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April 13, 2024 - Money Matters Podcast

Why some investors should ignore economic data, a $700,000 inheritance question, and a warning about advisors who act as fiduciaries only some of the time.

On this week’s Money Matters, Scott and Pat start the show by discussing the current state of the economy with Allworth Chief Investment Officer Andy Stout, and then explain why some should pay little attention to the data. A caller with an 80/20 stock to bond allocation wonders whether he should tweak the bond portion of his portfolio. A Colorado man asks for guidance on how to handle a six-figure inheritance. Finally, Scott and Pat reveal how you can spot a financial advisor who doesn’t act as a fiduciary 100% of the time.

Join Money Matters:  Get your most pressing financial questions answered by Allworth's co-founders Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here.  You can also be on the air by emailing Scott and Pat at

Download and rate our podcast here.


Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.

Scott: Welcome to Allworth's "Money Matters," Scott Hanson.

Pat: Pat McClain. Thanks for joining us.

Scott: That's fantastic. The spring is in the air.

Pat: At least here in California.

Scott: Yeah, I guess. Well, probably most of the... I was in Washington, D.C. this weekend and it was...

Pat: Cherry blossoms.

Scott: Cherry blossoms. They're actually almost at the tail end of them.

Pat: Were you back there meeting with your congressman or...?

Scott: No. I have done that before. I try to avoid that.

Pat: Yeah, your elected officials.

Scott: No, no. Let's not go there.

Pat: Well, let's not go there.

Scott: It was actually an international orphan and foster agency thing, but that's another story. Anyway, spring has nothing to do with our program. This financial program, we're here to talk about financial markets and financial planning and tax changes and...

Pat: Yes, and inflation or lack of inflation, interest rate increases, decreases, sideways, up, down, quantitative easing. Oh, wait, that's a couple years ago.

Scott: Now it's...well, they call it something different now that they're...because they're suspending the, you know?

Pat: Andy will know.

Scott: Yeah, we're going to... Let's start off briefly with Andy Stout, our chief investment officer because it's been... Actually, when the markets go up, nobody gets excited, but when they go down and they drop 400 or 500 points a day, then it's like, "What's going on?"

Pat: So I was reflecting on...yesterday, knowing that Andy was going to be a guest on our show, I was reflecting on some of the previous times he was on the show. And I always ask him...I try to pigeonhole him to give me his opinion, and never to this date have I been able to get him to tell me whether he thinks interest rates are going to go up or down.

Scott: Well, he doesn't know.

Pat: And he doesn't, nor does the Fed.

Scott: Nor does anybody.

Pat: Nor does anyone. Although the lady at the gym today, real estate agent told me that interest rates are coming down.

Scott: Oh, okay. Well, good for that.

Pat: That's right.

Scott: That's what she's hoping so she can go sell a house.

Pat: Yeah. So Andy Stout is our chief investment officer. And if you are a listener of this show or podcast at all, you will be familiar with Andy.

Scott: Andy, welcome.

Andy: Thank you. Happy to be here.

Scott: Yeah. So just give us kind of an update on where we sit with financial markets and whatnot, because the first quarter, the stock market was on a tear. Now it seems like we're pulling back a bit. Inflation's up.

Andy: First quarter, it was tremendous, right? The S&P 500 was, your large-cap stocks, up about 10.5%. But really, every single equity market did well in the first quarter. And bonds fell a little bit, about a percent or so. But when we look at what's been going on to start this month and this quarter, it has been, well, less friendly is one way to put it. We've certainly seen a pick up in volatility here over the past few weeks with markets selling off...or the past week or two, with markets selling off pretty strongly. But strongly in terms of, I'll call it, absolute numbers, just because we have bigger dollar values than we're looking on the index numbers. But on returns, I mean, we're talking 3%, 4%, that's not that big of a drawdown.

Scott: Yeah. So the inflation report came out, it looks like inflation's, it looked like inflation was heading down, it was heading down for a long time. And then the's kind of clicked up a bit, the last couple of reports.

Pat: Yeah. And then I keep hearing about how this immigration policy is actually going to lower inflation because it's driving down labor costs with the exception of the state of...

Scott: What policy?

Pat: Well, that's...or lack of policy. Not having a policy is a policy.

Scott: I guess so. Wow, isn't that interesting? Thousands have flooded in today. Wow.

Pat: So can you... I hear all these conflicting news reports and some... Your comments, please.

Andy: All right. Well, in terms of just overall inflation and the trend, yeah, it was looking really good to start the year when we saw how 2023 ended. But the data that's come out so far this year for January, February, March has definitely caused the Federal Reserve to pause on what their plans were. And the markets have adjusted to that. And that's really why you're seeing the volatility. The expectation was that...economists thought we were going to see inflation keep coming down. We were getting closer to that 2% Fed target that the central bank wants to see. And then we would be able to really start to cut rates. I mean, at the beginning of the year, the markets thought there was going to be about six quarter-point rate cuts or 1.5 percentage points in rate cuts. Right now, we're not even at two rate cuts priced in for this year after these latest inflation press. And that's why you've seen interest rates jump so much as they have over the past few weeks.

Scott: Yeah, long-term interest rates, right? Because the 10-year treasury, roughly 4.5%, and it was under 4% not very long ago.

Andy: Yeah, it was well under 4%. And many people thought it was going to keep going lower. Maybe even that lady in the gym you were talking to thought interest rates were going to keep going down. And then all of a sudden, you see inflation acting more stubbornly than what pretty much every economist thought would happen. And the Federal Reserve, to their credit, they had been saying, we want to wait to see more evidence that inflation is on a sustainable path lower. And they have not budged from that. So the Federal Reserve is certainly appearing to, at least, be following through with what they're saying. Now, there is risks on the other side of that too, right? So if we keep rates as high as they are now to fight inflation, well, one way we fight inflation is by seeing the economy slow down. And that's also not what the Fed wants.

Scott: Right. Well, it's a tricky balance. But you know, it's interesting, Andy, I looked at the last employment report. It's something like...I don't remember the exact numbers, but it was about a third of all new jobs were government jobs.

Andy: Yeah, there was about 72,000 or 73,000 that came from the government sector. Another 72,000 came from the healthcare sector. What's interesting about that, I'll call those sectors acyclic, meaning they're recession-proof, if you will. So while the overall number of jobs that employers added, which was around 303,000, it's a big number and you can't deny the strength of it. The fact that two of those, again, those non-recessionary sectors contributed almost half of the gains suggests that the overall number overstates the strength of the labor market.

Pat: Got it. Got it.

Scott: And I also looked at it and I thought, we got the Fed raising rates to kind of cool the economy a bit to get inflation down and the government hiring people. Counterproductive.

Pat: Yeah. Can we talk about the participation rate? Are we seeing a change in that? The employment participation rate?

Andy: Holding steady for three months in a row, around 62.5%. The participation rate, by the way, if you're not familiar with it, that's basically the amount of people that are looking for a job or have a job, so they're in the labor force. And it's been at 62.5% for the December, January, and February months, but it did tick higher to 62.7%. That in and of itself is not a bad thing that more people are looking for work. But what's good from the health of an economy standpoint is we also saw the unemployment rate go down. So even though more people started looking for work, unemployment went down because more people got hired.

Pat: So there's an uptake on the employment side.

Andy: Yeah. It's just a little bit higher than what we have been. But if you look back to where we were at the end of 2023, it's basically where that was.

Scott: Anything else going on that we're not really seeing in the headlines that you consider important that maybe our listeners haven't read or heard about anywhere else?

Andy: Well, when you're thinking about just the overall economy and what's going on and what matters the most, right now it's the Federal Reserve. So we have the next meeting coming up here. There's basically a 0% chance that we'll get a Fed hike at the next meeting, which is on May 1st.

Scott: A hike or cut?

Andy: We're getting a hike now until September.

Scott: A hike or cut?

Andy: Cut, cut, cut, cut. My bad.

Scott: Thank you.

Andy: Sorry about that.

Scott: I'm thinking there he did bring up something no one's talking about.

Pat: The Fed increases again.

Andy: You know what? Some people are talking about maybe the Fed does need a hike. So that is the risk that's out there. So some of the people like Larry Summers and some other talking heads out there, they're talking about that as a possibility if inflation remains where it is. And that certainly would have some negative repercussions on the broad economy.

Scott: I've got a last topic here. The Fed, what are they calling it on their bond portfolio?

Andy: Tapering.

Scott: Tapering. They made a change in policy just in the last week or so on reinvesting their bonds.

Pat: Which is a result of the quantitative easing?

Scott: Yeah.

Andy: They haven't changed it yet. So the minutes from the Federal Reserve's last meeting came out. And what it showed was that most of the participants wanted to pretty soon reduce that runoff on the treasuries and the mortgage-backed securities...well, actually keeping the mortgage-backed securities at constant. When I say runoff, what that means is allowing bonds to mature, but not reinvesting the proceeds, so essentially shrinking their balance sheet. And they want to do this through letting the treasury side of their balance sheet shrink. And the Federal Reserve's balance sheet, I mean, it's definitely been moving lower during this period. Right now we're about $7.4 trillion, somewhere in that area. It's moved pretty quickly lower. It was about $8.6 trillion about a year ago. So we've certainly seen a good move lower there. But remember, as the Fed starts to lower that, what they're doing is they're removing accommodation from the market. And that can put more pressure on interest rates to go up because it just removes another buyer that's out there.

Pat: So one other thing, student loan forgiveness seems to me that it would have an inflationary effect.

Andy: Yeah, it would. Probably on the margins. If you look at just who is eligible for that and the dollar amounts, it's not going to be material...

Pat: Okay. I was thinking of... Anyway.

Scott: I don't know if we want to talk about that. We don't. We try to stay apolitical on this program, mainly because we've got listeners of a variety of political... We still want them to have financial confidence in their life.

Pat: Yeah.

Andy: And when I'm thinking about politics. Your money, it's not red, it's not blue, it's green, right? And that's what we want to focus on.

Scott: Well, we just want to make sure the policies that we put in place are healthy for the economy over long periods of time, I think.

Pat: And therefore the people that live in the economy...

Scott: That's where there's disagreement.

Pat: Which is all of us. Well, as always, Andy, thank you. We're always astounded that you have these facts at your fingertips.

Scott: Yeah, appreciate it. Thanks, Andy.

Andy: Absolutely. Thank you.

Scott: I'm glad you were with us.

Pat: Always.

Scott: By the way, I'm often of mixed feelings on having Andy talk about the current economy because I don't want investors to react based upon current data in the marketplace. Because historically, people cannot take that information and make wise enough choices to outsmart the market. No one's been able to do that over a long period of time.

Pat: Yes, correct.

Scott: You might get it right once or twice. So my concern is always, "Well, I think based upon what's going on or like the person that talked to the gym this morning, interest rates are coming down, well, based on that, I think maybe I'll buy some housing stocks because I think housing is going to..."

Pat: But no one knows. What we do know is that what we're talking about the challenges now in the economy, three years from now...

Scott: Completely different.

Pat: ...will be completely different. And the market goes up more times than it goes down, right, 52 versus 48

Scott: And I'll never forget, Pat, I had a client who was widowed just years ago. Actually, it was a client's daughter who was middle age or so, whatever you define middle age. She had a couple of teenagers at home, I think is what it was. Her husband passed away, very tragic. And husband took care of the finances and he had some traditional stock broker guy at one of the big Wall Street firms. And they would talk every week and lots of trades, tons of trades. I think it was probably a really good client for the broker because lots of commissions, right? Lots of trade. And so I'm doing a financial plan for this widow. There's never enough money,'ve worked with widows.

Pat: Yes.

Scott: I've never been in a situation where there's like... It's different. I'm not talking about someone in their 70s.

Pat: Yes, yes. Someone that's raising children.

Scott: I've never seen anyone with too much life insurance.

Pat: Most people are under-insured.

Scott: Yes. Anyway, so we were going through all that and then we were talking about her investment. She says, "Well, what about the jobs report that's coming out Friday?" I said, "What?" "The jobs report on Friday." And she had talked to this broker and somehow she thought that in order for her to manage these dollars going forward, she's going to have to pay attention to things like...

Pat: She's going to become an economist?

Scott: I guess. And I said we do things very differently here.

Pat: Yes. Yeah, investment should always be based on timelines. Always based on timelines.

Scott: Correct.

Pat: Always based on timelines.

Scott: If you need income or money in the next five years, that should have nothing to do with the stock market. If you've got 5, 10, 15, 20 years, the key is to ignore the current value and focus on what's got the highest probability of success 5, 10, 15, 20 years.

Pat: And your portfolio should be built in those buckets.

Scott: And it's easy to forget about probabilities of outcome because that's really what you need to base your portfolio on.

Pat: That's everything.

Scott: What's going to give you the highest chance of success throughout the rest of your life for your financial independence?

Pat: Over the long term.

Scott: The rest of your life.

Pat: Yeah. Hey, look, Scott, I have a situation I'm working with a client, has a nice monthly pension. In discussion, realized there's not really enough risk in the portfolio. After the discussion with the client, it's like, "I don't think I'm ever going to spend this money. We should be investing it for multi-generations." Right? So what it told us was, look, you can withstand much, much more risk because your timeline is much, much longer, regardless of your age.

Scott: Even if you're 82.

Pat: Because it wasn't the client's age that mattered.

Scott: That's right.

Pat: It was who's going to end up with the money that matters.

Scott: That's right.

Pat: And that involved some good estate planning and some gifting practices. That's what good financial planning is. Not the jobs report on Friday.

Scott: That's right. Thank you.

Pat: Not the jobs report on Friday. The jobs report on Friday. Good or bad?

Scott: Are they still on Fridays?

Pat: I don't know when they are.

Scott: I have no economic calendar that I pay close attention to. Yeah. It's irrelevant over the short period.

Pat: Actually, so I was listening to a podcast and they talked about the Beige Book, but originally the Beige Book was a Red Book, but they thought the red...

Scott: It doesn't sound good.

Pat: It didn't sound good. So they changed it to the Beige Book.

Scott: It was probably during the commie time as well, right?

Pat: The Red Book. Perfect.

Scott: "According to the Red Book, the Fed's Red Book." All right. Let's take some calls. We're in Jackson... I'm sorry. We're in California talking with Jackson. Jackson, you're with Allworth's "Money Matters."

Jackson: Hey, what's going on, fellas?

Scott: Hi, Jackson.

Jackson: Feel like we're old friends.

Scott: Oh, thank you. That made my day.

Jackson: Yeah. Listened to you a long time. So like everybody else, I got hung up on these bonds in my portfolio. I'm not down near as bad as the big three. I read an article recently. One of them was down 25 billion paper losses in bonds. I'm down a little less than that. So I've got an 80-20 portfolio. I'm 63.

Scott: 80-20 meaning 80% equity, 20% fixed income?

Jackson: Yes, sir. Yes, sir. I was 100% equities until I turned 60, got a plan, and they showed me on paper, as a matter of fact, it was you folks, that, hey, you take a little less risk and still hit your goals. So, unfortunately, I bought them right around '22. I'm in the rears about 8% on them. I just wonder, what do I do forward? Do I just let these paper losses sit until they come back or what?

Pat: Are you taking income?

Jackson: No, sir.

Scott: Did you buy individual bonds?

Jackson: I've got funds, three bond funds, a short-term, a medium, and then the B&D long-term.

Scott: And how did you pick those?

Jackson: Research, looking at just, yeah, just information I picked up. That's why I chose those three.

Pat: Your advisors didn't pick it?

Jackson: No, no, no. I'm doing this myself, unfortunately.

Pat: Oh, and you went... How much did you have in the long?

Jackson: It's the shortest portion of it, about 5% of the portfolio. Yeah, smallest portion. The short-term is actually not bad. It's only down about 4%.

Pat: Correct.

Scott: Correct, correct.

Jackson: But the two long ones, I'm, you know, yeah, I mean, the rears a little bit.

Pat: So what happened is that...

Scott: Did you have any floating rate in there?

Pat: Was there any floating rate bond?

Jackson: No, one is a...two are Vanguards, one's...

Scott: It doesn't matter, it doesn't matter...

Pat: It doesn't matter who the company was.

Scott: So I think part of it is just maybe we have a little different approach. So we had more floating rate bonds, which floating rate means as rates go up, so does the underlying interest rate. So we did some things to mitigate.

Pat: And then we had short to medium. And so what happened is that the risk premium that you were receiving between the short and long didn't make a lot of sense in your portfolio. So, look, people were like, "Okay, well, it's..." And we preach kind of the same thing, that 80-20, but inside that 80% in your equities is kind of really important. And inside that 20% in your bond is really important. And there are certain points in time where you want to go a little bit short on bond, a little bit floating rate, maybe sometimes more long.

Scott: Well, the difference between stocks and bonds, bonds have a defined outcome, right? They mature. You know exactly what's going to happen in the future, assuming we're talking about investment grade or government. And so you can run models to say, all right...

Pat: What needs to happen...

Scott: Statistical probabilities.

Pat: So the question is, are these monies in IRAs or outside IRAs?

Jackson: Everything's in an IRA.

Pat: Would I hold a long bond now?

Scott: It depends. You would hold a long bond, Pat, if you were matching it to a maturity.

Pat: That's right.

Scott: If you had some need that was 8 years out or 10 years out, then you might hold the long bond. I'll be real frank with you, Jackson. So it sounds like you talked to one of our advisors and took part of the advice, but didn't see the value of hiring us, which is fine, like completely understand. But maybe it didn't work out as well of you doing it on your own.

Pat: It might have appeared more simple than it actually is. Back to your question, what do we do with the bond?

Scott: I don't know.

Pat: I don't know if I'd buy a long bond.

Jackson: Did you say, I don't know? You're not supposed to say that.

Pat: Yeah, he's allowed to say that.

Scott: Of course, I am. I've got an investment team that manages our bond portfolios. We have a team of people...

Pat: That are actually much smarter than we are when it comes to investments.

Scott: Correct. We do some active for most of our fixed income. And when on the active, we have conversations with the managers. We understand exactly what's going on in those portfolios. So when you ask us, what would you do?

Pat: I wouldn't have owned it. That's what I would have done. Then truly, you're like, "Hey, I got injured in a... I was bungee jumping and I got injured. What should I do?" I'm like, well, I wouldn't have bungee jumped. I don't know how to answer that. I truly don't. I wouldn't have gone long bond. But let's try to help, Scott. I don't know what...I probably wouldn't own long bond now.

Jackson: Just take the loss and move on.

Scott: Where are you going to put your money?

Jackson: At this point, I'm getting over 5% on the money market. I mean, right now I'd probably put it in there and...

Scott: You know what I think you should do? Don't hire Allworth because you don't trust us for whatever reason. I think you should hire some advisors.

Jackson: No, no, no. It's not that I don't trust you, I'm just cheap.

Pat: Well, actually, it ended up costing you more money.

Scott: Correct.

Pat: The loss was greater, but that's... Not just Alworth. I think...

Scott: [crosstalk 00:22:54.817] personal thing for me, Jackson. It's just...

Pat: I wouldn't own the long. That is the answer to the question. I wouldn't own the long.

Scott: Appreciate the call, Jackson.

Pat: I wouldn't own the long.

Scott: Well, you might for some portion of your portfolio. We don't even know his whole situation.

Pat: That's okay. Fair enough.

Scott: I find it... I was running with a good... And I don't know if I mentioned this on our show in the last... I was running with a good friend of mine who's inheriting some money, and like a life-changing inheritance. And he's talked to me a few times. He's kind of nervous about it all, how it might change him, and he doesn't want to get too money-focused, but he didn't know what to do, and so he's brought it up a few times. And I don't want him as a client because he's a close friend, obviously.

Pat: Yes. But you want the firm to...

Scott: Maybe. Because he said something like, "Yeah, I just don't know if it's really worth the money paying for an advisor," is what he said to me. And I'm thinking, "Do you think we just... You've known me 30 years. Do you think I built my career just fleecing people?" It was almost insulting because I know the guy well, right? It's kind of like if I'm running with my dentist and like, "I don't know if it's..."

Pat: "I think I'm going to do my own dentistry."

Scott: "Eh, I don't know if it's really worth paying for the dental service. Like, I could just do it myself." The reality, look, some people can do fine without a financial advisor. And some people, they never get to the point where they really trust their advisor and really follow their direction and make a variety of changes and whatnot.

Pat: Yes.

Scott: I think most people are well-served with a good-quality fiduciary advisor.

Pat: Scott, but the media and the press make it look easier than it really is, managing a portfolio.

Scott: You mean like it's so easy a baby can do it? Wasn't that an E-Trade ad? Wasn't it? A couple of babies talking, sitting around talking in the crib. "How hard can this be?"

Pat: Oh, that was before the dot com.

Scott: It was after that. And then...I don't remember. And then even Robinhood made...

Pat: Anyway, let's move on. Let's move on.

Scott: Anyway, we are in Colorado talking with Mitchell. Mitchell, you're with Allworth's "Money Matters."

Mitchell: Good morning.

Scott: Hi, Mitchell.

Mitchell: And good morning. And got a quick question or two. I am maybe stepping into...well, I know I've pretty much confirmed I'm stepping into an inheritance, $700,000 plus.

Scott: And who passed away? Who are you inheriting the money from?

Mitchell: My mother and my stepfather have both passed.

Pat: And is it in an IRA or outside of an IRA?

Mitchell: It's in several things. IRAs, bonds, several different accounts, diversified accounts.

Scott: And are there other beneficiaries or are you the sole beneficiary?

Mitchell: There are. We split up five ways and we each get an equal share. I got four step-siblings. They're all related. And I'm a step. So I'm a step to their relation. Okay.

Scott: And who's trustee or administrator of this?

Mitchell: One of the stepkids, one of my step sisters' husband is a trustee, but I think he's now going to be removed from it because I think that was only active while my stepfather was alive. And he's the last survivor. And he passed just a few weeks ago.

Pat: Okay. So what's your question for us?

Mitchell: My question is, okay, so I want to set myself up with like a duplex home in a different state. And I have some PERA, you know, Public Educator's Retirement Account, PERA. Does it sound familiar?

Pat: In California, we have something called PERS, which is Public Employees Retirement System. I assume it's very similar.

Mitchell: Yes, it is. Okay. And then social security, which I don't know if that's even a valid thing anymore or not.

Scott: How much is the pension?

Mitchell: The pension should be right around $700 per month.

Scott: Okay. And what about social security?

Mitchell: Social security, I'm looking at...I think it was $1,300 by the last posting.

Scott: And how old are you today?

Mitchell: Me, right now I'm 58.

Pat: And are you married?

Mitchell: No, I'm single. I own my own home. It's paid for and I have no children or dependents of any sort.

Pat: And what's the value of your home today?

Mitchell: I'm trying to get $500,000 for a sale, but it's right around $430,000

Pat: Okay. It's $430,000. And what do you have in savings like IRAs, 401(k)s, 403(b)s, that sort of thing?

Mitchell: Not much, like $275.

Pat: $275,000. Okay.

Scott: Because you're looking at this.

Mitchell: No, no, $275.

Pat: Okay. When you say not much.

Mitchell: I used a lot of it to pay for my PERA. I took out a lot of my 401(k) and bought PERA years because it was a better return.

Pat: You were not a teacher for very long then?

Mitchell: No, I wasn't even a teacher. I was a school bus driver, but that doesn't matter. It was just that I used it. And I was only for 12 years.

Scott: Okay. And you're still working today?

Mitchell: Yes, but a different field.

Scott: Okay. And how much longer? So what's the hope here? Right? You suddenly find out you're getting $700,000. You want to sell the house in Colorado, move to a different state, buy a duplex, I assume to rent out one half?

Micthell: Yes.

Scott: And what's the cost of the duplex?

Mitchell: I'm looking at $425 to $480.

Pat: Okay. And so what's your question for us?

Mitchell: Well, I need to know how do I get all my things, all my eggs together in one basket? Do I contact a financial planner? Do I look for a financial advisor? Do I look for just an investment broker? I don't know.

Pat: You want a financial advisor or a fiduciary?

Scott: A fee-based advisor that's not driven by commissions of selling your products.

Pat: So what happens is they'll engage, they'll do a financial plan for you. And they will say, what are your hopes and dreams? What do we have to work with? And then they'll say, these are your options. So you've got a couple of things going on here. One is this IRA that you're inheriting needs to be distributed within 10 years of the date that you inherit it. So there's some tax law.

Scott: He probably doesn't know at this point how much of this is going to be IRA. It's still relatively new.

Pat: That's right. And then if you've got any U.S. government bonds, like savings bonds, that's a taxable event. The other things should be okay. They'll receive what's called a step should receive a step up in basis, assuming that this goes on through a know, unless it's an irrevocable trust or they've done some fancy stuff in the past. A good advisor will sit down and say, "Okay, if you buy a duplex for $500,000, you're going to use up X amount of the dollars that you inherited." And then what's that?

Mitchell: Can I interject? My intent is actually to sell my home in Colorado and buy. So I use that money to pay down.

Pat: That exactly what I had... Yes. You're going to use up like $75,000 or $100,000 of that inheritance because you said your home's probably worth $425,000 to $430,000 right now, even though you're asking $500,000, but you said it's worth $425,000. And the duplex that you want to buy is somewhere around $500,000. So I actually factored that in. Yeah. Factored that in.

Scott: Cost of selling your home will need a little extra.

Pat: So this is some quick and dirty financial plan from guys on a podcast. And then we would look at how these dollars were inherited, what vehicles they're in, and how they'll be distributed. What you want to know at the end of the day is, okay, so I end up at this condo or a duplex in, I don't know, somewhere. And how much does the other side of the duplex generate in income? What should I set aside in case of the repairs?

Scott: Not in case.

Pat: Well, repairs, how long it stays empty, bad renters. Is the duplex the right idea? I would question whether you really want a duplex or not. Okay. I mean, a good advisor would say, why a duplex?

Mitchell: Right. As opposed to a multi-dwelling apartment kind of thing or just a single home?

Pat: Yeah, a single home or condo or...

Scott: Or just a single home and invest these dollars.

Pat: Or just a condo and invest your dollars, right? I just, I can't get out of my mind ever the Michael Keating movie, "Pacific Heights," where he moved into-

Mitchell: I know.

Pat: Right?

Mitchell: Yeah. That's what I want to be. Yeah, I want to be that guy.

Pat: You don't want to be that guy, right? You know the movie I'm talking about?

Scott: No.

Mitchell: Yeah, I do.

Scott: But for the rest of us that don't know the movie, what's the premise?

Pat: So Michael Keating, these people bought this house they couldn't afford in San Francisco, beautiful home. And then they leased the downstairs to Michael Keating. And he basically drove them out of their home just by being a bad tenant. Incredible movie, scary as heck. So anytime someone says, "Oh, I'm going to get a duplex and they're going to live next door. We're going to be all right."

Scott: You think of that.

Pat: And I can't help but think of that movie. So a good financial advisor will actually like kind of poke at this a little bit, right? I mean, and so we...

Scott: Because is your hope to retire?

Mitchell: Right, there is.

Pat: Yeah. And what state do you want to move to?

Mitchell: I'm looking at two, maybe three different states like Galveston, Texas, Jacksonville, Florida, and Charlton, North Carolina.

Pat: Okay. All right. And then the question is like, why there? Have you spent any time there? Why would you choose those areas? Right? That's what a good advisor will do, just kind of poke at things. So you have enough assets based upon what you're telling me.

Scott: Well, and based upon what we presume you're what you've been used to living on.

Pat: That's right. Because what is your income now?

Mitchell: Yeah, I used to be really poor. So my income now is right around $2,200, $2,400 take home.

Pat: Yeah. So you'll be fine. You'll be fine. You just want to organize this in the correct fashion. So I'm just going to tell you flat, you're in Colorado, right?

Mitchell: Overpriced Colorado.

Pat: Okay. So you can reach out to... We have advisors in...

Scott: Both our oldest kids live in Colorado.

Pat: Yes. Yes.

Scott: Not with each other. I don't even think they know each other anymore.

Pat: Yeah. So anyway, reach out to a good quality advisor and they'll walk you through this. And some advisors have account minimums of $1 million. You want to be pretty straightforward. Like, "Hey, I think the only thing I'm going to have..." Investable amounts, not the only thing. Your investable amount will probably end up being somewhere between $500,000 and $600,000.

Scott: Depending on if you choose to buy a duplex or not.

Pat: That's right.

Scott: Because if you want to rental, you might be better off buying a house and then a duplex around the corner and rent both those out.

Mitchell: You think so?

Scott: No, no, no.

Pat: We don't know.

Scott: We don't know. And part of it, you haven't had a lot of experience managing larger sums of dollars.

Pat: Have you ever owned a rental property before?

Mitchell: Well, I actually, yes and no. I moved to Louisiana and I rented my home out and I used a property manager to do that. And everything's great. It worked out really well. But that was having a property manager, I wasn't doing it.

Scott: It might not be a bad...

Pat: It might be appropriate.

Mitchell: That's what I was thinking. It might be appropriate to just have a management company come in and manage the one apartment.

Pat: Maybe, maybe not. A good advisor. You have enough assets, it sounds like, based upon your standard of living that you could retire comfortably. You just
got to line it up correctly.

Mitchell: Well, can I just walk out of my job right now and just say bye-bye?

Scott: I would not. You haven't inherited the dollars yet.

Pat: Yeah. And you don't know how it's going to shake out.

Mitchell: No, I don't. I'm kind of waiting until after the election to find out what's going on.

Pat: Not that. Wait until you get the dollars in the bank. Not what they say you're going to get.

Mitchell: That is within, I think we're looking at a couple months.

Pat: Don't do anything until the money is in your name.

Mitchell: Oh, yeah. I'm sensible like that. I actually don't...I have no debt. I have no college debt. I have no mortgage. I mean, my house paid off. Everything's good. I'm free and clear.

Pat: Yeah. Just make sure the money is in your account.

Scott: Let me ask you this, Mitchell. So, you've had some jobs that didn't pay a ton, being a bus driver. I don't know what the pay is, but I'm presuming it's not a ton.

Micthell: About $2,200

Scott: How were you able to get your house paid off?

Mitchell: Well, my dad left me an inheritance from his side. Because my mom and dad are separated, but my dad died early. He died 12, 15 years ago. And I used that money to pay off. But I also had a really good-paying job at the time. I was making 50K a year. So, I just used that money in addition and just put that money into the bank. And then I quit doing the animation stuff. And I started just doing the bus driving stuff because I needed...stress. And so, I went to that.

Scott: Got it.

Mitchell: I ended up leaving the $50,000 job.

Scott: Well, it sounds like you were prudent and wise with the first inheritance. And this is a little larger. And if you're prudent and wise with this, you can certainly put yourself in a position where you can maintain your standard of living the rest of your life.

Mitchell: Well, what's a good way to make it work for you? I mean, like...

Scott: There's no silver bullet, right?

Mitchell: [crosstalk 00:37:08.419] property?

Scott: It's really about having... You hear all advisors talk about diversified portfolio. It sounds kind of boring, but the concept behind having a diversified portfolio is not to get rich.

Pat: It's to stop you from being poor.

Mitchell: Well, there you go.

Scott: It's getting to a certain point in life and you're like, "You know, I've got enough assets here. And if I manage things correctly and take a 4% or 5% withdrawal on my accounts, I'm going to be able to be fine." So then it's saying, "How do we get a broad diversified portfolio?" It might include real estate. It might include some stocks, some bonds, or some other, right? So, highly diversified. So, if there's one thing that doesn't do terribly well, well, it's not going to have any major impact on you. And then again, if there's something that does phenomenally well, it's not going to have that much major impact on you either because you've got a broadly diversified portfolio. But at this stage in life, that's what...most people, when they're approaching retirement, are more concerned about not being poor than they are about becoming wealthier. And I would imagine that's where...

Pat: And not returning to work, unless they want to.

Mitchell: You know, that's kind of where I'm at.

Pat: Oh, of course you are.

Mitchell: Actually, I just don't want to be... I just want to be comfortable.

Pat: That's right.

Mitchell: I just need to be like, you know, Daddy Warbucks or anything like that.

Pat: Engage a good advisor. If they start by mentioning a product and not financial planning, then walk away. You need to walk through... So, you want someone to do a financial plan for you so that you could say, "What if? What if I bought this?"

Scott: What's it look like... If I quit today, retire today, what's my life look like next year...

Pat: If I bought this condo?

Scott: ....when I'm 63, when I'm 70, when I'm 75, when I'm 85?

Pat: Like, what's it look like? Now, no one really knows what it's going to look like with 85. But you can simulate models in different environments that give you a higher degree of probability of outcomes than others. And that's what a good advisor will do for you.

Scott: Yeah. And a good one's going to use realistic assumptions. There's always a conflict. So, I appreciate the call, Mitchell. There's a conflict. And people need to understand this. When they go and talk to an advisor, so when Mitchell talks to an advisor... Let's forget Mitchell for a second. Let's assume that this is a retirement offer that the company has. Or there's a 401(k) of $700,000 sitting there. And a financial advisor who gets paid to manage those assets has an economic interest in having that person...sorry, this is the reality...having that person leave their workplace and transfer those dollars to that firm. There's that conflict.

Pat: Always.

Scott: Always. You want to make sure you work with an advisor, frankly, that there's already... The advisor's successful enough so that's not going to make any difference in that advisor's life, whether or not you become a client or not. Right?

Pat: Yes.

Scott: At a minimum, there's that. And clearly, someone who's not selling you a product. But particularly, you take someone who is selling, let's say, an annuity, that's selling some insurance product, that might equity index annuity, some crappy equity index annuity, where they make 5%, 6%, 7% commission. They've got a huge economic incentive to try to convince you to take your assets wherever they are.

Pat: And they get paid upfront.

Scott: And those people get paid upfront.

Pat: And unfortunately, what has happened in our industry is people become dually registered, which means some days they're a fiduciary and some days they're just pure insurance sales.

Scott: Well, at least, Pat, with a certified financial planner designation, if someone's a CFP, as part of being a CFP, you make a pledge that you will act as a fiduciary at all times. So that's one of the reasons we mentioned work with a CFP, because at least you know you've...

Pat: Yeah, but in our own town, who was that? What was the guy's name that lost his license in our own town?

Scott: Was he ever a CFP? I don't think so.

Pat: No, no. To your point, he was a fiduciary.

Scott: A paid radio program and he would talk about being a fee-based advisor, fee-based advisor.

Pat: And then when people went to his office, big old fat annuities.

Scott: We saw one with an 18-year surrender charge.

Pat: Yes.

Scott: Locked the client's money for 18 years in an insurance product.

Pat: What was his name? I know, because we mentioned him on our...

Scott: Keith.

Pat: Keith Springer. We mentioned him on our show, specifically because people called and asked. And we mentioned him on our show and I got kind of a letter from their attorney. And by the way, I continue to talk about it anyway. But he is no longer in the industry.

Scott: He lost his license. I think there's no more alleged.

Pat: I guess not. But the point I'm bringing this up is just because someone calls themselves a fiduciary doesn't mean that they're a fiduciary full-time. So you've got to be very, very... Which is terrible. It just makes it harder for the consumer to trust. So if someone is recommending a product to you that has a surrender charge on it.

Scott: Don't.

Pat: Don't do it. Day one. A one-day surrender charge, a five-day, a ten-year...

Scott: And if you go and talk to an advisor and they start to lead with product as opposed to a plan, there's...

Pat: And you may not need product.

Scott: And by the way, also you can Google, just Google broker check. Google broker check, put the person's name in, you'll get all their history. It's a good place to...

Pat: First thing we do.

Scott: Anyway, hey, Pat, it's been fun, as usual, doing this program. It's nice catching up with you. It's been a long time.

Pat: I do appreciate Andy. I look forward to having him on the show. I really do. Which is... And I listen to a lot of financial podcasts.

Scott: You do?

Pat: I do. Not like call-and-talk shows, but economic.

Scott: I was on someone's podcast recently. I forget who it was. Anyway, if you haven't in a while, give us a review on a podcast. We certainly appreciate it. We do check those reviews. And if you'd like to be a guest on our program, you've got a question for us, we would love to have you on. Simply send us an email at,, or you can call 833-99-WORTH. We'll schedule time for you to be on our program. It's been great having you. This has been Scott Hanson and Pat McClain of Allworth's "Money Matters."

Announcer: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.