time. It's collected by
the government talking to individuals about different price levels, and
they can't go back in time and say, hey, what
was it like back in October on these price levels.
(04:49):
I mean, it's just not going to happen. So instead
we treat October as basically a month that never occurred
for all intents and purposes.
Speaker 4 (04:58):
Okay, but all these surveys, in these interviews, these are
now taking place again. Is that? Is that what I'm
hearing you say? We're back to doing it the way
we used to.
Speaker 2 (05:05):
So we will have data, Yeah, we will have data
going forward, but there's a big hole and it's it's
clearly impacting, and we'll get some relief in December.
Speaker 3 (05:14):
You know. On some of the data.
Speaker 2 (05:16):
The issue is the rent because what they do they
look at like a six month change and they kind
of like go through different areas of uh, you know,
about a third of the country at a time when
they're looking at rent prices. Uh, and we're we've essentially
lost a third of that all together, and we won't
get that fixed until you know, basically next to April.
Speaker 4 (05:37):
So as it relates to the markets, Andy, one thing
I noticed was that the market's doing okay, I mean it,
it kind of shrugged at this. I fix this inflation
has been a headline for years now than us pushing
pushing below. You know, we've almost kind of broken through
the bottom range that we have that we've been hovering
around for a while now. But the market didn't really
react to it. Didn't didn't react negatively, but it wasn't
(05:58):
positive either, you know, kind of a non reaction at all.
Do you think that is because of this ambiguity of
the data. Maybe there's not confidence that this is really real,
but at the same time, it's reasonable to think it
might be. So therefore the market didn't panic about the
missing data either. Is that a fair assessment or am
I making stuff up?
Speaker 3 (06:15):
Now?
Speaker 2 (06:15):
I think it's a fair subsistent when you look at
it come the end of the day. I mean the
initial knee jerk reaction was the market took off and soared.
Then people started to notice all these different anomalies and
reading like the footnotes from the inflation report, like, well, maybe.
Speaker 3 (06:33):
This isn't as good as initially thought.
Speaker 2 (06:36):
The market kind of settled in still, I mean still
it was an okay day as far as that goes.
But to your point, the market's kind of just taking
it at face value in terms of Okay, we know
this is a messy report. We know there are some inconsistency,
some irregularities. We're gonna just take that with a grain
(06:58):
of salt. We're not going to look at that headline
number because that headline number of low inflation is very,
very misleading.
Speaker 1 (07:07):
All right, Andy, piggybacking on Brian's point, which I think
is a good one. You know, I continue to just
monitor the ten year treasury because that's what's really going
to move the needle here, you know, longer term with
mortgage rates and everything else, and that ten year correct
me if I'm wrong. It's not budgeting at all. You know,
we're just we just continue to hover around that four
point one percent rate, you know, regardless of what the
(07:30):
Fed does. I'm also hearing that. You know, let's face it,
we've got thirty eight trillion dollars of debt in this country,
and Andy, isn't it true that the government has to
roll about ten trillion dollars of that debt during twenty
twenty six? In other words, they're gonna have to find
somebody to purchase that debt. Am I right there? And
(07:51):
if so, what are your thoughts on all that as
we turn the page into twenty twenty six. Are we
gonna be fine in terms of the government financing about
a third of its national debt next year?
Speaker 2 (08:05):
So when you look at interest rate levels, I mean,
we've been basically stuck between four percent and four point
two percent since just about the beginning of September. So
the tenure treasury really hasn't gone anywhere, and it does.
Speaker 3 (08:19):
Incorporate a number of items.
Speaker 2 (08:21):
It's not just just what the Fed's doing, but it's
really based on what economic growth expectations are, what inflation
expectations are, and when you put it all together together,
the market's not really seeing much of a change from
that perspective, still expecting inflation to be somewhat elevated, still
expecting growth GDP growth to be modestly positive overall for
(08:45):
you know, the year of twenty twenty five, probably somewhere
around two and a half to three percent, depending on
where Q three and Q four day to come in at.
And it takes all that into consideration, and really nothing
much has changed over the past for months, so from
the government's perspective when they do have to issue a
lot of new debt next year because you know, we
(09:06):
have rising deficits and we have to you know, refinance
the debt that's maturing. Uh, the rate that we're at
right now in this four four point two percent level.
Speaker 3 (09:16):
It's okay. It's not going to bust the government at all.
Speaker 2 (09:19):
I mean, there's a lot of concerns about, you know,
our debt to GDP ratio, But what I like to
look at a little bit more closely is our interest
rate to GDP ratio or what what's the interest we're
paying on that debt.
Speaker 3 (09:32):
And we're not.
Speaker 2 (09:32):
At levels that are really red flags or causing us
to get overly concerned. Now, certainly we don't want to
see the government continue to have to issue debt at
higher and higher interest rates.
Speaker 3 (09:44):
So you know, if we're at these current.
Speaker 2 (09:46):
Levels or even a little bit higher, you know that's
going to be fined and we're probably going to see
some downward pressure at least on short term rates, uh
continuing next year. I mean, we've seen the Fed lower
rates over the past year and a half, basically from
upper end of five and a half to three point
seventy five percent, and that will continue to happen. We
might see, you know, definitely fewer cuts next year unless
(10:09):
the job market collapses. So I'm not too worried about
the government having to refinance their debt.
Speaker 4 (10:15):
Speaking of jobs, Andy, we got some jobs at last
week too. Some of that's a little bit messy, but
we're still looking, okay, is there can you give us
some some insight there?
Speaker 3 (10:24):
Yeah, it was definitely messy.
Speaker 2 (10:26):
I would say it's not even close to being as
messy as the the CPI report, but it wasn't very
clean and there's some data that will never get so,
like the October unemployment rate that's gone forever, that will
never happen.
Speaker 3 (10:40):
We got the November unemployment rate and.
Speaker 2 (10:41):
We can compare it to the September rate, and when
you look at it, it's basically it wasn't a big jump.
Speaker 3 (10:48):
It went from four point four to four to four point.
Speaker 2 (10:50):
Five six, so about a a little more than a
tenth of a percent increase in the unemployment rate from
September to November. But when we look at jobs are
being added by employers, we can't actually go back and
see what October looked like there. So that's a positive
from that perspective. Now I say it's a positive from
that perspective. When you look at the headline data, it
(11:11):
was a negative negative a large drop in October where
we saw basically one hundred five thousand jobs declining in
October so employers shed one hundred and five thousand workers,
and then November saw a bit of a rebound of
sixty four thousand. That being said, that headline number is
(11:33):
not nearly as bad as it is when you look
at the details. The big reason we saw that drop
in October. First of all, it wasn't because of the shutdown.
Those furloughed workers aren't counted as having lost their job.
It was pretty much almost entirely due to a significant
drop in federal government workers. But it was tied to
(11:55):
deferred resignations from earlier this year, so people who essentially
decided to resign, but they didn't hit the October print
the payroll number, the payroll numbers until October, So there's
one hundred and sixty two thousand jobs lost from those
deferred essentially resignations. Now that's why it's important to say, Okay,
let's kind of ignore that data, I mean, not completely
(12:17):
ignore it, but let's look at data that might see
a bit of a trend. That's where we can look
at the private payroll data. So what's the private sector doing?
And essentially in October, the private sector added fifty two
thousand jobs. In November, the private sector added sixty nine
thousand jobs, So not gangbusters by any stretch of the imagination,
but it does point to a more stable labor market
(12:40):
environment than what the headline suggests.
Speaker 1 (12:43):
Sounds good, Andy A, thanks as always for being with
us tonight, and you always do a great job of
putting into actual perspective some of these reports. And you know,
at times noise we hear, you know, from politicians in
the media. Coming up next, what the SEC just approved
and why it could change how markets work even if
(13:03):
you're not in crypto. You're listening to Simply Money presented
by all Worth Financial on fifty five KRC, the talk station.
You're listening to Simply Money presented by all Worth Financial
on Bob's sponseller along with Brian James straight ahead of
six forty three. We're tackling your questions about risk adjusted
(13:26):
returns and what those actually mean in your portfolio, whether
bond funds still makes sense right now, and how to
align your estate plan with your investment strategy. Well, you've
probably heard the word blockchain thrown around a lot, usually
tied to things like bitcoin or ethereum. But something just
happened that has nothing to do with crypto and everything
(13:48):
to do with how your traditional investments, say stocks, bonds,
ETFs might be bought and sold in the future. This
will be an interesting thing to watch happen here in
the months and years to come.
Speaker 4 (14:01):
Brian, Yeah, I like this. I think this is a
good headline. Uh so this is to me, this this
likens to way back when when in the sixties and seventies,
when the custodians stopped dealing with physical certificates and started
moving everything electronic. It's gonna speed things up. So here's
what's happening. So the SEC is going to be moving
(14:23):
to tokenizing stocks. Now here's what is not happening. This
is not turning stocks and mutual funds and bonds into crypto,
currentcy and anything like that. I know a lot of
people associate the word blockchain with crypto because that's where
it came from. Crypto is or a blockchain is the
was originally the technology behind bitcoin that allowed it to
exist on ledgers that are saved on computers all over
the world. Basically meaning that if you're gonna fake it,
(14:45):
then you've got to fake it, you know, an infinite
amount of times, which makes it pretty darn secure. So
there's an organization called the DTCC Depository TUST Trust and
Clearing Corporation. It is not new, but you've probably never
heard of it. It is a huge part of the
the idea of moving stocks and bonds around. So every
time you buy or sell a stock, bond mutual fund,
DTCC is the company behind the scenes making sure that
(15:07):
trade happens, he gets processed recorded properly. So now the SEC,
who is still the regulator of US markets, has basically
told them, yes, go ahead and start using blockchain for
some of this. And it's basically like FedEx giving FedEx
permission to start testing drones, not really a full rollout,
so it's not happening this moment, but a huge step forward.
And really what this means, and I'm thinking of when
(15:29):
my clients call and they say, hey, we need we
need a distribution because we got to pay some our bills,
we're gonna take vacation or whatever, then that means I
will be able to get them those dollars more quickly. Currently,
I normally say, if you're calling me today than then
expected a couple of business days from now. This could
mean could could could mean almost instantaneous availability of cash
when it truly settles in. But this is replacing the
(15:51):
plumbing behind an ancient system. It is not gonna happen overnight.
But again, I think it's a good thing. What do
you think, Bob No, I totally agree.
Speaker 1 (15:58):
I mean, let's face it, if we haven't noticed already,
gone of the days where all these stock traders are
hurting around on the Wall Street trading floor waving their
arms and waving papers, those days are gone. It's all
electronic now, it's more secure, and to your point, it
moves quicker.
Speaker 4 (16:15):
This is all good stuff.
Speaker 1 (16:16):
I agree, all right. Robinhood, the popular trading app that
many listeners know for stocks, ETF's options and crypto, is
making headlines by expanding its prediction markets to more sports
related event contracts, just in time for the NFL playoffs
and big sporting seasons coming up ahead, like the NCAAA
(16:38):
March Madness and all that. Brian, this whole prediction market
stuff has really taken off, and it's just in its
infancy infancy. I mean, let's face it, Americans have become,
you know, borderline addicted to gambling and gambling on their phones,
and this is just gonna make it easier to gamble
on anything, the outcome of anything.
Speaker 4 (16:59):
Right now, I'm less of a fan of this than
a of the blockchain idea for securities. But what we're
talking about here is effectively prop bets. These are little
contracts that exist for a moment in time, tied to
a yes or no question as to whether something happened.
Did a team win a game? Did a player throw
for a certain number of yards? So you're simply buying
these black and white it either happened or it didn't
(17:20):
contracts based on what you think will happen. These are
just options. It's no different than stock options. The stock options.
Speaker 1 (17:25):
Will the Federal Reserve issue inflation numbers in say July
of twenty twenty six, you can bet.
Speaker 4 (17:31):
On that you know and that maybe prior to this
year that seemed like a pretty certain bet. But now
since we're kind of winging it with numbers, that could
be an interesting topic. Now. Robinhood is simply is simply
leaning into the idea that people want to invest in
uncertain outcomes if there is a if there's a potential
benefit for it. Now, this is not the same as
traditional stock trading. It's just it's literally financial betting on
(17:54):
some future outcome. The value of that contract moves up
and down like a stock price, depending on how trader
think the event will resolves. So if it's one of these,
is Team X gonna win a game? Well, now remember
that every every little app you look at that's tracking
that activity of the game, what do they all have.
They all have a percentage of likelihood that a certain
team is gonna go ahead and win based on whatever's
happening real time in that game. So now you're able
(18:16):
to bet on it, You're able to invest your your
hard earned dollars on it. And again, I don't like this.
I don't feel like this is a great idea to
make it this easy for people to do.
Speaker 1 (18:27):
Yeah, I mean, I think what we definitely don't want
to see people do is put the majority of their
wroth ira into these you know, outcome bets. I mean,
just as somebody who just for fun, you know, messes
around with NFL, you know, betting and all that. I mean,
anytime you see the crowd you need eighty percent placing
(18:48):
a bet on any one outcome, that's usually a sign
to beware, because you know you're sitting there thinking, hey,
eighty percent of America thinks this is gonna happen. I'm
gonna put a whole boatload of money on that, and
you can get your you know what handed to you
real quick. Because in these outcome bets, you're either right
or you're wrong. Uh, there's no in between. So buyer
(19:10):
beware there All right, here's the all Worth advice. If
you've got money you can afford to lose by all means,
have fun, let it rip. You're gonna have multiple opportunities
to bet on any kind of outcome, you know, with
all of these new companies putting all this stuff online. Otherwise,
when it comes to your investment strategy, buyer beware. Coming
(19:32):
up next, we're taking a deep look at the latest
analysis on social securities future, a growing generational divide, on
how to fix it and what that might mean for
your retirement planning. You're listening to Simply Money presented by
all Worth Financial on fifty five KRC the talk station.
(19:54):
You're listening to Simply Money presided by all Worth Financial
on Bob Sponseller along with Brian James. Let's face it,
social security is a cornerstone of retirement security for millions
of Americans. But it does face long term funding challenges,
and a new analysis shows a sharp generational divide on
(20:15):
how to fix the problem. Brian, And before you get
into these numbers, none of this outcome surprises me whatsoever, because,
let's face it, we all want someone else to pay
to fix the problems that are before us. And I
think these numbers you're about to share, bear this out.
Speaker 4 (20:34):
I'm reminded of an old Simpsons episode where Homer ran
for political office the under the slogan can't someone else
do it? And this is just a survey of two
thousand adults. This is by the Cato Institute. They're known
as a libertarian think tank.
Speaker 1 (20:49):
Who did he run against? By the way, was it
Montgomery Burns?
Speaker 4 (20:52):
Oh it might have been. I'm not sure, but it
had everything to do with I don't want to bring
my garbage cans in from the curb. Why can't somebody
bring them? Put them byd my? So that's now what's
what we're talking about with Social Security? So more than
half of Americans under age thirty say they'd rather cut
benefits for current retirees than pay more taxes to help
keep benefits intact. Hey go figure current retirees aren't a
(21:13):
fan of that. Nine and ten seniors age sixty five
year olders say younger workers should pay higher taxes to
help current retirees benefits kind of stay steady. Can't someone
else do it, Bob? So the danger here is and
if they do nothing right, so the math just doesn't work,
the math don't math anymore. There's a hole in the bucket.
So there's simply not enough money flowing into the system
(21:35):
to shore up the benefits that were calculated years ago,
simply because there are fewer workers earning less than there
have been in prior decades. So currently, as we're sitting
here right now, if nothing changes, then we're expecting somewhere
about a twenty to twenty five percent haircut in twenty
thirty three unless Congress actually does something. Now, we could
have fixed this all along, Bob, right, I mean, we
(21:56):
could be talking about this in Congress right now. We
choose not to because it is nothing but a sacrifice.
No one will gain anything because because of the way
the math works, we simply have to cut benefits on
current direes or increased taxes on current workers, or possibly
a combination of both. There's a million ways that can happen.
But what it's gonna take is a politician to stake
(22:17):
their political career on forcing people to sacrifice. There is
no way that anybody can put something together that is
a gain, giving people something they didn't have before. It's
all sacrifice, and that's why we just don't hear about it.
We're gonna kick the can until we have no choice.
Speaker 1 (22:32):
Yeah, for sure. And here's another interesting thought to kick around.
Most people don't even understand how social Security works. Again.
In this survey from the Cato Institute, half don't even
know Social Security is a pay as you go program
in which current workers payroll taxes fund current retirees benefits,
not the worker's own future retirement. You know, a lot
(22:55):
of people think that this money is getting put into
some type of an account for them, and nearly two
thirds of respondents believe that's what it is. They believe
it's a mandatory savings program that they pay for, you know,
kind of like a mandatory four to one K plan.
One in five people wrongly believe that their payroll taxes
(23:16):
are actually invested in this Social Security trust fund that
gets thrown around all the time until they retire, and
eight percent of folks think their taxes are saved in
a personal account for them. And then here's the funny thing.
Twenty one percent admit they have no idea how any
of this stuff works and really don't want to know.
(23:36):
Forty three percent of people Brian don't even know what
a payroll tax is. That is baffling to me, since everybody,
last time I checked, gets a paycheck stub where you
actually see where all this money disappears every two weeks.
And then finally, only about seventeen percent know that the
tax is split evenly between the employer and the employee.
(23:58):
So I blame a lot of people, you know, for this,
namely Congress. They just simply have not educated the American
public on how this whole system works or doesn't work.
And yep, we do. To the point you made prior,
we do have a ticking time bomb here that's about
eight years away. This is going to have to get
on somebody's radar here, you know, somewhat smooth or soon,
(24:22):
and hopefully we can have an adult conversation, you know,
something new and different for Congress and get some things done.
Speaker 4 (24:29):
Let's talk about that paystub for a minute, because I
want to I very frequently and you probably hear it too.
Very frequently hear comments from just sort of one off
comments from clients about how well I can't plan on
soci security. It's not going to be there in eight years.
And that's not the case. That is simply not how
it works. The only way that could happen is if
is if we proactively voted the fiight a taxation out
of existence payroll taxes. That's not going to happen. What
(24:52):
all it means is that in twenty thirty three, the
amount of dollars that will be collected via the top
of your pay stub it happened, it's happening right now,
it'll happen then is only going to cover about seventy
five percent of what is currently promised. So, but that
is a far cry from zero. Social security is not
going away unless we proactively voted out of existence. And
again this is coming from this is coming from demographic changes.
(25:14):
So the reason for this is US population is just
continuing to get older. So in twenty twenty five, just
this past year, a record four point one million people
are expected to hit age sixty five. That's the most
we've ever had reached that milestone. By twenty fifty, the
sixty five an older group is projected to increase forty
two percent to eighty two million from fifty eight million
(25:36):
and twenty two So that means the share of the
population is up to almost a quarter of the population
being that age. That's the problem that we have, and
we have tried to fix this pob so over the years,
policy experts have thrown out ideas. Every single year, some
congress person raises a bill, but it's shot down based
on political lines. Democrats always raised the idea of we
(25:57):
need to increase taxes on current workers to make this work,
and then Republicans will will reject that immediately, and Republicans
want to cut benefits on retirees and Democrats shoot that
out of this guy. So it's going to take an
across the aisle attempt of people who understand math and
are willing to have a rough conversation with the American public.
(26:17):
I don't know that we're there yet, but that's the
only way it ever gets fixed.
Speaker 1 (26:21):
Well, And just as a reminder, going back to the
beginning here, social Security is and was intended to be
a federal anti poverty program that was established in nineteen
thirty five as part of President Franklin Delano Roosevelt's New
Deal after the Great Depression. Again well intentioned. It's like, hey,
let's put some kind of social safety net in here,
(26:43):
not only for retirement retirees, but for widows and orphans
and folks on disability that no one ever talks about.
There is an embedded disability program in Social Security too, that,
by the way, costs money. You know, it's meant to
be an anti poverty, you know, a social safety net,
but it does cost money. And again, we're gonna have
(27:05):
to have an adult conversation from from Congress and whoever's
president here over the next eight years to fix this thing.
And I sure hope it, sure hope it happens. Hey,
if you were if you were a betting man, going
back to that whole prop bet thing, if you had
to put money down on this thing, what do you
think is gonna happen? Brian, How do you think that?
(27:25):
How do you think this thing's gonna get fixed?
Speaker 4 (27:27):
I think we're gonna fix it at the last minute.
It's probably gonna involve a government shut down, because that's
how when when we're painted into a corner. That's what
we do. Everybody takes their ball and goes home, and
then we'll come up with some kind of compromise. I
cannot see one side winning in the other side losing.
I think it's going to have to be a sacrifice
among all parties.
Speaker 1 (27:44):
I don't think you're wrong there. Here's the all Worth advice.
It's pretty cut and dry. Don't rely on social Security
as your main source of your retirement income. Coming up next,
we're answering your questions about managing risk in today's market,
the truth about bond funds, and why your state plan
might not be working as well as you think. You're
(28:06):
listening to Simply Money, presented by all Worth Financial on
fifty five KRC the talk station. You're listening to Simply
Money presented by all Worth Financial on Bob spond Seller
along with Brian James. 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
(28:28):
listening to the show on the iHeart app, simply record
your question and it will come straight to us. All right, Brian,
Emily and Cole Rain is working on her finances tonight
and says we've been saving in iras and a brokerage account,
but I'm not sure how to coordinate withdraws later down
the road. How do you build a multi account withdraw
(28:49):
strategy that adapts to taxes and markets. Wow, you talk
about a conundrum here, Brian. You got to build a
lot of assumptions into a plan like that.
Speaker 4 (28:59):
Yeah, then this is pretty I mean, we all have
different flavors of taxation across our different investments accounts. So
the first thing you're gonna you're gonna want to do, Emily,
you segment these accounts by the tax treatment, not by
the age. You know. So you've got three buckets here.
You got your taxable money that's that brokera'e account that's
just in your name, spits out of ten ninety nine
every year tax deferred with those of year pre tax assets.
(29:20):
You didn't specify what kind of iras you have, but
I'm going to assume you got both flavors, and then
also tax free, which is anything has a word rawth
in it. Now, now this could be four oh one
k's iras doesn't matter. But each bucket has a different
tax cost and so the question always comes, which one
do I tap into first? Well, our answer to that is,
use those taxable assets early, but deliberately, so consciously spend
(29:41):
those down and you might even you know, some people
find themselves having built up a pile of cash in
the bank for whatever reason. Right, A lot of the times,
a lot of time when we retire, it's very frequent
I see somebody has an inheritance or something like that,
some kind of windfall around this age, and it's just
sitting in the bank doing nothing, and they mentally carve
that out and say, well, no, that's my emergency fund.
Well that's like four four times of your your annual expenses.
(30:01):
So maybe we need think a little differently about that.
Use those taxable assets early on. The iras and the
wroth irays are not nearly as far away as your
brain wants to tell you. They're just as easy to
move into your checking account, and they're not. It's not
that scary to do that. So and also, you know,
so you want to make let the market's influence which
it tap you you tap into, not how much you spend.
In a down market, You're gonna want to prioritize withdraws
(30:24):
from cash. It's okay to spend down cash reserves and
then replenish those when the market recovers. Look look at
the market history and understand, you know, how how things
kind of ebb and flow. All right, So now we're
going to move into onto Ben and Anderson. Ben says
they're thinking about some Roth conversions over the next few years,
but they also want to delay social Security. So how
do you put all this That's a lot of variables
to put into a plan. How do you multiple model
(30:45):
multiple tax decisions that kind of have an impact on
each other.
Speaker 1 (30:48):
Bob, Well, I'm thinking about you know, since I just
recorded Brian's answer to the prior question, I think I
could hit replay and give the same answer. You know,
you got to build out any anytime you make these
long term plans, you need to model out, model it
out based on different assumptions about rate of return, you know,
future and current tax rates, the impact of all these
(31:11):
cash flows and what they do you know in terms
of IRMA, social Security taxes, all those kind of things.
And then to Brian's point in the last question, it
all comes down to what you want and need to
spend and when, So I think my answer is very
similar to what Brian just talked about. This is the
reason we do financial planning. You know, you model out
different scenarios, you kind of play the what if game,
(31:34):
and you do the best you can to come up
with a good strategy, you know, controlling what we can
control based on what we know in making reasonable assumptions.
And that's where some of this great software comes in
that any good fiduciary advisor is going to have at
his or her disposal. I think you sit down with
a good advisor and model out some strategies and then hopefully,
(31:56):
hopefully you feel confident about the decisions you're making and
why making them all right, Terry and Merrymont says, our
advisors set our portfolios risk adjusted return looked great, but
our actual returns have been about average. How do you
interpret risk adjusted metrics, Brian without fooling yourself?
Speaker 4 (32:16):
Well, yeah, this is a pretty classic disconnect between the two,
and it kind of happens when these risk metrics are
treated as a scorecard instead of really diagnostics. So here's
how to think about this. So understand what these risk
adjusted metrics are actually measuring. There, they're looking at how
much volatility you have in your portfolio. They're not looking
at how much return you got. That's very, very different.
(32:36):
Most people tend to focus on how much money did
I get, how much more money, how much more growth
did I get, versus what I need my portfolio to do.
And frankly, we all in great markets like we've had
over the last three years, we all lose sight at risk.
We haven't had much risk, you know, really at all
since twenty twenty two, which was one of the five
worst years we've ever had. We had a hiccup last
April when everybody panicked about tariffs briefly, but then that
(32:59):
settled down. So other than that, we really just kind
of get hung up on how much my portfolio is growing,
not how much it could how big of a hit
it could take. So what you're going to want to
do here is make sure that you understand what you
have in your portfolio and don't just look at what
it's done over the past three years, which, if it's
properly arranged, should have been great. But make sure you
understand what could it do, What did that pile of
stuff do in twenty two, you know, and be prepared
(33:21):
for that to happen again. It doesn't mean it's a
bad thing. Mark. Sometimes market goes down, sometimes it rains.
Just make sure that you have the ability to handle it,
but most importantly, make sure you understand what it's capable
of on the downside. We simply haven't seen that in many,
many years. So be paying attention another one, Father, This
is probably be our last one for today. Lee and
Fort Thomas. Lee says they've got several bond funds, Bob,
(33:43):
and what he's heard is that that what matters is
their sensitivity to the yield curve, but he's not sure
what that means exactly. How do you evaluate curve risk
without becoming a fixed income expert?
Speaker 1 (33:52):
All right, Lee, you're thinking about this the right way.
I'll keep this as simple as possible. Brian alluded it
to the last question. Let's just use an example like
twenty twenty two when interest rates went up. You know,
back in twenty twenty two, the Fed raised interest rates
seven times to combat inflation. And I think a lot
of people know, anybody that was sitting on bonds or
(34:13):
bond funds, they lost quite a bit of money in
twenty twenty two. And here's why. And this gets back
to your question. The longer term, the longer the duration
of your bond fund, the more sensitive it's going to
be in a move to a move in interest rates.
Because let's face it, when you're in a bond, you're
loaning somebody money at a given interest rates. Well, it
(34:35):
stands to reason if you lock in that loan rate
for say ten years, and interest rates move up, you've
locked yourself into a yield that is way lower than
what somebody could get today if they go out in
loan money in the current interst rate environment. That's the
(34:56):
That's what interest rate sensitivity means, and that's why you
know it's good to just ladder your bond portfolio, have
different maturity dates and all that, so you're not just
betting the ranch on interest rates not moving up or
down over a long period of time. You want to
have a mix of everything so your bond portfolio can
(35:17):
adjust as interest rates move around. Hope that helps Lee.
Coming up next, how to gift investments the smart way
and why it could be one of the most impactful
financial decisions you make. You're listening to Simply Money, presented
by Allworth Financial on fifty five KRC. The talk station.
(35:38):
You're listening to Simply Money Presided by Allworth Financial on
Bob spond Seller along with Brian James. If you're thinking
about helping the kids in your life build a strong
financial future, there's a strategy that goes far beyond cash
or a savings bond, and that's gifting your actual existing investments. Brian,
let's get into how some of that works.
Speaker 4 (36:00):
Yeah, you know this is we often think about inheritance
and waiting until after I've passed on, but you know,
sometimes people want to think about it a little differently,
and so let's talk about the tax rules that come
into play here. And it's probably not as scary as
a lot of people think. So if you're not thinking
about it this year, we're obviously sneaking up pretty click
to the end of the year here, so it might
be a little late to do this year, But so
(36:21):
let's talk about next year. You can gift up to
nineteen thousand dollars per person or thirty eight thousand dollars
as a married couple without triggering any gift taxes or
without triggering any reporting or eating into your lifetime exception,
and you don't need to give new money This is
just the value of anything you want to you want
to move over. So a lot of people get worried
about this and know it's not income to the recipient.
(36:43):
It's of course not deductible to the person gift giving
it away too. And as you know, as an extra
to this, let's say you're giving money, you want to
give it to your own children. Well, if that child
is married and you trust the spouse, you're okay with
that in law, then you can give that person nineteen
thousand dollars too. So a married couple can actually give
thirty eight thousand dollars to each of their own children's spouses,
(37:05):
if that makes any sense. If you want to do that,
and again this is not nearly as scary as you
might think. What you're working against here is if you
do more than that, there's nothing stopping. It's not illegal,
but you do have to report it. Still not taxable,
but you have to report it because there is a
lifetime maximum of a million dollars. The reporting tracks that
over your lifetime. So if you do want to give
(37:26):
somebody more money than that, knock yourself out, you just
have to report it. Now, remember you're not passing you
are passing on the capital gain. So if you have
low cost base you bought applestock forty years ago, you
want to give it to your kids. Well, they have
that low cost basis from forty years ago as well.
Speaker 1 (37:40):
Yeah, and let's talk about why it might make some
sense instead of writing a check to actually give away
some existing positions mutual funds ETF stocks that you already own,
and you already hinted at the answer, Brian, it's because
in most cases, the kids that you're giving this money
to are in a lower tax bracket that you are,
and you can shift this money and have them pay
(38:03):
the capital gains rates at a much lower tax rate
than you. It's a great way to you know, position
your own portfolio to get rid of some you know,
or to give some of the gain the gainers or
the winners and put those taxes in a lower tax
bracket and then reposition your own portfolio. Let's talk about
what some accounts that we can use to do this, Brian.
(38:25):
What you know, what are the mechanisms we can use
to make these gifts.
Speaker 4 (38:28):
Well, if you're going to do this, then you're looking
at potentially a custodial account. This is the old ugmah
udmah I'm honestly not a huge fan of this. I
think sometimes this can just make a mess. But if
you this is for an underage child underage eighteen or
twenty one, depending on the state you're in, that's how
they can own these assets with a custodian involved. I'd
be looking more at roth irays and five twenty nine
college plans. That's only cash can flow into those. But
(38:50):
take some tax advantages out of this. If you're going
to do it all right.
Speaker 1 (38:53):
Here's the all Worth advice gifting investments. It's not just
about the money. It's about giving kids a head starred
on understanding wealth, understanding investment risk and the power of
long term growth. Thanks for listening tonight. You've been listening
to Simply Money, presented by all Worth Financial on fifty
five KRC, the talk station
Tonight, skepticism over the latest inflation report, what the government
just approved that could impact markets, and we answer your
pressing money questions. You're listening to simply Money, all Worth
Financial and Bob Spondseller along with Brian James. Well, a
few days ago, people were cheering over the November inflation report.
(00:28):
It was a softer report than any of the economists predicted.
And now there might be a reason why All Wors
Chief investment Officer Andy Stout joins us tonight. Andy, some
are talking about taking issue with the validity of these
latest inflation numbers. What's the deal here, Yeah.
Speaker 2 (00:48):
Let's take a step back and actually look at the data.
When we saw the headline data from the government last week,
it was really good, right. It showed that inflation was
two point seven percent higher over the past year in
core prices, which exclude food and energy, and of course
they matter, but economists look at it. That showed that
prices were two point six percent higher over the past year. Clearly,
(01:11):
when you look at that on a graph, it looks
like the inflation rates moving lower and lower.
Speaker 3 (01:17):
And that's a good thing.
Speaker 2 (01:18):
However, there are so many anomalies in the data. I mean,
you can't ignore it completely, but you certainly don't want
to give it too much credit. The issue really stems
from how they had to handle the data collection. Essentially,
when the government collects the data, they do it in
real time. And guess what, the government was shut down
(01:41):
during October, so they couldn't do a real time collection,
if you will. So what they had to do was
basically they kept October prices flat, so essentially no change
in prices from September to October, and they looked at
what the change with a one month change in November
would have been. So essentially they're kind of like cramming
into two months of actual data just one month of
(02:05):
price changes. Now, this will kind of sort itself out
in December. For most of the inflation data, except for
the biggest category that's shelter inflation and sold inflation is
about thirty five percent of the total CPI or inflation basket.
Speaker 4 (02:24):
Hey Andy, hold my hand and make me feel better
about this, because I am looking at on the BLS
site the percent changes and see this is CPIU, so
all urban consumers. But there are literally three categories that
have anything at all. There's gasoline and there's new vehicles
and used cars and trucks, every single other category for
(02:45):
both October and November, there is no data period. End
of story is that this is what you're referring to, right.
Speaker 2 (02:51):
Well, yes, and now you're looking at the one month change.
So there's not going to be a one month change
for October or November because there's no Tober data. This
data that you see on the BLS which is the
Bureau of Labor Statistics site, that's data that they can't
actually collect by looking at the sticker prices from you know,
various retailers, if you will, they can see what car
(03:12):
prices are, like you were saying, but a lot of
the data like Shelter, is based on surveys where they
reach out to individuals and to see what the rent
is of certain properties and things like that and to
figure it out. Now, the thing with rent, which is
thirty five percent of total inflation, we're not going to
see any clean data on that probably now because of
(03:32):
this anomaly. Probably at least it's going to be impacting
inflation through at least next April. Because what they do
is they look technically, they look at six month changes
in rent prices. So because we don't have this October data,
We're going to probably see inflation artificially lower for the
next six months when you look at that year of
a year numbers.
Speaker 1 (03:54):
Andy, you know, we Brian took us into the labor
you know, stuff which we want to definitely talk about.
Butt's let's go back to inflation numbers for a minute.
I tried to listen to you carefully here, Am I
correct in assuming that we're just going to basically from
a data standpoint, pretend like October didn't happen. We have
no October data. Will we ever get October data? Will
(04:17):
that factor into perhaps some revisions with December data, or
is just October just gone, you know, never never to
be seen or heard from again.
Speaker 3 (04:27):
October's gone.
Speaker 2 (04:28):
Other than like the data that Brian was pointing out,
which they the BLS can collect from you know, different
retailers based on the sticker prices, but that is just
gone because it's collected in real time. It's collected by
the government talking to individuals about different price levels, and
they can't go back in time and say, hey, what
was it like back in October on these price levels.
(04:49):
I mean, it's just not going to happen. So instead
we treat October as basically a month that never occurred
for all intents and purposes.
Speaker 4 (04:58):
Okay, but all these surveys, in these interviews, these are
now taking place again. Is that? Is that what I'm
hearing you say? We're back to doing it the way
we used to.
Speaker 2 (05:05):
So we will have data, Yeah, we will have data
going forward, but there's a big hole and it's it's
clearly impacting, and we'll get some relief in December.
Speaker 3 (05:14):
You know. On some of the data.
Speaker 2 (05:16):
The issue is the rent because what they do they
look at like a six month change and they kind
of like go through different areas of uh, you know,
about a third of the country at a time when
they're looking at rent prices. Uh, and we're we've essentially
lost a third of that all together, and we won't
get that fixed until you know, basically next to April.
Speaker 4 (05:37):
So as it relates to the markets, Andy, one thing
I noticed was that the market's doing okay, I mean it,
it kind of shrugged at this. I fix this inflation
has been a headline for years now than us pushing
pushing below. You know, we've almost kind of broken through
the bottom range that we have that we've been hovering
around for a while now. But the market didn't really
react to it. Didn't didn't react negatively, but it wasn't
(05:58):
positive either, you know, kind of a non reaction at all.
Do you think that is because of this ambiguity of
the data. Maybe there's not confidence that this is really real,
but at the same time, it's reasonable to think it
might be. So therefore the market didn't panic about the
missing data either. Is that a fair assessment or am
I making stuff up?
Speaker 3 (06:15):
Now?
Speaker 2 (06:15):
I think it's a fair subsistent when you look at
it come the end of the day. I mean the
initial knee jerk reaction was the market took off and soared.
Then people started to notice all these different anomalies and
reading like the footnotes from the inflation report, like, well, maybe.
Speaker 3 (06:33):
This isn't as good as initially thought.
Speaker 2 (06:36):
The market kind of settled in still, I mean still
it was an okay day as far as that goes.
But to your point, the market's kind of just taking
it at face value in terms of Okay, we know
this is a messy report. We know there are some inconsistency,
some irregularities. We're gonna just take that with a grain
(06:58):
of salt. We're not going to look at that headline
number because that headline number of low inflation is very,
very misleading.
Speaker 1 (07:07):
All right, Andy, piggybacking on Brian's point, which I think
is a good one. You know, I continue to just
monitor the ten year treasury because that's what's really going
to move the needle here, you know, longer term with
mortgage rates and everything else, and that ten year correct
me if I'm wrong. It's not budgeting at all. You know,
we're just we just continue to hover around that four
point one percent rate, you know, regardless of what the
(07:30):
Fed does. I'm also hearing that. You know, let's face it,
we've got thirty eight trillion dollars of debt in this country,
and Andy, isn't it true that the government has to
roll about ten trillion dollars of that debt during twenty
twenty six? In other words, they're gonna have to find
somebody to purchase that debt. Am I right there? And
(07:51):
if so, what are your thoughts on all that as
we turn the page into twenty twenty six. Are we
gonna be fine in terms of the government financing about
a third of its national debt next year?
Speaker 2 (08:05):
So when you look at interest rate levels, I mean,
we've been basically stuck between four percent and four point
two percent since just about the beginning of September. So
the tenure treasury really hasn't gone anywhere, and it does.
Speaker 3 (08:19):
Incorporate a number of items.
Speaker 2 (08:21):
It's not just just what the Fed's doing, but it's
really based on what economic growth expectations are, what inflation
expectations are, and when you put it all together together,
the market's not really seeing much of a change from
that perspective, still expecting inflation to be somewhat elevated, still
expecting growth GDP growth to be modestly positive overall for
(08:45):
you know, the year of twenty twenty five, probably somewhere
around two and a half to three percent, depending on
where Q three and Q four day to come in at.
And it takes all that into consideration, and really nothing
much has changed over the past for months, so from
the government's perspective when they do have to issue a
lot of new debt next year because you know, we
(09:06):
have rising deficits and we have to you know, refinance
the debt that's maturing. Uh, the rate that we're at
right now in this four four point two percent level.
Speaker 3 (09:16):
It's okay. It's not going to bust the government at all.
Speaker 2 (09:19):
I mean, there's a lot of concerns about, you know,
our debt to GDP ratio, But what I like to
look at a little bit more closely is our interest
rate to GDP ratio or what what's the interest we're
paying on that debt.
Speaker 3 (09:32):
And we're not.
Speaker 2 (09:32):
At levels that are really red flags or causing us
to get overly concerned. Now, certainly we don't want to
see the government continue to have to issue debt at
higher and higher interest rates.
Speaker 3 (09:44):
So you know, if we're at these current.
Speaker 2 (09:46):
Levels or even a little bit higher, you know that's
going to be fined and we're probably going to see
some downward pressure at least on short term rates, uh
continuing next year. I mean, we've seen the Fed lower
rates over the past year and a half, basically from
upper end of five and a half to three point
seventy five percent, and that will continue to happen. We
might see, you know, definitely fewer cuts next year unless
(10:09):
the job market collapses. So I'm not too worried about
the government having to refinance their debt.
Speaker 4 (10:15):
Speaking of jobs, Andy, we got some jobs at last
week too. Some of that's a little bit messy, but
we're still looking, okay, is there can you give us
some some insight there?
Speaker 3 (10:24):
Yeah, it was definitely messy.
Speaker 2 (10:26):
I would say it's not even close to being as
messy as the the CPI report, but it wasn't very
clean and there's some data that will never get so,
like the October unemployment rate that's gone forever, that will
never happen.
Speaker 3 (10:40):
We got the November unemployment rate and.
Speaker 2 (10:41):
We can compare it to the September rate, and when
you look at it, it's basically it wasn't a big jump.
Speaker 3 (10:48):
It went from four point four to four to four point.
Speaker 2 (10:50):
Five six, so about a a little more than a
tenth of a percent increase in the unemployment rate from
September to November. But when we look at jobs are
being added by employers, we can't actually go back and
see what October looked like there. So that's a positive
from that perspective. Now I say it's a positive from
that perspective. When you look at the headline data, it
(11:11):
was a negative negative a large drop in October where
we saw basically one hundred five thousand jobs declining in
October so employers shed one hundred and five thousand workers,
and then November saw a bit of a rebound of
sixty four thousand. That being said, that headline number is
(11:33):
not nearly as bad as it is when you look
at the details. The big reason we saw that drop
in October. First of all, it wasn't because of the shutdown.
Those furloughed workers aren't counted as having lost their job.
It was pretty much almost entirely due to a significant
drop in federal government workers. But it was tied to
(11:55):
deferred resignations from earlier this year, so people who essentially
decided to resign, but they didn't hit the October print
the payroll number, the payroll numbers until October, So there's
one hundred and sixty two thousand jobs lost from those
deferred essentially resignations. Now that's why it's important to say, Okay,
let's kind of ignore that data, I mean, not completely
(12:17):
ignore it, but let's look at data that might see
a bit of a trend. That's where we can look
at the private payroll data. So what's the private sector doing?
And essentially in October, the private sector added fifty two
thousand jobs. In November, the private sector added sixty nine
thousand jobs, So not gangbusters by any stretch of the imagination,
but it does point to a more stable labor market
(12:40):
environment than what the headline suggests.
Speaker 1 (12:43):
Sounds good, Andy A, thanks as always for being with
us tonight, and you always do a great job of
putting into actual perspective some of these reports. And you know,
at times noise we hear, you know, from politicians in
the media. Coming up next, what the SEC just approved
and why it could change how markets work even if
(13:03):
you're not in crypto. You're listening to Simply Money presented
by all Worth Financial on fifty five KRC, the talk station.
You're listening to Simply Money presented by all Worth Financial
on Bob's sponseller along with Brian James straight ahead of
six forty three. We're tackling your questions about risk adjusted
(13:26):
returns and what those actually mean in your portfolio, whether
bond funds still makes sense right now, and how to
align your estate plan with your investment strategy. Well, you've
probably heard the word blockchain thrown around a lot, usually
tied to things like bitcoin or ethereum. But something just
happened that has nothing to do with crypto and everything
(13:48):
to do with how your traditional investments, say stocks, bonds,
ETFs might be bought and sold in the future. This
will be an interesting thing to watch happen here in
the months and years to come.
Speaker 4 (14:01):
Brian, Yeah, I like this. I think this is a
good headline. Uh so this is to me, this this
likens to way back when when in the sixties and seventies,
when the custodians stopped dealing with physical certificates and started
moving everything electronic. It's gonna speed things up. So here's
what's happening. So the SEC is going to be moving
(14:23):
to tokenizing stocks. Now here's what is not happening. This
is not turning stocks and mutual funds and bonds into crypto,
currentcy and anything like that. I know a lot of
people associate the word blockchain with crypto because that's where
it came from. Crypto is or a blockchain is the
was originally the technology behind bitcoin that allowed it to
exist on ledgers that are saved on computers all over
the world. Basically meaning that if you're gonna fake it,
(14:45):
then you've got to fake it, you know, an infinite
amount of times, which makes it pretty darn secure. So
there's an organization called the DTCC Depository TUST Trust and
Clearing Corporation. It is not new, but you've probably never
heard of it. It is a huge part of the
the idea of moving stocks and bonds around. So every
time you buy or sell a stock, bond mutual fund,
DTCC is the company behind the scenes making sure that
(15:07):
trade happens, he gets processed recorded properly. So now the SEC,
who is still the regulator of US markets, has basically
told them, yes, go ahead and start using blockchain for
some of this. And it's basically like FedEx giving FedEx
permission to start testing drones, not really a full rollout,
so it's not happening this moment, but a huge step forward.
And really what this means, and I'm thinking of when
(15:29):
my clients call and they say, hey, we need we
need a distribution because we got to pay some our bills,
we're gonna take vacation or whatever, then that means I
will be able to get them those dollars more quickly. Currently,
I normally say, if you're calling me today than then
expected a couple of business days from now. This could
mean could could could mean almost instantaneous availability of cash
when it truly settles in. But this is replacing the
(15:51):
plumbing behind an ancient system. It is not gonna happen overnight.
But again, I think it's a good thing. What do
you think, Bob No, I totally agree.
Speaker 1 (15:58):
I mean, let's face it, if we haven't noticed already,
gone of the days where all these stock traders are
hurting around on the Wall Street trading floor waving their
arms and waving papers, those days are gone. It's all
electronic now, it's more secure, and to your point, it
moves quicker.
Speaker 4 (16:15):
This is all good stuff.
Speaker 1 (16:16):
I agree, all right. Robinhood, the popular trading app that
many listeners know for stocks, ETF's options and crypto, is
making headlines by expanding its prediction markets to more sports
related event contracts, just in time for the NFL playoffs
and big sporting seasons coming up ahead, like the NCAAA
(16:38):
March Madness and all that. Brian, this whole prediction market
stuff has really taken off, and it's just in its
infancy infancy. I mean, let's face it, Americans have become,
you know, borderline addicted to gambling and gambling on their phones,
and this is just gonna make it easier to gamble
on anything, the outcome of anything.
Speaker 4 (16:59):
Right now, I'm less of a fan of this than
a of the blockchain idea for securities. But what we're
talking about here is effectively prop bets. These are little
contracts that exist for a moment in time, tied to
a yes or no question as to whether something happened.
Did a team win a game? Did a player throw
for a certain number of yards? So you're simply buying
these black and white it either happened or it didn't
(17:20):
contracts based on what you think will happen. These are
just options. It's no different than stock options. The stock options.
Speaker 1 (17:25):
Will the Federal Reserve issue inflation numbers in say July
of twenty twenty six, you can bet.
Speaker 4 (17:31):
On that you know and that maybe prior to this
year that seemed like a pretty certain bet. But now
since we're kind of winging it with numbers, that could
be an interesting topic. Now. Robinhood is simply is simply
leaning into the idea that people want to invest in
uncertain outcomes if there is a if there's a potential
benefit for it. Now, this is not the same as
traditional stock trading. It's just it's literally financial betting on
(17:54):
some future outcome. The value of that contract moves up
and down like a stock price, depending on how trader
think the event will resolves. So if it's one of these,
is Team X gonna win a game? Well, now remember
that every every little app you look at that's tracking
that activity of the game, what do they all have.
They all have a percentage of likelihood that a certain
team is gonna go ahead and win based on whatever's
happening real time in that game. So now you're able
(18:16):
to bet on it, You're able to invest your your
hard earned dollars on it. And again, I don't like this.
I don't feel like this is a great idea to
make it this easy for people to do.
Speaker 1 (18:27):
Yeah, I mean, I think what we definitely don't want
to see people do is put the majority of their
wroth ira into these you know, outcome bets. I mean,
just as somebody who just for fun, you know, messes
around with NFL, you know, betting and all that. I mean,
anytime you see the crowd you need eighty percent placing
(18:48):
a bet on any one outcome, that's usually a sign
to beware, because you know you're sitting there thinking, hey,
eighty percent of America thinks this is gonna happen. I'm
gonna put a whole boatload of money on that, and
you can get your you know what handed to you
real quick. Because in these outcome bets, you're either right
or you're wrong. Uh, there's no in between. So buyer
(19:10):
beware there All right, here's the all Worth advice. If
you've got money you can afford to lose by all means,
have fun, let it rip. You're gonna have multiple opportunities
to bet on any kind of outcome, you know, with
all of these new companies putting all this stuff online. Otherwise,
when it comes to your investment strategy, buyer beware. Coming
(19:32):
up next, we're taking a deep look at the latest
analysis on social securities future, a growing generational divide, on
how to fix it and what that might mean for
your retirement planning. You're listening to Simply Money presented by
all Worth Financial on fifty five KRC the talk station.
(19:54):
You're listening to Simply Money presided by all Worth Financial
on Bob Sponseller along with Brian James. Let's face it,
social security is a cornerstone of retirement security for millions
of Americans. But it does face long term funding challenges,
and a new analysis shows a sharp generational divide on
(20:15):
how to fix the problem. Brian, And before you get
into these numbers, none of this outcome surprises me whatsoever, because,
let's face it, we all want someone else to pay
to fix the problems that are before us. And I
think these numbers you're about to share, bear this out.
Speaker 4 (20:34):
I'm reminded of an old Simpsons episode where Homer ran
for political office the under the slogan can't someone else
do it? And this is just a survey of two
thousand adults. This is by the Cato Institute. They're known
as a libertarian think tank.
Speaker 1 (20:49):
Who did he run against? By the way, was it
Montgomery Burns?
Speaker 4 (20:52):
Oh it might have been. I'm not sure, but it
had everything to do with I don't want to bring
my garbage cans in from the curb. Why can't somebody
bring them? Put them byd my? So that's now what's
what we're talking about with Social Security? So more than
half of Americans under age thirty say they'd rather cut
benefits for current retirees than pay more taxes to help
keep benefits intact. Hey go figure current retirees aren't a
(21:13):
fan of that. Nine and ten seniors age sixty five
year olders say younger workers should pay higher taxes to
help current retirees benefits kind of stay steady. Can't someone
else do it, Bob? So the danger here is and
if they do nothing right, so the math just doesn't work,
the math don't math anymore. There's a hole in the bucket.
So there's simply not enough money flowing into the system
(21:35):
to shore up the benefits that were calculated years ago,
simply because there are fewer workers earning less than there
have been in prior decades. So currently, as we're sitting
here right now, if nothing changes, then we're expecting somewhere
about a twenty to twenty five percent haircut in twenty
thirty three unless Congress actually does something. Now, we could
have fixed this all along, Bob, right, I mean, we
(21:56):
could be talking about this in Congress right now. We
choose not to because it is nothing but a sacrifice.
No one will gain anything because because of the way
the math works, we simply have to cut benefits on
current direes or increased taxes on current workers, or possibly
a combination of both. There's a million ways that can happen.
But what it's gonna take is a politician to stake
(22:17):
their political career on forcing people to sacrifice. There is
no way that anybody can put something together that is
a gain, giving people something they didn't have before. It's
all sacrifice, and that's why we just don't hear about it.
We're gonna kick the can until we have no choice.
Speaker 1 (22:32):
Yeah, for sure. And here's another interesting thought to kick around.
Most people don't even understand how social Security works. Again.
In this survey from the Cato Institute, half don't even
know Social Security is a pay as you go program
in which current workers payroll taxes fund current retirees benefits,
not the worker's own future retirement. You know, a lot
(22:55):
of people think that this money is getting put into
some type of an account for them, and nearly two
thirds of respondents believe that's what it is. They believe
it's a mandatory savings program that they pay for, you know,
kind of like a mandatory four to one K plan.
One in five people wrongly believe that their payroll taxes
(23:16):
are actually invested in this Social Security trust fund that
gets thrown around all the time until they retire, and
eight percent of folks think their taxes are saved in
a personal account for them. And then here's the funny thing.
Twenty one percent admit they have no idea how any
of this stuff works and really don't want to know.
(23:36):
Forty three percent of people Brian don't even know what
a payroll tax is. That is baffling to me, since everybody,
last time I checked, gets a paycheck stub where you
actually see where all this money disappears every two weeks.
And then finally, only about seventeen percent know that the
tax is split evenly between the employer and the employee.
(23:58):
So I blame a lot of people, you know, for this,
namely Congress. They just simply have not educated the American
public on how this whole system works or doesn't work.
And yep, we do. To the point you made prior,
we do have a ticking time bomb here that's about
eight years away. This is going to have to get
on somebody's radar here, you know, somewhat smooth or soon,
(24:22):
and hopefully we can have an adult conversation, you know,
something new and different for Congress and get some things done.
Speaker 4 (24:29):
Let's talk about that paystub for a minute, because I
want to I very frequently and you probably hear it too.
Very frequently hear comments from just sort of one off
comments from clients about how well I can't plan on
soci security. It's not going to be there in eight years.
And that's not the case. That is simply not how
it works. The only way that could happen is if
is if we proactively voted the fiight a taxation out
of existence payroll taxes. That's not going to happen. What
(24:52):
all it means is that in twenty thirty three, the
amount of dollars that will be collected via the top
of your pay stub it happened, it's happening right now,
it'll happen then is only going to cover about seventy
five percent of what is currently promised. So, but that
is a far cry from zero. Social security is not
going away unless we proactively voted out of existence. And
again this is coming from this is coming from demographic changes.
(25:14):
So the reason for this is US population is just
continuing to get older. So in twenty twenty five, just
this past year, a record four point one million people
are expected to hit age sixty five. That's the most
we've ever had reached that milestone. By twenty fifty, the
sixty five an older group is projected to increase forty
two percent to eighty two million from fifty eight million
(25:36):
and twenty two So that means the share of the
population is up to almost a quarter of the population
being that age. That's the problem that we have, and
we have tried to fix this pob so over the years,
policy experts have thrown out ideas. Every single year, some
congress person raises a bill, but it's shot down based
on political lines. Democrats always raised the idea of we
(25:57):
need to increase taxes on current workers to make this work,
and then Republicans will will reject that immediately, and Republicans
want to cut benefits on retirees and Democrats shoot that
out of this guy. So it's going to take an
across the aisle attempt of people who understand math and
are willing to have a rough conversation with the American public.
(26:17):
I don't know that we're there yet, but that's the
only way it ever gets fixed.
Speaker 1 (26:21):
Well, And just as a reminder, going back to the
beginning here, social Security is and was intended to be
a federal anti poverty program that was established in nineteen
thirty five as part of President Franklin Delano Roosevelt's New
Deal after the Great Depression. Again well intentioned. It's like, hey,
let's put some kind of social safety net in here,
(26:43):
not only for retirement retirees, but for widows and orphans
and folks on disability that no one ever talks about.
There is an embedded disability program in Social Security too, that,
by the way, costs money. You know, it's meant to
be an anti poverty, you know, a social safety net,
but it does cost money. And again, we're gonna have
(27:05):
to have an adult conversation from from Congress and whoever's
president here over the next eight years to fix this thing.
And I sure hope it, sure hope it happens. Hey,
if you were if you were a betting man, going
back to that whole prop bet thing, if you had
to put money down on this thing, what do you
think is gonna happen? Brian, How do you think that?
(27:25):
How do you think this thing's gonna get fixed?
Speaker 4 (27:27):
I think we're gonna fix it at the last minute.
It's probably gonna involve a government shut down, because that's
how when when we're painted into a corner. That's what
we do. Everybody takes their ball and goes home, and
then we'll come up with some kind of compromise. I
cannot see one side winning in the other side losing.
I think it's going to have to be a sacrifice
among all parties.
Speaker 1 (27:44):
I don't think you're wrong there. Here's the all Worth advice.
It's pretty cut and dry. Don't rely on social Security
as your main source of your retirement income. Coming up next,
we're answering your questions about managing risk in today's market,
the truth about bond funds, and why your state plan
might not be working as well as you think. You're
(28:06):
listening to Simply Money, presented by all Worth Financial on
fifty five KRC the talk station. You're listening to Simply
Money presented by all Worth Financial on Bob spond Seller
along with Brian James. 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
(28:28):
listening to the show on the iHeart app, simply record
your question and it will come straight to us. All right, Brian,
Emily and Cole Rain is working on her finances tonight
and says we've been saving in iras and a brokerage account,
but I'm not sure how to coordinate withdraws later down
the road. How do you build a multi account withdraw
(28:49):
strategy that adapts to taxes and markets. Wow, you talk
about a conundrum here, Brian. You got to build a
lot of assumptions into a plan like that.
Speaker 4 (28:59):
Yeah, then this is pretty I mean, we all have
different flavors of taxation across our different investments accounts. So
the first thing you're gonna you're gonna want to do, Emily,
you segment these accounts by the tax treatment, not by
the age. You know. So you've got three buckets here.
You got your taxable money that's that brokera'e account that's
just in your name, spits out of ten ninety nine
every year tax deferred with those of year pre tax assets.
(29:20):
You didn't specify what kind of iras you have, but
I'm going to assume you got both flavors, and then
also tax free, which is anything has a word rawth
in it. Now, now this could be four oh one
k's iras doesn't matter. But each bucket has a different
tax cost and so the question always comes, which one
do I tap into first? Well, our answer to that is,
use those taxable assets early, but deliberately, so consciously spend
(29:41):
those down and you might even you know, some people
find themselves having built up a pile of cash in
the bank for whatever reason. Right, A lot of the times,
a lot of time when we retire, it's very frequent
I see somebody has an inheritance or something like that,
some kind of windfall around this age, and it's just
sitting in the bank doing nothing, and they mentally carve
that out and say, well, no, that's my emergency fund.
Well that's like four four times of your your annual expenses.
(30:01):
So maybe we need think a little differently about that.
Use those taxable assets early on. The iras and the
wroth irays are not nearly as far away as your
brain wants to tell you. They're just as easy to
move into your checking account, and they're not. It's not
that scary to do that. So and also, you know,
so you want to make let the market's influence which
it tap you you tap into, not how much you spend.
In a down market, You're gonna want to prioritize withdraws
(30:24):
from cash. It's okay to spend down cash reserves and
then replenish those when the market recovers. Look look at
the market history and understand, you know, how how things
kind of ebb and flow. All right, So now we're
going to move into onto Ben and Anderson. Ben says
they're thinking about some Roth conversions over the next few years,
but they also want to delay social Security. So how
do you put all this That's a lot of variables
to put into a plan. How do you multiple model
(30:45):
multiple tax decisions that kind of have an impact on
each other.
Speaker 1 (30:48):
Bob, Well, I'm thinking about you know, since I just
recorded Brian's answer to the prior question, I think I
could hit replay and give the same answer. You know,
you got to build out any anytime you make these
long term plans, you need to model out, model it
out based on different assumptions about rate of return, you know,
future and current tax rates, the impact of all these
(31:11):
cash flows and what they do you know in terms
of IRMA, social Security taxes, all those kind of things.
And then to Brian's point in the last question, it
all comes down to what you want and need to
spend and when, So I think my answer is very
similar to what Brian just talked about. This is the
reason we do financial planning. You know, you model out
different scenarios, you kind of play the what if game,
(31:34):
and you do the best you can to come up
with a good strategy, you know, controlling what we can
control based on what we know in making reasonable assumptions.
And that's where some of this great software comes in
that any good fiduciary advisor is going to have at
his or her disposal. I think you sit down with
a good advisor and model out some strategies and then hopefully,
(31:56):
hopefully you feel confident about the decisions you're making and
why making them all right, Terry and Merrymont says, our
advisors set our portfolios risk adjusted return looked great, but
our actual returns have been about average. How do you
interpret risk adjusted metrics, Brian without fooling yourself?
Speaker 4 (32:16):
Well, yeah, this is a pretty classic disconnect between the two,
and it kind of happens when these risk metrics are
treated as a scorecard instead of really diagnostics. So here's
how to think about this. So understand what these risk
adjusted metrics are actually measuring. There, they're looking at how
much volatility you have in your portfolio. They're not looking
at how much return you got. That's very, very different.
(32:36):
Most people tend to focus on how much money did
I get, how much more money, how much more growth
did I get, versus what I need my portfolio to do.
And frankly, we all in great markets like we've had
over the last three years, we all lose sight at risk.
We haven't had much risk, you know, really at all
since twenty twenty two, which was one of the five
worst years we've ever had. We had a hiccup last
April when everybody panicked about tariffs briefly, but then that
(32:59):
settled down. So other than that, we really just kind
of get hung up on how much my portfolio is growing,
not how much it could how big of a hit
it could take. So what you're going to want to
do here is make sure that you understand what you
have in your portfolio and don't just look at what
it's done over the past three years, which, if it's
properly arranged, should have been great. But make sure you
understand what could it do, What did that pile of
stuff do in twenty two, you know, and be prepared
(33:21):
for that to happen again. It doesn't mean it's a
bad thing. Mark. Sometimes market goes down, sometimes it rains.
Just make sure that you have the ability to handle it,
but most importantly, make sure you understand what it's capable
of on the downside. We simply haven't seen that in many,
many years. So be paying attention another one, Father, This
is probably be our last one for today. Lee and
Fort Thomas. Lee says they've got several bond funds, Bob,
(33:43):
and what he's heard is that that what matters is
their sensitivity to the yield curve, but he's not sure
what that means exactly. How do you evaluate curve risk
without becoming a fixed income expert?
Speaker 1 (33:52):
All right, Lee, you're thinking about this the right way.
I'll keep this as simple as possible. Brian alluded it
to the last question. Let's just use an example like
twenty twenty two when interest rates went up. You know,
back in twenty twenty two, the Fed raised interest rates
seven times to combat inflation. And I think a lot
of people know, anybody that was sitting on bonds or
(34:13):
bond funds, they lost quite a bit of money in
twenty twenty two. And here's why. And this gets back
to your question. The longer term, the longer the duration
of your bond fund, the more sensitive it's going to
be in a move to a move in interest rates.
Because let's face it, when you're in a bond, you're
loaning somebody money at a given interest rates. Well, it
(34:35):
stands to reason if you lock in that loan rate
for say ten years, and interest rates move up, you've
locked yourself into a yield that is way lower than
what somebody could get today if they go out in
loan money in the current interst rate environment. That's the
(34:56):
That's what interest rate sensitivity means, and that's why you
know it's good to just ladder your bond portfolio, have
different maturity dates and all that, so you're not just
betting the ranch on interest rates not moving up or
down over a long period of time. You want to
have a mix of everything so your bond portfolio can
(35:17):
adjust as interest rates move around. Hope that helps Lee.
Coming up next, how to gift investments the smart way
and why it could be one of the most impactful
financial decisions you make. You're listening to Simply Money, presented
by Allworth Financial on fifty five KRC. The talk station.
(35:38):
You're listening to Simply Money Presided by Allworth Financial on
Bob spond Seller along with Brian James. If you're thinking
about helping the kids in your life build a strong
financial future, there's a strategy that goes far beyond cash
or a savings bond, and that's gifting your actual existing investments. Brian,
let's get into how some of that works.
Speaker 4 (36:00):
Yeah, you know this is we often think about inheritance
and waiting until after I've passed on, but you know,
sometimes people want to think about it a little differently,
and so let's talk about the tax rules that come
into play here. And it's probably not as scary as
a lot of people think. So if you're not thinking
about it this year, we're obviously sneaking up pretty click
to the end of the year here, so it might
be a little late to do this year, But so
(36:21):
let's talk about next year. You can gift up to
nineteen thousand dollars per person or thirty eight thousand dollars
as a married couple without triggering any gift taxes or
without triggering any reporting or eating into your lifetime exception,
and you don't need to give new money This is
just the value of anything you want to you want
to move over. So a lot of people get worried
about this and know it's not income to the recipient.
(36:43):
It's of course not deductible to the person gift giving
it away too. And as you know, as an extra
to this, let's say you're giving money, you want to
give it to your own children. Well, if that child
is married and you trust the spouse, you're okay with
that in law, then you can give that person nineteen
thousand dollars too. So a married couple can actually give
thirty eight thousand dollars to each of their own children's spouses,
(37:05):
if that makes any sense. If you want to do that,
and again this is not nearly as scary as you
might think. What you're working against here is if you
do more than that, there's nothing stopping. It's not illegal,
but you do have to report it. Still not taxable,
but you have to report it because there is a
lifetime maximum of a million dollars. The reporting tracks that
over your lifetime. So if you do want to give
(37:26):
somebody more money than that, knock yourself out, you just
have to report it. Now, remember you're not passing you
are passing on the capital gain. So if you have
low cost base you bought applestock forty years ago, you
want to give it to your kids. Well, they have
that low cost basis from forty years ago as well.
Speaker 1 (37:40):
Yeah, and let's talk about why it might make some
sense instead of writing a check to actually give away
some existing positions mutual funds ETF stocks that you already own,
and you already hinted at the answer, Brian, it's because
in most cases, the kids that you're giving this money
to are in a lower tax bracket that you are,
and you can shift this money and have them pay
(38:03):
the capital gains rates at a much lower tax rate
than you. It's a great way to you know, position
your own portfolio to get rid of some you know,
or to give some of the gain the gainers or
the winners and put those taxes in a lower tax
bracket and then reposition your own portfolio. Let's talk about
what some accounts that we can use to do this, Brian.
(38:25):
What you know, what are the mechanisms we can use
to make these gifts.
Speaker 4 (38:28):
Well, if you're going to do this, then you're looking
at potentially a custodial account. This is the old ugmah
udmah I'm honestly not a huge fan of this. I
think sometimes this can just make a mess. But if
you this is for an underage child underage eighteen or
twenty one, depending on the state you're in, that's how
they can own these assets with a custodian involved. I'd
be looking more at roth irays and five twenty nine
college plans. That's only cash can flow into those. But
(38:50):
take some tax advantages out of this. If you're going
to do it all right.
Speaker 1 (38:53):
Here's the all Worth advice gifting investments. It's not just
about the money. It's about giving kids a head starred
on understanding wealth, understanding investment risk and the power of
long term growth. 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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