Early Career Savings, Midlife Maximization, and the Impact of Tariffs
On this week’s Money Matters, Scott and Pat dissect the Big Beautiful Bill’s hidden surprises and spending concerns. They help uncover retirement savings strategies for a family with over a million in combined assets, explore the real winners and losers of the tariff policies, and offer sage advice to a fresh college grad navigating their first full-time salary. From lobbying power plays to Roth IRAs, this episode delivers practical insights for investing in today’s market—at any stage of your career.
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Scott: Welcome to Allworth's "Money Matters," Scott Hanson.
Pat: Pat McClain. Thanks for joining us.
Scott: Myself, my co-host, both financial advisors, decades of experience as working with individuals and families, and been doing this program for three decades as well. Glad you're joining us as we talk about some current stuff in the financial markets as well as taking calls and answering some of your questions.
Pat: And the big beautiful bill, and there's no hyperbole there.
Scott: I remember a couple months ago. Is that really what they're going to call this thing?
Pat: I know. Yes, it's a...
Scott: It's going to take a while to actually decipher. On our website, we've got a bit of analysis on what it means to individuals and some breakdowns. You can find that at allworthfinancial.com. We're not going to try to go into all the little nitty gritty because it's frankly being...
Pat: It's pretty big.
Scott: ...for a very boring program. I think some of the keys, obviously, is maintain the tax rates, maintaining lower capital gain tax rates...
Pat: The state tax.
Scott: ...and the qualified dividend tax rates. The estate tax is a big issue because it's going to revert back to, essentially, $6 million per individual, $12 million per a couple. And for probably most of our listeners are like, "Oh, that's still plenty of dollars." But work can really impact small businesses, family-held businesses.
Pat: Farms.
Scott: Yeah, all that stuff. And so, anyway, the current amount that you can transfer is almost $14 million per individual. Next year, it goes to $15 million. So, it's $30 million.
Pat: Per couple?
Scott: Per couple. And I think that'll have some impact on some people. Yeah, they're kind of mean. You can use your $5.29 for trade schools, stuff like that.
Pat: Yes, I think that was a good move.
Scott: A hundred percent, that was a great one. There's much in there that I think both people, pardon, it doesn't matter what political situation.
Pat: It's the spending side of it that scares me, Scott.
Scott: Well, we cannot continue... I think we're...7% of our GDP is going to debt, to service debt.
Pat: Yes, to service debt, yes.
Scott: It's a massive.
Pat: No matter what metric you look at, it's high.
Scott: Correct.
Pat: And it's the kind of place you would expect, if we're in some crisis, trying to buy our way out. Not a normal... Well, I don't know if this is normal.
Scott: And it's like, I think that it's going to take some sort of crisis before Congress can act.
Pat: On both the debt and social security.
Scott: Yes. Yeah, yeah, yeah, and social security and Medicare. We all know that the entitlements can't go on forever.
Pat: You know what? I got to tell you though.
Scott: They can't. There's just none. There's not. I mean, part of it is just demographics. There's just none of young people out there working to support.
Pat: If you look at the numbers when it was started, the number of people that were paying in, it's like a big old Ponzi scheme pyramid.
Scott: Yeah, there's no actual money, where you put into social security. It's not going into an account credit in your name.
Pat: Yeah, it goes treasuries, special treasury. I got to tell you, they never even touched what's called carried interest. And I bring this up.
Scott: Yeah, explain what carried interest is.
Pat: So carried interest is if you're a venture capital or private equity fund...
Scott: Or hedge fund.
Pat: ...or hedge fund, and you buy a company and you carry it forward for two or three years and then you sell it, you get to treat it like a capital gain, like a regular investor would. Like a regular... Much lower rate for most people than ordinary income tax rates.
Scott: I believe for most it's three years if they have to hold it, if you hear that business structure. But why in the world they get this special capital gain when it's their trade?
Pat: It's their trade, right? Auto dealers don't get this. They buy something, they sell it a couple years later, three years later, two years later, six months later, whatever the number is. Why is that? Or a furniture store.
Scott: We know why.
Pat: Well, the reason I bring it up... I was talking to this gentleman who does quite well. And he was a venture capitalist. And he told me, he said, you know, "I got to tell you, I don't mind paying taxes." He said, "But what they do with it is very troublesome to me." I said, "Well, I think that most Americans would probably agree with that."
Scott: Yeah, on both sides of the aisle, because there's different thoughts on where the money should go.
Pat: And then unsolicited, he said to me, "The idea that if you're in private equity or venture capital, that you get this special tax rate that the rest of America doesn't get, this carrying interest." He said, "It's absurd." I said, "Weren't you in venture capital?" He said, "I thought that when I was paying the lower tax rate. He said, "It was my trade, why wasn't..."
Scott: Yeah, but it's all you get a strong lobbyist group, obviously.
Pat: I actually looked up.
Scott: There's plenty of money.
Pat: After I had the conversation with them, I looked up the amount of money that they actually think is spent on lobbying for venture capital and private equity. But the reason this becomes a big deal is the amount of money that is, in the public markets versus the amount of money is in the non-public markets, the amount of money in the public markets relative to the amount of money in non-public markets, the non-public markets are growing because of the regulatory environment that public markets have to pay.
Scott: That's right. And companies, they're not even going public anymore. It's so rare.
Pat: More are actually coming private than going public.
Scott: Is that right? The number of companies going private is more than...
Pat: Yeah, the number that are going private. So, at least the last number I looked at, it changes on a weekly basis. But I just thought, you know, it just shows you the power of lobby. It shows you the power of lobbying. And this wasn't addressed in the big... That's kind of a pet peeve off the subject already. But I just think, you know, this debt, it's bothersome, it's worrisome. So, I was thinking about it on the way to the show today. I said, "What are the headwinds in the market?" I'm like, "First of all, it's the debt," right?
Scott: Eventually.
Pat: Yeah. But the tailwinds are AI, and a decrease in regulatory environment, which is actually both a threat and something positive.
Scott: Yeah. I mean, if you look at the U.S. markets, we're kind of priced to perfection right now. I mean, we're trading at roughly 22 times forward earnings on the S&P 500, which is pretty much frothy level, but as high as... Compare that globally, global markets are 14 times. Granted, the U.S. market has grown, our GDP has grown much faster than much of the world has.
Pat: Yes, has.
Scott: Has.
Pat: But you see more, the returns in many of the foreign markets have become positive, and you see capital starting to flow in that direction.
Scott: Yeah, and the dollars weakened...
Pat: Substantially this year.
Scott: ...substantially. It's another area to keep a...
Pat: It's a strange world, Scott.
Scott: It's always been a strange world. It's fun world, though, too, isn't it?
Pat: Well, I have to remind myself, and if you've listened to this show any length of time, I remind myself constantly that what happens in world events that you think are going to affect the market may or may not be true. Is why you have to have a long-term investment thesis that sticks to it.
Scott: And of things too. I'm reading a book right now on Native Americans, the Indian tribes.
Pat: What is it called?
Scott: "Empire Under the Sun," I think.
Pat: About the Comanches.
Scott: Yeah, right.
Pat: I read it. Read it.
Scott: Which is great. The technology that the certain Indian tribes, mostly the horse, allowed them to conquer other Indian tribes. "Empire Under the Sun."
Pat: Yeah, but my... You just think about human nature, humanity, that's completely stripped down of what we consider a lot of civilized society to be. They were just brutal to one another. And much of the world... And here we live in an area where I don't think most people are worried about someone coming to conquering their house tonight and killing the males and running off with their daughters. So, the things that we worry about today are much different, but we do worry. We do worry. And we worry about the financial markets. But maybe sometimes more than we should.
Anyway, maybe we should get on with some calls and hear what you'd like to discuss. To join us for our program, you want to call... We schedule time in the studio to have a call with you. Love to have the conversation if you'd like to join us. You can send us an email at questions@moneymatters.com, or you can call 833-99-WORTH. And we're talking with Sam. Sam, you're with Allworth's "Money Matters."
Sam: Hey, good afternoon, gentlemen. How are you?
Pat: Good. How are you doing, Sam?
Sam: Good, good, good. I just got a really quick question. I need some good, sound advice. So, I currently... My employer, I currently have a 401(k) and they have a 5% match. And I am currently investing 11% of my earnings. So, essentially, I guess, I'm getting 16%. Would it be beneficial for me to lower my contribution down just to the 5% match and take that additional 6% and open up a Roth IRA? And I'm 52, so I'm just worried about if I'm going to have enough time to actually get any kind of gain out of that.
Pat: So, are you...
Sam: Or it's best to stay the course.
Pat: Are you spending all the money that comes in after your contributions? Are you living on that?
Sam: I'm I spending? No.
Pat: Are you saving any money on it after-tax basis, on an annual basis?
Sam: Yes, sir.
Pat: How much?
Sam: I probably have... Like right now, my nest egg in cash is about 45K.
Pat: And are you married and kids and all that?
Sam: I am married, yeah, and my wife has a great job. I mean, she's in the government, so she's contributing to her TSP. I've got two children, one 15, one 18. The 18-year-old is getting ready to start college here in the fall. So, that's another expense that we're going to be incurring.
Pat: And what's your home worth and mortgage balance?
Sam: Home worth right now is about $4.85, $4.90. And I think we owe about $2.60 on it. And as far as income, we're probably close to $200.
Pat: And when your wife retires, what percentage of her income will be made up by her pension?
Sam: I don't know.
Pat: We assume she works for the federal government.
Sam: That is correct. Yes, sir.
Pat: Yeah, so about half, I think, right?
Sam: I am not sure on the percentage.
Pat: It depends on... So, here, the answer to the question is, you should probably...
Scott: Well, how much do you have in your retirement accounts? 401(k)s, IRAs?
Sam: So, this is my second job with my 401(k). My first one, I've got about $500,000 in it. And this new one, I just recently started the job about five years ago. I got about $70 in it.
Pat: And what does your wife have in hers?
Sam: I don't know, about maybe $400, maybe.
Pat: So, the answer to the question is, why not do both?
Sam: Oh, no, I'm planning on doing both. I just don't know if I'd be able to keep the 16% in there and add an additional, say, $5,000 a year into a Roth.
Scott: Oh, you certainly can.
Sam: Okay.
Scott: It's just choices. I think what would be... If you say you never want to retire and maybe you'll retire at age 70, okay.
Sam: Oh, it better be before that. My body is breaking down.
Scott: Well, there's a direct correlation between your financial independence and how much you save.
Sam: Sure.
Scott: So, that's just basic math. I think it would be helpful for you, Sam, is to do even just kind of a basic financial plan. Either you find a program online or you work with an advisor and maybe just pay an advisor fee just for like a financial... You've got roughly a million dollars in investments that who knows if they're allocated perfectly or not. And you're trying to figure out how much you really need to save. And so, I think if you got a picture of, all right, if you're saving at this level, here's what retirement would look like for you at age 65 or whatever age you want to look at. And if you saved at this other level, here's how that's going to impact... And there's trade-offs. And then you could make the decision, "All right, I'm going to lower my contributions, and here's what it's going to mean to me, my future self. Here's what it's going to mean as far as my retirement. I'll have to work another year or two," or whatever.
Pat: Scott, that is exactly what I was going to say, is he needs a financial plan. Because you're asking a specific question about a tax strategy without... So, the answer is, yes, save as much as you possibly can. That's the right answer. But you may not have to. We don't know. It depends on what kind of pension your wife's going to receive. How soon will the home be paid off? How aggressive are your investments? What are the expected returns? If you were my little brother, I would actually... And you had hesitancy to actually have a financial plan done, I would pay for it to have done. I've done it for other relatives where they come to me with these...
Scott: That's how confident you are in the benefit of a financial plan.
Pat: Yeah, whether it's with our firm or another firm, hopefully it's with ours. And it's easy to engage a financial planner today, versus 10 years ago, because you can do it all digitally. You could do it on a Zoom meeting. They'll send you a list of questions and what documents they need to look at, and then you just go to a Zoom meeting, and then they'll give you a completed financial plan. You're in the perfect spot right now. Because let's just say you wanted to retire at 62, we, and I hope many other firms, would be able to tell you what your financial plan, with a financial plan, with high degrees of confidence, what your income would look like, and your standard of living at, let's say, 62 or 65. But the answer to your question is you can do both. So, without doing a financial plan, I would tell you to increase your 401(k) to the maximum and do a Roth IRA.
Sam: Gotcha. Okay.
Pat: I mean, because that's the right answer. The more money you save, the sooner you're going to be able to...
Scott: Well, it might not be the right answer. He's got two kids, one going to college, another 15-year-old coming up. Your expenses for your kids are going to be pretty high right now the next few years.
Pat: Well, I don't know, Scott. I don't know. I don't know what kind of a... How much did your parents pay of your education?
Scott: $400 a month for two years.
Pat: Really?
Scott: Yeah, yeah. I have $400. No. Yeah, it was $400 a month for two years. I'm very grateful.
Pat: So, $9,600.
Scott: Yeah.
Pat: It was $9,600?
Scott: It was more. It did not cover all my expenses back then.
Pat: That's right.
Scott: Correct. Correct. You're correct. The trade-offs, that's what a financial plan will actually tell you.
Pat: That's right.
Scott: Because you can't have everything. You can't have a low contribution and early retirement, right? And maybe the kids, you help them out, maybe you don't. I mean, that's entirely up to you and your relationship with the kids.
Pat: By doing the plan, it's not like...
Scott: Maybe 25 years ago, financial plan would be to go see someone, they give you a big bind or release printouts. It's a dynamic approach where you can sit down with an advisor and do some what-if scenarios. All right. What if we contribute this much to our child's college costs? What impact is that going to have on our current lifestyle or our retirement or both? And so, you can make informed decisions. Then you might go to your kid and say, "Hey, we're going to pay X dollars. You're going to have to get a job and get a loan or both or whatever," right? But the answer to your original question was, yes, makes the maximum contribution to the 401(k) and do a Roth IRA for both you and your wife.
Sam: Now, are you talking the maximum to their match, or just whatever I can just throw at it?
Scott: Whatever the plan allows.
Sam: Oh, okay.
Scott: That's the answer in a perfect world.
Pat: In a perfect world, save as much money as you possibly can, which is the maximum in the 401(k), and then... But that's what the financial plan will tell us.
Scott: Yeah, but then you're like, "Well, then I don't have a good enough lifestyle right now. It's okay. Well, there's a tradeoff then I'm going to not contribute the maximum. And that's going to have an impact on my future. What is that impact?" And then you make those decisions.
Pat: Well, that's the point exactly, which is that you actually know what the cost benefit is for the financial plan.
Scott: That's exactly right.
Pat: You say, "Oh, well, I'm just going to continue like I am." Okay. Well, then you work till 67.
Scott: Or 70, right?
Pat: Oh, but if I increase this, you work till you're 62, and then you make the decision. And because you make the decision, it allows you to stick to the savings objectives that you've set for yourself. Because if you don't know where you're going, you don't know how to get there. You never actually start on a journey, you say, "Okay, we're going to go on vacation. We don't know where we're going. We're just going to get in the car and drive." Like, what kind of vacation is that?
Scott: I don't know. There's part of me that would like to do that sometime, though. That's just...
Pat: Have you, though?
Scott: Of course, not, but it does sound kind of thrilling. Let's just go.
Pat: Have you known anyone that ever asked?
Scott: Till the first town. I'm trying to find a crappy motel late at night. And I'm like, "I'm never doing that again."
Pat: But that's the idea behind a financial plan.
Sam: Got it.
Pat: And you're looking for a financial plan where someone is actually really trying to help not sell you a product.
Scott: Yeah, yeah, yeah. Just do it.
Pat: Which is why might ...
Scott: Certify financial planner.
Pat: And maybe you start with a fee for service, which is you pay for the financial plan.
Scott: Yeah, I wish you well, Sam. And enjoy that first one heading off to college, sounds like heading off to college. My 17-year-old graduated from high school and is going to college this fall. And just yesterday, she comes in my office, home office and asking... I think we gave her some small budget on items for her dorm room. And she was asking about rug and "Should I get a microwave?" Literally, in my home office, I said, "I think your dorm room is much smaller than this office I'm sitting in. They're tiny. You have a roommate. Why don't you wait till you get down there? Give it a week or two. See what you need."
Pat: Yes, but I don't think that's how it's going to work.
Scott: Yeah, "And conversations with your roommate."
Pat: I never lived in a dorm. Did you live in a dorm?
Scott: No, I never lived in a dorm. I lived at home for a couple of years after. I didn't have a lot of options.
Pat: There weren't?
Scott: There was no, "Hey, Scott, what school would you like to send you to?"
Pat: You didn't have that conversation?
Scott: And the federal loans were different back then. They weren't as large. I don't think I would have had an option of borrowing enough money to go and live in a dorm somewhere.
Pat: I think I got student loans. I think they were $2,500.
Scott: I mean, like now, you can get a student loan to cover your dormitory and your meal plan.
Pat: What was that? It was $2,500.
Scott: Probably some mental health breaks.
Pat: I had... Mine was...
Scott: Yoga class.
Pat: ...$2,500. Was it a semester? All I know is I actually took that money and I had a brokerage account at the Dean Witter.
Scott: I mean, I didn't qualify for student loan because I made too much money in my summer job. If you made like over 9 grand, you couldn't get a student loan. And I remember I had friends that would quit working...
Pat: To get the student loan?
Scott: ...to get the student loan. Like, this was 30 some years ago. None of this makes...almost 40 years ago. This stuff doesn't make any sense whatsoever. It was 40 years ago, I think 41 years ago. And I mean, we don't even want to get into the issue of the student loan crisis, clearly crisis. You can see you can see what happens when the government gets too involved in one area.
Pat: Yes. Yeah. When capital chases an asset that causes the price to go up. Think about the mortgage crisis when they would, basically...
Scott: Yeah, that's caused by the government getting back in every loan.
Pat: Every loan, every loan.
Scott: And the same thing when you have all this money flooding the universities, because it's essentially free when you're 18. "What? I just sign this thing, and I don't have to... I'm going to get a great job making a ton of money when I graduate with my whatever studies degree I've got." Government created the problem.
Pat: Yes.
Scott: Well, anyway.
Pat: I'm not going to go any more there.
Scott: I don't think there'd be many people disagree with you.
Pat: Government actually solves a lot of problems, too.
Scott: That is correct, yes. But we like to point out the things that play a crucial role in society.
Pat: It's dynamic.
Scott: Yes, correct.
Pat: Religion helps a lot of people, it can hurt a lot of people as well, depending upon where you are on the spectrum.
Scott: I suppose, yes.
Pat: In what religion?
Scott: Yes. And who your leader is.
Pat: That's right.
Scott: All right. Let's talk, Raja. Raja you're with Allworth's "Money Matters."
Raja: Thank you very much. I'm a client of Allworth Money Management, and you guys have done a wonderful job.
Scott: Okay. Well, thank you.
Pat: Well, thank you.
Scott: Just for full disclosure for everybody else, we probably have other clients that aren't happy with us, that we haven't done a wonderful job. But anyway, okay, continue on. Just to keep our legal department happy.
Raja: So, my question is related to these tariffs. That is, it seems to be a moving goalpost. I have my own opinions. But what is the end goal of all these tariffs?
Scott: All the...
Raja: You can you can have tariffs. If a ship load of cars from, pick a name, Toyota from Japan, shows up in Los Angeles, it all comes from the same place. It all comes from the same organization, same entity. And you can say, "I'm going to charge $1,000 dollars a car." There are 1,000 cars in that ship. So, a 1,000 times 1,000, you get a million dollars in tariffs. It's pretty straightforward math. So, one aspect of it is the collection. But if there is a container, and people inside that container, who is going to do the necessary checking, the auditing, the manifest checking, make sure that there is nothing hidden in them that will escape the tariffs with all these cuts and stuff, that other people.
Pat: Well, well, one step better. So, many countries that have heavy tariffs on them will actually export to a third country, and then to disguise the origin of that particular product, and then ship to the U.S. And so, they are actively trying to disguise the origin of that particular product in order to bypass the tariff. But you ask what the end goal... Raja, I think this is one of those areas that most people are scratching their heads at. Even the diehard mega folks are like, "Why is this...?" I guess if you're that diehard mega, you've been thinking about it.
Scott: I have an opinion about this. What I think he's trying to do is to actually rebuild a blue collar working class in the United States for both security, global, you know, world security, so that... If you look at how World War II was one, it was on the field, on the battlefield, but also in the manufacturing of those equipment. And the other is to make it a more even playing field across the world. Because quite frankly, you know, if you have a centrally controlled government like you do in China and in Russia and in many other countries, that actually, you could say these companies are publicly traded, but they're subsidized and actually controlled by the government. And so, the idea behind it, at least, my opinion, is Trump is trying to level the field to say, "Look, if the government's going to subsidize solar, let's say, in China, and crush our solar industry manufacturing in the United States, well, any of that money that you actually put in to actually help it, we're going to take back out in order to level the field." Ultimately, though, at the end of the day, who pays the tariff?
Pat: The consumer.
Scott: The consumer pays the tariff.
Raja: And that's the other thing that people forget this, remember the American Revolution started in Boston with the Boston Tea Party?
Scott: I think that's the story.
Pat: Yes, yes, yes. It was more taxation without representation. It was taxation without representation.
Raja: That's a popular story that's going around.
Scott: Yeah, that's right, yeah, yeah.
Raja: That was what started the violence. The actual shooting started because of that.
Pat: Yeah, well, it was it was taxation without representation. And it was colonization. It was it was colonization. And then, by the way, it wasn't just the U.S. I mean, if you look at the French and how much colonization that they did around the world. But we're not going to turn this into a history show. Quite frankly, the idea is to drive these other countries to the table to renegotiate these deals. I don't think it's necessarily to actually impose the tariff, it's to make it an even playing field, which is, "Hey, if you're going to charge us 30% tariff on our products, we're going to charge you X on your product." And so, it's to lower... And it's worked, quite frankly. And by the way, I think this whole thing is kind of chaotic and crazy. But you've seen this with some of the companies.
Scott: Most people on the tariffs are like, "Really? Is this the this is this the battle you're..."
Pat: Like, most people are not big fans of Trump's tariff push.
Scott: Correct. But the motivation behind the tariffs is to drive other countries to the bargain table.
Pat: Then Raja, so if your concern is, like, what this is going to do to the economy, just keep in mind a couple of things. One is, like, if Trump gets too crazy, the power of the Congress is going to slap him back into place. That's just reality. Or he can be impeached or he's out of office in three and a half years. And there's some people that are absolutely terrified of the economy because he's the president, absolutely terrified. Others, complete opposite. But also, companies can be very creative in how they do things and ways to skirt the tariffs and ways to be...
Raja: Yeah, we have lived through periods of tariffs in our history, American history, early 20th century, late 19th century. We had tariffs and the economy boomed. So, I'm not questioning the whole tariffs question. It is required. We need tariffs against certain important certain products. But what I don't understand is the end goal, and having a blanket tariffs on things like tea and coffee, which we don't get in this country. You don't grow it in this country.
Pat: Raja, the headline number that you see in these tariffs is designed just to drive other countries to the table to actually... And whether it's real or not, it's because this administration believes that it's an unfair field that we're actually playing on with many of these countries.
Scott: And it's true. It is... I mean, why do we pay a higher tariff than they pay in our goods. Doesn't make a lot of sense.
Pat: But if you could drive them to the table with this threat of, "Look, we're going to drive you to the table because we're going to do this tariff." The tariff may never occur, but it may lower tariffs on the exported products from the U.S. into that particular country. And you don't hear about that. What you hear about is the other country says, "Well, we're going to increase your tariffs." You know, like, "Okay, go ahead and increase your tariffs. And then we're crushing both of us," right?
Scott: Yeah, yeah. Mutual destruction.
Pat: Yeah. But it will work itself out. One way or the other, it will work itself out.
Scott: One way or the other.
Pat: It could be very inflationary, but it could also drive a lot of job rather.
Scott: But the inflationary, it'll be a one-time inflation, essentially. Yes. Like my pair of pants I put on this morning, I noticed a little tag, "Made in Vietnam," this morning. "Made in Vietnam," pants I like putting on. And I thought, "Huh, I wonder how much more expensive these..." I don't know what our tariff is. I think it's been in the news. I think quite a bit of goods are made in Vietnam these days. And I thought, "I wonder how much more my pants would go up." But it would just be, let's say, I spent 100 bucks for my pants, and let's say the tariff's 20%. Maybe it goes up to one hundred and $115 once. But it's not an annual increase on that.
Pat: And what you would actually do...
Scott: It may, one time.
Pat: ...you would you would change how you consume, which is...
Scott: And buy less pants.
Pat: But, Scott, like, the inflationary where they have a market basket of goods, it assumes that that people don't respond to pricing, but people absolutely respond to pricing.
Scott: That's right. And if coffee got too expensive, I'd switch to tea.
Pat: Yes. And if tea got too expensive, I'd Red Bulls.
Scott: Red Bull. Red Bull. Raja, I wish we had good answers for you.
Pat: Yeah. But my belief is just it's to drive these other countries to the table to negotiate. Not only... I don't think the intent is actually to raise the tariffs, it's to lower the tariffs against U.S. goods going into that particular country.
Raja: So, that's the end goal.
Pat: I believe that's the end goal.
Scott: Yeah, to make our products more competitive globally, right?
Pat: And it's actually, we've seen this with some of the, like, meta. Some of these beneficiaries of this have actually been the big technology companies because they need more breaks. So, anyway, appreciate the call. And thank you for being a client of Allworth.
Scott: Yeah, thanks, Raja. Yeah. And what is really fascinating, though, is when you look at the stock market, as the broad index is anyway, are higher today than when Trump announced the Liberation Day.
Pat: Yes.
Scott: You got to hand it to him for at least trying something. Like, he's not afraid to go out there with some audacious statement on everything.
Pat: On everything.
Scott: Everything's another TV show for him, I think, "It's Liberation Day. And that doesn't go over. No big deal. We'll just do something different tomorrow."
Pat: Yes. Listen, both sides of the political spectrum, the dams and the Republicans, many, many people have dirt on their hands.
Scott: Oh, yeah, it's a nasty game.
Pat: Yeah. And this Elon Musk thing, Scott, I got to tell you.
Scott: With the new political party.
Pat: Yeah. Well, wait till that. I mean, the Tesla stock is not it's not doing well.
Scott: Yeah. And they say that the value of the car business of the Tesla is maybe a third of the market cap of the company. And so, two thirds of the value of that Tesla stock is in Elon's future creativity in robotics and software and tech.
Pat: So, what you're saying is, if the earnings relative to another...
Scott: Some analysts say... That's what he or she had stated in this thing. And I thought it was probably about right.
Pat: Yeah, because they're betting on Elon, not necessarily that the profits of the company itself.
Scott: Yeah, because there's no... You'd have to corner the market on cars in order to...
Pat: He's become a meme coin. Well, it's a little bit more than a meme stock, but...
Scott: It is it's an interesting thing to watch this new political party. I didn't see a lot of excitement on that one.
Pat: We didn't see it. It didn't take off.
Scott: It wasn't quite the Ross Perot movie he thought it was gonna be.
Pat: Then you're going back a couple of days.
Scott: It was last time someone was actually starting another political party because of the deficit spending.
Pat: Yeah, yeah. And it split the ticket.
Scott: It split the ticket. Got Clinton elected. That was back in the day. It turned out, in retrospect, he was a fairly, fiscally conservative president.
Pat: It was. It's hard to tell, though. It used to be the Republicans were fiscally conservative.
Scott: Who knows anymore? It's a weird political environment.
Pat: All right, I can tell you this, if you're bothered by any of this, call your representative. Just call them. I actually not only called my own congressional representative, I called other ones as well.
Scott: "Do I represent you?" "No, but I'm in the neighboring town." So, you still impact me and I could influence the election next time because I'm going to drive around with my warrant. I'm going to...
Pat: They're supposed to work for us.
Scott: I'll be in the overpass with my banner hanging down.
Pat: I haven't gotten that far.
Scott: In a big truck.
Pat: You went that far?
Scott: No. Okay, let's continue on with calls. We're talking with John. John, you're with Allworth's "Money Matters."
John: Hi, Pat and Scott. Thanks for having me on. Can you hear me just fine?
Scott: Yes, sir.
John: Well, I have to say, if coffee gets too expensive, I won't be switching to tea or Red Bull. I'll be going down with the ship.
Scott: Okay, it's all this money's at coffee now. Can't afford anything else. I copy. I spend $12,000 a month on coffee, but...
John: I guess it would be, yeah.
Scott: How can we help?
John: Just a little bit about me. I'm 24. I recently graduated just this past spring, so I started my first full time job two months ago. In terms of assets, just my checking and savings, I have about two and a half thousand in there. And then salary, I'll be making $65,000. And I kind of foresee, like, kind of lots of room for growth in the future just in the field that I'm in. Kind of hopefully, I'm hoping within like five to six years, I'm at least somewhat close to six figures. And I believe that's pretty realistic. Monthly expenses, I'm kind of in a blessed situation living with my brother, but so, I'm just around $1,500 a month.
Pat: In expenses?
John: Yeah, around $1,500 a month. That's excluding some bigger picture stuff that I have outlined. I, like, within the next year or two, I'd like to buy a truck, maybe within the range of $25,000 to $30,000, and maybe putting $10,000 down on it. And then maybe, like in four years, you know, saving for a house. But that's kind of some bigger picture stuff I have over the next few years.
Pat: I love this call. John...
John: I have no debt.
Pat: I love this call.
John: I was also blessed. You know, I went to Weber State University, and so it was relatively cheap and still, like, provided pretty good schooling. And for I had gaps, like, my parents helped me out.
Pat: Do you have any student loans? Student loans?
John: No, no loans. So, for retirement accounts, I do have a Roth IRA that I was putting a little bit in during school, but it just has $1,100 in it. For 401(k), I can't contribute, yet. I have to wait for until after being three months with the employer. So, that'll be next month. But once that happens, I definitely want to contribute quite a bit amount. And they'll also match up to 5%. And I have an HSA as well. So, it's at zero, but I'm trying to max it out this year so that I can obtain, like, the investment aspect sooner because I think I have to have $2,000 in there before they'll let me invest it.
Scott: What was your degree in?
John: Supply chain management. So, I'm a buyer here in Salt Lake region.
Scott: And what's your main question for us?
John: So, I have a few questions. One is just, you know, how much should I allocate to retirement accounts? So, I've kind of built a spreadsheet, because my main goal is I want to make sure that I have enough to save up for a house and, you know, still being able to, you know, fulfill my expenses.
Scott: And what's the house cost in your area?
John: What's that?
Scott: What's the house cost in your area?
John: You know, I haven't done too much looking, but like I said, I'm kind of thinking four years out. You know, my brother bought a house four years ago, and he was lucky enough that he got like a 2.6 and something before everything kind of spiked. And he bought his for $400,000. And it's a three bedroom, two baths. You know, I don't know how many acres it is. It's kind of like your standard house. You know, home prices are a little bit pricey here in general. If you talk to anyone in Utah that's looking for a home, everyone will complain that, you know, they're overpriced or whatever. So, I can't answer that question.
Scott: So, here's my... Just remember this, it's just as easy to fall in love with a rich girl as a poor one. That was advice from my grandmother, which I did not take. So, we'll give you some financial. By far your best investment is in your own career, 100%. So, it's interesting because you see a lot of these articles. Well, if you start saving in an IRA, $2,000 or whatever, at age 22, or if you wait till 30... Like, okay, that's all great. And most people are 22 or dead broke. So, your ticket to financial independence is going to be more reliant upon what you can deliver in the marketplace and what you can negotiate to get paid for in the marketplace, much more than what you're going to save in financial assets.
Pat: Which means, another way of saying, be the first one in the office and the last one to leave and the most productive person that you have ever met.
Scott: Figure out how to continue to increase your skill sets, you're more valuable to the marketplace.
Pat: Act like an owner, not like an employee. And by far... And I see it in our own organization with young people that come out of college. Some have this attitude, which is, "I'm going to really give it up for the company." And others have an attitude, which is, "Hey, this company owes me something. What do you mean? There's more than 40 hours a week?" Yeah. As I tell my own children, I have four, in your age range, you would be my youngest, it's a halftime job. You can work any 12 hours of the day you want, which doesn't always go over well. But, you know, I love this call. So, we over the 4th of July weekend, two of my children had their friends up. We've got a little cabin at Lake Tahoe. Had their friends up. And three of their friends stepped aside and asked me questions, like, financial. Like, "This is what I've got. This is how I'm doing. What do you think?" And my answer is exactly the answer Scott gave you.
Scott: So, we'll help you, like, the financial things to do. But if you find yourself spending a lot of time on your spreadsheet, I'd spend more time on how do you be more valuable to your employer and the marketplace and all that. Not so much follow your dreams, or do what you love. It's like it's the balance between what you're good at, what you love, and what the marketplace will pay for.
Pat: And what you love is number three on the list.
Scott: Or learn how to love what pays you well. I mean, it's kind of a financial independence as you go. So, having said all that, I think the Roth IRA is your best place to start. Even if you want to use the money for a purchase of a house, any of your contributions can come out tax free. So, you can...
John: Right, because I... Sorry, go ahead.
Scott: You can throw 7 grand a year in there, and you could say, "All right, this is either going to be money for all my contributions, money for a down payment." That's a fine... You already have one open. So, we're good. It's either going to be used for a down payment, or if for some reason I've got enough money elsewhere, I can leave that for my retirement.
Pat: It gives you that flexibility. And then you want to do the maximum in the 401(k) as well.
John: Yeah. So, well, that's what I have. My spreadsheet kind of static. It doesn't take into account if I do get bonuses or maybe they offer a new role.
Pat: When? Not do, not do, when, because you're going to work your butt off and you will get the bonuses. So, it's not when I do, when I get the bonuses.
John: I'll tell them that Pat said that I'm going to get bonuses.
Pat: Please do. Well, don't forget... Look, so we've been employers for numbers of years. And people get, not only what they what they deserve, but also what they negotiate. And those that have worked hard and also come periodically like, "Hey, here's why I need more money." As an employee, I hate to say it, that's just kind of how it works. They end up getting paid a little more. So, don't ask early, ask often.
Scott: I don't want to ask so often, but...
Pat: But make sure you bring in value. The worst thing there is in an employee that actually doesn't add a lot of value and is actually on the edge and they continue to ask for it, because you're like, "I'm not even going to have the conversation."
Scott: I'm sorry, your needs at home are not my problem really.
Pat: Do you remember the one guy that came in because his wife wanted a boat?
Scott: No, I don't.
Pat: And he needed a raise because his wife wanted a boat. You don't remember this?
Scott: No.
Pat: We probably had 20 employees at the time. I thought, "This is the craziest thing."
Scott: That is hilarious. Your personal wants and desires at home is completely irrelevant to what the market needs.
Pat: Yeah, I don't see how your wife wanting a boat actually affects my business. But go for it. So, yes. So, maximum into the 401(k) and the Roth IRA.
John: Yeah. So, well, I guess, you know, since it's static, my spreadsheet, I was gonna say, right now, I'm allocating that I can have like 20% from my salary going to my 401(k). Should I maybe lower that just in case I have, like, some other unknown...?
Scott: I would probably lower. I'm not too terribly concerned about your financial security going forward. And let's make sure you have that money for a house. So, maybe you put in 10% in your 401(k) and do the Roth.
Pat: As long as you... And you sound disciplined, obviously. You're calling a financial talk show. You're 24 years old.
Scott: That's right. We're not worried about you.
Pat: We...
Scott: You show me someone that doesn't worry about money, I'll show you someone that doesn't have any. You sound very disciplined.
Pat: You're going to be good.
Scott: Yes. And then start saving it, and then put it in a high yield money market, the money that you want to save for a home.
John: Put it in the high yield money market? That was one of my other questions.
Scott: Yeah.
John: And along with that, you know, just like... So, you were saying for the house, initially, I was thinking that the Roth IRA would be a great place for it because I could pull the contributions. But then I got thinking, well, if I want it in four years, is that actually a bad place because the market, you know, evolves, so...?
Scott: No, no, invest it in a secure type of investment. Invest it in a high yield money market account. Don't worry about the markets.
John: In the Roth IRA?
Scott: Yeah, that's what I would do. It just gives you the flexibility at that point. If you don't need it, you've got all these extra money...
Pat: In the Roth.
Scott: ...that you're never going to be taxed on.
Pat: Yeah, in the Roth. It just gives you that flexibility. So, remember, the tax vehicle isn't the investment vehicle.
John: Okay. And then...
Pat: The tax vehicle is the Roth, but because they allow the withdrawals from the Roth, the deposits tax free. Go figure.
Scott: It's been that way since Senator Roth came out with it.
Pat: Yeah. When they were trying to make the tax code easier. So, that's what I would do.
John: And then, with an emergency fund, I do also want to start building going up over the next four years. Do people typically just put those in a high yield savings account, or...?
Pat: Yes. Yes, yes. Yes. But again, invest in yourself.
John: Right. Let's see if I had... And then in terms of, like, where I should be invested in the Roth, I mean, you were saying money markets, but in general, in the Roth IRA, outside of...for a house or whatever down the road.
Pat: Money market. So, look, if you're planning on buying a house in four years, the worst thing you could do is say, "I'm going to invest in this ETF or this growth thing." And you get to the point where your income's up, you've got some money saved, you're now about to go look at houses, and there's a downturn in the financial markets and your 50 grand that you've got set aside for down payment is now worth $35,000, and you won't buy the house. But to your point exactly, John, which is, well, keep it in the money market. If you don't need that money...
Scott: Then you invest it later.
Pat: ...then you invest it. So, you buy a house and you didn't need the money in the Roth, then you invest it. And 100% of your portfolio for long-term should be in equities, 100%.
John: So, is that S&P 500 though?
Pat: Total market.
Scott: Total market, maybe some international as well.
John: When you say total market, you just mean that S&P, right?
Pat: No.
Scott: No.
John: S&P 500?
Pat: The Wilshire 5000, which includes the S&P 500.
Scott: So, if you look at the market cap of the United States and the ballpark, 75% is comprised of the S&P 500, 15% are in mid cap stocks, and the remainder in small cap stocks. Somewhere right there, right?
Pat: Yeah, it's seven and a half.
Scott: Whatever, it's ballpark, right?
Pat: Yeah, correct.
Scott: Ballpark. And so, it may be something like 75% or 80% in the total market and the remainder in international markets.
John: Okay. The last question I have...
Scott: And I know that the last several years, internationals have not done as well. But, you know, things go through cycles, and over the long period of time, I think you'd be well suited by having some.
John: Okay. My last question I have for the HSA, like I was telling you, I have nothing in there right now since I just started with my employer. But I was planning on maxing it out this year so I can start investing that sooner. And then over the next year, I thought, well, maybe I'll just invest half of the max, like $2,200, or whatever. But how much does someone actually need in their HAS? Like, do I want to have 100 grand when I'm 60, retired, whatever? Do I want to have 300 grand?
Scott: If you put in 2 grand a year, you're going to have more than 100 grand by the time you're 65. Who knows what the laws are going to be? I mean, these are...
Pat: Yeah, the HSA should be the last investment vehicle.
John: Okay, well, how much do you recommend putting in there? I guess, like, I just don't know.
Scott: Well, you want maximize that after you've accomplished all your other objectives.
Pat: Yeah. So, the 401(k) to the maximum.
Scott: I've maxed mine out for the last several years. I don't take any withdrawals from it.
Pat: As of I, but we're not 24-year-old John.
Scott: I understand. So, if I was 24, I probably wouldn't worry about maxing.
Pat: Yeah, I would use the 401(k), I would use the Roth IRA.
Scott: I'd rather have money in a Roth than money in an HSA.
Pat: Yeah, and I don't even know if I would use the HSA. I question that. I would do the 401(k) to the maximum first, the Roth IRA to the maximum, then, only then would I start using the HSA as an investment vehicle, in that order.
John: Okay. Sounds good.
Pat: What did your parents do for a living, John?
John: Well, my dad growing up was a cop up until about when I was the age of 8. And then he moved over. He's spent the last 18 years or so working for an oil and gas company, but he's a field tech. And so, he makes pretty decent money out of it.
Pat: And the reason I ask the question...
Scott: Yeah, why did you ask the question?
Pat: ...is because I'm thinking, this kid sounds like he was raised by a pack of engineers.
John: Well, I guess, you could say. I lived with my brother for the past four years, and he's a welding engineer. He'd probably say that he raised me. So...
Pat: Okay. All right. Perfect. Well, keep up the great work. You're fine. Remember, it's bring value to the marketplace.
John: Yeah, for sure.
Scott: Yeah, that's by far in a way where you're going to create wealth. Appreciate the call, John.
John: Yeah, thank you, guys.
Scott: All right. It was funny. I was on a bike ride early this morning with a friend of mine. His kid's 19 or 20, and I don't think he's going to college right now. He's got a kind of a going nowhere job. So, his dad's a little concerned about his future because he's a bright kid and all that. He's 19, he's still growing up. But he saves a ton, like, half his income.
Pat: Wow.
Scott: Maximizing. But then we have this conversation like, "Wouldn't you rather have a job where he's got some career advancement and maybe have a little more social life and not saving as much?" He's like, "Oh, absolutely. I would rather have that." But this is, you know, at least, he's got this one area of his life, he's saving more than that.
Pat: He's got it all buttoned down. Yeah. It's hard.
Scott: But you know, it's funny. You listen to a call like that, and I'm just thinking how many of listeners are thinking, "Man, I wish my kid was thinking like that." As I was thinking, I wish my kid was..." Well, actually, my kids are.
Pat: Yeah, they're quite responsible when it comes to the finances and they're doing well.
Scott: Yes, actually.
Pat: And when it comes to...
Scott: My son listens to this program now. He's an avid listener.
Pat: Well, shout out to... So, two of my children have flown, three of them, JSX in the last couple of weeks.
Scott: Oh, you're kidding. That's where my sons have co-pilot.
Pat: That's why I said check to see if Blake Hanson is flying.
Scott: Yeah, that'd be hilarious.
Pat: Yeah. So, they're good.
Scott: Anyway, that's all the time we have. Hey, before we sign off, we'll let you know our July webinar that we've got is Advanced Tactics for Concentrated Stock Position. So, if you've got...a lot of your net worth is on one particular company and you're looking at some tactical ways to unwind without paying in a huge tax bill, Simone Devenny, who's Allworth's head of private wealth strategies, is going to discuss the five new ways to unlock your portfolio's hidden potential. So, if you want to be part of this webinar, again, it's Concentrated Stock Positions, Wednesday, July 23rd, at 10 a.m. Pacific, Thursday, July 24th at noon Pacific, Saturday, July 26th, at 9 a.m. Pacific time. And you can get all the more information and register at allworthfinancial.com/workshops. That's been all the time we've got. It's been great being with you. Scott Hanson and Pat McClain of Allworth's "Money Matters."
Automated Voice: 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 a state-planning attorney to conduct your own due diligence.
Scott: Welcome to Allworth's "Money Matters," Scott Hanson.
Pat: Pat McClain. Thanks for joining us.
Scott: Myself, my co-host, both financial advisors, decades of experience as working with individuals and families, and been doing this program for three decades as well. Glad you're joining us as we talk about some current stuff in the financial markets as well as taking calls and answering some of your questions.
Pat: And the big beautiful bill, and there's no hyperbole there.
Scott: I remember a couple months ago. Is that really what they're going to call this thing?
Pat: I know. Yes, it's a...
Scott: It's going to take a while to actually decipher. On our website, we've got a bit of analysis on what it means to individuals and some breakdowns. You can find that at allworthfinancial.com. We're not going to try to go into all the little nitty gritty because it's frankly being...
Pat: It's pretty big.
Scott: ...for a very boring program. I think some of the keys, obviously, is maintain the tax rates, maintaining lower capital gain tax rates...
Pat: The state tax.
Scott: ...and the qualified dividend tax rates. The estate tax is a big issue because it's going to revert back to, essentially, $6 million per individual, $12 million per a couple. And for probably most of our listeners are like, "Oh, that's still plenty of dollars." But work can really impact small businesses, family-held businesses.
Pat: Farms.
Scott: Yeah, all that stuff. And so, anyway, the current amount that you can transfer is almost $14 million per individual. Next year, it goes to $15 million. So, it's $30 million.
Pat: Per couple?
Scott: Per couple. And I think that'll have some impact on some people. Yeah, they're kind of mean. You can use your $5.29 for trade schools, stuff like that.
Pat: Yes, I think that was a good move.
Scott: A hundred percent, that was a great one. There's much in there that I think both people, pardon, it doesn't matter what political situation.
Pat: It's the spending side of it that scares me, Scott.
Scott: Well, we cannot continue... I think we're...7% of our GDP is going to debt, to service debt.
Pat: Yes, to service debt, yes.
Scott: It's a massive.
Pat: No matter what metric you look at, it's high.
Scott: Correct.
Pat: And it's the kind of place you would expect, if we're in some crisis, trying to buy our way out. Not a normal... Well, I don't know if this is normal.
Scott: And it's like, I think that it's going to take some sort of crisis before Congress can act.
Pat: On both the debt and social security.
Scott: Yes. Yeah, yeah, yeah, and social security and Medicare. We all know that the entitlements can't go on forever.
Pat: You know what? I got to tell you though.
Scott: They can't. There's just none. There's not. I mean, part of it is just demographics. There's just none of young people out there working to support.
Pat: If you look at the numbers when it was started, the number of people that were paying in, it's like a big old Ponzi scheme pyramid.
Scott: Yeah, there's no actual money, where you put into social security. It's not going into an account credit in your name.
Pat: Yeah, it goes treasuries, special treasury. I got to tell you, they never even touched what's called carried interest. And I bring this up.
Scott: Yeah, explain what carried interest is.
Pat: So carried interest is if you're a venture capital or private equity fund...
Scott: Or hedge fund.
Pat: ...or hedge fund, and you buy a company and you carry it forward for two or three years and then you sell it, you get to treat it like a capital gain, like a regular investor would. Like a regular... Much lower rate for most people than ordinary income tax rates.
Scott: I believe for most it's three years if they have to hold it, if you hear that business structure. But why in the world they get this special capital gain when it's their trade?
Pat: It's their trade, right? Auto dealers don't get this. They buy something, they sell it a couple years later, three years later, two years later, six months later, whatever the number is. Why is that? Or a furniture store.
Scott: We know why.
Pat: Well, the reason I bring it up... I was talking to this gentleman who does quite well. And he was a venture capitalist. And he told me, he said, you know, "I got to tell you, I don't mind paying taxes." He said, "But what they do with it is very troublesome to me." I said, "Well, I think that most Americans would probably agree with that."
Scott: Yeah, on both sides of the aisle, because there's different thoughts on where the money should go.
Pat: And then unsolicited, he said to me, "The idea that if you're in private equity or venture capital, that you get this special tax rate that the rest of America doesn't get, this carrying interest." He said, "It's absurd." I said, "Weren't you in venture capital?" He said, "I thought that when I was paying the lower tax rate. He said, "It was my trade, why wasn't..."
Scott: Yeah, but it's all you get a strong lobbyist group, obviously.
Pat: I actually looked up.
Scott: There's plenty of money.
Pat: After I had the conversation with them, I looked up the amount of money that they actually think is spent on lobbying for venture capital and private equity. But the reason this becomes a big deal is the amount of money that is, in the public markets versus the amount of money is in the non-public markets, the amount of money in the public markets relative to the amount of money in non-public markets, the non-public markets are growing because of the regulatory environment that public markets have to pay.
Scott: That's right. And companies, they're not even going public anymore. It's so rare.
Pat: More are actually coming private than going public.
Scott: Is that right? The number of companies going private is more than...
Pat: Yeah, the number that are going private. So, at least the last number I looked at, it changes on a weekly basis. But I just thought, you know, it just shows you the power of lobby. It shows you the power of lobbying. And this wasn't addressed in the big... That's kind of a pet peeve off the subject already. But I just think, you know, this debt, it's bothersome, it's worrisome. So, I was thinking about it on the way to the show today. I said, "What are the headwinds in the market?" I'm like, "First of all, it's the debt," right?
Scott: Eventually.
Pat: Yeah. But the tailwinds are AI, and a decrease in regulatory environment, which is actually both a threat and something positive.
Scott: Yeah. I mean, if you look at the U.S. markets, we're kind of priced to perfection right now. I mean, we're trading at roughly 22 times forward earnings on the S&P 500, which is pretty much frothy level, but as high as... Compare that globally, global markets are 14 times. Granted, the U.S. market has grown, our GDP has grown much faster than much of the world has.
Pat: Yes, has.
Scott: Has.
Pat: But you see more, the returns in many of the foreign markets have become positive, and you see capital starting to flow in that direction.
Scott: Yeah, and the dollars weakened...
Pat: Substantially this year.
Scott: ...substantially. It's another area to keep a...
Pat: It's a strange world, Scott.
Scott: It's always been a strange world. It's fun world, though, too, isn't it?
Pat: Well, I have to remind myself, and if you've listened to this show any length of time, I remind myself constantly that what happens in world events that you think are going to affect the market may or may not be true. Is why you have to have a long-term investment thesis that sticks to it.
Scott: And of things too. I'm reading a book right now on Native Americans, the Indian tribes.
Pat: What is it called?
Scott: "Empire Under the Sun," I think.
Pat: About the Comanches.
Scott: Yeah, right.
Pat: I read it. Read it.
Scott: Which is great. The technology that the certain Indian tribes, mostly the horse, allowed them to conquer other Indian tribes. "Empire Under the Sun."
Pat: Yeah, but my... You just think about human nature, humanity, that's completely stripped down of what we consider a lot of civilized society to be. They were just brutal to one another. And much of the world... And here we live in an area where I don't think most people are worried about someone coming to conquering their house tonight and killing the males and running off with their daughters. So, the things that we worry about today are much different, but we do worry. We do worry. And we worry about the financial markets. But maybe sometimes more than we should.
Anyway, maybe we should get on with some calls and hear what you'd like to discuss. To join us for our program, you want to call... We schedule time in the studio to have a call with you. Love to have the conversation if you'd like to join us. You can send us an email at questions@moneymatters.com, or you can call 833-99-WORTH. And we're talking with Sam. Sam, you're with Allworth's "Money Matters."
Sam: Hey, good afternoon, gentlemen. How are you?
Pat: Good. How are you doing, Sam?
Sam: Good, good, good. I just got a really quick question. I need some good, sound advice. So, I currently... My employer, I currently have a 401(k) and they have a 5% match. And I am currently investing 11% of my earnings. So, essentially, I guess, I'm getting 16%. Would it be beneficial for me to lower my contribution down just to the 5% match and take that additional 6% and open up a Roth IRA? And I'm 52, so I'm just worried about if I'm going to have enough time to actually get any kind of gain out of that.
Pat: So, are you...
Sam: Or it's best to stay the course.
Pat: Are you spending all the money that comes in after your contributions? Are you living on that?
Sam: I'm I spending? No.
Pat: Are you saving any money on it after-tax basis, on an annual basis?
Sam: Yes, sir.
Pat: How much?
Sam: I probably have... Like right now, my nest egg in cash is about 45K.
Pat: And are you married and kids and all that?
Sam: I am married, yeah, and my wife has a great job. I mean, she's in the government, so she's contributing to her TSP. I've got two children, one 15, one 18. The 18-year-old is getting ready to start college here in the fall. So, that's another expense that we're going to be incurring.
Pat: And what's your home worth and mortgage balance?
Sam: Home worth right now is about $4.85, $4.90. And I think we owe about $2.60 on it. And as far as income, we're probably close to $200.
Pat: And when your wife retires, what percentage of her income will be made up by her pension?
Sam: I don't know.
Pat: We assume she works for the federal government.
Sam: That is correct. Yes, sir.
Pat: Yeah, so about half, I think, right?
Sam: I am not sure on the percentage.
Pat: It depends on... So, here, the answer to the question is, you should probably...
Scott: Well, how much do you have in your retirement accounts? 401(k)s, IRAs?
Sam: So, this is my second job with my 401(k). My first one, I've got about $500,000 in it. And this new one, I just recently started the job about five years ago. I got about $70 in it.
Pat: And what does your wife have in hers?
Sam: I don't know, about maybe $400, maybe.
Pat: So, the answer to the question is, why not do both?
Sam: Oh, no, I'm planning on doing both. I just don't know if I'd be able to keep the 16% in there and add an additional, say, $5,000 a year into a Roth.
Scott: Oh, you certainly can.
Sam: Okay.
Scott: It's just choices. I think what would be... If you say you never want to retire and maybe you'll retire at age 70, okay.
Sam: Oh, it better be before that. My body is breaking down.
Scott: Well, there's a direct correlation between your financial independence and how much you save.
Sam: Sure.
Scott: So, that's just basic math. I think it would be helpful for you, Sam, is to do even just kind of a basic financial plan. Either you find a program online or you work with an advisor and maybe just pay an advisor fee just for like a financial... You've got roughly a million dollars in investments that who knows if they're allocated perfectly or not. And you're trying to figure out how much you really need to save. And so, I think if you got a picture of, all right, if you're saving at this level, here's what retirement would look like for you at age 65 or whatever age you want to look at. And if you saved at this other level, here's how that's going to impact... And there's trade-offs. And then you could make the decision, "All right, I'm going to lower my contributions, and here's what it's going to mean to me, my future self. Here's what it's going to mean as far as my retirement. I'll have to work another year or two," or whatever.
Pat: Scott, that is exactly what I was going to say, is he needs a financial plan. Because you're asking a specific question about a tax strategy without... So, the answer is, yes, save as much as you possibly can. That's the right answer. But you may not have to. We don't know. It depends on what kind of pension your wife's going to receive. How soon will the home be paid off? How aggressive are your investments? What are the expected returns? If you were my little brother, I would actually... And you had hesitancy to actually have a financial plan done, I would pay for it to have done. I've done it for other relatives where they come to me with these...
Scott: That's how confident you are in the benefit of a financial plan.
Pat: Yeah, whether it's with our firm or another firm, hopefully it's with ours. And it's easy to engage a financial planner today, versus 10 years ago, because you can do it all digitally. You could do it on a Zoom meeting. They'll send you a list of questions and what documents they need to look at, and then you just go to a Zoom meeting, and then they'll give you a completed financial plan. You're in the perfect spot right now. Because let's just say you wanted to retire at 62, we, and I hope many other firms, would be able to tell you what your financial plan, with a financial plan, with high degrees of confidence, what your income would look like, and your standard of living at, let's say, 62 or 65. But the answer to your question is you can do both. So, without doing a financial plan, I would tell you to increase your 401(k) to the maximum and do a Roth IRA.
Sam: Gotcha. Okay.
Pat: I mean, because that's the right answer. The more money you save, the sooner you're going to be able to...
Scott: Well, it might not be the right answer. He's got two kids, one going to college, another 15-year-old coming up. Your expenses for your kids are going to be pretty high right now the next few years.
Pat: Well, I don't know, Scott. I don't know. I don't know what kind of a... How much did your parents pay of your education?
Scott: $400 a month for two years.
Pat: Really?
Scott: Yeah, yeah. I have $400. No. Yeah, it was $400 a month for two years. I'm very grateful.
Pat: So, $9,600.
Scott: Yeah.
Pat: It was $9,600?
Scott: It was more. It did not cover all my expenses back then.
Pat: That's right.
Scott: Correct. Correct. You're correct. The trade-offs, that's what a financial plan will actually tell you.
Pat: That's right.
Scott: Because you can't have everything. You can't have a low contribution and early retirement, right? And maybe the kids, you help them out, maybe you don't. I mean, that's entirely up to you and your relationship with the kids.
Pat: By doing the plan, it's not like...
Scott: Maybe 25 years ago, financial plan would be to go see someone, they give you a big bind or release printouts. It's a dynamic approach where you can sit down with an advisor and do some what-if scenarios. All right. What if we contribute this much to our child's college costs? What impact is that going to have on our current lifestyle or our retirement or both? And so, you can make informed decisions. Then you might go to your kid and say, "Hey, we're going to pay X dollars. You're going to have to get a job and get a loan or both or whatever," right? But the answer to your original question was, yes, makes the maximum contribution to the 401(k) and do a Roth IRA for both you and your wife.
Sam: Now, are you talking the maximum to their match, or just whatever I can just throw at it?
Scott: Whatever the plan allows.
Sam: Oh, okay.
Scott: That's the answer in a perfect world.
Pat: In a perfect world, save as much money as you possibly can, which is the maximum in the 401(k), and then... But that's what the financial plan will tell us.
Scott: Yeah, but then you're like, "Well, then I don't have a good enough lifestyle right now. It's okay. Well, there's a tradeoff then I'm going to not contribute the maximum. And that's going to have an impact on my future. What is that impact?" And then you make those decisions.
Pat: Well, that's the point exactly, which is that you actually know what the cost benefit is for the financial plan.
Scott: That's exactly right.
Pat: You say, "Oh, well, I'm just going to continue like I am." Okay. Well, then you work till 67.
Scott: Or 70, right?
Pat: Oh, but if I increase this, you work till you're 62, and then you make the decision. And because you make the decision, it allows you to stick to the savings objectives that you've set for yourself. Because if you don't know where you're going, you don't know how to get there. You never actually start on a journey, you say, "Okay, we're going to go on vacation. We don't know where we're going. We're just going to get in the car and drive." Like, what kind of vacation is that?
Scott: I don't know. There's part of me that would like to do that sometime, though. That's just...
Pat: Have you, though?
Scott: Of course, not, but it does sound kind of thrilling. Let's just go.
Pat: Have you known anyone that ever asked?
Scott: Till the first town. I'm trying to find a crappy motel late at night. And I'm like, "I'm never doing that again."
Pat: But that's the idea behind a financial plan.
Sam: Got it.
Pat: And you're looking for a financial plan where someone is actually really trying to help not sell you a product.
Scott: Yeah, yeah, yeah. Just do it.
Pat: Which is why might ...
Scott: Certify financial planner.
Pat: And maybe you start with a fee for service, which is you pay for the financial plan.
Scott: Yeah, I wish you well, Sam. And enjoy that first one heading off to college, sounds like heading off to college. My 17-year-old graduated from high school and is going to college this fall. And just yesterday, she comes in my office, home office and asking... I think we gave her some small budget on items for her dorm room. And she was asking about rug and "Should I get a microwave?" Literally, in my home office, I said, "I think your dorm room is much smaller than this office I'm sitting in. They're tiny. You have a roommate. Why don't you wait till you get down there? Give it a week or two. See what you need."
Pat: Yes, but I don't think that's how it's going to work.
Scott: Yeah, "And conversations with your roommate."
Pat: I never lived in a dorm. Did you live in a dorm?
Scott: No, I never lived in a dorm. I lived at home for a couple of years after. I didn't have a lot of options.
Pat: There weren't?
Scott: There was no, "Hey, Scott, what school would you like to send you to?"
Pat: You didn't have that conversation?
Scott: And the federal loans were different back then. They weren't as large. I don't think I would have had an option of borrowing enough money to go and live in a dorm somewhere.
Pat: I think I got student loans. I think they were $2,500.
Scott: I mean, like now, you can get a student loan to cover your dormitory and your meal plan.
Pat: What was that? It was $2,500.
Scott: Probably some mental health breaks.
Pat: I had... Mine was...
Scott: Yoga class.
Pat: ...$2,500. Was it a semester? All I know is I actually took that money and I had a brokerage account at the Dean Witter.
Scott: I mean, I didn't qualify for student loan because I made too much money in my summer job. If you made like over 9 grand, you couldn't get a student loan. And I remember I had friends that would quit working...
Pat: To get the student loan?
Scott: ...to get the student loan. Like, this was 30 some years ago. None of this makes...almost 40 years ago. This stuff doesn't make any sense whatsoever. It was 40 years ago, I think 41 years ago. And I mean, we don't even want to get into the issue of the student loan crisis, clearly crisis. You can see you can see what happens when the government gets too involved in one area.
Pat: Yes. Yeah. When capital chases an asset that causes the price to go up. Think about the mortgage crisis when they would, basically...
Scott: Yeah, that's caused by the government getting back in every loan.
Pat: Every loan, every loan.
Scott: And the same thing when you have all this money flooding the universities, because it's essentially free when you're 18. "What? I just sign this thing, and I don't have to... I'm going to get a great job making a ton of money when I graduate with my whatever studies degree I've got." Government created the problem.
Pat: Yes.
Scott: Well, anyway.
Pat: I'm not going to go any more there.
Scott: I don't think there'd be many people disagree with you.
Pat: Government actually solves a lot of problems, too.
Scott: That is correct, yes. But we like to point out the things that play a crucial role in society.
Pat: It's dynamic.
Scott: Yes, correct.
Pat: Religion helps a lot of people, it can hurt a lot of people as well, depending upon where you are on the spectrum.
Scott: I suppose, yes.
Pat: In what religion?
Scott: Yes. And who your leader is.
Pat: That's right.
Scott: All right. Let's talk, Raja. Raja you're with Allworth's "Money Matters."
Raja: Thank you very much. I'm a client of Allworth Money Management, and you guys have done a wonderful job.
Scott: Okay. Well, thank you.
Pat: Well, thank you.
Scott: Just for full disclosure for everybody else, we probably have other clients that aren't happy with us, that we haven't done a wonderful job. But anyway, okay, continue on. Just to keep our legal department happy.
Raja: So, my question is related to these tariffs. That is, it seems to be a moving goalpost. I have my own opinions. But what is the end goal of all these tariffs?
Scott: All the...
Raja: You can you can have tariffs. If a ship load of cars from, pick a name, Toyota from Japan, shows up in Los Angeles, it all comes from the same place. It all comes from the same organization, same entity. And you can say, "I'm going to charge $1,000 dollars a car." There are 1,000 cars in that ship. So, a 1,000 times 1,000, you get a million dollars in tariffs. It's pretty straightforward math. So, one aspect of it is the collection. But if there is a container, and people inside that container, who is going to do the necessary checking, the auditing, the manifest checking, make sure that there is nothing hidden in them that will escape the tariffs with all these cuts and stuff, that other people.
Pat: Well, well, one step better. So, many countries that have heavy tariffs on them will actually export to a third country, and then to disguise the origin of that particular product, and then ship to the U.S. And so, they are actively trying to disguise the origin of that particular product in order to bypass the tariff. But you ask what the end goal... Raja, I think this is one of those areas that most people are scratching their heads at. Even the diehard mega folks are like, "Why is this...?" I guess if you're that diehard mega, you've been thinking about it.
Scott: I have an opinion about this. What I think he's trying to do is to actually rebuild a blue collar working class in the United States for both security, global, you know, world security, so that... If you look at how World War II was one, it was on the field, on the battlefield, but also in the manufacturing of those equipment. And the other is to make it a more even playing field across the world. Because quite frankly, you know, if you have a centrally controlled government like you do in China and in Russia and in many other countries, that actually, you could say these companies are publicly traded, but they're subsidized and actually controlled by the government. And so, the idea behind it, at least, my opinion, is Trump is trying to level the field to say, "Look, if the government's going to subsidize solar, let's say, in China, and crush our solar industry manufacturing in the United States, well, any of that money that you actually put in to actually help it, we're going to take back out in order to level the field." Ultimately, though, at the end of the day, who pays the tariff?
Pat: The consumer.
Scott: The consumer pays the tariff.
Raja: And that's the other thing that people forget this, remember the American Revolution started in Boston with the Boston Tea Party?
Scott: I think that's the story.
Pat: Yes, yes, yes. It was more taxation without representation. It was taxation without representation.
Raja: That's a popular story that's going around.
Scott: Yeah, that's right, yeah, yeah.
Raja: That was what started the violence. The actual shooting started because of that.
Pat: Yeah, well, it was it was taxation without representation. And it was colonization. It was it was colonization. And then, by the way, it wasn't just the U.S. I mean, if you look at the French and how much colonization that they did around the world. But we're not going to turn this into a history show. Quite frankly, the idea is to drive these other countries to the table to renegotiate these deals. I don't think it's necessarily to actually impose the tariff, it's to make it an even playing field, which is, "Hey, if you're going to charge us 30% tariff on our products, we're going to charge you X on your product." And so, it's to lower... And it's worked, quite frankly. And by the way, I think this whole thing is kind of chaotic and crazy. But you've seen this with some of the companies.
Scott: Most people on the tariffs are like, "Really? Is this the this is this the battle you're..."
Pat: Like, most people are not big fans of Trump's tariff push.
Scott: Correct. But the motivation behind the tariffs is to drive other countries to the bargain table.
Pat: Then Raja, so if your concern is, like, what this is going to do to the economy, just keep in mind a couple of things. One is, like, if Trump gets too crazy, the power of the Congress is going to slap him back into place. That's just reality. Or he can be impeached or he's out of office in three and a half years. And there's some people that are absolutely terrified of the economy because he's the president, absolutely terrified. Others, complete opposite. But also, companies can be very creative in how they do things and ways to skirt the tariffs and ways to be...
Raja: Yeah, we have lived through periods of tariffs in our history, American history, early 20th century, late 19th century. We had tariffs and the economy boomed. So, I'm not questioning the whole tariffs question. It is required. We need tariffs against certain important certain products. But what I don't understand is the end goal, and having a blanket tariffs on things like tea and coffee, which we don't get in this country. You don't grow it in this country.
Pat: Raja, the headline number that you see in these tariffs is designed just to drive other countries to the table to actually... And whether it's real or not, it's because this administration believes that it's an unfair field that we're actually playing on with many of these countries.
Scott: And it's true. It is... I mean, why do we pay a higher tariff than they pay in our goods. Doesn't make a lot of sense.
Pat: But if you could drive them to the table with this threat of, "Look, we're going to drive you to the table because we're going to do this tariff." The tariff may never occur, but it may lower tariffs on the exported products from the U.S. into that particular country. And you don't hear about that. What you hear about is the other country says, "Well, we're going to increase your tariffs." You know, like, "Okay, go ahead and increase your tariffs. And then we're crushing both of us," right?
Scott: Yeah, yeah. Mutual destruction.
Pat: Yeah. But it will work itself out. One way or the other, it will work itself out.
Scott: One way or the other.
Pat: It could be very inflationary, but it could also drive a lot of job rather.
Scott: But the inflationary, it'll be a one-time inflation, essentially. Yes. Like my pair of pants I put on this morning, I noticed a little tag, "Made in Vietnam," this morning. "Made in Vietnam," pants I like putting on. And I thought, "Huh, I wonder how much more expensive these..." I don't know what our tariff is. I think it's been in the news. I think quite a bit of goods are made in Vietnam these days. And I thought, "I wonder how much more my pants would go up." But it would just be, let's say, I spent 100 bucks for my pants, and let's say the tariff's 20%. Maybe it goes up to one hundred and $115 once. But it's not an annual increase on that.
Pat: And what you would actually do...
Scott: It may, one time.
Pat: ...you would you would change how you consume, which is...
Scott: And buy less pants.
Pat: But, Scott, like, the inflationary where they have a market basket of goods, it assumes that that people don't respond to pricing, but people absolutely respond to pricing.
Scott: That's right. And if coffee got too expensive, I'd switch to tea.
Pat: Yes. And if tea got too expensive, I'd Red Bulls.
Scott: Red Bull. Red Bull. Raja, I wish we had good answers for you.
Pat: Yeah. But my belief is just it's to drive these other countries to the table to negotiate. Not only... I don't think the intent is actually to raise the tariffs, it's to lower the tariffs against U.S. goods going into that particular country.
Raja: So, that's the end goal.
Pat: I believe that's the end goal.
Scott: Yeah, to make our products more competitive globally, right?
Pat: And it's actually, we've seen this with some of the, like, meta. Some of these beneficiaries of this have actually been the big technology companies because they need more breaks. So, anyway, appreciate the call. And thank you for being a client of Allworth.
Scott: Yeah, thanks, Raja. Yeah. And what is really fascinating, though, is when you look at the stock market, as the broad index is anyway, are higher today than when Trump announced the Liberation Day.
Pat: Yes.
Scott: You got to hand it to him for at least trying something. Like, he's not afraid to go out there with some audacious statement on everything.
Pat: On everything.
Scott: Everything's another TV show for him, I think, "It's Liberation Day. And that doesn't go over. No big deal. We'll just do something different tomorrow."
Pat: Yes. Listen, both sides of the political spectrum, the dams and the Republicans, many, many people have dirt on their hands.
Scott: Oh, yeah, it's a nasty game.
Pat: Yeah. And this Elon Musk thing, Scott, I got to tell you.
Scott: With the new political party.
Pat: Yeah. Well, wait till that. I mean, the Tesla stock is not it's not doing well.
Scott: Yeah. And they say that the value of the car business of the Tesla is maybe a third of the market cap of the company. And so, two thirds of the value of that Tesla stock is in Elon's future creativity in robotics and software and tech.
Pat: So, what you're saying is, if the earnings relative to another...
Scott: Some analysts say... That's what he or she had stated in this thing. And I thought it was probably about right.
Pat: Yeah, because they're betting on Elon, not necessarily that the profits of the company itself.
Scott: Yeah, because there's no... You'd have to corner the market on cars in order to...
Pat: He's become a meme coin. Well, it's a little bit more than a meme stock, but...
Scott: It is it's an interesting thing to watch this new political party. I didn't see a lot of excitement on that one.
Pat: We didn't see it. It didn't take off.
Scott: It wasn't quite the Ross Perot movie he thought it was gonna be.
Pat: Then you're going back a couple of days.
Scott: It was last time someone was actually starting another political party because of the deficit spending.
Pat: Yeah, yeah. And it split the ticket.
Scott: It split the ticket. Got Clinton elected. That was back in the day. It turned out, in retrospect, he was a fairly, fiscally conservative president.
Pat: It was. It's hard to tell, though. It used to be the Republicans were fiscally conservative.
Scott: Who knows anymore? It's a weird political environment.
Pat: All right, I can tell you this, if you're bothered by any of this, call your representative. Just call them. I actually not only called my own congressional representative, I called other ones as well.
Scott: "Do I represent you?" "No, but I'm in the neighboring town." So, you still impact me and I could influence the election next time because I'm going to drive around with my warrant. I'm going to...
Pat: They're supposed to work for us.
Scott: I'll be in the overpass with my banner hanging down.
Pat: I haven't gotten that far.
Scott: In a big truck.
Pat: You went that far?
Scott: No. Okay, let's continue on with calls. We're talking with John. John, you're with Allworth's "Money Matters."
John: Hi, Pat and Scott. Thanks for having me on. Can you hear me just fine?
Scott: Yes, sir.
John: Well, I have to say, if coffee gets too expensive, I won't be switching to tea or Red Bull. I'll be going down with the ship.
Scott: Okay, it's all this money's at coffee now. Can't afford anything else. I copy. I spend $12,000 a month on coffee, but...
John: I guess it would be, yeah.
Scott: How can we help?
John: Just a little bit about me. I'm 24. I recently graduated just this past spring, so I started my first full time job two months ago. In terms of assets, just my checking and savings, I have about two and a half thousand in there. And then salary, I'll be making $65,000. And I kind of foresee, like, kind of lots of room for growth in the future just in the field that I'm in. Kind of hopefully, I'm hoping within like five to six years, I'm at least somewhat close to six figures. And I believe that's pretty realistic. Monthly expenses, I'm kind of in a blessed situation living with my brother, but so, I'm just around $1,500 a month.
Pat: In expenses?
John: Yeah, around $1,500 a month. That's excluding some bigger picture stuff that I have outlined. I, like, within the next year or two, I'd like to buy a truck, maybe within the range of $25,000 to $30,000, and maybe putting $10,000 down on it. And then maybe, like in four years, you know, saving for a house. But that's kind of some bigger picture stuff I have over the next few years.
Pat: I love this call. John...
John: I have no debt.
Pat: I love this call.
John: I was also blessed. You know, I went to Weber State University, and so it was relatively cheap and still, like, provided pretty good schooling. And for I had gaps, like, my parents helped me out.
Pat: Do you have any student loans? Student loans?
John: No, no loans. So, for retirement accounts, I do have a Roth IRA that I was putting a little bit in during school, but it just has $1,100 in it. For 401(k), I can't contribute, yet. I have to wait for until after being three months with the employer. So, that'll be next month. But once that happens, I definitely want to contribute quite a bit amount. And they'll also match up to 5%. And I have an HSA as well. So, it's at zero, but I'm trying to max it out this year so that I can obtain, like, the investment aspect sooner because I think I have to have $2,000 in there before they'll let me invest it.
Scott: What was your degree in?
John: Supply chain management. So, I'm a buyer here in Salt Lake region.
Scott: And what's your main question for us?
John: So, I have a few questions. One is just, you know, how much should I allocate to retirement accounts? So, I've kind of built a spreadsheet, because my main goal is I want to make sure that I have enough to save up for a house and, you know, still being able to, you know, fulfill my expenses.
Scott: And what's the house cost in your area?
John: What's that?
Scott: What's the house cost in your area?
John: You know, I haven't done too much looking, but like I said, I'm kind of thinking four years out. You know, my brother bought a house four years ago, and he was lucky enough that he got like a 2.6 and something before everything kind of spiked. And he bought his for $400,000. And it's a three bedroom, two baths. You know, I don't know how many acres it is. It's kind of like your standard house. You know, home prices are a little bit pricey here in general. If you talk to anyone in Utah that's looking for a home, everyone will complain that, you know, they're overpriced or whatever. So, I can't answer that question.
Scott: So, here's my... Just remember this, it's just as easy to fall in love with a rich girl as a poor one. That was advice from my grandmother, which I did not take. So, we'll give you some financial. By far your best investment is in your own career, 100%. So, it's interesting because you see a lot of these articles. Well, if you start saving in an IRA, $2,000 or whatever, at age 22, or if you wait till 30... Like, okay, that's all great. And most people are 22 or dead broke. So, your ticket to financial independence is going to be more reliant upon what you can deliver in the marketplace and what you can negotiate to get paid for in the marketplace, much more than what you're going to save in financial assets.
Pat: Which means, another way of saying, be the first one in the office and the last one to leave and the most productive person that you have ever met.
Scott: Figure out how to continue to increase your skill sets, you're more valuable to the marketplace.
Pat: Act like an owner, not like an employee. And by far... And I see it in our own organization with young people that come out of college. Some have this attitude, which is, "I'm going to really give it up for the company." And others have an attitude, which is, "Hey, this company owes me something. What do you mean? There's more than 40 hours a week?" Yeah. As I tell my own children, I have four, in your age range, you would be my youngest, it's a halftime job. You can work any 12 hours of the day you want, which doesn't always go over well. But, you know, I love this call. So, we over the 4th of July weekend, two of my children had their friends up. We've got a little cabin at Lake Tahoe. Had their friends up. And three of their friends stepped aside and asked me questions, like, financial. Like, "This is what I've got. This is how I'm doing. What do you think?" And my answer is exactly the answer Scott gave you.
Scott: So, we'll help you, like, the financial things to do. But if you find yourself spending a lot of time on your spreadsheet, I'd spend more time on how do you be more valuable to your employer and the marketplace and all that. Not so much follow your dreams, or do what you love. It's like it's the balance between what you're good at, what you love, and what the marketplace will pay for.
Pat: And what you love is number three on the list.
Scott: Or learn how to love what pays you well. I mean, it's kind of a financial independence as you go. So, having said all that, I think the Roth IRA is your best place to start. Even if you want to use the money for a purchase of a house, any of your contributions can come out tax free. So, you can...
John: Right, because I... Sorry, go ahead.
Scott: You can throw 7 grand a year in there, and you could say, "All right, this is either going to be money for all my contributions, money for a down payment." That's a fine... You already have one open. So, we're good. It's either going to be used for a down payment, or if for some reason I've got enough money elsewhere, I can leave that for my retirement.
Pat: It gives you that flexibility. And then you want to do the maximum in the 401(k) as well.
John: Yeah. So, well, that's what I have. My spreadsheet kind of static. It doesn't take into account if I do get bonuses or maybe they offer a new role.
Pat: When? Not do, not do, when, because you're going to work your butt off and you will get the bonuses. So, it's not when I do, when I get the bonuses.
John: I'll tell them that Pat said that I'm going to get bonuses.
Pat: Please do. Well, don't forget... Look, so we've been employers for numbers of years. And people get, not only what they what they deserve, but also what they negotiate. And those that have worked hard and also come periodically like, "Hey, here's why I need more money." As an employee, I hate to say it, that's just kind of how it works. They end up getting paid a little more. So, don't ask early, ask often.
Scott: I don't want to ask so often, but...
Pat: But make sure you bring in value. The worst thing there is in an employee that actually doesn't add a lot of value and is actually on the edge and they continue to ask for it, because you're like, "I'm not even going to have the conversation."
Scott: I'm sorry, your needs at home are not my problem really.
Pat: Do you remember the one guy that came in because his wife wanted a boat?
Scott: No, I don't.
Pat: And he needed a raise because his wife wanted a boat. You don't remember this?
Scott: No.
Pat: We probably had 20 employees at the time. I thought, "This is the craziest thing."
Scott: That is hilarious. Your personal wants and desires at home is completely irrelevant to what the market needs.
Pat: Yeah, I don't see how your wife wanting a boat actually affects my business. But go for it. So, yes. So, maximum into the 401(k) and the Roth IRA.
John: Yeah. So, well, I guess, you know, since it's static, my spreadsheet, I was gonna say, right now, I'm allocating that I can have like 20% from my salary going to my 401(k). Should I maybe lower that just in case I have, like, some other unknown...?
Scott: I would probably lower. I'm not too terribly concerned about your financial security going forward. And let's make sure you have that money for a house. So, maybe you put in 10% in your 401(k) and do the Roth.
Pat: As long as you... And you sound disciplined, obviously. You're calling a financial talk show. You're 24 years old.
Scott: That's right. We're not worried about you.
Pat: We...
Scott: You show me someone that doesn't worry about money, I'll show you someone that doesn't have any. You sound very disciplined.
Pat: You're going to be good.
Scott: Yes. And then start saving it, and then put it in a high yield money market, the money that you want to save for a home.
John: Put it in the high yield money market? That was one of my other questions.
Scott: Yeah.
John: And along with that, you know, just like... So, you were saying for the house, initially, I was thinking that the Roth IRA would be a great place for it because I could pull the contributions. But then I got thinking, well, if I want it in four years, is that actually a bad place because the market, you know, evolves, so...?
Scott: No, no, invest it in a secure type of investment. Invest it in a high yield money market account. Don't worry about the markets.
John: In the Roth IRA?
Scott: Yeah, that's what I would do. It just gives you the flexibility at that point. If you don't need it, you've got all these extra money...
Pat: In the Roth.
Scott: ...that you're never going to be taxed on.
Pat: Yeah, in the Roth. It just gives you that flexibility. So, remember, the tax vehicle isn't the investment vehicle.
John: Okay. And then...
Pat: The tax vehicle is the Roth, but because they allow the withdrawals from the Roth, the deposits tax free. Go figure.
Scott: It's been that way since Senator Roth came out with it.
Pat: Yeah. When they were trying to make the tax code easier. So, that's what I would do.
John: And then, with an emergency fund, I do also want to start building going up over the next four years. Do people typically just put those in a high yield savings account, or...?
Pat: Yes. Yes, yes. Yes. But again, invest in yourself.
John: Right. Let's see if I had... And then in terms of, like, where I should be invested in the Roth, I mean, you were saying money markets, but in general, in the Roth IRA, outside of...for a house or whatever down the road.
Pat: Money market. So, look, if you're planning on buying a house in four years, the worst thing you could do is say, "I'm going to invest in this ETF or this growth thing." And you get to the point where your income's up, you've got some money saved, you're now about to go look at houses, and there's a downturn in the financial markets and your 50 grand that you've got set aside for down payment is now worth $35,000, and you won't buy the house. But to your point exactly, John, which is, well, keep it in the money market. If you don't need that money...
Scott: Then you invest it later.
Pat: ...then you invest it. So, you buy a house and you didn't need the money in the Roth, then you invest it. And 100% of your portfolio for long-term should be in equities, 100%.
John: So, is that S&P 500 though?
Pat: Total market.
Scott: Total market, maybe some international as well.
John: When you say total market, you just mean that S&P, right?
Pat: No.
Scott: No.
John: S&P 500?
Pat: The Wilshire 5000, which includes the S&P 500.
Scott: So, if you look at the market cap of the United States and the ballpark, 75% is comprised of the S&P 500, 15% are in mid cap stocks, and the remainder in small cap stocks. Somewhere right there, right?
Pat: Yeah, it's seven and a half.
Scott: Whatever, it's ballpark, right?
Pat: Yeah, correct.
Scott: Ballpark. And so, it may be something like 75% or 80% in the total market and the remainder in international markets.
John: Okay. The last question I have...
Scott: And I know that the last several years, internationals have not done as well. But, you know, things go through cycles, and over the long period of time, I think you'd be well suited by having some.
John: Okay. My last question I have for the HSA, like I was telling you, I have nothing in there right now since I just started with my employer. But I was planning on maxing it out this year so I can start investing that sooner. And then over the next year, I thought, well, maybe I'll just invest half of the max, like $2,200, or whatever. But how much does someone actually need in their HAS? Like, do I want to have 100 grand when I'm 60, retired, whatever? Do I want to have 300 grand?
Scott: If you put in 2 grand a year, you're going to have more than 100 grand by the time you're 65. Who knows what the laws are going to be? I mean, these are...
Pat: Yeah, the HSA should be the last investment vehicle.
John: Okay, well, how much do you recommend putting in there? I guess, like, I just don't know.
Scott: Well, you want maximize that after you've accomplished all your other objectives.
Pat: Yeah. So, the 401(k) to the maximum.
Scott: I've maxed mine out for the last several years. I don't take any withdrawals from it.
Pat: As of I, but we're not 24-year-old John.
Scott: I understand. So, if I was 24, I probably wouldn't worry about maxing.
Pat: Yeah, I would use the 401(k), I would use the Roth IRA.
Scott: I'd rather have money in a Roth than money in an HSA.
Pat: Yeah, and I don't even know if I would use the HSA. I question that. I would do the 401(k) to the maximum first, the Roth IRA to the maximum, then, only then would I start using the HSA as an investment vehicle, in that order.
John: Okay. Sounds good.
Pat: What did your parents do for a living, John?
John: Well, my dad growing up was a cop up until about when I was the age of 8. And then he moved over. He's spent the last 18 years or so working for an oil and gas company, but he's a field tech. And so, he makes pretty decent money out of it.
Pat: And the reason I ask the question...
Scott: Yeah, why did you ask the question?
Pat: ...is because I'm thinking, this kid sounds like he was raised by a pack of engineers.
John: Well, I guess, you could say. I lived with my brother for the past four years, and he's a welding engineer. He'd probably say that he raised me. So...
Pat: Okay. All right. Perfect. Well, keep up the great work. You're fine. Remember, it's bring value to the marketplace.
John: Yeah, for sure.
Scott: Yeah, that's by far in a way where you're going to create wealth. Appreciate the call, John.
John: Yeah, thank you, guys.
Scott: All right. It was funny. I was on a bike ride early this morning with a friend of mine. His kid's 19 or 20, and I don't think he's going to college right now. He's got a kind of a going nowhere job. So, his dad's a little concerned about his future because he's a bright kid and all that. He's 19, he's still growing up. But he saves a ton, like, half his income.
Pat: Wow.
Scott: Maximizing. But then we have this conversation like, "Wouldn't you rather have a job where he's got some career advancement and maybe have a little more social life and not saving as much?" He's like, "Oh, absolutely. I would rather have that." But this is, you know, at least, he's got this one area of his life, he's saving more than that.
Pat: He's got it all buttoned down. Yeah. It's hard.
Scott: But you know, it's funny. You listen to a call like that, and I'm just thinking how many of listeners are thinking, "Man, I wish my kid was thinking like that." As I was thinking, I wish my kid was..." Well, actually, my kids are.
Pat: Yeah, they're quite responsible when it comes to the finances and they're doing well.
Scott: Yes, actually.
Pat: And when it comes to...
Scott: My son listens to this program now. He's an avid listener.
Pat: Well, shout out to... So, two of my children have flown, three of them, JSX in the last couple of weeks.
Scott: Oh, you're kidding. That's where my sons have co-pilot.
Pat: That's why I said check to see if Blake Hanson is flying.
Scott: Yeah, that'd be hilarious.
Pat: Yeah. So, they're good.
Scott: Anyway, that's all the time we have. Hey, before we sign off, we'll let you know our July webinar that we've got is Advanced Tactics for Concentrated Stock Position. So, if you've got...a lot of your net worth is on one particular company and you're looking at some tactical ways to unwind without paying in a huge tax bill, Simone Devenny, who's Allworth's head of private wealth strategies, is going to discuss the five new ways to unlock your portfolio's hidden potential. So, if you want to be part of this webinar, again, it's Concentrated Stock Positions, Wednesday, July 23rd, at 10 a.m. Pacific, Thursday, July 24th at noon Pacific, Saturday, July 26th, at 9 a.m. Pacific time. And you can get all the more information and register at allworthfinancial.com/workshops. That's been all the time we've got. It's been great being with you. Scott Hanson and Pat McClain of Allworth's "Money Matters."
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