January 11, 2025 - Money Matters Podcast
2025 stock myths, tax hacks, crash fears, and retirement strategies.
On this week’s Money Matters, Scott and Pat explore the importance of understanding market cycles, making smart allocation decisions, and avoiding the pitfalls of short-term market predictions. They also answer listener questions about Social Security timing, managing multiple investment accounts, and navigating annuities. Plus, they delve into the emotional side of investing and share insights on effective financial planning for complex situations, including second marriages.
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 questions@moneymatters.com.
Transcript
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's "Money Matters," call now at 833-99-WORTH. That's 833-99-WORTH.
Scott: Welcome to Allworth's "Money Matters." Scott Hanson here.
Pat: Pat McClain. Thank you for joining us.
Scott: That's right. Both myself and my co-host, we're both financial advisors, certified financial planner, chartered financial consultant, and we've been spending decades helping people with their finances and do this podcast and radio program to help you as well.
Pat: We try.
Scott: Yeah. And it's off to a new year. New start. Fresh start.
Pat: That's right. We do this every year. Over and over again.
Scott: What do you mean every year?
Pat: Fresh start. "I'm going to change this year. I swear."
Scott: I don't know. I was actually driving into the studio, and I was flipping around the radio stations. We're recording this on Wednesday.
Pat: Flipping around. You act like you've got a knob or something. It's all digital. You just press things, right? You weren't flipping, like, literally, like, "Oh, I'm turning..." You didn't turn a knob.
Scott: I had to get it just in the right spot so it wasn't too much static.
Pat: You're showing your age now.
Scott: I know. I'm kidding. And there was, like...it must have been, like, a two-minute ad from this financial advisor on a local radio station talking about the things to prepare for differently this year because of the new administration and Musk and all this. And I'm thinking, like, what sort of different things? How do you prepare?
Pat: Like you know what's going to happen?
Scott: That was my point. That was my thought. We all have access to the same information.
Pat: Yes. Apparently, maybe he knows something we don't. And listen, Elon Musk, oh, what a fascinating...this is just a great time to be alive just to watch this.
Scott: Just some spectators.
Pat: Just to watch this. What he's doing in Europe now is amazing.
Scott: Oh, my gosh.
Pat: Isn't it? I got to tell you, Scott.
Scott: Musk?
Pat: Yeah. How long do you think he's going to stay in Trump's orbit?
Scott: I can't imagine. Trump wants someone who's more popular than he is, right? Battle of the egos at some point. I don't know.
Pat: That's a great...that would be a great show.
Scott: Anyway, we're not wanting to be political. No, we just got to start thinking. Well, it's not really about trying to figure out where the markets are going to head this year because that's...amateur investors tend to do that. Seasoned investors have learned what the markets do through their cycles.
Pat: Thank you.
Scott: They don't try to predict things short-term.
Pat: If you were an institutional money manager for a pension, for a pension, right, institutional, you'd be like, "Oh, okay, this is how the portfolio should look. Maybe we're overweighted here, underweighted here, maybe slightly overweight this, slightly underweight that."
Scott: And you're probably thinking, we had such great years back to back with the S&P 500.
Pat: Holy smokes.
Scott: It's probably...
Pat: Incredible. Unbelievable.
Scott: Yeah. We haven't had these two good years since the late '90s.
Pat: I did not know that.
Scott: Yeah, '97, '98.
Pat: Okay, that's scary.
Scott: Yeah.
Pat: Yeah. I mean, the price-to-earnings ratios are...
Scott: Yeah, stocks are frothy. Everything's frothy.
Pat: Yeah. But they were last year, too.
Scott: They've been for 20... It used to be that the price, you know, the bogey like, "Oh, here's where you should have the price-to-earnings ratio." And had I followed that throughout my whole career...
Pat: Yeah, you would have been terrible.
Scott: Things would have been a disaster.
Pat: Yeah. And they were oftentimes based on interest rates and cost of money, right? Well, there was a comparison between the two, but there's... Anyway.
Scott: Anyway, it's a good year. But I think the most important thing for people is to make sure you've got the right allocations. If you have a rebalance, if you don't have something on an automatic rebalance or it's been professionally managed, you need to take a look at it because you're going to be overweighted in U.S. large-cap growth stocks.
Pat: No question, right, if you let your portfolio run.
Scott: And if you look over the last, I don't care how many years, U.S. large-cap growth are not the leader year after year.
Pat: No.
Scott: And there'll be years when they're going to be lagger, and it's going to be value stocks, mid-cap, small-cap.
Pat: Multiple years that they'll lag. Multiple years.
Scott: And you know what's really lagged for years is foreign markets.
Pat: Yeah. But do you think that there's that much difference between a foreign market and the U.S. market anymore?
Scott: Well, I start to wonder, when you look at, for example, Germany used to be an industrial powerhouse. They're shrinking. I mean, they've got some serious structural issues.
Pat: But if you look at the size of Germany and the companies in Germany and you look at the revenues, right...
Scott: Most of it's coming outside of Germany.
Pat: As is U.S. companies. Not most of it, but a large percentage of it. So I was thinking, isn't that weird, I was thinking about this last week myself.
Scott: I mean, the reality is that most people have some international stocks in their portfolio. I do. Most of our clients do.
Pat: Oh, yeah, absolutely.
Scott: There's a lot of big companies that are foreign-based.
Pat: That's right. That's right. I mean, you can't miss it. But even if you have 100% U.S.-based companies, it's not like 50 years ago, right, where they're all U.S.-based. I mean, look at, you know, Meta and Google.
Scott: Yeah, yeah, their revenue comes from everywhere.
Pat: Yeah, and no one cares anymore, right?
Scott: But if you look at valuation of foreign stocks, so the performance of them have been dismal in relation to the U.S. stock market.
Pat: That's right.
Scott: By and large.
Pat: Yes. Mostly because of Japan, though, do you think?
Scott: I mean, you look at the European markets having... Everything's lagged. And if you look at the price of those stocks today, they're really inexpensive relative to the U.S. market, which means that I think the average investor is saying, "Well, the U.S. market is going to grow that much faster. We've got more productivity, etc." So we can command a higher multiple. But I wouldn't give up on these areas that have underperformed.
Pat: That's right.
Scott: I would not give up on small-cap value. I would not give up on international.
Pat: You never hear about small-cap value anymore.
Scott: That's because it's been out of favor for so long.
Pat: Well, I think a lot of it has moved off the public markets.
Scott: I mean, it's not that many small-caps companies.
Pat: No, no, yeah. Because of the regulations regarding publicly-traded stocks, no, do you think?
Scott: Oh, for sure. No one goes public. I mean, I just didn't say nobody. But, like, the public markets are pretty much dead, and I think part of that is just all these private alternatives.
Pat: Yeah. And the regulatory markets.
Scott: Yeah, yeah. So cumbersome to be public.
Pat: No, think about this. Our company 20 years ago would be a publicly-traded company.
Scott: That's right. Correct.
Pat: Right? It's large enough.
Scott: Oh, for sure.
Pat: We would be a publicly small-cap, probably not value, maybe...
Scott: Growth company.
Pat: Yeah. Yeah. Anyway.
Scott: It's a different era today.
Pat: All right.
Scott: All right, we better take some calls.
Pat: Well, it's nice visiting with you, Scott. I haven't seen you in a while. I enjoyed this conversation. And if you're listening, I hope you enjoyed it as well.
Scott: Yeah.
Pat: Right?
Scott: You know, it's really good. I'm going to put the calls here in a minute. I spent time with my family over the holiday break. I think most of us did.
Pat: You said that's nice. That's comforting.
Scott: I got to be careful. Number one, my son is starting to listen to our podcast, so I got to be careful, only say nice things about it, which I always do. Blake, if you hear this.
Pat: Why?
Scott: Well, so he's been... We're going to get the calls in a minute. It's just interesting. He's trying to figure out a second job. He's a career pilot now. And he's, like, realized how bored he is. He always spends so many time...
Pat: Yeah, even in the cockpit.
Scott: But then you go to a market, and you're sitting around in a hotel room till 3:00 in the afternoon, and sometimes you can't be more than an hour's drive from the airport because...
Pat: So you can't be, like, at a beach. And you most certainly can't be at a bar.
Scott: He's like, "I need another job." No, for sure. He said, "I need another job, something meaningful to do." And we were talking about being a financial advisor.
Pat: And he's thinking about it.
Scott: And he says, "Well, I never really thought about it because that was your thing." And I said, "Kind of, like, perfect, kind of, you've got so much time."
Pat: We have advisors at our firm that are pilots.
Scott: I know.
Pat: Lots of them.
Scott: That's what I was explaining to him, so.
Pat: So he's listening now.
Scott: Yeah. And I think he's kind of considering maybe.
Pat: Wow. Had he ever listened before?
Scott: I don't think so.
Pat: You know, my kids never listen, but their friends do.
Scott: Yeah, I know. I think everyone wants to chart their own course, I guess, right? Anyway, I think my son would be a great financial advisor.
Pat: Oh, he would be a great financial advisor. He would absolutely be able to interact with every 20- and 30-year-old.
Scott: Crypto. All right. Let's take some calls.
Pat: He's not a crypto bro, is he?
Scott: No. We're going to get to the calls here. But he did say...he said something about it. Bitcoin up and he says, "Man," he says, "I wish I wouldn't have moved out of Bitcoin into these other crypto coins." So the other crypto coins aren't back up to where he put in. I don't think he's got much in crypto.
Pat: All right, well.
Scott: And I think it was primarily from online poker that he would do that. It's not legal in the U.S. Not that he does that now that he might be listening.
Pat: Because the government is going to chase him down. "There's Blake Hanson."
Scott: Online poker.
Pat: He's doing online poker.
Scott: He's bet 50 bucks.
Pat: "I'm sure. We'll chase him down."
Scott: 833-99-WORTH is our number. Let's start off here in California with Brian. Brian, you're with Allworth's "Money Matters."
Brian: Hi. How are you doing this morning?
Scott: We are fantastic. How are you doing, Brian?
Pat: Thank you for tolerating...
Brian: I'm doing well. Thank you.
Pat: Thank you for tolerating our little conversation.
Brian: I had a couple of things that I wanted to know. I'm going to be 68 next month. I just retired three months ago. My wife turned 65 last month. She's already retired and receiving SSI. We have almost $900,000 in simple IRA that I have from my work. And we also have two Roth IRAs, both of which are worth approximately $250,000.
Scott: Is that combined or each?
Brian: No, each.
Scott: Okay.
Pat: All right.
Brian: We own the house that we live in. We have no debts. We have a second house that we're in the process of selling right now. We should realize about $400,000 from that after fees and everything.
Scott: And is that is that a rental property or is that a second home?
Brian: That was our primary home until I retired three months ago.
Scott: Okay, so no tax.
Brian: Then we moved to where we are now.
Scott: So no taxes on it. Okay.
Brian: Yeah. And then we have a couple of CDs, one of which matures in a couple of months in March, and we'll realize about $415,000 from that. And then the second one that matures in June, that will receive about $225,000 from that. Have a small portfolio of some blue chip stocks that's worth about $115,000 right now,
Pat: So, Brian, on these CDs, how long ago did you buy them?
Brian: About nine...well, no, about six months ago. These were nine-month CDs.
Scott: And have you always had this much cash in your portfolio? And you also had enough cash to buy in the house out.
Pat: And I assume you were self-employed and owned a business.
Brian: Yes, I was a public defender.
Pat: Well, how did you get 900 grand in a simple IRA?
Brian: It was the...
Pat: Is it an IRA? You said simple IRA, not IRA. That's why I asked the question, because if...
Scott: You're limited, like, six grand a year or something.
Pat: That's correct. That's correct.
Scott: I could be wrong with that number.
Pat: So typically...
Brian: Okay, I may be wrong. It may not be simple.
Pat: Okay, it's an IRA. Okay.
Brian: Yeah, it's an IRA.
Pat: Okay, thank you. You used the word simple, which threw me off. Okay. So you have 900 in IRA. Continue. Boy, you've done well as a public defender. I'm feeling really good about this. My daughter's wanting to be a public defender.
Scott: She's in law school, yeah?
Pat: She's in law school. I'm like, "Really?" I feel great about this call. This is better for me than it is for you, Brian.
Scott: Maybe she doesn't have to be a personal injury attorney after all.
Pat: I know she's got a sponge. Her business card turns into a sponge.
Brian: Well, I can tell you real quickly, I had my own law firm, and it's in a small county. And I had a contract with the county to provide public defender services. But I'm not a government employee.
Pat: Okay. All right. Then it was probably a simple IRA. Okay. So, what's your question for us?
Brian: Question is, we don't have any children. We'd like to leave a small legacy for our nieces and nephews. We're in pretty good health. We're not extravagant, but we do like to travel. What I was wondering is, should I start taking Social Security now or should I wait a couple more years until I'm 70?
Scott: What are you living on?
Brian: I had just put away a little bit of savings. Like I said, I retired about three months ago, and so I've put enough away to, you know, keep us going until March when we receive more money. I hadn't set anything up other than we've just been living off of what we had.
Pat: Okay. So, how much are you spending a month? That's the question. Like, how much do you spend a month?
Brian: Well, we took a big vacation right after I retired.
Pat: Okay. How much do you think you're going to spend a month, right? So is it $5,000 a month? Is it $10,000? Because it all works down to percentages, right? So if you have 2 million, Scott was doing the numbers, if you have $2 million saved up, right, in all sources, some of it after-tax, some of it pre-tax, and you're taking a 5% distribution, then it's $100,000 a year. And everything runs by percentages. So someone says, "Well, is this too much or too little?" You look at the percentage, right? And then you look at how much you think it's going to earn and how it's invested. And those two things come together. How much do you think you're going to live on a month, like 10 grand?
Brian: That or a little less. As I said, we're not extravagant. Probably eight.
Pat: Okay. And where is that coming from now?
Brian: As I said...
Scott: It's just savings for three months.
Brian: Yeah, it was just savings for the last three months.
Pat: Yeah, this is the way I would design it. I mean...
Scott: That's why he's called.
Pat: Oh, that's a good point, Scott.
Scott: So if I were in your situation, you have no kids, and I would assume your health is good health, no health issues.
Brian: Yeah. Yeah.
Scott: And right now, is your plan to wait until age 70 to take Social Security?
Brian: Well, that was one of my questions. I mean, I could take it now just for the income, or we could invest in some dividend stocks to get some income [crosstalk 00:16:00] Social Security.
Scott: How are your IRAs and Roth IRAs invested?
Brian: Mutual funds.
Scott: I mean, stocks?
Pat: What kind of...?
Brian: Stocks, all stocks.
Pat: All stocks.
Brian: Yeah. No, don't have any bonds or anything. Yeah.
Pat: Really? All stock.
Brian: Yeah.
Scott: You have an interesting...you structured things a little...
Brian: We had gotten those years ago and never changed anything.
Pat: And they served you well.
Scott: Yes.
Brian: Yes.
Scott: Because one thing I would consider is having some stocks outside. Like, maybe instead of some of those CDs, having some equities that are outside your retirement account because of the favorable capital gain treatment, tax treatment, and potential step-up in basis at death, and have the taxable stuff inside the retirement account.
Pat: You've got it completely backward.
Scott: And I understand this happens because we view dollars differently. You viewed your retirement dollars as retirement dollars, you can be more aggressive, and you saved up these other dollars as years went on, and you looked at those as more conservative dollars.
Pat: And some of them proceeds from the sale of the home. But it should be completely backwards, right? So, actually, you want non-dividend-paying stocks outside of your IRA...
Scott: That's right.
Pat: ...right, because of the way tax law works, that you receive a step-up in basis at the death of you or your spouse, right? And then you want the things that generate income. So if you were sitting down in my office today, we'd look at this whole thing and we'd say, "Okay, there's..." what was there, about $1.8 million, $2 million there?
Scott: No, there's about 2.3.
Pat: Okay, $2.3 million. I'd start a 5% distribution on this thing. So you're sending you $115,000 a year. And then I would actually start Social Security today. Your wife's already getting Social Security. Between the two of them, you'll probably income around $140,000, $150,000. Disagree if you want, Scott. And then I'd say, have a good time. Spend it. And then I would reallocate the portfolio for tax purposes, and I would put the income-producing...
Scott: Not 100% of it. But you would have more IRA in the retirement accounts and the fixed income and figuring out what percentage of your overall portfolio you want in secure fixed as opposed to growth.
Pat: And there would be no tax implications in making that change because of the way it's structured today. You wouldn't have to sell anything outside of the IRAs to get it there.
Brian: Okay.
Pat: And that's it. I got to tell you, you need to hire a good advisor.
Scott: You know what, I got to tell you, Brian here, as I'm sitting here, thinking, you're a public defender. There are public defenders because people can't afford attorneys, and attorneys think it's foolish for someone to represent themselves.
Pat: Well, I think it is. Don't you?
Brian: Absolutely. Absolutely.
Pat: I think it is.
Scott: Maybe it's time to get an advisor, financial advisor.
Pat: Yeah, you need an advisor.
Brian: Okay. That was all.
Pat: You lack...
Scott: Seriously, Brian.
Pat: You lack good counsel.
Scott: You've done a great job saving. You've done the hard work. This is the hard work, no question about it. Saving money for the future is not easy. You did the hard work. Getting a good advisor is going to pay big dividends.
Pat: The problem is, what is a good advisor?
Scott: Well, like, what's a good attorney? There's great attorneys. There's lousy attorneys. Like most professions, there's great people in professions and there's lousy people in profession.
Pat: Yeah. But you know, I got to tell you, though, Scott, it's not like 10 years ago. Your advisor, because of technology, can live anywhere in the country.
Scott: That's right. Oh, for sure.
Pat: I mean, we have an advisor that works for a firm who is absolutely phenomenal, only works with high net worth clients, mostly business owners or privately held companies. And he never leaves his house.
Scott: Well, it's because he's great.
Pat: Anyway, you need a...
Scott: Yeah, I'd recommend that, Brian.
Brian: Okay.
Pat: All right. And out of curiosity, what other type of law did you...did you do any civil stuff, or was it all criminal?
Brian: No. No.
Pat: All criminal? Your whole career was all criminal.
Brian: Yeah.
Pat: Always on the defender side, never as a prosecutor.
Brian: Never as a prosecutor.
Pat: Holy smokes. How long did you do it for?
Brian: Close to 30 years.
Scott: Wow.
Pat: And where did you go to law school?
Scott: You saw it all. You saw it all.
Pat: And you still seem pretty upbeat.
Scott: Wow.
Brian: There's a high burnout rate. Many people don't do it as long as I did.
Pat: I know. That's why I'm fascinated by this. I wish we could have a cup of coffee sometime. If you're in the Sacramento area, call me.
Scott: Appreciate the call, Brian. I hope retirement's fantastic for you.
Pat: Yeah, joy.
Scott: It's interesting.
Pat: You've earned it.
Scott: It's interesting. You're talking about...a good friend of mine was a retired highway patrolman, and his last several years...people stay with the highway patrol because of pension, right?
Pat: Yes. Is this the guy I know from the gym?
Scott: Yeah.
Pat: Okay.
Scott: Well, there's a couple. I have a couple of friends who are retired highway patrolmen.
Pat: Yeah. Now you're bragging. You have more than one friend.
Scott: You know, I get out of it, and I don't get speeding tickets. I'm Scott Hanson. But, like, my one buddy, he switched to do an inside job. He says that just being around those, as he'd called it, it's the bottom rung of society, just...
Pat: Is a highway patrolman.
Scott: Yes, just the calls, the stuff that he dealt with all the time, just...
Pat: Like being called out, not pulling someone over.
Scott: No, I don't know. Just the people he spent most of his time with, the criminals, just to your point, the hard thing about...
Pat: I can't imagine.
Scott: And everyone needs a good defense.
Pat: Oh, listen, I did a Bible study at...I had never told you this story. I did a Bible study at a jail for a year. I had to quit.
Scott: They were teaching those things.
Pat: What? No, I thought I was going to get beat up because this guy was talking about how nice his clothes were when he was dealing with methamphetamine. And then I said to him, "Man, you got that nice orange jumpsuit." I thought, "Oh, my gosh."
Scott: He was literally bragging about how nice he used to dress?
Pat: Yeah, he goes, "When I was doing meth, when I was selling meth, I dressed so fine." And he was telling me about his clothes. It was in the middle of a Bible study. And I said to him, "And you have that nice orange jumpsuit." I thought that was the day...I walked out of there and I said, "I need to leave here because I'm going to get beat up." Those are comments that probably don't go over well in jail.
Scott: All right. Let's talk with Julie. Julie, you're with Allworth's "Money Matters."
Julie: Hi. Thanks for taking my call.
Scott: Yeah. Hi, Julie.
Julie: So my husband says there's been talk of a crash. And I'm wondering how I can move my current balance of my 401(k), 457, and IRA accounts to minimize any potential loss.
Pat: Got it. And when he says there's been talk of a crash, what do you think that means? And who's saying it?
Julie: The radio station he listens to, KFBK. And I guess that they are talking about the stocks.
Pat: He's listening to the ads.
Scott: That's right.
Julie: Okay.
Pat: He's listening to the ads. And for the rest of the listeners of KFBK, we're located in the Sacramento area. And Scott and I have been on KFBK for...
Scott: Twenty-nine years.
Pat: Yeah, a long time. And we know those people well.
Scott: And we're not talking about crash.
Pat: And we don't talk about crash because I'm not that smart. I wish I was that smart. Don't you wish you were that smart?
Scott: I probably wouldn't be doing this show.
Pat: That's right.
Scott: Or I'd be doing it from, like, a beach, a sunny spot somewhere.
Pat: Like your own island.
Scott: My own island, yeah, that sounds [inaudible 00:24:00].
Pat: Because all we would do is we'd go short [inaudible 00:24:02].
Scott: I'd probably still do this. But in any case...
Pat: I wouldn't.
Scott: So to answer your question, it's super simple. I mean, you could just either online, transfer everything to a money market, or you can call and you can have everything liquidated and moved to cash before the markets close today.
Pat: But I wouldn't.
Scott: No.
Pat: That's how you do it, right? In fact, if you were that confident, you would actually take a short position in the market and bet that it's going to fall. And then, when it falls, not only will you not lose money...
Scott: You'll make money.
Pat: ...you'll make money, right, if you were that confident in this prediction.
Scott: The challenge with having this sort of strategy is you have to be right frequently, and you can't be wrong. So if you think that there's some crash coming or a pullback in the markets, which I believe there is a pullback in the markets coming, I just don't know when because it always happens, historically, stocks fall 10% every 9 months, right? Every 9 months, there's a 10% decline, every 9 months, historically.
Pat: Historically, long enough.
Scott: Yeah, yeah. And every 3.5 years, we have a 20% decline, historically. And historically, last 100-plus years or whatever, stocks have done about 10% a year.
Pat: And remember, stocks are up 52% of the time, which means the inverse...
Scott: On a daily basis.
Pat: ...on a daily basis, they're down 48% of the time.
Scott: That's right. I think it's 53-47 or somewhere right there.
Pat: All right, we're rounding numbers now.
Scott: I mean, so let's assume that you did some research and you're like, "Hmm, stocks are too expensive. I need to get out. We're going to sit in the sidelines." You move to the sidelines, and then what?
Pat: And stocks go up. Let's say they go up. Right?
Scott: How do you get back in?
Pat: Look, if a more...
Scott: Or if they go down, you're not going to want to go in when they're down because things are so bad at that time.
Pat: Yeah. And remember, these ads, there are ads that are saying that. They're trying to sell you their services through fear, right? And people primarily react to the markets between...
Scott: It's probably the gold ads.
Pat: Oh, it might be the gold.
Scott: Yeah, I don't listen to the radio much anymore.
Pat: So I was meeting with some clients yesterday, happened to be friends as well, and I said, "If the worst thing that you could do, the portfolios that involve your emotion." I said, "There's nothing wrong with your portfolio." I was telling the clients, "Your portfolio is perfect. The only thing wrong with the portfolio is the people that actually own the portfolio because of their emotional reaction to the marketplace." And everyone has it. We are all driven by many things, but fear and greed in investing are two of the biggest ones.
Scott: Julie, do you have any idea what percentage of your portfolio are in stocks?
Julie: As opposed to bonds?
Pat: Bonds or cash.
Scott: Bonds or cash, yeah.
Pat: Yeah, fixed incomes.
Julie: About 50%.
Pat: Oh, you're fine.
Scott: And how old are you?
Julie: Fifty-five.
Pat: That's a very conservative...
Scott: And when do you plan on spending your money?
Julie: Probably not for quite a few years.
Pat: That is an extremely conservative portfolio in my estimation.
Scott: So you're probably not going to touch these dollars for 5 to 10 years. And even at that point, you're just going to start taking some income off this. You're not going to cash out your accounts and blow all the money in the first year of retirement.
Pat: And even if the markets are down in five years, you'd spend the bond or the fixed income portion of the portfolio.
Pat: Once again, you're going to have to ignore your husband.
Julie: Sorry. Okay.
Pat: I'm really surprised you've started listening now. Does that makes sense?
Julie: Yes. So, do you have any recommendations how I should?
Pat: No, I mean...
Scott: Well, I mean, I don't know enough about you on this call to say, "Here's how it should be allocated." I mean, if you're having these concerns, and frankly, if you and your husband are having some disagreement, it might be a good idea to have a financial advisor be kind of the arbiter. Like, that happens all the time. Yeah, for sure.
Pat: It happens all the time. I mean, I have clients that I manage the husband's portfolio...
Scott: Differently, that's right.
Pat: ...differently than the wife's portfolio.
Scott: Because that's just how...
Pat: Because of how they view it, right? And then I have clients that one doesn't care about it and then you just interact with that client. I mean, you know, unfortunately, everyone's human.
Julie: Okay.
Pat: Yeah.
Scott: I'd be careful of fear because, look, think back year 2000, 25 years ago, right, the Dow hit 10,000.
Pat: Yes. Okay.
Scott: But then we went through the dot-com, 9/11. Then we had the housing bubble, the financial crisis. Just terrible, right?
Pat: And it was...
Scott: Then we had Trump and then Biden and then Trump's coming again, like, all these.
Pat: Oh, remember Obama, I mean, the phones rang off the hook.
Scott: Because everything was going to collapse, right?
Pat: Oh, you have no idea what's coming to America.
Scott: The Dow today is roughly 42,000.
Pat: And it was 10,000 25 years ago.
Scott: In the year 2000.
Pat: Twenty-five years.
Scott: And we went through all of that, think of all the things we went through that period, that last 25 years. And you can take other 25-year periods and you're going to have similarities, right?
Pat: That's right.
Scott: So if you take a long enough view, Julie, because of...
Pat: Scott, and a widely diversified portfolio.
Scott: And a widely diversified portfolio, because if you're just in one industry or one company, you could really be [inaudible 00:30:15].
Pat: Like, if you were in tech in '98 and that was your portfolio.
Scott: Yeah. Then you got...
Pat: Yeah. Or where we live in Folsom, California, where there was a big Intel and these people would...if you say, "Well, you should know that much Intel," they'd tell you you're crazy.
Scott: Of course, they did. Yes. Now, they talk about how they were smart because they diversified years ago.
Pat: But make sure you have a broadly diversified portfolio. And time fixes many things, including...how long have you been married?
Julie: Thirteen years.
Pat: All right, relatively new. You can probably still listen to him a little bit. I'm celebrating my, by the way, 39 years next week.
Scott: Thanks for calling, Julie. Oh, is that right? Thirty-nine years.
Pat: Yeah, 39 years. Yeah.
Scott: Do you find it gets easier being married the longer you got married?
Pat: I have no comment. Absolutely would not vocalize any of my thoughts on that.
Scott: Why?
Pat: There's no upside in it. Because the only right answer is yes, it gets easier.
Scott: I guess there's different seasons.
Pat: That's right. Yeah. Yeah. I mean, and look, we all go through, like, the kids, the hardest part in the relationship was when we first had kids and then when they left the house. That was the hardest part, right? Like, when you first have four kids, like, at home, and then, all of a sudden, when they leave, that was the hardest part. Does that make sense?
Scott: Yeah. I don't know what was so hard about them leaving.
Pat: Oh, not nearly as hard on me as I think on my wife. A lot of our identity is tied up in that.
Scott: You can do like what we did, reload. We adopted two kids. We were empty nesters. I got two teenage kids in the house still.
Pat: Not a chance. You're a special person or just a little bit off.
Scott: Maybe both. I'm open anyway. I know I'm...
Pat: Hanson 2.0.
Scott: You know, it's interesting, just that conversation with Julie where her husband had a certain view and she had a differing view. And that is quite common.
Pat: Yes.
Scott: And it's not uncommon at all. I mean, when I was taking on clients earlier in my career, like, couples would come in with different...they wanted me to, like, be the middle guy.
Pat: Scott, I was meeting with clients yesterday and the wife said to me, "Thank you." Because they had a discussion about withholding on a 401(k), and I said, "Well, why are you doing it all at the beginning of the year?" He said, "I want to get it in as soon as possible." I said, "It just makes budgeting really difficult." And she said, "I pay the bills, not you." And I said, "Well, just do it this way." And she looked at me and said, "Thank you."
Scott: He wanted to front-load it?
Pat: He front-loaded it every year.
Scott: So the paycheck was nothing for...
Pat: For five months. [inaudible 00:33:13] Now, technically, I said to him, technically, he's right.
Scott: Mathematically.
Pat: Mathematically.
Scott: Yes, because stocks go up more...although it's 52-48 or 53-47, whichever number it is, somewhere in there, they go up more than they go down. So the earlier you can invest in your 401(k)...
Pat: The better, mathematically.
Scott: I mean, if you run the numbers, what would it actually make a difference on the portfolio size?
Pat: That's what I said. I said, "Why do you put your...?"
Scott: And so there's a cost of doing that, right? And I think it's a good way to look at money. There was a cost, right?
Pat: That's right.
Scott: So for him, it was a little more complicated with the paycheck. Wife didn't get a paycheck. She complained about it. He dealt with it. He put up with that cost because he thought it'll have a higher net worth in the future. Other people say, "I'm going to forego that vacation. I'm going to take that cost. I'm going to stop. I'm not going to drink coffee out." Like, all these little things. But you need to weigh the cost-benefit on every decision...
Pat: That's right.
Scott: ...when it comes to your finances.
Pat: Yeah. And whatever works.
Scott: And I remember when my wife, when we were, I think, it was the first couple of years in business. And, you know, if you're a business owner, you understand paying quarterly taxes. Matter of fact, if you've got substantial savings, you're probably used to paying quarterly taxes. And she worked at Intel at the time. Before we had kids, she worked at Intel for five years. And I suggested to her, "Why don't we increase your withholdings on your paycheck?"
Pat: So she has no paycheck?
Scott: She should have essentially no paycheck. Now, we'd only been married a year or so.
Pat: Okay.
Scott: She's only a couple of years out of college.
Pat: How did that go?
Scott: This same conversation, I thought it seemed perfect. Then I don't have to worry about making the quarterly payments, that she thought I was crazy.
Pat: It didn't work.
Scott: And after maybe getting a little older, a little wiser, I completely understand why it didn't work.
Pat: Well, and by the way, so I did exactly that. My wife's an accountant. So it was really easy because she's like, "Oh, that makes perfect sense," right? I don't have to deal with the quarterly payments. And we just withheld 100% of her paycheck for the first couple of years when I was in business. She was completely fine with it.
Scott: Really?
Pat: Yes. Completely fine with it. But, like, her background is accounting, so it didn't... Your wife's background was not accounting.
Scott: You know, here's what's kind of interesting about this. So we're both financial advisors, right? Married to two different women, obviously.
Pat: Okay, that's so gay. That would be creepy.
Scott: Our wives, obviously, very different when it comes to their view of money. My wife, she wouldn't even entertain the conversation, that it sounded absolutely crazy for her not to have a paycheck. You know, I think she... And your wife was like, "Oh, this makes a lot of sense. It'd be a lot easier."
Pat: A lot easier.
Scott: I don't have to deal with...
Pat: Yeah, the economics.
Scott: Right, with quarterly taxes.
Pat: Yeah. But your wife never took away your ATM card either. Mine did. She took it away.
Scott: What do you mean she took it away?
Pat: Back in the day, I would take money out of the ATM sometimes when I needed cash, and I'd forget to give...
Scott: Back in the day, like you don't anymore? Because you don't need nearly as much cash anymore.
Pat: That's right. I mean, this is we're talking 25 years ago.
Scott: I was valet parking my car a couple of months ago somewhere, and I said, "I didn't have any..."
Pat: You just whip out a...
Scott: Venmo. That's right. I take Venmo, and he puts his phone out with this QR code. What are you going to do?
Pat: Brilliant.
Scott: Brilliant, that's what I think.
Pat: Brilliant.
Scott: You should be doing something else besides parking cars.
Pat: Smart. Well, maybe not. I bet he makes a lot of money. "Oh, by the way, Mr. Hanson, I don't want you to actually dirty your fingers putting in those numbers."
Scott: Would you like to pay $20 or would $50 be better for you?
Pat: "This is a beautiful car, Mr. Hanson. I was able to actually just run a towel over the top of it while you were waiting." So my wife, I would take money out of the bank, and I forgot to give her the receipt a couple of times from the ATM machine. And I go into my wallet one day and my ATM card is gone. And I said...
Scott: She literally just went into your wallet and took your ATM card.
Pat: She took my card because I didn't give her a receipt. And she said, "From now on, if you need cash, you let me know, and I will get you cash and give me a day or two to do it." And for four or five years, if I needed cash...
Scott: You're kidding.
Pat: I'm not kidding. She's an accountant. I mean, listen, I love her to death.
Scott: Of course.
Pat: But see, like, it's by the book. And so, then, I'd need money and I'd say, "Hey, can I get, like, $200?" And it would just be next to my keys, like, a day later. And finally, one day, I said, "Can I get some money?" And she said, "You know what a hassle just getting money out of that machine." And I said, "I appreciate your plight. You cannot imagine how hard it is getting money into the machine." Then I went to the bank myself and got my own ATM card. I never got it back from her. And we have resolved this little conflict in our marriage after 39 years.
Scott: Well, I mean, money certainly can create conflicts.
Pat: Oh, absolutely.
Scott: When you don't have enough to pay the bills, there's tremendous stress.
Pat: Well, I grew up in that environment. Did you grow up in that environment?
Scott: Not quite that. My mom would go to shop at three different grocery stores based upon what coupons she had and that sort of thing.
Pat: Yes. I know.
Scott: And she'd talk about how she saved $12.92 for the week or whatever. I mean, she's very proud of that. I have often thought, not in the same words.
Pat: And when you say your mom, this is your step mom.
Scott: My stepmom, yeah.
Pat: Oh, I loved your step mom.
Scott: You did?
Pat: Yeah. With that English accent?
Scott: Yeah, she was English.
Pat: You know, when we first started our business, I stayed at your house for two days down in Southern California. I had to sleep on the floor.
Scott: I slept on the floor of your mother-in-law's house too.
Pat: Fair enough. I forgot.
Scott: It's a time when money was tight. That's our big business trips. Do you have any family in town we could sleep on the floor?
Pat: All right. Let's go.
Scott: Anyway. But back to that point, like, and this all stems from Julie's call, just the differences on what...many of us are married. We deal with our finances together. We have to. You're foolish not to. Because you got to pay the bills together. But we have...
Pat: Especially second marriages.
Scott: But we all have different views on money. We have different backgrounds, the way we...
Pat: Especially second marriages. I mean, there is second marriage. I mean, the estate planning, if you have any assets at all in a second marriage, with children from previous marriages, it is absolutely vital, 100%. Like, above all things, you need to make sure your estate plan is together. Thoughts?
Scott: I totally agree. Whether you have a prenup. Now we're getting on a different topic as well. Second marriages, it's not about getting a prenup because you don't trust your spouse. It's really about making sure that your kids aren't disinherited.
Pat: Yes, 100%. Or you set up a life estate.
Scott: Or set up a life estate.
Pat: Right? What's a life estate?
Scott: You get income while you're still living. So one spouse passes away. Assets are set up so that the surviving spouse receives income for the rest of their life. When they pass away, that asset goes to the heirs.
Pat: The heirs. The appropriate heirs. Anyway.
Scott: That kind of estate planning.
Pat: But you have to. I mean, yeah, especially second marriage. But, yes. I mean, the view of the world for money through the lens of money is different. So oftentimes, an advisor, a good advisor, gets in the middle of it.
Scott: Well, money is so much about emotions, I mean, you said it earlier, the hard part of investing is not building the portfolio. It's living with the portfolio.
Pat: That's right. That's right. It is, isn't it?
Scott: Yeah. I mean, I feel...I have those same emotions as well. And if you're diversified, there's always going to be some piece of your portfolio that's not performing that well.
Pat: At least 20%.
Scott: And other pieces that are going so well. And you're like, "Oh, man."
Pat: At least 20% of your portfolio should not be doing well at any point in time, in my opinion.
Scott: Yeah, that sounds about right.
Pat: Right? And it's the part that you want to get rid of. You should stop.
Scott: Yeah. We're talking now with Paul. Paul, you're with Allworth's "Money Matters."
Paul: Hello.
Scott: Hey, Paul. Thanks for joining us.
Paul: I'm glad I was able to join.
Pat: Oh, appreciate that. What can we do to help?
Pau: Well, you know, I've put three questions down, and basically, it was along the lines of, should I...actually, I put a question, should I combine all of the different funds that I have into one or should I just leave them where they are? I've heard financial people over the years tell me, "Oh, leave them where they are. No problem." Others say combine them. And it's a little confusing.
Pat: How old are you?
Paul: I'll be 68 in February.
Pat: Are you currently employed?
Paul: I am not. I had to retire early. I had a spinal infection last year.
Scott: Sorry to hear that.
Paul: And it damaged my spine.
Pat: Oh, sorry.
Paul: And I was an industrial air conditioning mechanic, and I could no longer do that kind of work anymore.
Pat: And are you married?
Paul: Yes.
Pat: Okay.
Scott: And these three accounts, are they retirement accounts, all in your name? Are they brokerage accounts? What are they? What kind of accounts are they?
Paul: Right. So I have a brokerage account with a company that I've been with since 1991. I bought some annuities back then. And then, in 2001, I had a nice inheritance, and we paid off some bills and bought a car and put the rest into the brokerage fund.
Pat: Okay.
Paul: We did that six weeks before 9/11.
Pat: Okay.
Paul: And then, of course, you know, we didn't lose it all, and most of it's come back quite nicely.
Pat: As you would have expected, more than nicely. Like, phenomenally. Like, holy smokes, I can't believe how well this has done. What's the other account?
Paul: I have some money with a local trade union, and I was union for a while.
Pat: Is that a qualified prevailing wage retirement contributions?
Paul: Correct.
Pat: Okay.
Paul: I think it's in a 401(a).
Pat: Okay. So, okay, all right. And then, what else do you have?
Paul: And then I have some money in the company that I retired from, the large AC company that I retired from.
Pat: That's a 401(k).
Paul: And, yeah.
Pat: Okay.
Scott: And do you have any other IRAs or anything?
Paul: No.
Pat: Let's circle back to this brokerage account.
Paul: Okay.
Pat: You said that you bought some annuities years ago...
Scott: In 1991.
Pat: ...and then you put some money in a brokerage account. Do you still own the annuities that they sold you?
Paul: I do, yes.
Scott: And I would imagine it's a different person today than it was in 1991?
Paul: It is. It is. But actually, the gentleman that was our agent at the time, he was for a very great number of years, and then he retired. And actually, there were two versions of that company. And then, in all of, I want to say, about 10 years ago, that company merged both together and became one and changed their name.
Pat: Okay.
Scott: And...
Paul: But it's kind of a benevolence.
Pat: A benevolent society, like the Lutheran or one of those types.
Paul: Right, right. We were Lutheran Brotherhood. I was Lutheran Brotherhood.
Pat: Okay. I guess. And the Catholics have the...what do we call them?
Scott: I don't know. Knights.
Pat: Knights of Columbus. But they call them...there's a different investment arm for that. I should know, I'm Catholic.
Scott: And I think the Lutherans have a different name now, too.
Pat: They do as well.
Scott: I don't remember what that is either.
Pat: Anyway, that's neither here nor there. Do you like the advisor you're working with there?
Paul: I do. Actually, his brother was our advisor for a lot of years. And we went to the same church.
Scott: And does he do fee-based advice or is he still selling annuities?
Paul: You know, he does whatever he thinks is good or whatever the customer wants.
Pat: How does he get paid?
Paul: How does he get paid?
Pat: Yes.
Paul: You know, that's a good question. I suppose that he gets paid out of fees.
Pat: Okay. The answer to your question is yes, you should combine all three of these.
Scott: And the question...well, you can't necessarily...you can have them all under the same...
Pat: Advisor.
Scott: Yes.
Pat: But you can combine this trade union, IRA, together, 401(k), whatever it is, and the 401(a)...
Scott: Into one IRA.
Pat: ...into one IRA. And then you have this brokerage account that would sit on its own. And then you actually have these annuities, which, actually, by the way, those are the things that I would be focusing on right now, which is...
Scott: What's the plan with these annuities?
Pat: What's the plan with the annuities? And then I would be looking at Roth conversions.
Scott: And maybe annuitize for a period of time.
Pat: That's exactly what I was thinking, right? And then...
Paul: Right.
Scott: And they might have...the annuity factor, internal factors, might be much higher than anything you could buy in the marketplace today.
Pat: Which is, if you annuitize how they pay out, right? And whether they're fixed or variable annuities and whether that's appropriate, the fee structure inside of it. So you've got this...like, you've got a bunch of questions here. And most of the decision-making is going to be driven by asset allocation and tax. And tax.
Paul: Okay.
Pat: This is...
Scott: And this really comes down to who's your advisor. So, like, when you said he does whatever the customer wants...
Pat: I don't want a doctor that does whatever I want.
Scott: Right?
Paul: Well, right, okay. You're right. I miss kind of...
Scott: And these big companies like that, they're...most people are.
Paul: Brad knows what he's doing. He's been doing it for a long time. [crosstalk 00:48:12].
Scott: Okay. And you trust him.
Pat: Has he done a financial plan for you?
Paul: Yes.
Scott: Okay.
Pat: Okay. And so, yes, you should combine these together. And if he's getting paid fee-based, then you should be asking him the question. Like, these annuities, should I annuitize them? Or he should be saying to you...
Scott: What's our plan with these?
Pat: What's our plan with these? But he's doing a financial plan, right? And as long as he's not getting commissions on transactions, which is the thing that...by the way, when you bought these annuities, that's just the way of the world it was back then.
Scott: That's right.
Pat: That's just...
Scott: The tax law was quite different, and it made sense. It made sense.
Pat: Yeah. That's the way it was. So what they did in the past and what they do today, right...
Scott: Probably quite different.
Pat: Quite different. So, yes, the answer to the question is you should combine. If you're happy with the advisor and you like the advisor, then you should combine them all under that advisor. There's no reason in the world that trade union, 401(k), and your own 401(k) continue to sit out there, probably with no visibility from an advisor.
Scott: And my guess is that the trade union one is in some sort of group account where you have no investment control over whatsoever. And who knows how it's managed?
Pat: So the answer to the question is, yes, go back to your advisor.
Scott: Sounds like you have a good relationship. Sounds like you trust him.
Pat: Yeah. And ask, "Okay, let's combine these together and give me a tax strategy in terms of Roth IRAs and what it looks like in with these annuities." And the benefit of the annuities is that you could get paid out a portion of principal and gain over a period of years where, if you die, it becomes a big tax burden to the beneficiaries.
Scott: Yeah. So that's something to take a look at. We really appreciate the call, Paul. So, hey, I want to let everyone know we've got a webinar coming in. It's top investment moves for high net worth planning. So this is really for investors that have over $1 million of investable assets plus and marketing people said here, it's an essential watch.
Pat: Is that right? Where is it? What? Huh? Oh, an essential watch.
Scott: But with this, we're really going to discover how Roth conversions can allow you to continue tax deferral and future tax-free distributions without having to deal with requirement of distributions off that. We're going to look at how to unwind concentrated stock positions while you minimize your capital gain taxes, there are actually some pretty interesting techniques you can do to that, how to utilize excess cash, and a lot more. And who is doing this is one of our younger...I should say youngest.
Pat: Allison Scoggin. I talked to her yesterday.
Scott: She's spectacular.
Pat: I sent over a large, large, large client to her. Someone that I knew socially came to me and said, "Hey, I'm trying to give away money. How do I...?"
Scott: And, you know, we've talked on this program how Allworth has grown, how it was Hanson McClain, Allworth. We continue to grow through mergers and acquisitions because we say it's the best way to find talent.
Pat: She's great.
Scott: Their firm merged in with ours a year or so ago.
Pat: Yeah, she's great.
Scott: She's great.
Pat: So I don't know...
Scott: Allison Scoggin.
Pat: Is it an essential watch, Scott?
Scott: I think so.
Pat: I think it's probably something you should do.
Scott: Okay. Well, you have plenty of opportunities. So the webinar is going to be Wednesday, January 22nd at noon Pacific, Thursday, January 23rd at noon Pacific, Saturday, January 25th at 9 a.m. Pacific. And to register and to get more information and all that, simply go to allworthfinancial.com/workshops, and you could register. And I think it'll be worth your while. It is the beginning of the year.
Pat: It is.
Scott: And it is the time where you kind of take inventory of, hopefully, a little bit of your finances as well.
Pat: Yeah. And, like, all the bad things you've done in your life.
Scott: All right, we're out of time. We'll see you again next week. This has been Scott Hanson and Pat McClain of Allworth's "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.
Scott: Welcome to Allworth's "Money Matters." Scott Hanson here.
Pat: Pat McClain. Thank you for joining us.
Scott: That's right. Both myself and my co-host, we're both financial advisors, certified financial planner, chartered financial consultant, and we've been spending decades helping people with their finances and do this podcast and radio program to help you as well.
Pat: We try.
Scott: Yeah. And it's off to a new year. New start. Fresh start.
Pat: That's right. We do this every year. Over and over again.
Scott: What do you mean every year?
Pat: Fresh start. "I'm going to change this year. I swear."
Scott: I don't know. I was actually driving into the studio, and I was flipping around the radio stations. We're recording this on Wednesday.
Pat: Flipping around. You act like you've got a knob or something. It's all digital. You just press things, right? You weren't flipping, like, literally, like, "Oh, I'm turning..." You didn't turn a knob.
Scott: I had to get it just in the right spot so it wasn't too much static.
Pat: You're showing your age now.
Scott: I know. I'm kidding. And there was, like...it must have been, like, a two-minute ad from this financial advisor on a local radio station talking about the things to prepare for differently this year because of the new administration and Musk and all this. And I'm thinking, like, what sort of different things? How do you prepare?
Pat: Like you know what's going to happen?
Scott: That was my point. That was my thought. We all have access to the same information.
Pat: Yes. Apparently, maybe he knows something we don't. And listen, Elon Musk, oh, what a fascinating...this is just a great time to be alive just to watch this.
Scott: Just some spectators.
Pat: Just to watch this. What he's doing in Europe now is amazing.
Scott: Oh, my gosh.
Pat: Isn't it? I got to tell you, Scott.
Scott: Musk?
Pat: Yeah. How long do you think he's going to stay in Trump's orbit?
Scott: I can't imagine. Trump wants someone who's more popular than he is, right? Battle of the egos at some point. I don't know.
Pat: That's a great...that would be a great show.
Scott: Anyway, we're not wanting to be political. No, we just got to start thinking. Well, it's not really about trying to figure out where the markets are going to head this year because that's...amateur investors tend to do that. Seasoned investors have learned what the markets do through their cycles.
Pat: Thank you.
Scott: They don't try to predict things short-term.
Pat: If you were an institutional money manager for a pension, for a pension, right, institutional, you'd be like, "Oh, okay, this is how the portfolio should look. Maybe we're overweighted here, underweighted here, maybe slightly overweight this, slightly underweight that."
Scott: And you're probably thinking, we had such great years back to back with the S&P 500.
Pat: Holy smokes.
Scott: It's probably...
Pat: Incredible. Unbelievable.
Scott: Yeah. We haven't had these two good years since the late '90s.
Pat: I did not know that.
Scott: Yeah, '97, '98.
Pat: Okay, that's scary.
Scott: Yeah.
Pat: Yeah. I mean, the price-to-earnings ratios are...
Scott: Yeah, stocks are frothy. Everything's frothy.
Pat: Yeah. But they were last year, too.
Scott: They've been for 20... It used to be that the price, you know, the bogey like, "Oh, here's where you should have the price-to-earnings ratio." And had I followed that throughout my whole career...
Pat: Yeah, you would have been terrible.
Scott: Things would have been a disaster.
Pat: Yeah. And they were oftentimes based on interest rates and cost of money, right? Well, there was a comparison between the two, but there's... Anyway.
Scott: Anyway, it's a good year. But I think the most important thing for people is to make sure you've got the right allocations. If you have a rebalance, if you don't have something on an automatic rebalance or it's been professionally managed, you need to take a look at it because you're going to be overweighted in U.S. large-cap growth stocks.
Pat: No question, right, if you let your portfolio run.
Scott: And if you look over the last, I don't care how many years, U.S. large-cap growth are not the leader year after year.
Pat: No.
Scott: And there'll be years when they're going to be lagger, and it's going to be value stocks, mid-cap, small-cap.
Pat: Multiple years that they'll lag. Multiple years.
Scott: And you know what's really lagged for years is foreign markets.
Pat: Yeah. But do you think that there's that much difference between a foreign market and the U.S. market anymore?
Scott: Well, I start to wonder, when you look at, for example, Germany used to be an industrial powerhouse. They're shrinking. I mean, they've got some serious structural issues.
Pat: But if you look at the size of Germany and the companies in Germany and you look at the revenues, right...
Scott: Most of it's coming outside of Germany.
Pat: As is U.S. companies. Not most of it, but a large percentage of it. So I was thinking, isn't that weird, I was thinking about this last week myself.
Scott: I mean, the reality is that most people have some international stocks in their portfolio. I do. Most of our clients do.
Pat: Oh, yeah, absolutely.
Scott: There's a lot of big companies that are foreign-based.
Pat: That's right. That's right. I mean, you can't miss it. But even if you have 100% U.S.-based companies, it's not like 50 years ago, right, where they're all U.S.-based. I mean, look at, you know, Meta and Google.
Scott: Yeah, yeah, their revenue comes from everywhere.
Pat: Yeah, and no one cares anymore, right?
Scott: But if you look at valuation of foreign stocks, so the performance of them have been dismal in relation to the U.S. stock market.
Pat: That's right.
Scott: By and large.
Pat: Yes. Mostly because of Japan, though, do you think?
Scott: I mean, you look at the European markets having... Everything's lagged. And if you look at the price of those stocks today, they're really inexpensive relative to the U.S. market, which means that I think the average investor is saying, "Well, the U.S. market is going to grow that much faster. We've got more productivity, etc." So we can command a higher multiple. But I wouldn't give up on these areas that have underperformed.
Pat: That's right.
Scott: I would not give up on small-cap value. I would not give up on international.
Pat: You never hear about small-cap value anymore.
Scott: That's because it's been out of favor for so long.
Pat: Well, I think a lot of it has moved off the public markets.
Scott: I mean, it's not that many small-caps companies.
Pat: No, no, yeah. Because of the regulations regarding publicly-traded stocks, no, do you think?
Scott: Oh, for sure. No one goes public. I mean, I just didn't say nobody. But, like, the public markets are pretty much dead, and I think part of that is just all these private alternatives.
Pat: Yeah. And the regulatory markets.
Scott: Yeah, yeah. So cumbersome to be public.
Pat: No, think about this. Our company 20 years ago would be a publicly-traded company.
Scott: That's right. Correct.
Pat: Right? It's large enough.
Scott: Oh, for sure.
Pat: We would be a publicly small-cap, probably not value, maybe...
Scott: Growth company.
Pat: Yeah. Yeah. Anyway.
Scott: It's a different era today.
Pat: All right.
Scott: All right, we better take some calls.
Pat: Well, it's nice visiting with you, Scott. I haven't seen you in a while. I enjoyed this conversation. And if you're listening, I hope you enjoyed it as well.
Scott: Yeah.
Pat: Right?
Scott: You know, it's really good. I'm going to put the calls here in a minute. I spent time with my family over the holiday break. I think most of us did.
Pat: You said that's nice. That's comforting.
Scott: I got to be careful. Number one, my son is starting to listen to our podcast, so I got to be careful, only say nice things about it, which I always do. Blake, if you hear this.
Pat: Why?
Scott: Well, so he's been... We're going to get the calls in a minute. It's just interesting. He's trying to figure out a second job. He's a career pilot now. And he's, like, realized how bored he is. He always spends so many time...
Pat: Yeah, even in the cockpit.
Scott: But then you go to a market, and you're sitting around in a hotel room till 3:00 in the afternoon, and sometimes you can't be more than an hour's drive from the airport because...
Pat: So you can't be, like, at a beach. And you most certainly can't be at a bar.
Scott: He's like, "I need another job." No, for sure. He said, "I need another job, something meaningful to do." And we were talking about being a financial advisor.
Pat: And he's thinking about it.
Scott: And he says, "Well, I never really thought about it because that was your thing." And I said, "Kind of, like, perfect, kind of, you've got so much time."
Pat: We have advisors at our firm that are pilots.
Scott: I know.
Pat: Lots of them.
Scott: That's what I was explaining to him, so.
Pat: So he's listening now.
Scott: Yeah. And I think he's kind of considering maybe.
Pat: Wow. Had he ever listened before?
Scott: I don't think so.
Pat: You know, my kids never listen, but their friends do.
Scott: Yeah, I know. I think everyone wants to chart their own course, I guess, right? Anyway, I think my son would be a great financial advisor.
Pat: Oh, he would be a great financial advisor. He would absolutely be able to interact with every 20- and 30-year-old.
Scott: Crypto. All right. Let's take some calls.
Pat: He's not a crypto bro, is he?
Scott: No. We're going to get to the calls here. But he did say...he said something about it. Bitcoin up and he says, "Man," he says, "I wish I wouldn't have moved out of Bitcoin into these other crypto coins." So the other crypto coins aren't back up to where he put in. I don't think he's got much in crypto.
Pat: All right, well.
Scott: And I think it was primarily from online poker that he would do that. It's not legal in the U.S. Not that he does that now that he might be listening.
Pat: Because the government is going to chase him down. "There's Blake Hanson."
Scott: Online poker.
Pat: He's doing online poker.
Scott: He's bet 50 bucks.
Pat: "I'm sure. We'll chase him down."
Scott: 833-99-WORTH is our number. Let's start off here in California with Brian. Brian, you're with Allworth's "Money Matters."
Brian: Hi. How are you doing this morning?
Scott: We are fantastic. How are you doing, Brian?
Pat: Thank you for tolerating...
Brian: I'm doing well. Thank you.
Pat: Thank you for tolerating our little conversation.
Brian: I had a couple of things that I wanted to know. I'm going to be 68 next month. I just retired three months ago. My wife turned 65 last month. She's already retired and receiving SSI. We have almost $900,000 in simple IRA that I have from my work. And we also have two Roth IRAs, both of which are worth approximately $250,000.
Scott: Is that combined or each?
Brian: No, each.
Scott: Okay.
Pat: All right.
Brian: We own the house that we live in. We have no debts. We have a second house that we're in the process of selling right now. We should realize about $400,000 from that after fees and everything.
Scott: And is that is that a rental property or is that a second home?
Brian: That was our primary home until I retired three months ago.
Scott: Okay, so no tax.
Brian: Then we moved to where we are now.
Scott: So no taxes on it. Okay.
Brian: Yeah. And then we have a couple of CDs, one of which matures in a couple of months in March, and we'll realize about $415,000 from that. And then the second one that matures in June, that will receive about $225,000 from that. Have a small portfolio of some blue chip stocks that's worth about $115,000 right now,
Pat: So, Brian, on these CDs, how long ago did you buy them?
Brian: About nine...well, no, about six months ago. These were nine-month CDs.
Scott: And have you always had this much cash in your portfolio? And you also had enough cash to buy in the house out.
Pat: And I assume you were self-employed and owned a business.
Brian: Yes, I was a public defender.
Pat: Well, how did you get 900 grand in a simple IRA?
Brian: It was the...
Pat: Is it an IRA? You said simple IRA, not IRA. That's why I asked the question, because if...
Scott: You're limited, like, six grand a year or something.
Pat: That's correct. That's correct.
Scott: I could be wrong with that number.
Pat: So typically...
Brian: Okay, I may be wrong. It may not be simple.
Pat: Okay, it's an IRA. Okay.
Brian: Yeah, it's an IRA.
Pat: Okay, thank you. You used the word simple, which threw me off. Okay. So you have 900 in IRA. Continue. Boy, you've done well as a public defender. I'm feeling really good about this. My daughter's wanting to be a public defender.
Scott: She's in law school, yeah?
Pat: She's in law school. I'm like, "Really?" I feel great about this call. This is better for me than it is for you, Brian.
Scott: Maybe she doesn't have to be a personal injury attorney after all.
Pat: I know she's got a sponge. Her business card turns into a sponge.
Brian: Well, I can tell you real quickly, I had my own law firm, and it's in a small county. And I had a contract with the county to provide public defender services. But I'm not a government employee.
Pat: Okay. All right. Then it was probably a simple IRA. Okay. So, what's your question for us?
Brian: Question is, we don't have any children. We'd like to leave a small legacy for our nieces and nephews. We're in pretty good health. We're not extravagant, but we do like to travel. What I was wondering is, should I start taking Social Security now or should I wait a couple more years until I'm 70?
Scott: What are you living on?
Brian: I had just put away a little bit of savings. Like I said, I retired about three months ago, and so I've put enough away to, you know, keep us going until March when we receive more money. I hadn't set anything up other than we've just been living off of what we had.
Pat: Okay. So, how much are you spending a month? That's the question. Like, how much do you spend a month?
Brian: Well, we took a big vacation right after I retired.
Pat: Okay. How much do you think you're going to spend a month, right? So is it $5,000 a month? Is it $10,000? Because it all works down to percentages, right? So if you have 2 million, Scott was doing the numbers, if you have $2 million saved up, right, in all sources, some of it after-tax, some of it pre-tax, and you're taking a 5% distribution, then it's $100,000 a year. And everything runs by percentages. So someone says, "Well, is this too much or too little?" You look at the percentage, right? And then you look at how much you think it's going to earn and how it's invested. And those two things come together. How much do you think you're going to live on a month, like 10 grand?
Brian: That or a little less. As I said, we're not extravagant. Probably eight.
Pat: Okay. And where is that coming from now?
Brian: As I said...
Scott: It's just savings for three months.
Brian: Yeah, it was just savings for the last three months.
Pat: Yeah, this is the way I would design it. I mean...
Scott: That's why he's called.
Pat: Oh, that's a good point, Scott.
Scott: So if I were in your situation, you have no kids, and I would assume your health is good health, no health issues.
Brian: Yeah. Yeah.
Scott: And right now, is your plan to wait until age 70 to take Social Security?
Brian: Well, that was one of my questions. I mean, I could take it now just for the income, or we could invest in some dividend stocks to get some income [crosstalk 00:16:00] Social Security.
Scott: How are your IRAs and Roth IRAs invested?
Brian: Mutual funds.
Scott: I mean, stocks?
Pat: What kind of...?
Brian: Stocks, all stocks.
Pat: All stocks.
Brian: Yeah. No, don't have any bonds or anything. Yeah.
Pat: Really? All stock.
Brian: Yeah.
Scott: You have an interesting...you structured things a little...
Brian: We had gotten those years ago and never changed anything.
Pat: And they served you well.
Scott: Yes.
Brian: Yes.
Scott: Because one thing I would consider is having some stocks outside. Like, maybe instead of some of those CDs, having some equities that are outside your retirement account because of the favorable capital gain treatment, tax treatment, and potential step-up in basis at death, and have the taxable stuff inside the retirement account.
Pat: You've got it completely backward.
Scott: And I understand this happens because we view dollars differently. You viewed your retirement dollars as retirement dollars, you can be more aggressive, and you saved up these other dollars as years went on, and you looked at those as more conservative dollars.
Pat: And some of them proceeds from the sale of the home. But it should be completely backwards, right? So, actually, you want non-dividend-paying stocks outside of your IRA...
Scott: That's right.
Pat: ...right, because of the way tax law works, that you receive a step-up in basis at the death of you or your spouse, right? And then you want the things that generate income. So if you were sitting down in my office today, we'd look at this whole thing and we'd say, "Okay, there's..." what was there, about $1.8 million, $2 million there?
Scott: No, there's about 2.3.
Pat: Okay, $2.3 million. I'd start a 5% distribution on this thing. So you're sending you $115,000 a year. And then I would actually start Social Security today. Your wife's already getting Social Security. Between the two of them, you'll probably income around $140,000, $150,000. Disagree if you want, Scott. And then I'd say, have a good time. Spend it. And then I would reallocate the portfolio for tax purposes, and I would put the income-producing...
Scott: Not 100% of it. But you would have more IRA in the retirement accounts and the fixed income and figuring out what percentage of your overall portfolio you want in secure fixed as opposed to growth.
Pat: And there would be no tax implications in making that change because of the way it's structured today. You wouldn't have to sell anything outside of the IRAs to get it there.
Brian: Okay.
Pat: And that's it. I got to tell you, you need to hire a good advisor.
Scott: You know what, I got to tell you, Brian here, as I'm sitting here, thinking, you're a public defender. There are public defenders because people can't afford attorneys, and attorneys think it's foolish for someone to represent themselves.
Pat: Well, I think it is. Don't you?
Brian: Absolutely. Absolutely.
Pat: I think it is.
Scott: Maybe it's time to get an advisor, financial advisor.
Pat: Yeah, you need an advisor.
Brian: Okay. That was all.
Pat: You lack...
Scott: Seriously, Brian.
Pat: You lack good counsel.
Scott: You've done a great job saving. You've done the hard work. This is the hard work, no question about it. Saving money for the future is not easy. You did the hard work. Getting a good advisor is going to pay big dividends.
Pat: The problem is, what is a good advisor?
Scott: Well, like, what's a good attorney? There's great attorneys. There's lousy attorneys. Like most professions, there's great people in professions and there's lousy people in profession.
Pat: Yeah. But you know, I got to tell you, though, Scott, it's not like 10 years ago. Your advisor, because of technology, can live anywhere in the country.
Scott: That's right. Oh, for sure.
Pat: I mean, we have an advisor that works for a firm who is absolutely phenomenal, only works with high net worth clients, mostly business owners or privately held companies. And he never leaves his house.
Scott: Well, it's because he's great.
Pat: Anyway, you need a...
Scott: Yeah, I'd recommend that, Brian.
Brian: Okay.
Pat: All right. And out of curiosity, what other type of law did you...did you do any civil stuff, or was it all criminal?
Brian: No. No.
Pat: All criminal? Your whole career was all criminal.
Brian: Yeah.
Pat: Always on the defender side, never as a prosecutor.
Brian: Never as a prosecutor.
Pat: Holy smokes. How long did you do it for?
Brian: Close to 30 years.
Scott: Wow.
Pat: And where did you go to law school?
Scott: You saw it all. You saw it all.
Pat: And you still seem pretty upbeat.
Scott: Wow.
Brian: There's a high burnout rate. Many people don't do it as long as I did.
Pat: I know. That's why I'm fascinated by this. I wish we could have a cup of coffee sometime. If you're in the Sacramento area, call me.
Scott: Appreciate the call, Brian. I hope retirement's fantastic for you.
Pat: Yeah, joy.
Scott: It's interesting.
Pat: You've earned it.
Scott: It's interesting. You're talking about...a good friend of mine was a retired highway patrolman, and his last several years...people stay with the highway patrol because of pension, right?
Pat: Yes. Is this the guy I know from the gym?
Scott: Yeah.
Pat: Okay.
Scott: Well, there's a couple. I have a couple of friends who are retired highway patrolmen.
Pat: Yeah. Now you're bragging. You have more than one friend.
Scott: You know, I get out of it, and I don't get speeding tickets. I'm Scott Hanson. But, like, my one buddy, he switched to do an inside job. He says that just being around those, as he'd called it, it's the bottom rung of society, just...
Pat: Is a highway patrolman.
Scott: Yes, just the calls, the stuff that he dealt with all the time, just...
Pat: Like being called out, not pulling someone over.
Scott: No, I don't know. Just the people he spent most of his time with, the criminals, just to your point, the hard thing about...
Pat: I can't imagine.
Scott: And everyone needs a good defense.
Pat: Oh, listen, I did a Bible study at...I had never told you this story. I did a Bible study at a jail for a year. I had to quit.
Scott: They were teaching those things.
Pat: What? No, I thought I was going to get beat up because this guy was talking about how nice his clothes were when he was dealing with methamphetamine. And then I said to him, "Man, you got that nice orange jumpsuit." I thought, "Oh, my gosh."
Scott: He was literally bragging about how nice he used to dress?
Pat: Yeah, he goes, "When I was doing meth, when I was selling meth, I dressed so fine." And he was telling me about his clothes. It was in the middle of a Bible study. And I said to him, "And you have that nice orange jumpsuit." I thought that was the day...I walked out of there and I said, "I need to leave here because I'm going to get beat up." Those are comments that probably don't go over well in jail.
Scott: All right. Let's talk with Julie. Julie, you're with Allworth's "Money Matters."
Julie: Hi. Thanks for taking my call.
Scott: Yeah. Hi, Julie.
Julie: So my husband says there's been talk of a crash. And I'm wondering how I can move my current balance of my 401(k), 457, and IRA accounts to minimize any potential loss.
Pat: Got it. And when he says there's been talk of a crash, what do you think that means? And who's saying it?
Julie: The radio station he listens to, KFBK. And I guess that they are talking about the stocks.
Pat: He's listening to the ads.
Scott: That's right.
Julie: Okay.
Pat: He's listening to the ads. And for the rest of the listeners of KFBK, we're located in the Sacramento area. And Scott and I have been on KFBK for...
Scott: Twenty-nine years.
Pat: Yeah, a long time. And we know those people well.
Scott: And we're not talking about crash.
Pat: And we don't talk about crash because I'm not that smart. I wish I was that smart. Don't you wish you were that smart?
Scott: I probably wouldn't be doing this show.
Pat: That's right.
Scott: Or I'd be doing it from, like, a beach, a sunny spot somewhere.
Pat: Like your own island.
Scott: My own island, yeah, that sounds [inaudible 00:24:00].
Pat: Because all we would do is we'd go short [inaudible 00:24:02].
Scott: I'd probably still do this. But in any case...
Pat: I wouldn't.
Scott: So to answer your question, it's super simple. I mean, you could just either online, transfer everything to a money market, or you can call and you can have everything liquidated and moved to cash before the markets close today.
Pat: But I wouldn't.
Scott: No.
Pat: That's how you do it, right? In fact, if you were that confident, you would actually take a short position in the market and bet that it's going to fall. And then, when it falls, not only will you not lose money...
Scott: You'll make money.
Pat: ...you'll make money, right, if you were that confident in this prediction.
Scott: The challenge with having this sort of strategy is you have to be right frequently, and you can't be wrong. So if you think that there's some crash coming or a pullback in the markets, which I believe there is a pullback in the markets coming, I just don't know when because it always happens, historically, stocks fall 10% every 9 months, right? Every 9 months, there's a 10% decline, every 9 months, historically.
Pat: Historically, long enough.
Scott: Yeah, yeah. And every 3.5 years, we have a 20% decline, historically. And historically, last 100-plus years or whatever, stocks have done about 10% a year.
Pat: And remember, stocks are up 52% of the time, which means the inverse...
Scott: On a daily basis.
Pat: ...on a daily basis, they're down 48% of the time.
Scott: That's right. I think it's 53-47 or somewhere right there.
Pat: All right, we're rounding numbers now.
Scott: I mean, so let's assume that you did some research and you're like, "Hmm, stocks are too expensive. I need to get out. We're going to sit in the sidelines." You move to the sidelines, and then what?
Pat: And stocks go up. Let's say they go up. Right?
Scott: How do you get back in?
Pat: Look, if a more...
Scott: Or if they go down, you're not going to want to go in when they're down because things are so bad at that time.
Pat: Yeah. And remember, these ads, there are ads that are saying that. They're trying to sell you their services through fear, right? And people primarily react to the markets between...
Scott: It's probably the gold ads.
Pat: Oh, it might be the gold.
Scott: Yeah, I don't listen to the radio much anymore.
Pat: So I was meeting with some clients yesterday, happened to be friends as well, and I said, "If the worst thing that you could do, the portfolios that involve your emotion." I said, "There's nothing wrong with your portfolio." I was telling the clients, "Your portfolio is perfect. The only thing wrong with the portfolio is the people that actually own the portfolio because of their emotional reaction to the marketplace." And everyone has it. We are all driven by many things, but fear and greed in investing are two of the biggest ones.
Scott: Julie, do you have any idea what percentage of your portfolio are in stocks?
Julie: As opposed to bonds?
Pat: Bonds or cash.
Scott: Bonds or cash, yeah.
Pat: Yeah, fixed incomes.
Julie: About 50%.
Pat: Oh, you're fine.
Scott: And how old are you?
Julie: Fifty-five.
Pat: That's a very conservative...
Scott: And when do you plan on spending your money?
Julie: Probably not for quite a few years.
Pat: That is an extremely conservative portfolio in my estimation.
Scott: So you're probably not going to touch these dollars for 5 to 10 years. And even at that point, you're just going to start taking some income off this. You're not going to cash out your accounts and blow all the money in the first year of retirement.
Pat: And even if the markets are down in five years, you'd spend the bond or the fixed income portion of the portfolio.
Pat: Once again, you're going to have to ignore your husband.
Julie: Sorry. Okay.
Pat: I'm really surprised you've started listening now. Does that makes sense?
Julie: Yes. So, do you have any recommendations how I should?
Pat: No, I mean...
Scott: Well, I mean, I don't know enough about you on this call to say, "Here's how it should be allocated." I mean, if you're having these concerns, and frankly, if you and your husband are having some disagreement, it might be a good idea to have a financial advisor be kind of the arbiter. Like, that happens all the time. Yeah, for sure.
Pat: It happens all the time. I mean, I have clients that I manage the husband's portfolio...
Scott: Differently, that's right.
Pat: ...differently than the wife's portfolio.
Scott: Because that's just how...
Pat: Because of how they view it, right? And then I have clients that one doesn't care about it and then you just interact with that client. I mean, you know, unfortunately, everyone's human.
Julie: Okay.
Pat: Yeah.
Scott: I'd be careful of fear because, look, think back year 2000, 25 years ago, right, the Dow hit 10,000.
Pat: Yes. Okay.
Scott: But then we went through the dot-com, 9/11. Then we had the housing bubble, the financial crisis. Just terrible, right?
Pat: And it was...
Scott: Then we had Trump and then Biden and then Trump's coming again, like, all these.
Pat: Oh, remember Obama, I mean, the phones rang off the hook.
Scott: Because everything was going to collapse, right?
Pat: Oh, you have no idea what's coming to America.
Scott: The Dow today is roughly 42,000.
Pat: And it was 10,000 25 years ago.
Scott: In the year 2000.
Pat: Twenty-five years.
Scott: And we went through all of that, think of all the things we went through that period, that last 25 years. And you can take other 25-year periods and you're going to have similarities, right?
Pat: That's right.
Scott: So if you take a long enough view, Julie, because of...
Pat: Scott, and a widely diversified portfolio.
Scott: And a widely diversified portfolio, because if you're just in one industry or one company, you could really be [inaudible 00:30:15].
Pat: Like, if you were in tech in '98 and that was your portfolio.
Scott: Yeah. Then you got...
Pat: Yeah. Or where we live in Folsom, California, where there was a big Intel and these people would...if you say, "Well, you should know that much Intel," they'd tell you you're crazy.
Scott: Of course, they did. Yes. Now, they talk about how they were smart because they diversified years ago.
Pat: But make sure you have a broadly diversified portfolio. And time fixes many things, including...how long have you been married?
Julie: Thirteen years.
Pat: All right, relatively new. You can probably still listen to him a little bit. I'm celebrating my, by the way, 39 years next week.
Scott: Thanks for calling, Julie. Oh, is that right? Thirty-nine years.
Pat: Yeah, 39 years. Yeah.
Scott: Do you find it gets easier being married the longer you got married?
Pat: I have no comment. Absolutely would not vocalize any of my thoughts on that.
Scott: Why?
Pat: There's no upside in it. Because the only right answer is yes, it gets easier.
Scott: I guess there's different seasons.
Pat: That's right. Yeah. Yeah. I mean, and look, we all go through, like, the kids, the hardest part in the relationship was when we first had kids and then when they left the house. That was the hardest part, right? Like, when you first have four kids, like, at home, and then, all of a sudden, when they leave, that was the hardest part. Does that make sense?
Scott: Yeah. I don't know what was so hard about them leaving.
Pat: Oh, not nearly as hard on me as I think on my wife. A lot of our identity is tied up in that.
Scott: You can do like what we did, reload. We adopted two kids. We were empty nesters. I got two teenage kids in the house still.
Pat: Not a chance. You're a special person or just a little bit off.
Scott: Maybe both. I'm open anyway. I know I'm...
Pat: Hanson 2.0.
Scott: You know, it's interesting, just that conversation with Julie where her husband had a certain view and she had a differing view. And that is quite common.
Pat: Yes.
Scott: And it's not uncommon at all. I mean, when I was taking on clients earlier in my career, like, couples would come in with different...they wanted me to, like, be the middle guy.
Pat: Scott, I was meeting with clients yesterday and the wife said to me, "Thank you." Because they had a discussion about withholding on a 401(k), and I said, "Well, why are you doing it all at the beginning of the year?" He said, "I want to get it in as soon as possible." I said, "It just makes budgeting really difficult." And she said, "I pay the bills, not you." And I said, "Well, just do it this way." And she looked at me and said, "Thank you."
Scott: He wanted to front-load it?
Pat: He front-loaded it every year.
Scott: So the paycheck was nothing for...
Pat: For five months. [inaudible 00:33:13] Now, technically, I said to him, technically, he's right.
Scott: Mathematically.
Pat: Mathematically.
Scott: Yes, because stocks go up more...although it's 52-48 or 53-47, whichever number it is, somewhere in there, they go up more than they go down. So the earlier you can invest in your 401(k)...
Pat: The better, mathematically.
Scott: I mean, if you run the numbers, what would it actually make a difference on the portfolio size?
Pat: That's what I said. I said, "Why do you put your...?"
Scott: And so there's a cost of doing that, right? And I think it's a good way to look at money. There was a cost, right?
Pat: That's right.
Scott: So for him, it was a little more complicated with the paycheck. Wife didn't get a paycheck. She complained about it. He dealt with it. He put up with that cost because he thought it'll have a higher net worth in the future. Other people say, "I'm going to forego that vacation. I'm going to take that cost. I'm going to stop. I'm not going to drink coffee out." Like, all these little things. But you need to weigh the cost-benefit on every decision...
Pat: That's right.
Scott: ...when it comes to your finances.
Pat: Yeah. And whatever works.
Scott: And I remember when my wife, when we were, I think, it was the first couple of years in business. And, you know, if you're a business owner, you understand paying quarterly taxes. Matter of fact, if you've got substantial savings, you're probably used to paying quarterly taxes. And she worked at Intel at the time. Before we had kids, she worked at Intel for five years. And I suggested to her, "Why don't we increase your withholdings on your paycheck?"
Pat: So she has no paycheck?
Scott: She should have essentially no paycheck. Now, we'd only been married a year or so.
Pat: Okay.
Scott: She's only a couple of years out of college.
Pat: How did that go?
Scott: This same conversation, I thought it seemed perfect. Then I don't have to worry about making the quarterly payments, that she thought I was crazy.
Pat: It didn't work.
Scott: And after maybe getting a little older, a little wiser, I completely understand why it didn't work.
Pat: Well, and by the way, so I did exactly that. My wife's an accountant. So it was really easy because she's like, "Oh, that makes perfect sense," right? I don't have to deal with the quarterly payments. And we just withheld 100% of her paycheck for the first couple of years when I was in business. She was completely fine with it.
Scott: Really?
Pat: Yes. Completely fine with it. But, like, her background is accounting, so it didn't... Your wife's background was not accounting.
Scott: You know, here's what's kind of interesting about this. So we're both financial advisors, right? Married to two different women, obviously.
Pat: Okay, that's so gay. That would be creepy.
Scott: Our wives, obviously, very different when it comes to their view of money. My wife, she wouldn't even entertain the conversation, that it sounded absolutely crazy for her not to have a paycheck. You know, I think she... And your wife was like, "Oh, this makes a lot of sense. It'd be a lot easier."
Pat: A lot easier.
Scott: I don't have to deal with...
Pat: Yeah, the economics.
Scott: Right, with quarterly taxes.
Pat: Yeah. But your wife never took away your ATM card either. Mine did. She took it away.
Scott: What do you mean she took it away?
Pat: Back in the day, I would take money out of the ATM sometimes when I needed cash, and I'd forget to give...
Scott: Back in the day, like you don't anymore? Because you don't need nearly as much cash anymore.
Pat: That's right. I mean, this is we're talking 25 years ago.
Scott: I was valet parking my car a couple of months ago somewhere, and I said, "I didn't have any..."
Pat: You just whip out a...
Scott: Venmo. That's right. I take Venmo, and he puts his phone out with this QR code. What are you going to do?
Pat: Brilliant.
Scott: Brilliant, that's what I think.
Pat: Brilliant.
Scott: You should be doing something else besides parking cars.
Pat: Smart. Well, maybe not. I bet he makes a lot of money. "Oh, by the way, Mr. Hanson, I don't want you to actually dirty your fingers putting in those numbers."
Scott: Would you like to pay $20 or would $50 be better for you?
Pat: "This is a beautiful car, Mr. Hanson. I was able to actually just run a towel over the top of it while you were waiting." So my wife, I would take money out of the bank, and I forgot to give her the receipt a couple of times from the ATM machine. And I go into my wallet one day and my ATM card is gone. And I said...
Scott: She literally just went into your wallet and took your ATM card.
Pat: She took my card because I didn't give her a receipt. And she said, "From now on, if you need cash, you let me know, and I will get you cash and give me a day or two to do it." And for four or five years, if I needed cash...
Scott: You're kidding.
Pat: I'm not kidding. She's an accountant. I mean, listen, I love her to death.
Scott: Of course.
Pat: But see, like, it's by the book. And so, then, I'd need money and I'd say, "Hey, can I get, like, $200?" And it would just be next to my keys, like, a day later. And finally, one day, I said, "Can I get some money?" And she said, "You know what a hassle just getting money out of that machine." And I said, "I appreciate your plight. You cannot imagine how hard it is getting money into the machine." Then I went to the bank myself and got my own ATM card. I never got it back from her. And we have resolved this little conflict in our marriage after 39 years.
Scott: Well, I mean, money certainly can create conflicts.
Pat: Oh, absolutely.
Scott: When you don't have enough to pay the bills, there's tremendous stress.
Pat: Well, I grew up in that environment. Did you grow up in that environment?
Scott: Not quite that. My mom would go to shop at three different grocery stores based upon what coupons she had and that sort of thing.
Pat: Yes. I know.
Scott: And she'd talk about how she saved $12.92 for the week or whatever. I mean, she's very proud of that. I have often thought, not in the same words.
Pat: And when you say your mom, this is your step mom.
Scott: My stepmom, yeah.
Pat: Oh, I loved your step mom.
Scott: You did?
Pat: Yeah. With that English accent?
Scott: Yeah, she was English.
Pat: You know, when we first started our business, I stayed at your house for two days down in Southern California. I had to sleep on the floor.
Scott: I slept on the floor of your mother-in-law's house too.
Pat: Fair enough. I forgot.
Scott: It's a time when money was tight. That's our big business trips. Do you have any family in town we could sleep on the floor?
Pat: All right. Let's go.
Scott: Anyway. But back to that point, like, and this all stems from Julie's call, just the differences on what...many of us are married. We deal with our finances together. We have to. You're foolish not to. Because you got to pay the bills together. But we have...
Pat: Especially second marriages.
Scott: But we all have different views on money. We have different backgrounds, the way we...
Pat: Especially second marriages. I mean, there is second marriage. I mean, the estate planning, if you have any assets at all in a second marriage, with children from previous marriages, it is absolutely vital, 100%. Like, above all things, you need to make sure your estate plan is together. Thoughts?
Scott: I totally agree. Whether you have a prenup. Now we're getting on a different topic as well. Second marriages, it's not about getting a prenup because you don't trust your spouse. It's really about making sure that your kids aren't disinherited.
Pat: Yes, 100%. Or you set up a life estate.
Scott: Or set up a life estate.
Pat: Right? What's a life estate?
Scott: You get income while you're still living. So one spouse passes away. Assets are set up so that the surviving spouse receives income for the rest of their life. When they pass away, that asset goes to the heirs.
Pat: The heirs. The appropriate heirs. Anyway.
Scott: That kind of estate planning.
Pat: But you have to. I mean, yeah, especially second marriage. But, yes. I mean, the view of the world for money through the lens of money is different. So oftentimes, an advisor, a good advisor, gets in the middle of it.
Scott: Well, money is so much about emotions, I mean, you said it earlier, the hard part of investing is not building the portfolio. It's living with the portfolio.
Pat: That's right. That's right. It is, isn't it?
Scott: Yeah. I mean, I feel...I have those same emotions as well. And if you're diversified, there's always going to be some piece of your portfolio that's not performing that well.
Pat: At least 20%.
Scott: And other pieces that are going so well. And you're like, "Oh, man."
Pat: At least 20% of your portfolio should not be doing well at any point in time, in my opinion.
Scott: Yeah, that sounds about right.
Pat: Right? And it's the part that you want to get rid of. You should stop.
Scott: Yeah. We're talking now with Paul. Paul, you're with Allworth's "Money Matters."
Paul: Hello.
Scott: Hey, Paul. Thanks for joining us.
Paul: I'm glad I was able to join.
Pat: Oh, appreciate that. What can we do to help?
Pau: Well, you know, I've put three questions down, and basically, it was along the lines of, should I...actually, I put a question, should I combine all of the different funds that I have into one or should I just leave them where they are? I've heard financial people over the years tell me, "Oh, leave them where they are. No problem." Others say combine them. And it's a little confusing.
Pat: How old are you?
Paul: I'll be 68 in February.
Pat: Are you currently employed?
Paul: I am not. I had to retire early. I had a spinal infection last year.
Scott: Sorry to hear that.
Paul: And it damaged my spine.
Pat: Oh, sorry.
Paul: And I was an industrial air conditioning mechanic, and I could no longer do that kind of work anymore.
Pat: And are you married?
Paul: Yes.
Pat: Okay.
Scott: And these three accounts, are they retirement accounts, all in your name? Are they brokerage accounts? What are they? What kind of accounts are they?
Paul: Right. So I have a brokerage account with a company that I've been with since 1991. I bought some annuities back then. And then, in 2001, I had a nice inheritance, and we paid off some bills and bought a car and put the rest into the brokerage fund.
Pat: Okay.
Paul: We did that six weeks before 9/11.
Pat: Okay.
Paul: And then, of course, you know, we didn't lose it all, and most of it's come back quite nicely.
Pat: As you would have expected, more than nicely. Like, phenomenally. Like, holy smokes, I can't believe how well this has done. What's the other account?
Paul: I have some money with a local trade union, and I was union for a while.
Pat: Is that a qualified prevailing wage retirement contributions?
Paul: Correct.
Pat: Okay.
Paul: I think it's in a 401(a).
Pat: Okay. So, okay, all right. And then, what else do you have?
Paul: And then I have some money in the company that I retired from, the large AC company that I retired from.
Pat: That's a 401(k).
Paul: And, yeah.
Pat: Okay.
Scott: And do you have any other IRAs or anything?
Paul: No.
Pat: Let's circle back to this brokerage account.
Paul: Okay.
Pat: You said that you bought some annuities years ago...
Scott: In 1991.
Pat: ...and then you put some money in a brokerage account. Do you still own the annuities that they sold you?
Paul: I do, yes.
Scott: And I would imagine it's a different person today than it was in 1991?
Paul: It is. It is. But actually, the gentleman that was our agent at the time, he was for a very great number of years, and then he retired. And actually, there were two versions of that company. And then, in all of, I want to say, about 10 years ago, that company merged both together and became one and changed their name.
Pat: Okay.
Scott: And...
Paul: But it's kind of a benevolence.
Pat: A benevolent society, like the Lutheran or one of those types.
Paul: Right, right. We were Lutheran Brotherhood. I was Lutheran Brotherhood.
Pat: Okay. I guess. And the Catholics have the...what do we call them?
Scott: I don't know. Knights.
Pat: Knights of Columbus. But they call them...there's a different investment arm for that. I should know, I'm Catholic.
Scott: And I think the Lutherans have a different name now, too.
Pat: They do as well.
Scott: I don't remember what that is either.
Pat: Anyway, that's neither here nor there. Do you like the advisor you're working with there?
Paul: I do. Actually, his brother was our advisor for a lot of years. And we went to the same church.
Scott: And does he do fee-based advice or is he still selling annuities?
Paul: You know, he does whatever he thinks is good or whatever the customer wants.
Pat: How does he get paid?
Paul: How does he get paid?
Pat: Yes.
Paul: You know, that's a good question. I suppose that he gets paid out of fees.
Pat: Okay. The answer to your question is yes, you should combine all three of these.
Scott: And the question...well, you can't necessarily...you can have them all under the same...
Pat: Advisor.
Scott: Yes.
Pat: But you can combine this trade union, IRA, together, 401(k), whatever it is, and the 401(a)...
Scott: Into one IRA.
Pat: ...into one IRA. And then you have this brokerage account that would sit on its own. And then you actually have these annuities, which, actually, by the way, those are the things that I would be focusing on right now, which is...
Scott: What's the plan with these annuities?
Pat: What's the plan with the annuities? And then I would be looking at Roth conversions.
Scott: And maybe annuitize for a period of time.
Pat: That's exactly what I was thinking, right? And then...
Paul: Right.
Scott: And they might have...the annuity factor, internal factors, might be much higher than anything you could buy in the marketplace today.
Pat: Which is, if you annuitize how they pay out, right? And whether they're fixed or variable annuities and whether that's appropriate, the fee structure inside of it. So you've got this...like, you've got a bunch of questions here. And most of the decision-making is going to be driven by asset allocation and tax. And tax.
Paul: Okay.
Pat: This is...
Scott: And this really comes down to who's your advisor. So, like, when you said he does whatever the customer wants...
Pat: I don't want a doctor that does whatever I want.
Scott: Right?
Paul: Well, right, okay. You're right. I miss kind of...
Scott: And these big companies like that, they're...most people are.
Paul: Brad knows what he's doing. He's been doing it for a long time. [crosstalk 00:48:12].
Scott: Okay. And you trust him.
Pat: Has he done a financial plan for you?
Paul: Yes.
Scott: Okay.
Pat: Okay. And so, yes, you should combine these together. And if he's getting paid fee-based, then you should be asking him the question. Like, these annuities, should I annuitize them? Or he should be saying to you...
Scott: What's our plan with these?
Pat: What's our plan with these? But he's doing a financial plan, right? And as long as he's not getting commissions on transactions, which is the thing that...by the way, when you bought these annuities, that's just the way of the world it was back then.
Scott: That's right.
Pat: That's just...
Scott: The tax law was quite different, and it made sense. It made sense.
Pat: Yeah. That's the way it was. So what they did in the past and what they do today, right...
Scott: Probably quite different.
Pat: Quite different. So, yes, the answer to the question is you should combine. If you're happy with the advisor and you like the advisor, then you should combine them all under that advisor. There's no reason in the world that trade union, 401(k), and your own 401(k) continue to sit out there, probably with no visibility from an advisor.
Scott: And my guess is that the trade union one is in some sort of group account where you have no investment control over whatsoever. And who knows how it's managed?
Pat: So the answer to the question is, yes, go back to your advisor.
Scott: Sounds like you have a good relationship. Sounds like you trust him.
Pat: Yeah. And ask, "Okay, let's combine these together and give me a tax strategy in terms of Roth IRAs and what it looks like in with these annuities." And the benefit of the annuities is that you could get paid out a portion of principal and gain over a period of years where, if you die, it becomes a big tax burden to the beneficiaries.
Scott: Yeah. So that's something to take a look at. We really appreciate the call, Paul. So, hey, I want to let everyone know we've got a webinar coming in. It's top investment moves for high net worth planning. So this is really for investors that have over $1 million of investable assets plus and marketing people said here, it's an essential watch.
Pat: Is that right? Where is it? What? Huh? Oh, an essential watch.
Scott: But with this, we're really going to discover how Roth conversions can allow you to continue tax deferral and future tax-free distributions without having to deal with requirement of distributions off that. We're going to look at how to unwind concentrated stock positions while you minimize your capital gain taxes, there are actually some pretty interesting techniques you can do to that, how to utilize excess cash, and a lot more. And who is doing this is one of our younger...I should say youngest.
Pat: Allison Scoggin. I talked to her yesterday.
Scott: She's spectacular.
Pat: I sent over a large, large, large client to her. Someone that I knew socially came to me and said, "Hey, I'm trying to give away money. How do I...?"
Scott: And, you know, we've talked on this program how Allworth has grown, how it was Hanson McClain, Allworth. We continue to grow through mergers and acquisitions because we say it's the best way to find talent.
Pat: She's great.
Scott: Their firm merged in with ours a year or so ago.
Pat: Yeah, she's great.
Scott: She's great.
Pat: So I don't know...
Scott: Allison Scoggin.
Pat: Is it an essential watch, Scott?
Scott: I think so.
Pat: I think it's probably something you should do.
Scott: Okay. Well, you have plenty of opportunities. So the webinar is going to be Wednesday, January 22nd at noon Pacific, Thursday, January 23rd at noon Pacific, Saturday, January 25th at 9 a.m. Pacific. And to register and to get more information and all that, simply go to allworthfinancial.com/workshops, and you could register. And I think it'll be worth your while. It is the beginning of the year.
Pat: It is.
Scott: And it is the time where you kind of take inventory of, hopefully, a little bit of your finances as well.
Pat: Yeah. And, like, all the bad things you've done in your life.
Scott: All right, we're out of time. We'll see you again next week. This has been Scott Hanson and Pat McClain of Allworth's "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.
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