Man: 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 "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: Yeah, glad to be with you. Pat and myself are both in the studio. We're recording this what... What day is it? Thursday. Thursday, the 15th.

Pat: August.

Scott: Yes. And that's one of the things. Well, we've got a great show, again, some calls and some other topics we'll be discussing. So it was a week and a half ago, markets had a pretty particular bad day. And it's said, as the Dow gets higher, larger, not higher in numbers, the numbers are bigger, and the swings seem so much bigger, right?

Pat: From a point, just a number.

Scott: From a point. So 500 point, like, years ago, that was a big deal. Today, it's... And I remember I debated... Pat, you were on on vacation, took a little vacation, and I got someone in the office, says, "Hey, Scott, do you want to do a little special recording for the start of the show to let people know about the markets." And I said, "Let's see how the next day goes." [Inaudible 00:01:32]. And then if you look a... I mean, a week, we're only a couple percentage points below our highs. Phenomenal year all in all, from an investor's perspective.

Pat: Yeah. And the divergence between the Dow and the Nasdaq just continues to amaze me.

Scott: Yeah, yeah. Well, I think that the Dow, they haven't done a very good job of...

Pat: Mimicking the overall markets?

Scott: Yes.

Pat: There's only 30 stocks. It's hard to do.

Scott: Yeah, and the weighting is different too.

Pat: That's right, that's right. Versus the S&P. If you want to really know what the market's doing, actually look at the total market.

Scott: The only reason we look at the Dow is because that's what we used to do.

Pat: Historically.

Scott: Yeah, that's the only reason people pay attention to it.

Pat: I hear financial reports on the radio, and they always report on gold. And I always think, what a waste of time that is, reporting the price of gold. What percentage of the U.S. population actually owns gold? And is it not easy enough? I just think it's... And I asked someone that reports financial news, and I said, "Why do you still report on gold?" He said, "Because every time we don't, someone calls and complains."

Scott: Some gold bug. He is waiting for his day. Well, gold has been on fire the last....

Pat: Lately, lately, lately.

Scott: I tell you, it's funny, actually, I was thinking about gold the other day, because you can tell when gold prices are up because that's when the companies start paying a lot of talk show hosts, right? They have the little ads on gold, and why it's important to diversify, and gold in your IRA. And you hear a lot, at least, I've heard a lot of those lately. And I was thinking the other day, I would like to see someone put together a chart of the last 20 years, 30 years, 40 years, 50 years, of how gold has performed relative to other asset classes. I mean, it doesn't produce anything.

Pat: And look, it's a commodity. People pretend it's not a commodity. Historically based, it was a store of wealth. But before that was a store of wealth, salt was a store of wealth. At one point in time, salt cost the same amount as gold at one point in time.

Scott: You mean gram for gram?

Pat: Yes. Hundreds and hundreds and hundreds of years ago, right? But what determines the price of gold and what determines the price of salt if it's a commodity? It's the cost of manufacturing it. So there is an endless supply of gold. We're just going to go with that. There is an endless supply of gold. As we get further and further into it, the costs go up in order to actually derive it, mill it, take it out of the ground, right? At the end of the day, you'll see swings in the price of gold, but it's the cost of getting it out of the ground and putting it in usable form.

Scott: Yes, I just... Price of gold, about 2500 bucks an ounce, up 20% year to date.

Pat: That's pretty good.

Scott: Financial market is the only market I know when prices are up, people get more excited, they want to buy more. And when prices are down, they want to sell.

Pat: Correct.

Scott: Right? Like, hey, gold's up 20%, maybe you should buy.

Pat: Yeah. Well, it's what it did, it's not what it's going to do. Remember, anytime you look at the price of an asset, or the growth of the asset, it doesn't tell you what it's going to do in the future. It actually tells you what it did in the past. So you could make the argument that you should be living in the the assets that are down, not up.

Scott: Pure contrarian play.

Pat: Pure. And owning a actually broad index of stock, you're covering both bases. You've got the momentum stocks and you've got the stocks that are out of favor, right? You've got it both covered. You're not going to get rich, but it's a great store of wealth, right? The stock market goes down on average once every three years.

Scott: That's right.

Pat: Once every...by 10%.

Scott: And 47% of the days, they're down, so pretty much a coin toss any day.

Pat: Once every six years, the market historically has dropped 25% or more. And you're like, "Well, why would you buy anything like that?" Well, because it goes up more often than it goes down. And it's called a risk premium, which is, you're going to have to live through the bad things if you want to... I've been married for 38 years. I consider myself pretty happily married, right? You talk to anyone that's been married for 38 years, and you ask them, "How long have you been married?" And if they say, "Well, I've been happily married for 38 years," I always think, "You're a liar. It wasn't all happy."

Scott: I've have been married 32 years. Full disclosure. Yesterday afternoon, we're driving to a counseling session that we had set like a month prior, three weeks prior.

Pat: I call them tune ups.

Scott: Yeah. Actually, we're at a really great spot. We had a couple days together, just the two of us, with no kids. We're in a really great spot. And I think I said, "What were we gonna discuss today? Why did we set up this appointment?" Yeah, we worked through whatever it was we were...

Pat: Volatility in life, volatility market. It's a fact, right? You and I have been business partners for 30 years. Volatility in the relationship, right? Anyway, so if you... We're going on, we should get to the calls, but I could go on and on that equities in the good and the bad, in the good and the bad.

Scott: For long term investment.

Pat: Long term investment.

Scott: Five plus years.

Pat: Yeah. And then later on in the show, I want to talk a little bit about real estate and these non-traded REITs, and what the real estate distributors are actually doing.

Scott: All right. Well, let's start with the calls here. Let's start off with Chris. Chris, you're with AllWorth's "Money Matters."

Chris: Hey, good morning. So, as far as, you know, getting on or getting close to where you're pulling your money out of, like, IRAs, and pensions, and stuff like that, and the portfolio and stuff. How do you get rid of that anxiety of making that correct choice of what you're going to sell and etc.? I've done a little bit of it because I have a beneficial IRA, which I have to pull a little bit out of each year. But now that I'm getting close...

Scott: How old are you?

Chris: I will be 61 this month.

Scott: And when you plan on retiring?

Chris: I could hopefully retire soon.

Pat: So this is a common... First of all, it creates anxiety for two reasons. One is that the portfolio, the asset allocation, and the volatility. And the other is, you've probably saved a good part of your life, your working career, and have not ever spent any of that money. And it always sits there as kind of, you know, this thing that is gonna, get me through the hard times. And then all of a sudden you quit working, and there's no job, and you're actually tapping into this.

Scott: Yeah. You're no longer stacking wood on the wood pile, and now you're pulling it out.

Pat: Yes. So there's two things that run it. One is the emotional, and that's really hard to get.

Scott: And I'm gonna add one more, Pat, because now you've got time, right? Because you're working, and maybe it's a really bad day in the market, or a bad week, or a bad month, or a bad quarter. And you're like, "Oh, this is... Oh, well, I got work to do." And you can put it off, and you focus on your work. When you're retired, you wake up, like, "What do I have today? Well, I got a barber at 2:00 on Tuesday, and then Wednesday..." Like, so you've got all this free time, and you've got a lot of time, if you want, just sit online and start going down these rabbit holes of whatever kind of economists you want to follow to drive yourself crazy.

Pat: And question all of your decisions. So what does your portfolio look like now?

Chris: Well, I mean, I'm pretty well diversified. Of course, probably too heavy in tech. But I've got about 80 plus different stocks in a couple different IRAs and pension, mostly self directed.

Pat: And do you use any mutual funds or ETFs?

Chris: Within that, I've got three or four ETFs, but as a total, I would say it's probably, I don't know, a half a percent total. And that was kind of my point is, do you see people going more to where they invest more in ETFs, where it may cover a broader base, versus, like, selling one or two different stocks at a time?

Pat: Yes. I'll just go to myself, if you looked at my individual portfolio, right, overall, I probably own three stocks, and the rest are broadly diversified ETFs or mutual funds.

Scott: Well, I own several 100 only because I have a synthetic index. So it's called direct indexing. It's essentially an index that is custom built, which we do for some of our clients as well.

Pat: And you do that in a brokerage account for tax efficiency.

Scott: It's all for tax efficiency. It's much more expensive than just owning an ETF, but it's designed for tax efficiency.

Pat: How much money is there?

Chris: A little over 3 million.

Pat: And how much do you plan on actually taking out when you retire?

Chris: Well, I mean, they tell you rule of thumb is 4% a year, something like that, you know. So, I mean, the anxiety is not there... I'm not worried about running out. I'm worried about, like, I don't know, missing... Like, oh, if I sell too much Apple, you know, and then all of a sudden, it has a great runner. You know what I mean? It's like, the anxiety of selling the wrong thing.

Pat: That is never going to go away, right? That is never going to go...

Scott: Well, I mean, one way to diversify... I mean one way to deal with getting out is any anything in a retirement plan where there's no tax consequences, get rid of your individual equities and buy index funds.

Chris: Yeah, right. And that was a thought, but I'm just...

Pat: So you plan on taking $120,000 a year out of it?

Scott: No.

Chris: Well, I don't know.

Scott: I don't think you will. By the time you have your.... Do you get Social Security as well as a pension?

Chris: Yeah.

Scott: Yeah, my guess is...

Pat: And how much will the Social Security and pension make up as a percentage of your current income?

Chris: Well, I mean, it will be 100%, I guess, right?

Pat: Well, no, no.

Scott: What's your salary now, take home pay? I mean, before taxes, annual compensation.

Chris: Oh, it's lower than 120.

Pat: Oh, oh, you can do anything you want. I mean, it's the reality. Look, the reality is, you don't need this $3 million to live on. Is that a fair statement that you'll be fine with just...

Chris: I think it's fair. I don't want to leave it all to anybody else.

Scott: Well, literally, I think the important question for you, is like, what is the plan for these dollars?

Pat: What's the purpose? What's my thesis around these dollars? Right? So if the thesis around these dollars is, I'm not going to spend any of it, well, then keep it all in equities and manage it for the next generation. If the thesis around these dollars is, I'm going to spend $120,000 a year, then you want the portfolio to be probably 75% equities and 25% other fixed type assets. And that way, you actually draw off the fixed type assets in a down market, and in an upmarket...

Scott: I mean, I think it's really important to determine, like, how much of these dollars do you want for your lifestyle? And you might say, I'm going to spend a little bit more. You probably won't, because the reason you have these dollars is because you've been a good saver and relatively conservative on your spending. And my guess is you don't get a lot of joy by just wasting a bunch of money somewhere. It probably bugs you more than you would get joy wasting money somewhere.

Pat: And a fairly aggressive investor, which has paid off over the long run.

Scott: Yeah. And so if your goal is to die with as much money as possible, that would be once... I mean, just saying, if that was your goal.

Chris: No, not really.

Scott: So what is the goal with these dollars? Do you have children?

Chris: Oh, yeah, yeah.

Scott: I mean, is it to help your kids? Is it to give to charity? Is it... You can't take it with you, right? So...

Chris: Yeah. I mean, I'm not so worried about them. They're all working, great jobs, and all that. And so I think they'll be fine. You know, if there's something left at the end, that's fine too. But I don't plan on doing...you know, plan on spending money, travel, enjoy a few things. You know, typical retirement stuff, I guess.

Pat: I gotta tell you, if I was sitting in an office with you and we were discussing your financial situation, I would tell you, and you don't say this very often, you need to increase your standard of living. I would start a 2% distribution off this immediately. And then I'd look at Roth conversions for any amount that we could. And I would send it to you... I'll tell a story. I have a client, he's 81. He's been with me for 23 years. Maybe he's 82 now. And he came to me with, I don't know, $8 million. Great saver, no children.

Scott: Modest lifestyle.

Pat: Modest lifestyle.

Scott: That's why he had the 8 million bucks.

Pat: Right. Modest lifestyle. I got him to start spending money. And it took a series of years. And I said, "Look, I'm gonna send you a check for $25,000 a month, and you cannot give it back to me. You must spend this." So the next thing, you know, I'm talking to him, he goes, "You know, Pat, I really like this first class thing on an airplane." He said, "You know, when I go on cruises with my friends now, we stay in the nicest cabin." And it took years to change the mindset. Now I send him $40,000 a month and the account value is well over 10 million. I think it's probably 12 million now. And the point being is, look, he saved it for years and years, and his spending thesis didn't exist. All he knew was how to save.

Scott: And to that point, Pat, not everyone wants to increase their personal consumption.

Pat: That's correct.

Scott: Right? So you have other clients that have given to charities and gotten really involved in charities. And suddenly, rather than leaving it in part of their will, they're like, we're going to allocate X dollars every year, and we're gonna be more involved. And so it's not just like, we're gonna go consume it on first class tickets and cruises. Maybe that's not your thing. I think what would be helpful for you is really looking at these dollars and saying, what's the purpose of these? Because part of it's a game, right? I mean, you've done a good job over the years, and your concern now is, boy, I sell the stock and it goes up, and it's a game. Right? You don't want to lose the game. So I think the game maybe is like, in this next chapter, what's the game.

Chris: Right. It's a game changer.

Pat: How much money do you have outside... Yeah. How much money do you have outside IRS?

Chris: Probably close to two, something like that, with the house and other properties.

Pat: Okay, yeah. But when you say other properties, are they investment properties or?

Chris: Not really investment properties, like, an office and little bit of dirt.

Pat: Okay, those are investments. Because once you retire, you're not going to...

Chris: Okay, yes. Yeah. A house.

Pat: You know, you may not think you need it, you may not think you need it... But, you know, Scott, you started the show by actually saying that you and your wife were going to a counselor just for kind of a tune up, right?

Scott: Yeah, we do a couple times a year.

Pat: Yeah, yeah.

Scott: Same woman we've been seeing for years.

Pat: Yeah. But it's just like, oh, are we all on the same page?

Scott: Then we have teenagers in the house, like, we're trying to survive.

Pat: Hopefully they don't listen to the show.

Scott: Of course not. They're too consumed about their own life [inaudible 00:19:08].

Pat: You might benefit from paying an hourly fee to sit down with an advisor for a couple hours and actually do any financial plan that actually makes you more comfortable in your situation, right? In terms of your asset allocation. And there's modeling. You could model a portfolio that shows you exactly what happens over time based upon market conditions. And then you look at the portfolio and you say, "Well, maybe...." You said you're probably overweighted in tech. If you own an index, you've got a lot of tech in it anyway, you may benefit from actually just smoothing the portfolio out a little. And I'll tell you where you'll really benefit from it, is the tax efficiency on the brokerage side of the balance sheet. Obviously, you could take all this money. I'd make the argument that you could take all this money and put it 100% equities based upon your current thesis of you're not gonna probably spend it,. But I think it's a combination of the two.

Chris: Okay, yeah.

Scott: I wish we were more help

Chris: Yeah, real world problems.

Scott: Yeah. My guess is, when you were a young man, you didn't think you'd have this problem at this stage in life, but it's...

Chris: Oh, no.

Pat: Yeah. Well...

Scott: You created it.

Pat: It's a good problem to have.

Scott: It's so interesting... I appreciate the call, Chris. It's so interesting how our our mindset, our personalities, our hopes and fears, our comfort with unknowns, like, all that plays into the finances. And some are just good savers from day one. My son is that way, just from day one.

Pat: Your daughter?

Scott: Good spender from day one. Very different. Yeah. Raised the same, same household, same values, very different, extremely different, their approach to finances. But those that tend to be good savers are usually have some concern about the future, and they're saving to protect themselves from some unknown calamity.

Pat: I understand it's anxiety.

Scott: Oh, I do too. Of course, it's part of the natural tension. And then the challenges as you get kind of the stage in life where you started to save for it to begin with, right? Most people's like, I'm saving for the future. Then when the future's there, it's hard to change that mindset of going from being a saver to spending.

Pat: Scott, it reminds me of a call we took a few weeks ago, and then we did a follow up house call with him, the gentleman whose wife had these terrible heart issues. And he just couldn't get himself to spend the money to make their life more comfortable in these really difficult times. And that's an extreme example. But you have to create a thesis about what your desires are, what is your your goals with the money, and then the investment asset allocation follows that.

Scott: And I think the goal, I mean, it changes. It can change... For most Americans, it still, I need enough money saved so if I can't work, I've got some money. That's the majority of Americans. But if we look at the top 5% or 10% of wealthy people in the United States, a lot of that comes because people are just good savers. Just like the last call we had, suddenly he gets....he was probably saving for retirement. Now he's almost at his retirement age and has way more than he needs for retirement.

Pat: Yeah. And then he has anxiety over that, the allocation.

Scott: And to your point, like, having some clarity on what these dollars are gonna... What are they designed for now.

Pat: He has a great issue with fear of missing out.

Scott: Yes. Sell, the stock goes up. By the way, kind of just a rule of thumb. If you buy a stock, it will go down the next day. And if you sell a stock it will go up the next day. I don't know if there's actually studies to back that up, but it feels true to me.

Pat: Yeah. And he'll be fine.

Scott: All right, let's continue on here. We're in Virginia, talking with Lance. Lance, you're with AllWorth's "Money Matters."

Lance: Hey, Scott, Pat. Appreciate you taking my call. First, I want to tell you, in the last six months, I've enjoyed four years of the podcast, and even listening to you from the future, I've given you five star reviews.

Scott: Okay, well, thank you. [Crosstalk 00:23:55]. You're in Virginia, how did you come across the podcast, anyway?

Lance: It just ended up in my feed one day, and I started listening to it, went to the very start, and just started listening to it for... I drive a lot in Southern Virginia, so [crosstalk 00:24:13].

Scott: I don't know how far back we have on... We've been doing the show for 29 years. So we don't have 29 years on it.

Lance: Yeah, it only took me back to October of 2020. So that's as far back as I could go. So a little background on my question. I have a 26 year old son. He recently got engaged.

Scott: Congrats.

Lance: Thanks. Next springtime, him and his fiancée will go ahead and tie the knot. So I was thinking about it. My wife and I, we're kind of comfortable in our financial roadmap. And I'm pretty comfortable or pretty sure that her parents are the same. But, you know, having just done some recent financial planning, I thought it'd be good to get them a financial plan. So I'm going to gift them a financial plan, I guess, for the start of their marriage. But my two questions is, the first one, because I'm going to do it, is, do you think the timing would be better, is give it to like a Christmas gift so they can do it before the wedding, or just wait until the wedding and give it to them? The second question is more, you know, as financial planners and dads yourselves, have you seen that this unsolicited help doesn't really do anything?

Pat: You beat you beat me to it. Lance, you beat me to it. You beat me to it. It oftentimes goes poorly, right? Because it implies that they are doing... It implies, it's not the truth. I think most people can benefit from a financial planner. And I have plenty of nieces and nephews that come to me when they're purchasing a home or a life event, or they get a new job, and like, what do I do with my old 401(k) or IRA? And then I allocate for them. But they come to me, I don't go to them. And so the danger, and I've seen this at least a half a dozen times, where the parents kind of push it on them. And...

Scott: These are dad's values. I know dad's values. I've grown up with dad's values.

Pat: And so they'll resist it. I've seen it other times where there's substantial amounts of money, and the money's gonna go downstream, and the parents say, "Look, you know, you're going to inherit this money."

Scott: It's a different discussion, though.

Pat: It's a different discussion. What you want to do...

Scott: And I think... Pat, I just think, how many times over the years I've had clients, can you talk with my son, with the hopes of getting something set up. The son or daughter never... I mean, the very few times over the years that I have it's always uncomfortable, because you can tell the kid's doing it just to make dad or mom happy.

Pat: So what I have found works the best, and I've coached clients that are, like, I'd like my kid to come and do this, is you get the child to ask. And you say, "Look, you know, I had this advisor, and this is what they've done for me, and they work with young people." And normally, it's like, hey, if you have a 401(k), you want this advisor to actually look at the portfolio, make the the selections for you. So it's a soft introduction. And your advisor should happily do that for you, right? It'd take an advisor 10 or 15 minutes to look at all the choices, and then build a model and give it to the kid, and then start the relationship. But the things that they're going to tell your child aren't super popular, which is, look, you should buy some term life insurance, right? And the kid's like, "Oh, I'm not dying. My wife's not dying." Or you need to save 10% of your income. You need to maximize this 401(k).

Scott: Or you're spending too much. You've got this credit card debt here. We're gonna need to figure this out. And cut back.

Pat: Yeah, yeah. So I wouldn't do it. I would talk about my advisor to my son, right? I have a son.

Scott: Or, you know, I would think, offer it up. Say, anytime you guys are ready for that, I'd be happy to pay for financial plan. And I think I'd do it like that, as opposed to Christmas morning they open up. And here's a gift, "Hey, kids get a [inaudible 00:28:43] dad's values."

Pat: Oh, yeah. And by the way, here's a gift certificate to a weight loss clinic. Right? You're looking at dad like, what? What? So, you know, it's funny, because my 28 year old just got engaged. And last year he came to me and he said, "Hey, do I need a financial planner?" And I said, "Well, you know, I've kind of been acting as your financial planner throughout the years. And, you know, I allocated to 401(k), and I tell you what to do with the cash, and this and this." I said, "You're not ready for a formal relationship with a financial planner." But he's got one in me, right? But if he didn't have one in me, I'd say, "Yes, you need a financial planner." And probably next year, after he gets married, he's going to sit down with a financial planner, because he needs to be told you need to buy X, Y, and Z. And these things are not super popular. But you need to do it. Fortunately, you know, this kid's pretty responsible. You know, he has the first dollar he's ever made, and he has tried to spend money...

Scott: You do have four kids, though, right?

Pat: Yeah, they're all.. It's funny how they treat my money versus their money. I agree with Scott. Just sit down with him, say this guy does...

Scott: And really, the most important thing for someone in their 26 years old is their career. I mean, I think particularly the 20s, latter part of your 20s, if you're not focused on your career... I mean, that's where wealth is going to come from. One's career. Maybe someone gets lucky and inherits money. But it's typically one's career. Maybe they have a business, they're just good at their job, they move up the ranks. I mean, that's where wealth really comes from. And I think in your 20s, that's super important to [crosstalk 00:30:41].

Pat: But I like Scott's approach, which is the soft approach.

Scott: Yeah, I kind of like that idea.

Pat: Yeah, the soft approach. Well, you should, it's your idea.

Scott: Oh, I have bad ideas too sometimes.

Pat: So, anyway, appreciate the call. And...

Lance: Absolutely. How many children do you have?

Lance: I got two. The oldest is a son, and I got a young, soon to be lawyer. So, we'll see how it goes.

Pat: Oh, I've got one of those, soon to be lawyer. Yes, yes, yeah, yeah.

Lance: So it's just the two.

Pat: Public defender, by the way.

Scott: Appreciate the call, Lance. It's interesting... I mean, I know lots of attorneys, and there's so many different types of practicing law. And when someone says they're an attorney, like, I don't put them in some box, like, oh, this is what your career must be like, because they could be vastly different. Personal injury attorneys they're kind of on one camp, and you get public defenders, and then business litigators.

Pat: And corporate lawyers, like, we have working for us.

Scott: Yeah, I mean, there's so many...

Pat: In house counsel.

Scott: Yeah. And I think some of the... You know, you look at someone like Dave Ramsey. He's built this big company. It's working with young people and people who have gotten themselves into debt. And the biggest issue for young people is to avoid debt, particularly consumer debt. I mean, if you can get in the habit of saving and buying a car with cash, as opposed to... It doesn't take that long to just say, let's defer a couple years and save X dollars a month so we have the money to buy a car, as opposed to financing it. And then the rest of your life, you're financing, financing, financing, and you need... That's where so much money just gets wasted.

Pat: Dave Ramsey does a good job with that population.

Scott: Yeah, with that population, yeah, for sure. I don't agree with him on his investment approach, obviously. Anyway, let's go to Texas and talk to Grover. Grover, you're with AllWorth's "Money Matters."

Grover: Hey, how are you guys doing?

Scott: We're great.

Grover: I was in the car a couple of weeks ago and caught the tail end of a show. And you were talking about a caller's spouse could file for one half of his social security. So that intrigued me. My situation is, my wife is getting Social Security. It's not a big amount, and I get mine. She files for half of mine. Does that come out of my portion?

Scott: It doesn't affect yours at all.

Pat: And you're both receiving it now, correct?

Grover: Yeah, that's correct.

Pat: I suspect that you actually...She'll get the higher of the two.

Grover: Yeah. You know, example numbers, if she's getting 1000 a month now, I'm getting four. She files for my half. [Crosstalk 00:33:41].

Scott: How old was she when she started hers? And how old were you when you started yours?

Grover: Sixty five. We're 72 and 74 now.

Scott: You both started at 65?

Grover: Yeah.

Pat: Oh. You both started at the same time. And she took hers...

Grover: No. She started two years after me, because she's two years younger.

Scott: Yeah. So both started at the full retirement age.

Pat: Yeah, you need to go back to Social Security.

Scott: Yeah. I'd have a conversation with Social Security.

Pat: Yes, you need to go back to Social Security. It would be the higher of the two, but it doesn't sound like it.

Grover: Well, my example was, if she's now getting... These are just numbers I'm picking out. She's getting 1000 now, I'm getting 4000.

Pat: That's right.

Grover: If she files and gets half, she'll be then getting 2000, so it's $1,000 more per month.

Pat: That's right, that's right. That's why you need to go back to Social Security Administration.

Grover: I wish I'd had known this five years ago.

Pat: There might be some provision in there that allows you to recapture that. I don't know.

Grover: All right. So we should go to Social Security...

Pat: How long have you been married?

Grover: Fifty four years.

Pat: Okay, well, this isn't a second marriage, unless you were really young when you got married the first time. Yeah, you need to go back to Social Security Administration. I've never heard of such a thing. Have you?

Scott: No, I'm just trying to... Well, typically, it's automatic. You qualify for the highest benefit.

Pat: Yes.

Grover: Well, if it's automatic, then we already [crosstalk 00:35:12].

Scott: We don't know the answer.

Pat: You have to go back to the Social Security Administration. It doesn't sound right. How's that? It doesn't sound right. If I were you, I would make an appointment and go down, talk to Social Security as soon as possible. And then when they say, "Oh, we made a mistake," then you go back and ask for the recapture.

Grover: All right, that's good news, I think.

Pat: All right. Good luck on that.

Scott: Thank you.

Pat: Yeah. Social Security can get a little complicated at times.

Scott: It's phenomenal.

Pat: There used to be you could do this file and suspend stuff. And used to be some kind of tricks along this, where you can get half your spouse's benefit, then you'd suspend yours, and you'd wait.

Scott: But they got rid of that.

pat: They got rid of it was a few years back. I used to understand the rules pretty well.

Scott: I got my Social Security benefit estimate in the mail the other day.

Pat: They still send those out?

Scott: They do.

Pat: They quit for a while, and they didn't...

Scott: Yeah, I'm feeling pretty good about it, you know, since... So how old are you, Pat?

Pat: Sixty one.

Scott: Sixty one. And you've been doing this 30 some years as a financial advisor?

Pat: Yes.

Scott: Thirty five years. And imagine 35 years ago, you weren't planning on Social Security being there for you.

Pat: No.

Scott: And my guess is, when you hit your normal retirement age, you will...

Pat: Oh, 100%. In fact, when my wife turns 62, it's hard to believe that I'm married to a 62 year old, that she'll take hers as soon as possible. Yeah, she doesn't work outside of the home. So, yeah.

Scott: REITs real estate. At the top of the program, you said you want to spend the time on this.

Pat: Yes. So this came out in the "New York Times" earlier this week.

Scott: I quit subscribing to them.

Pat: Oh, did you?

Scott: Yeah. I got pissed off about something. I'm like, they're not getting my four bucks a month or whatever it is.

Pat: Actually, you know what I did, I called... I'm subscribed to a local newspaper online, and my wife said, "This is really expensive." And so I called them and said, "Hey, I'm gonna cancel." And they said... This is off.... And they said, "Why?" And I said, "Because it costs too much?" They said, "Well, we'll lower it to $29:95 a month." And I said, "I was thinking more about $19." And they said, "Okay, we'll lower it to $19.95 a month." And I thought, "Why did I say $19? I should have said $13." So I'll call them back in a couple months and tell them I want to pay $13.

Scott: Well, you want to talk about a challenging business model.

Pat: Oh, and actually, there's a suit in the state of California right now against Google... Well, it's legislation against Google to get paid, excuse me, to get paid for reuse of...

Scott: All the articles that they stole?

Pat: All the articles. It's a terribly... And it's a really important... I mean, that the press is...it's unbelievably important.

Scott: It was, but it does... I mean, now, there's...

Pat: Oh, Scott, it was important. It is important. And it will be more important again. Because there's press now, but it isn't...it's hard to... Anyway, let's not get into this.

Scott: But there's a change of the guard, because I think if you go to "New York Times," you know what their political band is gonna be, right? You go to these different... Yeah, I don't know. I've always thought, you know what, that's perplexing, why local newspapers still endorse certain candidates. I understand back in the day when a town would have three or four different newspapers, right, then you subscribed with the one that you aligned with the most, or whatever. But when there's... Most big cities now have one newspaper left. And you would think... I mean, if I were the the publisher, I would think, I want to appeal to the widest audience as possible. I'm going to stay clear of the...

Pat: You might be more interested in making a profit than you are in espousing your views to...

Scott: I am a business person, yes.

Pat: ...a vast population. [Crosstalk 00:39:14]. Okay, right? The driver isn't the same. So naturally, you're going to see it as, how do I appeal to the most people possible?

Scott: Very fair point. How do I sell as many newspapers as I could? Yes, that would be my number one goal. Yeah, you're right.

Pat: But the publisher is, like...

Scott: Maybe that's not their goal.

Pat: ...life's pretty good, but I wish more people thought like me.

Scott: Fair. I hadn't really thought about it that way.

Pat: All right. So, "New York Times," this is the title of the article. "It was a hot real estate trade. Now investors are worried." And by the way, non-traded real estate investment trust aren't inherently good and/or bad. It's just that they can be more expensive to purchase and they lack liquidity.

Scott: All things being equal, if I'm going to buy an investment, I want to invest in something, I would like to have the littlest amount of friction, both on the going in and getting out. And what I mean by friction is, ease to buy, cost to buy, ease to sell, cost to sell, right? In a perfect world, any investment, whether it's stocks, or real estate, or I don't care what it is, I would like to be able to buy that with as little friction as possible, and have as much flexibility in selling. So when I want my money back, for whatever reason, I'm able to get those dollars back. So from our firm, we manage 20 some billion for our clients. That's what we look for too, with our clients. Like, what is the lowest cost to get that exposure, to get what we're trying to accomplish? What's the lowest cost? And where can we provide the most amount of liquidity, so that if a client needs their money, or wants to fire us, whatever, like, they can get their money and do something different with it.

Pat: That's the thesis.

Scott: And it's only...if there's some areas of the market that there's no way to get it in a public market, where you have to look at some sort of partnership structure, or some other structure where it adds a lot of complexity, then we weigh like, is it worth this added complexity? Is it really necessary?

Pat: Why make your life more difficult when you don't have to.

Scott: And so, when we're talking about real estate investment trusts, non-traded, when we know there's a market out there for trading what we can buy today and sell tomorrow with little friction, the question is, why do we get involved in these products that have friction, which you're going to talk about.

Pat: Which is exactly what people are asking themselves now, that own these, right?

Scott: That were sold these.

Pat: They were sold these because...

Scott: They didn't buy these, they were sold these.

Pat: ...they typically come with big commissions. So the background on this is that for years and years, these REITs were sold to pension funds. So if you were a large pension fund and you wanted some real estate exposure, you have two options. You could partner with someone local, or you could do it yourself, which has happened. We're from Sacramento. California Public Employee Retirement System is the largest pension plan in the United States, right here in our backyard. So they will do both. They will do both. They will partner with developers and develop some on their own.

Scott: Or they'll just go buy buildings.

Pat: Or they'll go buy buildings themselves, and use professionals to manage the buildings. Or they'll buy traded REITs. But the problem with non-traded REITs is the lack of visibility into value. And then how do you dispose of this REIT? Because you're locked in, you have no control when you're getting out, you have given up that control. If you look at how non-traded REITs are priced versus traded REITs, the difference is stark. And the reason is, no one really knows what the value of a building is until the day it sells.

Scott: Yeah. Just like I don't know the value of my house. I have an idea, and I'm curious when neighbors sell their houses, what's that going for. Maybe it'd have an impact on what mine is worth. I don't really know.

Pat: And if you want to get out of it, there's a lot of friction. So, the other thing is, some of these firms right now are actually still doing 5% distributions of the principal amount that you deposited, but they're not earning 5%.

Scott: They were sold to investors. Hey...

Pat: Steady yield.

Scott: We're gonna get steady yield. And you're gonna own these assets. It's gonna increase in price over time. And you're also getting this nice, fat check every month.

Pat: Yes. So they were particularly appealing when interest rates were at zero, and these paid dividends of roughly 4%. And they had the allure of, hey, look, it's real estate. You know, there's no risk in it. So again, if you were approached by an advisor that wants you to buy a non-traded REIT, just look at it and say, what other alternatives do I have? And it doesn't matter what asset class you're in, it makes no difference. The hottest thing a couple years ago were apartments. Apartments, you can't go wrong on apartments. You can raise rates. That isn't the case. That isn't the case.

Scott: Well, the challenge in so many...the challenge with these commercial real estate properties right now and apartments, it's what happened to interest rates. And it's not like these properties have 30 year fixed mortgages.

Pat: Yes, they mature three, five, seven years.

Scott: Interest rates are fixed for a short period of time.

Pat: That's right. And not only that, Scott, is that when the yields were so high, it's a supply and demand. So it actually draws more capital into that side of the market. More buildings are built. Before we go back to the call, I saw a fascinating article last week. I didn't print it out, but it had to do with mortgages on lodging properties, hotels, in the city of San Francisco. Last year, 4%...

Scott: Oh, I saw that.

Pat: Did you see that? Was it 4%...

Scott: What percentage? And we're in default. Oh, my God, like forty something...

Pat: They were late, late payments, 41%.

Scott: It was 41%, that's right. I remembered forty something.

Pat: Forty one percent, 41%. So things change. Things change. But look, when you buy something, worry about liquidity. Worry about liquidity.

Scott: Yeah. And the challenge with these non-traded REITs, people... Well, a lot of times, brokers sell them because they get paid big commissions. Anyway, I think we're wrapping up our time. By the way, if you value this podcast, you think it's helpful, a couple things. One, forward it onto someone you think could benefit, particularly if there's an episode you hear like, I think Johnny could enjoy that. Forward it on to Johnny, or Jill, or whatever. But also, give us a review. Just pretty simple. I gave someone a review just the other day on my Spotify account, and click, click, and gave five stars. I thought it was a good podcast. So, anyway, appreciate you doing that. And we'll see you again next week. This has been Scott Hanson and Pat McClain, of AllWorth "Money Matters."

Man: 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.