Man: Would you like an opinion on a financial matter you're dealing with, whether it's about retirement, investments, taxes, or 401(k)s? Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH. That's 833-99-WORTH.

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

Pat: I'm Pat McClain. Thanks for joining us.

Scott: Yeah, glad you are with us as we talk about financial matters, and talk about things that are going around the globe, and the markets, and take your calls.

Pat: Yes, questions about your portfolio, taxes, insurance, how to use the Roth IRA correctly, all those good things.

Scott: And it's been quite the week on the global front. We're not gonna spend a lot of time talking about the issues of last weekend and this week, which were horrendous.

Pat: Scott, so today we're taping this on the...Thursday, October the 12th around 1:00, we're taping this. I called Scott on Monday...

Scott: Midday.

Pat: Midday, and said, "I don't think I will ever be able to understand the stock market."

Scott: I thought it was hilarious because we all talk about that the prices are set by people's expectations of the future and they change when new information arrives. Those atrocities that occurred on Saturday, which is disgusting...

Pat: And then again on Sunday, and then again on Monday, different sides of that. But the atrocities that began...

Scott: Thank you.

Pat: ...on Saturday.

Scott: Disgusting.

Pat: And the response, it's like, "This is gonna be...this is a pretty...it's a pretty serious war here."

Scott: And who knows where it's gonna spill into and all that.

Pat: This is monumental. But yet, we saw the markets up...

Scott: On Monday.

Pat: And then up on Tuesday.

Scott: They were down a tad on Thursday, but...

Pat: Or Wednesday.

Scott: Thursday.

Pat: Thursday.

Scott: I forget what they were on...

Pat: Wednesday.

Scott: Flat or something. Nothing really.

Pat: Yeah, it wasn't. But my point to Scott was, I watched this over the weekend and I thought, "I mean, look, the Ukraine-Russia conflict." That's bad, but a little bit of a proxy war and...

Scott: Very regional.

Pat: Very regional. It's probably gonna stay contained.

Scott: Although you might say the Middle East is regional but so many connections.

Pat: And so my point to Scott was, I would have expected the markets to open up Monday way off. Way off.

Scott: For sure. And they didn't.

Pat: And they didn't. Like it didn't occur.

Scott: And as of the time of this recording, there's been no change, except interest rates are a little lower than they were on last Friday.

Pat: And so my point my point to Scott was, I will never...It is just a reminder to me, doing this for 35-plus years, right? Bought my first stock when I was 17, so I'm 60 now. I've been investing in stocks for 43 years.

Scott: I'm glad you could do the math there.

Pat: Thank you.

Scott: I was gonna say, and Pat's starting to slip. Here it is. It's 60, it's slipping.

Pat: And so it just reminded me this that you can't predict the markets. It's over the...

Scott: You cannot predict the market.

Pat: On a day-to-day basis.

Scott: You can predict.

Pat: Had I acted on my emotions, I would have started cleaning up portfolios first thing Monday morning and liquidating equities if I had acted on my emotions, but I didn't act on my emotions either on my behalf or for my clients.

Scott: Well, because it's impossible to predict where the markets are gonna go because they don't go in tandem with what's going on in life.

Pat: That's right. That's right. That's right.

Scott: Over the long term, they will. But over the short term, it's anyone's guess.

Pat: Over the long term, it's gonna be determined by earnings of the company, not what's going on in the political social environment.

Scott: Now I don't know what happened with the Israeli stock market. I didn't pay attention.

Pat: I did not look. But it was for me...and you did laugh when I called and said, "I don't think I'll ever understand this."

Scott: I laughed at you. That's what he said, "Scott, can you believe what's going on in the market?" or something along those lines. I laughed at you. I'm like, "Come on, man, 33 deck." And obviously, that's why you're calling me. It was part of just kind of a reminder.

Pat: It was a reminder that over the short term, anyone's guess, and I mean guess. Guess.

Scott: All those people on the television, CNBC and Fox Business that tell you, they say, "Here's what we're expecting..."

Pat: They don't know.

Scott: ...they don't know.

Pat: They don't know. We don't know. We don't know. Although we may be in the minority to actually profess that we don't know what's gonna happen over the short term.

Scott: Well, wise investors have given up trying to think that they can outsmart the markets.

Pat: Wise investors manage the things they can control.

Scott: Yes. And not worry about the things they cannot control.

Pat: Wise investors worry about asset allocation, tax efficiency, using the tax code to their advantage, income projections, forward planning based upon different scenarios...

Scott: I remember, Pat...

Pat: ...risk levels and portfolios.

Scott: This was a number of years ago, I'm in a meeting at work. It was one of those days the market was having a really grumpy day. It probably....not a good day at all, down quite a bit. And I was frustrated because there was someone in the organization I was supposed...I don't remember who or what it was. They were supposed to do something. They didn't do something. I was frustrated. And another guy was in the meeting says to me, he says, "Wait a minute. The market's way down and this is what you're frustrated about?" And I turned to him, I said, "I have no control over the markets, so why would I get frustrated about something I have no control over? I have some control over the folks who work with me and the job they're supposed to do."

Pat: And that's what...

Scott: Yes, it was a surprising question from a colleague.

Pat: I thought you were emotionally reacting to the markets.

Scott: Wondered why I wasn't reacting emotionally to the markets.

Pat: Oh, well, of course, what's the point?

Scott: I don't know. Anyway.

Pat: Control what you can control, right? Manage what you can control. Put your time and the energy...which by the way, a large part of that is risk. And risk, you can control risk with a properly built portfolio.

Scott: Oh, yeah, for sure. You can manage a lot of risk, and you can manage your tax bill, which can take a huge chunk of your net worth.

Pat: As you should manage your tax bill.

Scott: All right. Let's take calls. If you wanna be part of the program, you can either send us an email at questions@moneymatters.com and we'll schedule time, or you can call 833-99-WORTH. And we're in Colorado talking with Jeannie [SP]. Jeannie, you're with Allworth's "Money Matters."

Jeannie: Hi.

Scott: Hi, Jeannie.

Jeannie: I have a question. I realize that there is a lot of uncertainties about what's ahead. And I know that the dollar...I've been listening to the BRICS, or not to them, but about the BRICS and the decisions they're making and how are the dollars...

Scott: You say the Brits or the BRICS?

Jeannie: BRICS.

Scott: British?

Jeannie: Yeah. Brazil...

Scott: Okay. All right. The BRICS.

Jeannie: Yeah, the BRICS. And I know the value of the dollar is going to go down and probably disappear. And I'm curious as to what would happen. So, my husband has a pension with a company, and then we're on Medicare. And so I'm sure that something is going to...If the value of the dollar goes down, then I'm curious as to your take on what will happen to those kind of things.

Scott: Yeah. Well, let's play your scenario out. Because I think we...And I'm not necessarily...have the same viewpoint as you do on this. Play your scenario out, I think what we'd see is what we saw happen when the Soviet Union collapsed when the ruble became devalued so dramatically, hyperinflation and, you know, the old currency was worthless.

Pat: [crosstalk 00:09:57]

Scott: And the pensions that people used to survive on can barely buy a cup of coffee anymore.

Jeannie: Yes. That's what I'm afraid of. Yeah.

Scott: Then you wanna be politically connected?

Jeannie: No.

Scott: I'm saying that's what you would want.

Pat: That's what you would want. And have guns and gold.

Jeannie: That's what I'm thinking.

Pat: I don't know why you pointed to the BRICS as kind of the benchmark as to why you think this is gonna happen.

Scott: I haven't heard that term in a few years. That's why I asked you a couple of times.

Jeannie: Because they have been meeting and growing. Several countries have joined them and they're not wanting to use the dollar as the basis for the trades.

Scott: And they could want that all they want. They can wish whatever they wish for. I get your point, which is if, in fact, the world currency, no longer leading world currency, which most of the trades in the United States are pegged to the U.S. dollar. But you would expect that you would start to see Russia, India, and China kind of create their own exchange rate outside of the dollar in forward-looking contracts as well as in exchange for many other goods and services that are sold across borders. But I wouldn't spend a ton of time worrying about it. I guess your question is, what would it do to this monthly pension?

Jeannie: Right.

Scott: It would erode the value of it, the purchasing power of that.

Jeannie: Okay. That's right.

Scott: It would absolutely erode the purchasing power of that as your purchasing power is being eroded right now because of inflation. There would be tremendous political upheaval at the same time if we had something along those lines.

Jeannie: Right. So, how would you prepare for that?

Scott: I'm not preparing for that.

Pat: I wouldn't worry about it.

Scott: I wouldn't worry about it either. Same thing, like when a comet strikes the earth, it might kill half the planet or most of the planet, and myself, I don't know. There's some chance that will happen. It's pretty small. And there's some chance that this will happen, but it's pretty small and there's really no way to...You know, it's being a little flippant but if that's truly what you believe, then you would want nothing in dollars, you would want some sort of other hard currency, whether it's gold, or silver coins, or...

Pat: But what happens if you're wrong?

Scott: Well, then you've got a real problem on your hands.

Jeannie: Right. Yeah.

Scott: So, in part of investing over the long term is that looking at probabilities of outcome, and what you just described would be considered a black swan event, which means they exist but no one really ever sees them, right? That's a black swan. But no one really...The chances of you seeing a black swan in your lifetime are pretty close to zero. That's why they call them...

Pat: If you're my oldest sister, Jeannie, I'd say find something else to worry about. I'm serious because, look, there's some things we have no control over. We have no control over a comet hitting us from outer space. And if our entire system of economics in the United States collapses, there's not a lot any of us can do about it. It will be...I mean, it wouldn't really matter. And you would wanna be politically connected, and hopefully with the right...

Scott: On the right side.

Pat: Yeah, right.

Scott: Because it would be a complete upheaval and a complete change. So, I wouldn't worry about it.

Jeannie: Okay.

Scott: All right. Thank you, Jeannie.

Jeannie: All right.

Scott: And I suppose, you know, she could find some financial instrument to make a bet if she so chose to reduce or eliminate that risk. There's some futures contracts she could...

Pat: That would allow for that, yes. But the premium...

Scott: Correct. Yes.

Pat: ...the cost of the insurance would erode most of the value in the...

Scott: Over time, yes.

Pat: Over time.

Scott: Yes, and she couldn't afford to pay the premium forever.

Pat: Yes. And therefore, the thesis holds no water.

Scott: Yeah. Or you can buy comet insurance, I suppose. But who's gonna be around to...I mean, that same kind of thing, right?

Pat: Well, that's funny. That's funny.

Scott: Someone would buy it, too.

Pat: I got comet insurance.

Pat: Well, what exactly does the comet cover? If a comet strikes the earth and obliterates, I will get a large sum of money from a company that probably no longer exists.

Scott: I always find that a really interesting thing for people to worry about, right? Because there's movies like that or you'll see an article, "Oh, there's some asteroid out here or something." And I'm like, "Yeah, there's not a lot you're gonna be able to do if that's the case."

Pat: You know, I haven't read science fiction or watched science fiction since I was in high school. I just can't do it. I'm probably the only man in America that has not seen...

Scott: Fiction?

Pat: Science fiction. Comets hit the earth. Hitting...I understand, but to the degree, whatever that means. But I can't live in this science fiction-type world. I haven't...

Scott: There are certain things that can derail your finances that are impossible to ensure against. One is if we had a global collapse of economics and political structure was completely turned upside down.

Pat: Well, some people believe that's happening now, but really happens.

Scott: But having capital is not gonna...that capital might be stolen from you or confiscated from you, simply taken from you.

Pat: The show is not long enough to go through all those examples around the world where it has happened.

Scott: You know, Fidel Castro, the first farm he collectivized was his own parents.

Pat: Yes.

Scott: Wild.

Pat: I didn't know that.

Scott: Can you imagine your kid doing that to you? Taking your farm and giving it to the state? Well, he was the state. So, he didn't really give it to anyone. He just took it. Took his parents' farm. It's like the old story of the capitalists and the socialists having this discussion. If you had two cows, would you give one cow to the greater good? I started the joke off completely wrong.

Pat: Okay. Never mind.

Scott: Okay. All right. Yeah, actually...

Pat: Is if you had two farms, if you had two tractors, if you had two cows...well, no. Well, why wouldn't you give...you'd give a farm and a tractor?

Scott: Well, I have two cows.

Pat: Oh, that's right. So, it's easier to give away something you already own.

Scott: I haven't told that little story for several years, and I got it completely wrong.

Pat: It's easier to give away.

Scott: Which is a reason I'm not doing standup.

Pat: That and probably many, many other reasons. Other than the fact that, by and large, it's a terrible job. You sit around all day in order to perform for an hour. You stay in dingy hotels or rooms that...

Scott: The chance of you getting popular and having a show or a podcast, I mean...

Pat: Zero. Other than that, other than the fact that you can't tell a joke, that's what stopped you from that career.

Scott: Yes. And I was gonna be a musician as well, but, you know, there's the...

Pat: [crosstalk 00:18:01] I have a plan. Let's go.

Scott: We're gonna talk to Kelly in California. Kelly.

Kelly: Hello.

Scott: Hi, Kelly.

Kelly: Hey, how are you doing?

Scott: Wonderful.

Kelly: Good. It's always good to be wonderful. Hey, I had a simple question. Well, it might be simple. I have an employer-owned 401(k). And what happened was I turned 65 this past April, and I was gonna move the funds into my 401(k).

Scott: When you say my 401(k), what do you mean?

Pat: Do you mean your IRA?

Kelly: I'm sorry, my little personal IRA. So, a fellow employee said, "Well, you better hurry up and do it because they'll use the amount of the fund at the end of the last statement of 2021," and the market was up, and he said, "It's down now, so you better hurry up and do it." So, I called the company that handles our money, and I was just really surprised that I could not get a clear answer from them, and I asked them, "Do they use the last statement in real-time?" And he said, "Well, they can do what they want."

Pat: Well, let me ask you this question. Inside your existing 401(k)s, do you have any what are called stable value funds in there? What is inside of the 401(k) that you own today?

Kelly: Multiple stuff.

Pat: Okay. And was this money that you contributed?

Kelly: No, no, no. This is employer-owned. We can't touch it. We have no say. We can't put into it. Well, we can touch it. We could borrow on it, I guess, if we wanted to. But, yeah, no, it's employer-owned owned.

Scott: So you had no payroll deduction of money going into? This is money the company...100% company dollars set aside for you.

Kelly: One hundred percent freely gives to us.

Scott: And are you sure it's a 401(k), or could it be a 408 or 401(a)?

Kelly: I just assumed it was a 401(k).

Scott: Yeah, I doubt it. I doubt it.

Kelly: So, yeah, I got a...

Scott: I mean, technically, an employer...I mean, I've not seen this in 20-some years, but technically an employer can control the investments of money that they deposit on an employee's behalf. Usually, an employer wants no business on that because if it's truly a 401(k) that's gonna be the employee's assets, then why would they wanna take on liability for something they're not gonna get any benefit from?

Pat: So, if it's a 401(k), it values every day with the exception of stable value funds or guaranteed interest contracts in there, which are GICs.

Scott: Fair, then it might be the value at the end of some other of time.

Kelly: All they give is a statement at the end of the year, and it's usually six months, eight months after the year-end, but I don't [crosstalk 00:21:16].

Pat: It's not an ESOP.

Kelly: No.

Pat: They call it a 401(k)?

Kelly: I thought that's right. You know, I don't have it in front of me and I wish I did.

Pat: Okay. How small is this company that you work for?

Kelly: About 50 employees.

Pat: Okay, there's the answer there. My guess is it's a pulled investment, and that they're managing it on their side. By the way, they should seek advice from a qualified advisor because they're taking on liability that they shouldn't.

Scott: Of which they get no benefit from.

Pat: Correct. In fact, it's probably create more frustration.

Scott: Hence Kelly's call. Right?

Pat: Yes. So, if I was advising the planner of that company, I'd say you're out of your minds. So the answer to your question is you said that at the end of 20-something, one...

Scott: I haven't seen something like this in 20-some years.

Pat: So, there is a plan document associated with this that you should be able to view, and that will actually have the answer for you on how the valuation is determined. With the exception of guaranteed interest contracts or stable value funds, the market is normally at whatever the day the market...whatever the portfolio is valued at the end of that day.

Kelly: That day. Right.

Pat: The transaction. But this plan may be designed completely differently. It actually may be...

Scott: May not be a 401(k).

Pat: It might be a defined benefit plan that actually has a cash value option in it. I don't know. The only way...

Scott: Or a cash balance plan.

Pat: Or a cash balance plan. The only way you'd know is if you actually read the plan document. How much money is in this? Do you believe is in this?

Kelly: Not a lot, $185,000.

Pat: Well, I don't know where you grew up, but that's a lot of money.

Kelly: Well, okay. I mean, to me, yeah, I'm not a man of a ton of wealth, but yeah, it's a very generous amount. I mean, it's what they give. And I've been here since '06. So, yeah, it's just been free money, per se. But yeah, see, I wanted to pull it out in April and I wished I would have because I really liked NVIDIA, but now that boat's really sailed past. So, I couldn't get a clear answer from this pension company and they're saying, "Well, he can do what he wants." And I'm like, "Well, what do you mean? Can he spend all that money?" Well, he could, but he...

Scott: Who is he?

Pat: His friend. His friend that was giving him the advice, correct?

Kelly: No, I was talking to the company...

Pat: Do you still work there?

Kelly: ...the pension consulting company. I still work here, yes.

Pat: Okay. So just ask...call up the person you asked and ask if they could send you the plan doc and the summary plan descriptions.

Scott: Yes. So, if you're already talking to pension consulting...

Pat: If you're already...So ask them to send you the summary plan description and the plan document. And in there...

Scott: It will spell all that stuff out.

Pat: It will spell out the formulas, how the account balance is actually derived.

Scott: They have to give it to you.

Kelly: Why didn't he just tell me that?

Pat: Well, I don't know why he didn't tell you that.

Kelly: I could not get any good answers [crosstalk 00:24:31].

Pat: You just asked for the summary plan description and the complete plan document. My guess is if you ran...

Scott: We're assuming this is a qualified...and that's just a technical term, a qualified retirement plan that falls under the IRS regulation for which the corporation gets a tax benefit. If that's the case, which it sounds like, then there's certain rules they have to abide by and this is one of them.

Pat: But if it's a non-qualified plan, then you want the documents as well. And it won't be called a summary plan description, it will be called a description of the non-qualified pension plan.

Scott: Which would be really rare.

Pat: Which would be extremely rare.

Scott: Unless you had an insurance policy.

Kelly: I think it's been in place for more than 20 years.

Pat: That's fine. I mean, it was much more common 20 years ago for the employer to actually manage the assets than it is today.

Scott: It's still rare.

Pat: But it is still rare. Most of [crosstalk 00:25:29].

Scott: It was rare then.

Pat: It was not as rare as it is today.

Scott: Yeah, I haven't seen it...

Pat: ...in 20 years.

Scott: I didn't know anyone was still doing that.

Pat: Yeah, I know a firm that does it.

Scott: You're kidding.

Pat: No. So...

Scott: For the match portion?

Pat: Yes. Crazy.

Scott: It's crazy.

Pat: So, as for the summary plan description, or if it's a non-qualified, ask for the description and it will describe in detail exactly what the rules around taking the distribution are and how the accounts are valued. All righty?

Kelly: Yeah, that'll work. Thank you very much.

Scott: Okay, Kelly.

Pat: Thanks, Kelly.

Scott: So, you know somebody as a company...

Pat: Yes.

Scott: 401(k) employees direct their contributions, right? So I'm an employee. I can choose to have money on my payroll deduction and I can say I want 30% in the S&P 500 and...But my match, that's what I'm assuming, the match, the employer directs. So, if the employer says, "I think emerging markets are where we should be right now," the employer can direct that and you have...

Pat: Last I talked to them about this particular situation, that's the way it was.

Scott: All right. So, if you're listening and you own a business...

Pat: And I told them they were out of their minds.

Scott: And here's why I think you'd be out of your...why I would never do that. What benefit could you possibly derive from that unless you believe that you're gonna do a better job managing your employees' investments than they can? Because, let's say you make a bad call and the employee says, "Hey, they had a fiduciary responsibility to back to my best interest and they did not," then the employer's at risk, liability.

Pat: Well, Scott, let's just say you did make a bad call. You made a great call, but there was another sector in the economic environment or asset class that did really well.

Scott: And it just so happened that the employee had allocated the money to the area that went really well.

Pat: You have opened yourself up to liability for reasons that are unknown.

Scott: It's almost as if...There's no win.

Pat: There's no win.

Scott: Only loose.

Pat: No win.

Scott: So, if you do anything like that, I would strongly recommend you don't do that anymore because...yes.

Pat: I was perplexed.

Scott: I remember the first time I saw something like that. I was perplexed. Like, why in the world would you do this?

Pat: I don't know.

Scott: You see people managing their friends' money and stuff and other crazy things.

Pat: Yes.

Scott: Right. Yeah. Crazy things.

Pat: Yeah. Even my own family members that are firms of Allworth, we charge them just like we would charge any other client and the firm treats them just like any other client. I don't work with them personally because...

Scott: I don't work with personally either.

Pat: ...I don't want that, but it's...

Scott: And I make them promise that they won't bring things up on Thanksgiving or Christmas.

Pat: And then what else do you make them promise, Scott?

Scott: That they're nice to me from now on. Stop yelling.

Pat: We go through a whole list. If you wanna be a client of Allworth Financial, you need to be respectful at all times, right? The whole list of your relatives about the things they need to do to become an Allworth client.

Scott: Well, you know what it's like when it's a holiday and you're trying not to even think about stuff like this because that's what you do for work.

Pat: That's right.

Scott: That's no different than if someone's a dentist, "Oh, can you take a look at this tooth here?" Or a dermatologist. "You see this spot on my neck, what do you think that is?" I was walking in with the family on Christmas Eve one service. Christmas Eve, going to church service. Christmas Eve with the family. The kids were little, all dressed in the nice sweaters or whatever. This guy comes up to me on the way in and asked me a financial question. And I look at him, I look at my family, I said, "It's Christmas Eve, man. "

Pat: Is that right?

Scott: "I'm not gonna answer that question or even entertain it." And I'm still bitter, apparently.

Pat: It appears.

Scott: I guess so. I guess the going to church didn't work.

Pat: It appears.

Scott: I'm supposed to find forgiveness and acceptance.

Pat: It appears. All the way through mass.

Scott: You call it mass? I'm Catholic. We call it mass. Service, church service. Candlelight service. You light the candles. I was gonna try to catch them on fire.

Pat: Okay, let's go. All right.

Scott: Let's go.

Pat: No more.

Scott: All right.

Pat: No more.

Scott: We're in Indiana talking with Sharon. Sharon, you're with Allworth's "Money Matters."

Sharon: Hi. Thank you for taking my call. My question too is related to my 401(k) money. I have just recently retired and so I had the company move my 401(k) dollars into a stable account so that I wouldn't have the up and down or the loss because I'm no longer contributing into it. But the percentage I'm getting is very low, of course. And I know a lot of people now roll their monies into the IRA and I wasn't sure how to go about determining a good provider because I know the fees can vary so much. And also people have been referring me to a buffer ETF and I wasn't sure your thoughts on that.

Pat: Okay. And when you say the interest rate that you're receiving on these dollars are low right now, what is that number? What are you?

Sharon: It's 2.75%.

Scott: Well, that is low.

Pat: That is low. That is...

Scott: In this environment. That was good a year ago.

Pat: That is really low.

Scott: Two years ago it was like wow, 2.75%.

Pat: So, we'll answer all your questions but I can tell you at the very end of it we're gonna tell you that that money can be working almost twice as hard with no additional risk to you.

Sharon: Okay.

Scott: Yeah. How old are you, Sharon?

Sharon: I am 63, so I am lucky enough, I was able to retire early. I'm fortunate that I have worked 36-plus years in my company, so I am grandfathered with a pension. So between my Social Security, and my pension, and my husband's Social Security, we are able to make bills meet. Our home is paid for. We do still owe on one vehicle, but that is all that we owe. So, we don't...

Scott: What do you have in your 401(k)? What's the balance ballpark?

Sharon: I have $216,000. So not a lot, but enough for me.

Pat: And how was it invested prior to you moving to the stable value account?

Sharon: I had part of it into a stable account and then part of it into a moderate risk. So, once I retired and was no longer contributing through my payroll, I noticed it just kept going down and going down and going down. So, I asked them to move everything into the stable account until I determined what to do with it.

Pat: Okay. Thank you. Thank you. Thank you. Is your plan to not touch these dollars until later in life, or what's the plan?

Sharon: Well, I don't need to at this point. I do have $23,000 in savings for emergency funds. So, hopefully, I won't need to pull this money out, you know, unless something traumatic happens.

Pat: And what's your income?

Sharon: Just about, well, $3,890 average a month.

Pat: Gross?

Sharon: Yes.

Pat: Okay.

Sharon: Well, no, that is...well, that's with the taxes being withheld from both Social Security and my pension.

Pat: That's with the taxes being withheld. So, it's probably closer to...

Scott: And that's what flows into her...

Pat: Yeah. So it's probably closer to $5,000.

Scott: You're thinking of Roth conversion for [crosstalk 00:33:45.815]. I don't know about that.

Pat: Originally, I was thinking Roth conversion, Scott, but I think they're gonna be in the same marginal tax rate forever, so it's not really gonna matter.

Scott: So, there's a couple of things you could do. One is you can just choose a bank that you can trust and...actually, it doesn't even matter. As long as there's FDIC insurance, any bank will do as long as there's FDIC insurance, and invest in a CD or a high-yield savings account, in this market, you're gonna get 5% give or take with no risk.

Pat: With no risk.

Scott: Zero risk.

Pat: FDIC insured.

Scott: That's not what I would do though. I'm just saying that's one thing, that would be one step better than what you've got now with not increasing your risk one bit whatsoever. The next step would be to have some of these dollars invested in probably a bit of a moderate type portfolio, nothing too aggressive. And maybe just, I mean, kind of giving your situation, maybe keeping 25%. Pat, you're looking at me like...

Pat: I'm waiting to hear what you're saying.

Scott: Maybe keep like 25% in a cash type account where it's 100% stable and then 75% in more of kind of a balanced fund.

Pat: Which would end up, if you broke that portfolio down, it'd end up about 35% to 40% equities and the rest...

Scott: Yeah, that's right.

Pat: ...in bond.

Scott: But having said that, you would have to be comfortable with the account to bump up and down in value. Which, by the way, you were comfortable for years and years and years, by the way. You know that. Retirement was coming, big change, you saw things going down, you're like, "I gotta just park it here for a while. Let the dust settle." Now you're retired, your head's up. Now you're like, "All right. I need to do something with this."

Pat: So I agree with Scott. I absolutely agree with Scott. If you ended up with a portfolio that was 60% to 65%, something that was stable, and 35% to 40% in equities, some sort of stock position, knowing that that's gonna bump around and you're not gonna be happy with it all the time. Right now, the problem with the portfolio holding it all in fixed is that you expose yourself to inflation, which is every bit as much risk as the volatility in the marketplace because your purchasing power will be eroded over time. And equities, over the long term, will give you a hedge against inflation. So people have a tendency to focus on the risk that's in front of them and they can see on a daily basis. And I'm saying, look, that's one risk. The risk you can't see but you can feel is inflation. So you wanna cause the thing that benefits from an inflationary environment, which is equities. Let's talk about buffered ETFs. A buffered ETF is a financial instrument, an exchange-traded fund, where they use options inside there in order to give a downside on the market.

Scott: And a limit on the upside.

Pat: Right. So, they use callers in there, which is they buy and sell these different instruments that will buffer the downside. And, oh, by the way, they will buffer the upside as well.

Scott: There's limitations on them. Oftentimes, it'll buffer, protect you, oh, maybe on the first 10% of losses or first 20% of losses. But if we have a major downturn, it'll fall beyond those. So, if we have a downturn of 40%, well, it's gonna protect you the first 20%, after that, it's gonna tank.

Pat: Which means it blew through its buffer. The technical term, it blew through its buffer. You're buying an insurance premium...You're 63. If you are in good health today and your husband is in good health today, the probability of one of you being alive 30 years from now, 30 years, is high.

Scott: You have a 50% chance of one of you being alive at age 90.

Sharon: Correct.

Pat: Right. So, if I'm buying insurance, which is what you're doing inside a buffered ETF, you're insuring for the short term when you should just learn to live with the risk. Which is why I said, let's take some portion and make sure it's ultra-safe so if something catastrophic happens and you need more than what you've got in your emergency reserve, there's a pool you can tap. But if a good chunk of it needs to be focused on, not for sharing this year or for sharing next year, but for sharing 10 years from now, 20 years from now, 30 years from now. And there's no sense paying for insurance if, in fact, you can live without it. And the reason you'd buy a buffered ETF is...

Scott: Sometimes they use, in larger portfolios, a portion in buffered ETFs. I've seen those that can kind of work. But there's a lot of management involved. And they expire, and then you're gonna need to replace them. So, I would not recommend that.

Pat: I'm actually surprised. Who recommended this to you, the buffered ETF?

Sharon: It was a private company that I reached out to.

Pat: And they wanted to throw everything in one buffered ETF?

Sharon: Correct.

Pat: Gotta stay away from those people. Just stay away from them.

Scott: That's weird.

Pat: Yeah. They might have called it a buffered ETF...

Scott: And it was an annuity.

Pat: ...and when you got to the office, it became an annuity. That would be my guess.

Scott: Yeah, I bet you're right.

Sharon: Yeah, they did give me a paperwork on it.

Pat: Was it an annuity?

Sharon: It just says...the document says, "Target outcomes of ETF buffer series." And then they have what is called the market exposure, the target outcome period.

Scott: Maybe it's a real buffered ETF.

Pat: It is a real buffered ETF.

Scott: Good. Yeah, we were worried someone's trying to sell you an annuity.

Pat: Yeah, but you don't need it. You've lived with the volatility in the portfolio for years and years and years. All we're recommending is make it a little bit more conservative. And I agree with Scott, if you put 25% to 30% in fixed, I mean, you could buy...right now, you can go get a money fund that's paying over 5%. And then the rest, put it in a balanced portfolio. And then 50-50, which means 50% equity, 50% bond. It's gonna lend you a 40% overall equity exposure, and you need that over time.

Sharon: Okay. So, you mean, like, the money market account, move some into, like, a money market?

Pat: Yeah, move the whole thing into an IRA and get a decent advisor, someone that you can trust to give you an allocation on it.

Scott: I'd talk to a few other advisors.

Sharon: Okay. So, definitely...Okay.

Pat: Yeah, you definitely wanna move it out of...If you do nothing, if you do nothing, go online, go to bankrate.com, and move it to a money fund that's paying 5%. And the money funds will, you know, high-yield money market funds, if you go to bankrate.com, it will give you the list. They're all FDIC. If you do nothing. That's not what I would do. I would actually build a portfolio, move it into an IRA, build a portfolio, and hold it for the long term. All righty?

Sharon: Okay. Okay. Thank you both so much.

Pat: Oh, and congrats on the retirement. How is it? How have you enjoyed it?

Sharon: I'm enjoying it. The only thing that I've been stressing about is what to do with my 401(k). It really has had me stressed.

Pat: No, you know what? You just call an advisor you trust. It's not that difficult. And listen, by the way, if they lead with a product, they're the wrong people. If they lead with a product, they're the wrong people. The right person is gonna say, "What are we trying to achieve?" and then find the right solution for you over time. All righty?

Sharon: Thank you so much. I appreciate you both.

Pat: Thank you, Sharon.

Scott: Oh, thank you, Sharon. That was awfully kind.

Pat: That was kind.

Scott: Okay. Pat, the concern I have...

Pat: I know where you're gonna go.

Scott: Just a lot of advisors have account minimums higher than that.

Pat: It's $200,000.

Scott: Yeah. So, it needs to be somebody...

Pat: That's the problem, right? That's exactly...

Scott: They're spelling it out. That's just how the world works.

Pat: That's right. That's right. So, yeah, it's difficult. How it works.

Scott: Yeah. Because, I mean, although there's a good chance maybe she finds some younger advisor that is willing to...sharp...I know when I was starting in the industry, there's certainly, like, anybody...

Pat: I went bicycle riding last week with a client that's been a client for 33 years. He's now retired.

Scott: And he still likes you?

Pat: Yes. It appears. He went bike riding with me. He didn't try pushing me into traffic. No wonder he had me riding...

Scott: [crosstalk 00:43:23] something in your spokes.

Pat: He had me riding on the outside in traffic. That was weird.

Scott: Can you move a little more?

Pat: Why? Why? Well, hey, unfortunately, this is about all the time we've got in the program. Anyway, if you wanna learn more about some...I don't know, I don't know, I don't know about anything.

Scott: If you go to our website, allworthfinancial.com...

Pat: We've got a lot of great education materials there that I think will be of help to you. So, spend some little time there if you'd like, and we'll see you next week as well. This has been Scott Hanson of Pat McClain, 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.