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

Scott: Welcome to Allworth Money Matters. I am Scott Hanson.

Pat M.: I'm Pat McClain.

Scott: Thanks for joining us.

Pat M.: Glad we are here. We are broadcasting on the...

Scott: 15th of June and...

Pat M.: Yes. Interesting year. It's about a half over.

Scott: Interesting.

Pat M.: Interesting.

Scott: What's interesting?

Pat M.: Well, the political environment is interesting. We don't talk about politics in this program.

Scott: We don't have to take a side here. I think that we could all agree that the whole...

Pat M.: That is correct, yes. And troublesome.

Scott: Extremely.

Pat M.: Yeah, any right-minded person would hope. Not right-minded, politically right-minded, just correct.

Scott: If they're intellectually honest.

Pat M.: Yes.

Scott: Anyway, but here we find ourselves.

Pat M.: Yes, and we're here and the markets march forward and the economy still runs, and we still get up in the morning and go to work. And this too shall pass. And children are born and people graduate from high school and go on to college or get jobs. It's interesting time.

Scott: Yeah. And yet the markets, it's really interesting watching a couple of these stocks, Nvidia.

Pat M.: Correct, which is...

Scott: Who even heard of two years ago.

Pat M.: And it's been around for quite some time.

Scott: Like, 20, 30 years, something like that, right?

Pat M.: Yes.

Scott: It's a long, long time.

Pat M.: And now has a market cap, what?

Scott: Yeah, the leader, the CEO is no young...he was young when he started the company, but that was a long time ago and now he is an old dude. And the stock hit over $3 trillion the market cap, which is a big number.

Pat M.: I don't care where you grow up. That is a large, large numbers market cap.

Scott: And I find that interesting because obviously, AI is the buzzword for everything right now, right? So if it's AI and, you know, every, "What are you guys doing for AI?" "Well, let me tell you," right? Or like the dot-com was in '98.

Pat M.: And obviously it's gonna have implications and things that we don't even realize at this point...

Scott: Correct.

Pat M.: ...we don't even see.

Scott: That's right.

Pat M.: I mean, you think about how the iPhone has changed all of our lives. But AI has been in some form and fashion, not just big data AI has really changed AI itself. The mere fact that you could go to Netflix and it will recommend things to you is a form of...

Scott: Of course.

Pat M.: ...AI. But it's just small datasets. Well, it's relatively small.

Scott: But what I find fascinating is you look at how much energy... I mean, already now, if you look at the amount of energy servers and stuff [inaudible 00:03:11] data centers, it's phenomenal. But the energy here is exponential that, and there's already a lot of people stating that there's not gonna be enough power, and tech companies are gonna start buying power plants.

Pat M.: Because they have no choice. So...

Scott: The thing I question, I'm no analyst, but if you look Nvidia's priced for growth, right, it's not priced for... Obviously, the revenues have gone up dramatically as companies like, "We don't wanna be left behind. We better get in on this and..."

Pat M.: Their revenue grows.

Scott: Yeah, so they send in Nvidia check for some services and products. But I kinda question, like, if the AI boom is as large as some people are believing it is, what's that gonna do to our power situation?

Pat M.: Well, it's already started. So the utilization of the existing infrastructure is already started by using smart technology to actually decide where energy should be routed and how it should be used. Read an article last week, where now if you have an electric vehicle, they're doing trials. I think it was in Vermont or Massachusetts, somewhere where the car companies themselves will actually give you a discount of the car as long as you actually plug it into a two-way, which means that they can draw your battery down at certain points in time, right? And...

Scott: You see where this is coming? The government's gonna mandate you to own an electric car, and then it's gonna mandate that you give up some of your electricity during peak times.

Pat M.: But it makes perfect sense. And then utilization of technology to better utilize the infrastructure that's in. And I was talking to a gentleman, what, about eight weeks ago. He worked for Pacific Gas & Electric designing energy systems. Like, he just designs energy systems. And I said, "Tell me what that's like." And he said, "Well." He said, "The need today is growing so fast that the infrastructure to support it...

Scott: Can't sustain.

Pat M.: ...it won't sustain unless there's some dramatic new technologies." And even then they think it can't... So the interesting thing about electricity versus almost everything else you consume is it's really difficult and expensive to actually store. So I was...

Scott: Currently.

Pat M.: I went to Iceland a year and a half ago. The number one export from Iceland is aluminum, number one or number two. You guys can Google it if you want. It was...

Scott: Whatever, okay. It's a top export.

Pat M.: It was seafood product so it sits there. And I'm like, "Why aluminum?" They import all the raw materials to make aluminum, but aluminum is so energy-intensive that that's what they decided to do because they've got so much...

Scott: Hydro.

Pat M.: ...hydropower and...

Scott: Thermal.

Pat M.: ...and thermal. And I thought this is pretty brilliant. The place that actually has excess aluminum can't really ship it or excess energy can't really ship it. You gotta own yourself.

Scott: So they say what is highly energy consuming and can we produce that here?

Pat M.: Yes, and even though it takes us to import.

Scott: So what's this all mean from an investor standpoint, right? So people will turn into our program because we...

Pat M.: Because it's investor. I mean, well, don't get overly excited about these AI stocks because there are headwinds. There will be headwinds if they just building...

Scott: But first of all...

Pat M.: ...the server farms, building the server farms is not cheap.

Scott: And if you own an index stock, S&P 500 fund, a total stock market fund...

Pat M.: You own it.

Scott: You own it. You own quite a bit of it now actually...

Pat M.: That's right.

Scott: ...as it's grown.

Pat M.: Yes, quite a bit of it. Probably a lot more than you actually realize.

Scott: Some of these companies are already priced to perfection because what happens, Pat, is you know this is what happens. There's that fear of missing out. This is what happens at all cycles. Right now it's AI. Next time it's gonna be something different, right? There's always a few companies that do extremely well, the stock price is up so high and investors think, "Well, I missed out on that opportunity...

Pat M.: But...

Scott: ...but yet my neighbor, my bunco friend, my golf buddy, whatever, is sitting there telling me about how much money they've made on this particular stock and then you start feeling foolish because you've missed out, then you think, "Maybe I should jump in and buy some because maybe it's gonna keep going higher."

Pat M.: They don't talk about their losers though. No one ever talks about their losers, the things they lost money on, they only talk about their winners.

Scott: Of course. And it's important that you make over the long cycle, not just on their [crosstalk 00:08:08]...

Pat M.: [crosstalk 00:08:08]

Scott: ...Pat, it was the Y2K. We had a Y2K party at our house, right? And [inaudible 00:08:14]. Why are you laughing? It was a pretty big party, like, I don't know.

Pat M.: You had it on New Year's Eve?

Scott: Yeah. Like, I dunno, 80 people or something, 100 people maybe. We had a big party, Y2K, world's coming to an end.

Pat M.: This is the one where one of your friends turned the electricity off [crosstalk 00:08:29]...

Scott: Yes, that's right, my buddy Dan, he lived three doors down and right when we counted down he'd flipped the power off.

Pat M.: Which wasn't even that funny.

Scott: It was kind of funny because that's what everyone was expecting to happen. But considering the time zone on the West Coast after the globe, we've kind of seen that the world was actually gonna continue to spin. But the reason I brought this up, there was a woman at the party and as investment advisors, this happens to us. We'll be out somewhere and someone will wanna show how smart they are and will talk about some investments they've owned or something they've done investment-wise, just to show that they're worthy people or something.

Pat M.: Whatever.

Scott: And so this woman told me, she says, "I am the proud owner," that's how she just started, "I am the proud owner of Oracle, Lucent, and some other company."

Pat M.: Okay. So this is the end...

Scott: At...

Pat M.: ...of 1999?

Scott: ...the very top.

Pat M.: And she had...

Scott: Of course.

Pat M.: ...recently just purchased?

Scott: Of course.

Pat M.: Recently purchased.

Scott: I think she had bought 'em eight years prior.

Pat M.: Right. So...

Scott: I forget it, maybe it was Qualcomm.

Pat M.: So what happened? I remember the ones that...

Scott: So what happened to those stocks?

Pat M.: I remember Lucent...

Scott: ...they were destroyed.

Pat M.: Lucent was down.

Scott: Oracle's...

Pat M.: Still around and doing fine but Lucent was down, what, 90%?

Scott: She would've been much better off had she just had money in the S&P 500 or...

Pat M.: And index fund [crosstalk 00:09:42]...

Scott: ...[crosstalk 00:09:42] diversified.

Pat M.: This fear of missing out is real.

Scott: Yeah. So don't get too caught up in this stuff. And to think that somehow you're gonna be able to outsmart the market by...

Pat M.: Somehow.

Scott: ...I dunno, somehow.

Pat M.: Somehow.

Scott: But that's what a lot of people are dealing with right now. They're in an investment club because in their community they live in and...

Pat M.: Well remember that investment book that actually came out in the '90s, which was started the... If you're...

Scott: This is grandmas you're talking about?

Pat M.: Correct. And it was a whole...

Scott: What was that...

Pat M.: ...book written on the...

Scott: What was name of that book?

Pat M.: It was something [inaudible 00:10:17] the Investment and they had done so really, really well.

Scott: Yeah, this was in the '90s.

Pat M.: Right? So if you're...

Scott: [crosstalk 00:10:22].

Pat M.: A young listener of this...

Scott: What was that?

Pat M.: You're a young listener of this thing... So they used to have these investment clubs and it was...

Scott: They're really popular in the '90s.

Pat M.: The rage, right? So we have a community out at Sun City, Roseville, there's Sun Cities all over the U.S. but it was called Del Webb, Sun City Roseville. They would ask us if we wanted to come out and speak to the investment club. We're like, "What do you want us to talk about?" "Well, we want you to talk about these individual stocks." We're like, "We're not that excited." Well, this book kinda started all the craze. And the problem...

Scott: Was it "Beardstown?"

Pat M.: Yeah, it was called something like that, "The Beardstown Ladies' Club or something...

Scott: I think that's what it was. It was a Beardstown?

Pat M.: But after the book came out, they realized a year later that they hadn't... You remember this?

Scott: I forget what happened [crosstalk 00:11:07] there.

Pat M.: They were making monthly deposits and they weren't including that in the original capital. It's just the money they started with. So their returns looked fabulous.

Scott: It was a long time after people were buying the book, right, they were best seller.

Pat M.: And then they [inaudible 00:11:22] and they were interviewed.

Scott: Yes, and they were interviewed and then all of a sudden someone said, "Hey, the accounting," and then they all went to work for Enron. And later on in the show...

Pat M.: And I'm not here to pick on women investors by any means on this. It's just a group of people getting around.

Scott: Actually, I think women investors are quite frankly, often to...

Pat M.: Better than men.

Scott: Yes, I think it has a lot...

Pat M.: I mean, like, some of the studies?

Scott: Yes, the studies would say that, in my own personal experience, is that they have a tendency to be a little more patient and less ego-driven.

Pat M.: I would agree with that, [crosstalk 00:12:00] that's a broad statement.

Scott: That's in my meeting with hundreds. But later on in the show, I do wanna talk a little bit about this Game Stop again. We talked about it a few weeks ago when Hello Kitty...

Pat M.: Roaring.

Scott: ...just came out, but...

Pat M.: Roaring Kitty.

Scott: Hello Kitty is an anime. Hello Kitty...

Pat M.: Not too far off though.

Scott: Roaring Kitty.

Pat M.: It looks pretty odd too.

Scott: All right. But we're gonna talk about that after we take some calls.

Pat M.: Yeah. Let's take some calls here. If you would like to be a part of our program and have a financial question for us, we'd love to have you on the show. And to schedule a time to call us, just send us an email at questions@moneymatters.com, again, questions@moneymatters.com, or you can call us toll free 833-99-WORTH. I don't know why I said toll free, like, what toll? You're looking at your phone bill wondering what your long distance toll charges are. Anyway, let's start off talking with Pat. Pat, you're with Allworth's "Money Matters."

Pat: Hi, Scott and Pat, great to talk with you this morning.

Pat M.: Thank you.

Pat: I guess I could start with my question, right, or do you want me to start with kind of the background?

Pat M.: Whatever you'd like. What's your question for us?

Scott: We got time. You seem like a nice enough guy. It's a podcast. You can run as long as we want.

Pat: So you got all the time in the world, right? You can edit this too, right?

Scott: I've got lunch.

Pat: If you don't like what I say, you can just chop that part out.

Scott: I have lunch in an hour and 30 minutes with a friend of mine, so...

Pat M.: We tend not to edit...

Pat: I'm a consult...

Pat M.: ...edit our...

Pat: [crosstalk 00:13:32].

Pat M.: Call as much unless you swear. [crosstalk 00:13:35] almost never happens.

Scott: No. Or you get too political. So go ahead and talk about Trump and Biden.

Pat: No, thank you.

Scott: All right. Well fire away, give us the background, any way you want to start.

Pat: So real quick, background, financial history, if you will. So I retired from the Air Force in 1996 at 41. I was enlisted for 10 years, an officer for 12. So I retired as a captain, but with a great pension of $24,000 a year but with a master's degree in software engineering, which I was able to leverage into a very good income and second career, which I'm still at, at 69 working as a consultant and in software technology project management for public sector, state of California...

Pat M.: Perfect.

Pat: ...welfare projects and things like that.

Pat M.: Perfect.

Pat: So I've got a good income of, let's say last year, the AGI was, like, 267.

Pat M.: All right.

Pat: So my wife's a stay at home mom, always has been, except for a very few parts. She's four years younger than me. Her full retirement age will be, you know, sometime toward the end of the next year or so. But I will hit 70, you know, next April. And so that's the point at which I plan on taking Social Security and that kind of thing.

Pat M.: Okay.

Scott: Okay.

Pat: So financially though, I had, you know, like, I don't know, a few dollars, right, in the bank in a retirement account when I retired from the Air Force, but I made good money and got up a ways, you know, a couple hundred thousand dollars and then hit the financial crisis. All that time I'm just basically, you know, in a 401(k) or in an IRA and kinda managing things myself. But in 2010, after, you know, kinda weathering the storm through the financial crisis, a friend of mine, you know, he said, "Hey, I got this great friend who's a financial advisor and you should sign up with him." And so I signed up with him. He gave me some advice. I had the portion of my investments that was, you know, I don't remember maybe $200,000 or so in an IRA and then I had another $300,000 or $400,000 or something like that in my 401(k) with my company. So I was able to give my IRA to him to manage, and he did fine with it for four or five years and I saw it go up, whereas, of course, during the financial crisis, you know, things were not all that great.

Pat M.: Okay.

Pat: But he got kind of squirrely on me in that they started doing these... When I say financial advisor, so he was a fiduciary. And that's kind of the...I mentioned this part of it because that's sort of the core of my question about financial advising and what's the best strategy and what are the pros and cons with the different approaches. But the cost was pretty high. It was like 2.25%...

Pat M.: And when you said...

Pat: ...of the portfolio.

Pat M.: When you said he got squirrely...

Scott: What happened?

Pat M.: ...what happened?

Pat: Sorry, I didn't finish that sentence, did I? So they started some kind of a deal where they were buying and selling individual stocks, like, on a weekly basis. Like, one day of the week they'd buy another day of the week they'd sell and this and that. And one of the things I have to do for my work is I have to report on a Form 700 to State of California every year. All of my positions and [crosstalk 00:17:17]...

Scott: Not an appropriate investment strategy for you.

Pat: [crosstalk 00:17:20].

Scott: Sounded like you had...

Pat: I've got 50 different stock buys and all of this kind of stuff, and it just looked terrible. Plus, it wasn't doing any better...

Scott: Of...

Pat: ...than anything else.

Scott: ...course, not. Didn't your advisor understand the limitations...

Pat: I don't know.

Scott: ...you had? It sounds like you had what was called a...and they still call it, a separately managed account. And this is where, let's say a professional money manager manages mutual funds, and maybe pension plans, manages them... So they've got a team of analysts, they decide what stocks we should buy, when we should sell those stocks and they might have hundreds of millions or billions of dollars in their mutual fund. But they also might have several hundred or several thousand individual clients that they manage what are called separately managed accounts. So...

Pat M.: Which are essentially unbundled mutual funds...

Scott: [crosstalk 00:18:17] pretty much.

Pat M.: ...where you can actually see into them.

Scott: And the fees historically...

Pat M.: Are higher.

Scott: ...they're higher and historically they used to be quite high. So when you said 2.25% and those trades, my guess is that was what's called a separately managed account.

Pat M.: That's right.

Scott: And they may have been using some market timing in there, but at this level, at $200,000, he was managing there inside of an IRA, I wouldn't see any...

Pat M.: I mean, sometimes separately managed account might make sense and maybe a taxable account for a certain portion of one's income, but inside of an IRA, it typically isn't less expensive, it's more expensive...

Scott: [crosstalk 00:18:57].

Pat M.: ...and it adds no value inside of an IRA. As Scott said, in a taxable account, you can make the argument, and I make the argument that you should in points in time, especially if it's what we call fresh money, money that someone just sold a business and they haven't invested any of it, that you can mimic the S&P500 with about 80 stocks.

Scott: Well, a little more than that, but...

Pat M.: Synthetic [crosstalk 00:19:23]...

Scott: ...or individual securities as opposed to an index because...or a mutual fund I'm saying because of the tax strategies.

Pat M.: You can harvest tax losses. And it's not designed to actually give you excess returns. The separately managed accounts are typically just designed in order for tax strategy. So you got someone when you said the world's squirrelly, you were right. I mean, why go through all that pain and suffering for nothing?

Scott: For what?

Pat: That was the bottom line, is it wasn't really making a lot of money or anything like that. So it was odd. So kinda fast forward to today. So I left the company that I've been working for for 15 years, a small local consulting firm. I went out on my own. I have my own contracts with the State of California. But all through that, actually, the company I worked for and on my own, I was able to contribute significantly to my then 401(k), now a SEP-IRA, you know, $50k plus or so a year and [crosstalk 00:20:27].

Scott: How much have you...

Pat: So now I'm sitting at $3 million...

Scott: Okay.

Pat: ...in my retirement accounts between my SEP-IRA and my rollover IRA.

Pat M.: And how much money is outside of qualified plans?

Pat: I've only got, like, $100,000 or so in a brokerage account.

Pat M.: How much longer do you plan on working?

Pat: So I have a contract that goes about two and a half more years but at halftime. I have two contracts now. One is halftime through next April and then the other one is halftime with a different department, but similar kinds of Medicaid projects...

Pat M.: Got it. So yours...

Pat: ...through another two or three years.

Pat M.: You're installing some Oracle or SAP system and that it's supposed to...

Pat: No...

Pat M.: ...be done at that...

Pat: ...it's not quite that. These are, like, Medicaid projects. Like, it's a software system they use to manage cases.

Pat M.: Got it.

Pat: That kind of thing. It's more enterprise resource management...

Pat M.: Got it.

Pat: ...kind of, financials and case management, who's eligible for [crosstalk 00:21:28] all that kind of stuff.

Pat M.: Here's what, Pat... How much are you living on?

Pat: Well, we have four kids and nine grandkids. And, you know, we are generous individuals...

Pat M.: Okay.

Pat: ...or at least my wife is, and I try to keep up with her. She gets to the bank and I'm on board, you know, funding her generosity.

Pat M.: And the reason I asked that question is you could defer a lot more of your income if you wanted to above the self employed...

Pat: [crosstalk 00:22:04].

Pat M.: ...401(k) limits.

Pat: ...to do that. But I'm not able to [crosstalk 00:22:10].

Pat M.: But you're living on, you said you make $267,000 a year?

Pat: Well, that was the AGI...

Pat M.: But I think Pat...

Pat: ...so that...

Pat M.: ...if there was $1 million in a brokerage account, then you might say, "What if we set up an age-based pension plan, maybe we even use a Roth portion of it..."

Scott: That's why I was trying to figure out how much...

Pat M.: ...to you see [crosstalk 00:22:26]...

Scott: ...how much money living on.

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

Pat: So I fired the advisor in 2016 and I've been muddling along on my own, paying attention, not paying attention, things like that, up and down. Of course, it's been a great last, you know, year. So things are going well. But I can look at the chart. I do have, you know, a financial plan in that, you know, I have a very big and complicated spreadsheet of when I'm gonna start Social Security and, you know, how much I need to take out of this account or that account when I start drawing RMDs and those kinds of things and where my retirement pension is at this point, and how much Social Security's gonna be, etc. So I've kind of got that in place, but I'm still kind of wrestling with the, do I wanna continue to manage my assets going forward as I actually do go into retirement and stop working? So the business... I'm not using the right term. The institution where I have my money is one of those big, you know, brokerage [crosstalk 00:23:48]...

Pat M.: Like Charles Schwab or Fidelity.

Pat: ...with the letter F.

Pat M.: Is it Fidelity?

Pat: Yeah. And they, because, I guess, you know, lo and behold, somewhere along the line they said, "Well, hey, given the amount of money you have [crosstalk 00:23:59]...

Pat M.: Let us refer you to an advisor.

Scott: Let us refer you to an advisor, right?

Pat: Yeah. And so then I have a guy that I meet with every, you know, six months or so.

Scott: Is he...

Pat: And he...

Pat M.: [crosstalk 00:24:09].

Scott: Pat, does he work at Fidelity or does he work at a third party?

Pat: No, he works at Fidelity...

Scott: Okay.

Pat: ...but he's not a fiduciary...

Scott: That's right.

Pat: ...because he's saying that he's recommending...

Scott: Let me...

Pat: ...their fiduciary services [crosstalk 00:24:25]...

Scott: ...step in, let me step in, if you don't mind a couple things. First of all, if you look at the data, as people's net worth increases, they're much more likely to have a financial advisor for a couple reasons. One, sometimes people's see that their own need like, "I struggle in some areas, I'm much better off having an advisor." But secondly, as one's assets grow, oftentimes people say, "You know what, I would just like to outsource this and not worry about this and let someone else deal with it. I can afford to pay an advisor. I've got plenty of money. I'm gonna hire an advisor and I'm gonna forget about all this stuff."

Pat M.: Or I know it's gonna happen in my lifetime. I know it's gonna happen in my life and I'm a financial advisor.

Scott: Yeah, me too. And further, oftentimes there's a time in life where people say, "I need an advisor here that my spouse knows and trusts...

Pat M.: That's the biggest thing.

Scott: ...because I'm not gonna be here forever, odds are I'm gonna predecease my spouse and I wanna make sure there's someone there."

Pat M.: And your spouse is based on what you said, you didn't say her age, but she appears to be four...

Scott: Four years younger.

Pat M.: Four or five years younger, right?

Pat: Yeah, almost exactly four years younger.

Scott: Okay.

Pat: Two days apart is our birthday.

Scott: Okay. So...

Pat M.: And so what's happened with these large firms, Fidelity, Schwab, so they have their own team of financial consultants, right, in the branches, or on a 1800 line that are...sometimes they're quite knowledgeable individuals, certified financial planners at times and stuff. They are not independent fiduciaries, right, so they've got their own conflicts they live within because Fidelity's manufactured products, they offer custodian, they do just about everything in financial services. But these large firms have realized that as their client's assets get larger and the more complex their need for more in-depth financial planning grows and rather than them trying to provide it all in-house, they partner with independent advisors.

Scott: Including firms like us.

Pat M.: Yeah, that's right. Full disclosure.

Scott: Fidelity sends us business and in return, they take a percentage of whatever the fees that we actually charged the client. We still act as a fiduciary, and we're allowed to do that as long as it's disclosed to the client that in fact, there...

Pat M.: That's right.

Scott: ...is some fee. So Fidelity when they look at it, it's actually brilliant. I mean, it is a brilliant business model because they're actually serving a need in the marketplace that they aren't... But by the way, we come back here 20 years from now, my guess is Fidelity will actually have divisions in their company that act as our...

Pat M.: Maybe.

Scott: Who knows?

Pat M.: Whatever.

Scott: Who knows?

Pat M.: But that's where we're today.

Scott: But that's where we're at today. So you're ready for a financial advisor, the mere fact that you actually called and the experience that you had with the last advisor won't be anything like that.

Pat M.: The advantage you had received from one of these firms, Fidelity, Schwab or whatever, they'll typically refer you to a few different advisors they've all been vetted, right? So they tend to be pretty high-quality advisors. They've been vetted by these companies because Fidelity's names their reputation's on the line here, and they wanna make sure that they're good advisors. So, you know, it sounds like the experience you had before with this other advisor, you're not gonna run into that same kind of experience.

Scott: That's tough.

Pat M.: But look, one thing you might wanna do is the next few months just interview some advisors and say...

Scott: Take the list from...

Pat M.: ..."If I were a client, what would you do? Give me an idea, like how you would..."

Pat: That's a great idea.

Scott: Structure this.

Pat M.: And then you could decide, like, at some point in time you'll hire an advisor, whether it's this year or next year or five years, at some point you're gonna have... And you're gonna want someone, even if, like, ready to go in case you have some health issue or something.

Scott: And there's this big push to go remote. You want an advisor, if at all possible, that you could actually sit down with when things get tough, when there's a death in the family or the home needs to be sold or you're going into a care facility, all of those things. There is an emotional attachment to that money and if you could do it in person, it's better for both the advisor and you.

Pat M.: Just flat out.

Pat: So I get the idea that what you're saying is that... So they're pushing something on me or toward me. They've asked me to consider what they call their managed services, where they say it's a fiduciary they say they manage the assets for me. They didn't talk at all about a truly independent advisor. And it sounds like the services that you're talking about are beyond just managing the money.

Scott: Absolutely.

Pat: Talk about the financial planning...

Scott: Tax planning...

Pat: ...and things like that.

Scott: ...estate planning.

Pat M.: Yes, tax preparation.

Scott: And they've got all different price points and layers inside of Fidelity. And they may actually be pushing you to someone internally, but look, this is enough money, you've done well enough, you can hire a real advisor. Just ask 'em, "Hey, can you refer me to a local advisor," and they'll give you a list. Easy enough. Appreciate the call.

Pat M.: Wish you well.

Scott: And thank you, by the way, for your service.

Pat M.: And look, there are a lot of people that are competent with their own finances and hire an advisor as they get later in life. Well, I remember one time a gentleman that I knew came to me and he said he's on a medication. He was 71 or so. His doctor put him on some medication. I forget what it was for, but the doctor said, "Look, this medication, it's gonna mess with your ability to make sound decisions. You should not be making financial decisions...

Scott: Wow.

Pat M.: ...on your own anymore," which would be a tough thing to hear from your doctor, right? So, like, there's clearly a time to hire an advisor, but oftentimes, if there's only one of the spouses that's involved in the finances...

Scott: Most certainly.

Pat M.: ...you get another advisor involved and it could be helpful.

Scott: Most certainly.

Pat M.: Appreciate the call, Pat. Let's turn now, we're going to go to North Carolina, talk with Tom. Tom, you're with Allworth's "Money Matters."

Tom: Hey, guys. How's it going?

Pat M.: We're doing fantastic.

Tom: Really appreciate your show and it's a privilege to talk to you guys. I have a question. I'm retired for about a year and a half, although my wife is continuing to work. We're both 57.

Pat M.: All right.

Tom: And if I may, I'd give you a kind of a...

Pat M.: Please.

Tom: ...snapshot of our overall assets. Pre-tax, $1.8 million, Roth, or tax-free $1.8, brokerage $800k. We also have two homes right now, both paid off. So our net worth is about $5.6 million and getting to the first big decision in retirement, and I've looked at it in a number of ways, and I'd like your opinion on that. And the decision is should we buy another house down in Florida where we spent a number of years, months at a time and we really liked the area and we're looking at a potential purchase of a $500,000 house on that.

Pat M.: Okay. And you said you own two homes already?

Tom: Right.

Pat M.: Are you consuming both those homes? Is one a vacation home and one you live in, or is one a rental, or...?

Tom: We're consuming both.

Pat M.: Okay.

Tom: We don't rent either out. In fact, my son is in what I'll call the mountain house now.

Pat M.: Okay.

Tom: He's going to a school in Western North Carolina.

Pat M.: Got it.

Tom: And then we have the city house where we live. And kind of the idea is maybe in three to four years we would sell this particular house, but...

Scott: The city house?

Tom: ...we've been looking... Yeah, the city house. Right.

Pat M.: Okay.

Tom: So we've been looking down in Florida and, you know, as I kinda piece this together, there would be a two or three-year period where we'd be carrying three houses...

Pat M.: Okay.

Tom: ...,which I don't like, but...

Scott: What income sources do you have?

Tom: So I'm retired. My wife is still working. She's at about $100,000 a year. We've been kind of back and forth from North Carolina down to Florida, every time we see a house we like, we go down and check it out.

Scott: And you receive no pension?

Tom: No pension.

Scott: All right. And is the reason that you're not selling the... Is it your son is staying in what you called the mountain house, which sounds beautiful by the way?

Tom: Yeah.

Pat M.: In North Carolina, yes.

Scott: In North Carolina.

Pat M.: I've been to North Carolina only...

Scott: I the reason...

Pat M.: ...a few times. I think it's a lovely state.

Scott: Is the reason you're not doing this now is because your son is living in the mountain house because why are you waiting? Why wouldn't you just sell the house you're in now and buy the house in Florida and spend your time between... You said you're gonna do it in three years. What are you waiting for?

Pat M.: His wife still works.

Tom: Well, that would make a lot of sense, right, to go down to two houses. Well, my daughter's still here.

Pat M.: Okay.

Tom: And she's in university and she'll be graduating in two years...

Pat M.: And your...

Tom: [crosstalk 00:33:56] three, if she...

Pat M.: And your son is staying at the mountain house and you don't wanna stay up there with him?

Tom: The mountain house is sort of like a legacy place...

Scott: Okay.

Tom: ...where...

Scott: Are are you taking any income from that brokerage account, dividends, or do you tap into it?

Tom: No, not so far. Eighteen months in and we're kind of living off of what we had in the bank and her salary.

Scott: And what's the city house worth?

Tom: Seven-fifty.

Scott: Okay. So if the plan is take $500 grand from the brokerage account, buy a house in Florida, three years from now, roughly, sell the city house as you call it, and move to Florida I don't see any problem with it.

Pat M.: I don't see it other than that you've got market risk in that trade right now and you've got the hassle of actually owning three houses, but those are...

Scott: Tom's retired, give him something to do [inaudible 00:34:52].

Pat M.: I agree with Scott. There's the inherent risk or market risk in the real estate market.

Scott: And how much longer is your wife planning on working?

Tom: Probably two to three years, I guess, is the answer.

Pat M.: So if you're asking us to opine on that, I think you'd be okay.

Tom: [crosstalk 00:35:18].

Scott: You've got an additional element of risk here and additional expenses obviously with insurance and whatnot. And the risk is to what Pat had mentioned, that let's say the real estate market is in the doldrums when you go to sell...

Pat M.: When you wanna sell.

Scott: ...and you bought at, you know, a higher valuation and you sell at a lower valuation, but the spread there is $250 grand. So I think that you could actually take that risk.

Pat M.: I would agree.

Scott: Right? And then the other risk is just the carry risk, which is now I'm carrying three houses. And, you know, the only thing...

Tom: I'm a little bit concerned about, you know, the overall withdrawal rate goes up if I...you know, I can try to finance part of this house, which would be...

Scott: What's the point?

Pat M.: Why would you finance part of it?

Scott: What's the point?

Pat M.: There's no point in financing part of it. Just use whatever's in the brokerage account. How much gain do you have embedded in the brokerage?

Tom: There's probably 50% gain in that number.

Pat M.: All right. Well then you might wanna finance some of it. I mean, that's an analysis you'd have to do, right?

Tom: Yeah.

Scott: What was your income when you were in the marketplace?

Tom: Two-fifty.

Scott: So I mean, when I started looking at the numbers I'm thinking, let's assume your wife quit working today. I mean, we can pretty much replace her salary, but you're not gonna get back to where you once were.

Pat M.: In the perfect world, you would not carry three houses on the books at any point in time. That's just flat it, you know, you would sell one and buy the other and you... In fact, you'd sell the one you're in and then you wouldn't buy the new one until the other one is sold.

Tom: Sure. Yeah.

Pat M.: Right? And so you can swing it, but there's inherent risk in this that you may or may not want to take. And quite frankly, if you were sitting in my office, I'd say, "I don't understand what the hurry is."

Tom: Well, whether it's today or in two years, we're only gonna buy if we, you know, if this house in Florida checks all the boxes...

Pat M.: Understand.

Tom: ...,you know,...

Scott: I mean this will set you back in retirement income because you've just taken some money out whether it's a loan, I mean,...

Pat M.: I would.

Scott: And I certainly wouldn't wanna pay 7% on money to go buy a...

Pat M.: I'd say you can do it, but I would wait until the stars are perfectly aligned.

Scott: And that means...

Pat M.: And then in terms of source of funds, we've talked about the brokerage account, which I guess is, like, kind of the default, but...

Scott: Is there no cash in there?

Pat M.: I've done the analysis where, you know, can I take some out? Well, you know, rule of 55, I can take out some 401(k) for this as well, because actually that's gonna have to be converted to some small Roth.

Scott: When the rule of 55.

Pat M.: He was 55 when he left.

Scott: Got it.

Tom: That means I just have access to 401(k).

Scott: I absolutely understand. That isn't the issue...

Pat M.: I think my concern is, like, a couple years ago, you had a household income of $350 grand?

Scott: Now it's $100?

Tom: Yep.

Pat M.: And you wanna actually increase your expenses?

Scott: Yes.

Pat M.: And what I'm saying is, look, you're 57. Don't buy the house in Florida until you sell the city house. Just flat out. Just don't.

Scott: Yeah, I would agree with Pat.

Pat M.: Just don't do it. And look, you'd say, "Well, I could do this and this, and this." I've seen it work and I've seen it not work, right? And you'll be...

Tom: Yeah, that is the big risk, right?

Pat M.: Yeah, you'll be fine. Why take the risk? Heck, you know, the hard part is done, you're 57, you're retired, right? Just wait.

Scott: The impact it would have on the family finances...

Pat M.: If it went back...

Scott: ...could be significant

Pat M.: If it went back.

Scott: That's right. It really could be.

Pat M.: And not only that. You think you're gonna go down buy a house in Florida and you're just gonna let it sit. You're gonna be in there, you're gonna be repaint it, let's rip this wall, and your wife's [crosstalk 00:39:43]...

Scott: Furnish it.

Pat M.: ...bathroom, this, that. You've got three assets you're sitting on. You've seen the movie...

Scott: Gonna pay for insurance.

Pat M.: You've seen the movie.

Tom: I figure it's $50 grand a year to hold that house.

Pat M.: See? That's why you wait. Because you can't afford both the city and that for any period of time.

Scott: I'd wait.

Pat M.: I'd wait.

Tom: Okay.

Pat M.: All right.

Tom: Very good.

Pat M.: [crosstalk 00:40:04].

Tom: Thank you very much.

Pat M.: Hey glad you called, Tom.

Scott: It's always...

Tom: I appreciate your time.

Pat M.: No, it's good. When [inaudible 00:40:08] forgetting another opinion and maybe you wanna get another opinion after us as well, but I think it's prudent, particularly before you do something along those lines to run it by somebody.

Scott: Well, the problem is that the income will go from $350,000 to 0 in a relatively short period of time. And it sounds, like, a lot, you know, when you add up the money, it's like, "Well there's $3.6 million in IRAs and Roth IRAs and then there's another $800,000 in brokerage so we're at, like, $4.5 million, but you're replacing $350,000 a year in income. So we're looking at an 8% distribution to replace all of it. Just too high for a 57-year-old.

Pat M.: Yeah, for sure.

Scott: And let's go to California and talk with Jana. Jana, you're with Allworth's "Money Matters."

Jana: Hi, thanks for taking my call. I was checking to see what your guys' opinion is. My mom's getting to a situation where she needs to move in with my husband and I and we would like to sell her mobile home that she lives in. I'm wondering what we should do with the proceeds of the mobile home sale and we kinda wanna save it. I'm thinking we need to save it for in case she needs to be in a memory care facility in the future, but I don't know if there's like any tax implications or anything like that.

Pat M.: There are none and you are right.

Jana: Okay. Well that was easy.

Scott: I mean, how old's your mom?

Jana: 76.

Scott: So she's relatively young.

Pat M.: And the value?

Jana: Since it's a mobile home, the value's about $200,000. She has some credit cards we need to pay off. I think she'll have about $175, $150 when we're all done.

Pat M.: And she doesn't have anything else?

Jana: No.

Pat M.: I would agree with you. I just put it in a high...

Scott: High-yields account.

Pat M.: ...high yields. Are there any other children...?

Jana: High-yield savings?

Pat M.: Are there any other children in the family?

Jana: Yeah, it's me and my sister.

Scott: Okay. So put it in your mom's name and then put a TOD on the account.

Pat M.: Well, you might want a limited power of attorney.

Scott: Well, that is well.

Jana: Okay.

Scott: Do you have a limited power of attorney?

Jana: Not yet.

Scott: Okay.

Jana: And that's one thing. She doesn't have a will. We're...

Scott: She don't need will.

Jana: We gotta fix all this. [crosstalk 00:42:29].

Scott: No.

Jana: Okay.

Scott: I mean, this is the only asset that she has. Correct?

Jana: Yes. The only other thing she has is a brokerage account.

Scott: And how much is in the brokerage account?

Jana: About $150.

Scott: She should...

Jana: [crosstalk 00:42:44].

Scott: ...have a will?

Jana: ...end up with maybe $300.

Pat M.: I mean, you could set both those up in what's called the transfer of death or payable on death where it's kinda like a beneficiary, both you and your sister can be listed on there and avoids probates nice and clean and simple, which frankly, that's how...if this was my mother, that's how I would set it up.

Scott: That's right. I wouldn't go through...

Pat M.: [crosstalk 00:43:02].

Scott: [crosstalk 00:43:02].

Pat M.: ...saying that.

Scott: ...to get a trust.

Pat M.: But having things like an advanced healthcare directive, I don't know if she's got that...

Scott: Most certainly.

Pat M.: ...place yet and some power...

Jana: Okay.

Pat M.: ...of attorneys, which you get typically through the estate planning process.

Scott: Yes, but you don't have...

Jana: Okay.

Scott: ...to get a trust to get a power of attorney.

Pat M.: No, of course. No, I don't think she needs a trust.

Scott: So TOD, transfer on death to your sister. So both those accounts, right, need to be what are called TOD, transfer on death and then a power of attorney...

Jana: Okay.

Scott: ...and obviously healthcare [crosstalk 00:43:32]...

Jana: Because I don't think she'll be mentally capable within the next few years.

Scott: That's...

Pat M.: You wanna do it now.

Scott: Now.

Jana: Right. That's why we're doing this. I literally just bought a home big enough so she can come live with us.

Pat M.: God bless you.

Jana: We're gonna sell her place, have her move in with us.

Pat M.: That's amazing.

Jana: I'm fortunate to be able to do this.

Scott: That's nice.

Jana: I'm very fortunate. I'm very fortunate my husband's willing as well.

Scott: I almost said something.

Pat M.: I don't know how I'd feel. Well, I love your mom, but I don't want her moving in with me.

Jana: Well, that's why we bought another home. She has, like, her own separate entrance.

Pat M.: Perfect.

Jana: It's, like, her own [crosstalk 00:44:13].

Pat M.: There's [crosstalk 00:44:13]...

Scott: [crosstalk 00:44:13].

Pat M.: Perfect. Good for you. So easy, just do the TODs and then the other appropriate paperwork.

Jana: Okay. And then I was thinking maybe we... Do you think a high-yield savings or should we try to invest it in...?

Pat M.: No, no high-yield savings. That's all you want.

Jana: High-yield.

Pat M.: Yeah, something...

Jana: Okay.

Pat M.: ...that's completely cash.

Scott: She's got...

Jana: Okay.

Scott: ...$300,000? If she ends up needing care somewhere, as you know it's very expensive, right?

Jana: Yes.

Scott: So if this were...

Jana: [crosstalk 00:44:44].

Scott: ...my mother, I would have her just in care.

Jana: She's healthy otherwise. Okay. I just wasn't sure about, like, a growth stock mutual fund or anything like that.

Pet: Well, you might wanna look at what's in that brokerage account and see how that's invested.

Jana: Okay. That I don't have access to, but we'll work on that and see what we can find out.

Scott: And maybe when the dust settles, maybe you take some portion and allocate it towards longer-term.

Pat M.: But let the dust settle.

Scott: Any money that you might need within five years, you want it in cash.

Pat M.: High-yield...

Jana: Okay.

Scott: ...savings account. And that's why I'm thinking you say she's got some memory issues now, if things get worse and suddenly it's 24 months from now and you're like, "We can't sustain this," then suddenly she's in a memory care center, it's pretty expensive. So the worst thing to do is you invest all these dollars and suddenly we need it in 24 months and it's worth less than what we put into it and we gotta sell at a loss.

Jana: Yeah, I don't wanna do that.

Pat M.: Now I know they wouldn't want to do that.

Jana: Okay.

Together: All right.

Jana: I was...

Pat M.: Blessings to you...

Jana: All right. And thank you.

Pat M.: ...and I wish you well. Thank you.

Jana: All right. Thank you for your help.

Scott: Thanks. Actually, I could have had my mother-in-law live with us.

Pat M.: She passed away young, quite young, but not relatively young. But...

Scott: I won't...

Pat M.: ...she was...

Scott: No comment.

Pat M.: My mother-in-law passed away a number of years ago, but I will not comment.

Scott: Mine was like the...

Pat M.: Your mom-in-law was great.

Scott: I mean, she was unbelievable.

Pat M.: She would make you special.

Scott: She was vegetarian.

Pat M.: But would cook you steak loaf.

Scott: Meatloaf, yes, and steak, meatloaf with different meats all mixed together and stuff.

Pat M.: [inaudible 00:46:21] she would make meatloaf, Scott.

Scott: I've never made meatloaf.

Pat M.: You make it.

Scott: Well, that's what she did for me.

Pat M.: Would she clean the house too and come over, do the dishes?

Scott: She would help with the dishes. I never heard she cleaned the house.

Pat M.: She'd wash and wax your car?

Scott: No, but she was a phenomenal grandmother to my kids. She never once told me how to be a parent or a husband, never once. She was always so respectful of my space. Wanted to make sure my wife and I had dates and stuff and all that. She would've been really easy to live with and maybe she would've continued to make me meatloaf because my wife doesn't cook much. And that's what we miss most about her. I do miss Betty.

Pat M.: She was a nice lady.

Scott: Hey Pat, I want to...

Pat M.: Wait Scott, I said that at the beginning of the show let's talk briefly. No, actually...

Scott: You're gonna promote...

Pat M.: I'm gonna promote [crosstalk 00:47:23]...

Scott: ...promote a webinar that I [crosstalk 00:47:24]...

Pat M.: Okay. And then I'm gonna talk briefly. Give me a minute or two to talk briefly about [crosstalk 00:47:27]...

Scott: Of course.

Pat M.: It's a free Allworth webinar that I think is beneficial. And I'll tell you why in a moment. But it's really details how investors should think about politics, the markets, and your finances. This election year, right, we're in election year, people are concerned about what's going on with the election for a variety of reasons, understandably so. And invariably come November 7th, the day after the election, we will have phone calls from people regardless of who wins, saying, "Get me out of the market. I can't believe this guy won. My life's gonna be terrible." so what this webinar does is it looks through a lot of history on what's happened when different people were in office. And I sat down with... Actually we stood up for this whole thing, with Apollo Lupescu.

And Apollo is well-known investment manager at Dimensional Fund Advisors. He's considered the secretary of explaining stuff. He's got an uncanny way of taking complex financial topics and putting them into ways that individuals without much financial knowledge can understand. And so I had actually first met Apollo at a different conference, and after hearing him speak, I'm like, "I need to interview this guy and put some education [crosstalk 00:48:51]...

Scott: You went to Austin to do this, did you not?

Pat M.: Austin, Texas, yeah, where we did this. We're gonna highlight how you need to think about your money in an election year. So we're gonna look at election year market performance, we're gonna look at the political parties when they're in power, the past, how things have done over that time, and we're gonna look at some smart investment planning and that sort of thing. But the webinars gonna be broadcast Thursday, June 20th and Saturday June 22nd, again, Thursday, June 20th, Saturday, June 22nd. I think you'll find them both informative, educational, and entertaining.

Scott: And this is an interview with you, the whole thing with him and you just talking?

Pat M.: Talking and he has a really unique communication style while he draws stuff out that will be on the screen.

Scott: Well, perfect.

Pat M.: It's really good.

Scott: I'm actually gonna [inaudible 00:49:41].

Pat M.: It's good. I mean, the guy's fascinating. He explains things like no one else. allworthfinancial.com/workshops will get you all the details and to register for that.

Scott: And while you're there, sign up for our newsletter.

Pat M.: Before we go, Scott, this GameStop, I don't know why I'm fascinated by this stuff. And I just think it's because it's a bizarre human behavior. And we talked about it earlier, this fear of missing out or people that think they're gonna do this. So GameStop, this Roaring Kitty, he actually took a position and then once he takes the position, he takes a $260 million in shares and options...

Scott: Option.

Pat M.: ...contract.

Scott: He's a big option guy.

Pat M.: Right? $260 million personally, right, in options. He goes on and he starts posting on X. The market cap right now of GameStop is $10.7 billion and it's got a price to earnings ratio as of this morning, $1,596. So for every dollar of earnings that you're buying, that stock trades for almost 1600 times that. Like, this is the equivalent of buying a small AMPM in terms of its earnings and paying 1600 billion dollars for it.

Scott: Not a Arco, but a single... It's the craziest thing.

Pat M.: Well, when you bring up a AMPM it's a good way to kind of think about things, right? Like, is that a good investment? It all depends on what you'd have to pay for.

Scott: That's right.

Pat M.: If the AMPM costs you a dollar to buy the AMPM...

Scott: Great investment.

Pat M.: If it costs you a billion dollars...

Scott: Horrible investment.

Pat M.: Sixteen hundred times, don't play in this...

Scott: It's crazy.

Pat M.: ...this sandbox.

Scott: It's crazy. Anyway, we are out of time for this week's [crosstalk 00:51:31]...

Pat M.: Thanks for joining us. And if you've liked the podcast at all, please go online and give us a rating and a thumbs up and share with a friend.

Scott: It's been Scott Hanson and Pat McClain of Allworth's "Money Matters."

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