Wild Market Swings, Misleading Indices, and Long-Term Strategy
On this week’s Best of Simply Money podcast, Amy and Bob discuss wild market swings and delve into the misconceptions surrounding market indices, particularly the Dow Jones Industrial Average. They explain why it may lead investors astray.
Plus, they provide tips on portfolio rebalancing during volatile times and the role of a fiduciary advisor in navigating these challenges. This episode is a must-listen for anyone looking to better understand their investment choices in today’s ever-changing market landscape.
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Amy: Tonight, are you focusing your energy and attention on the wrong thing, maybe the wrong indexes? You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. Bob, first headline I saw this morning said, "Markets Poised to Open With Dow Down 600 Points." And it just made me laugh because I thought, "Every time we have any kind of coverage about the markets, two things happen. The Dow is the only index that's mentioned, and it's not telling you what percentage the Dow is down, but how many hundreds of points." What does that even mean to people?
Bob: Well, it means a lot to people, I think, depending on what your age is. I mean, the Dow has always been a longtime measure of "the market." But let's remember...
Amy: But should it be?
Bob: No, it's 30 companies. It's made up of 30 of the most well-known companies, and those are companies that are selected for this index. Trying to give you a diversified picture of the economy and the stock market, but it's really a very small slice of the pie. And you made the main point, Amy. The higher this market goes over years and decades, when we have a down day, the point total looks astronomical, and you got to really look at the percentage. So yeah, I agree. It's not very indicative of what's really going on in the economy and the market.
Amy: So please, as a long-term investor, just keep those two points in mind. If you are looking at the Dow, you're seeing headlines or people talking about the Dow, first of all, just keep in mind, only 30 companies, as diversified as they try to be. I mean, and there's definitely some big names in there. Apple, Boeing, Coca-Cola. That's just at the top of the alphabetical list, but still only 30 companies. I mean, how representative can you be of the entire American economy in markets with 30 companies? I would argue it's difficult. And then second, points are points. Percentages are going to give you a better idea of exactly the movement of the market and what it means to you.
Bob: Yeah, and then another big point to throw out there, and this is... It doesn't matter whether the Dow is up or down. We're not talking about that. But the thing to remember is the Dow index is price-weighted. It's not cap-weighted. It's price-weighted, meaning that if a stock's dollar price is very high, that's going to move the Dow index, irrespective of the value of the actual company. So yeah, it's a pretty outdated index if you really want to look at what's really going on in the economy and the market.
Amy: Yeah. Well, you mentioned market cap, right? That's how the S&P 500 is set up. And that is the price of shares times the number of outstanding shares, right, which gives you a larger picture of how that particular company fits into the overall economy, right? So very different. And I think as many people kind of throw these terms around, these indexes around, the Dow, the NASDAQ, the S&P 500, investors often don't know exactly what we're talking about or the differences between them.
So let's take a pause this week in the midst of all of this market volatility and give you this background so that when you are reading these headlines, when you are hearing these terms, you actually know exactly what they're talking about. And more importantly, what does it mean to you and your 401(k) and your investments and your retirement?
Bob: Another major index that people look at is the NASDAQ, and that's a bit more modern and newer, and it is more tech-heavy. Now, this index makes up of 3,000 companies that are listed just on the NASDAQ index. But the real stars of that index are, as we might imagine, the big tech names. Apple, Microsoft, Amazon, NVIDIA, Meta, and so on, and so on. So it can tend to be a more technology-weighted index, therefore, it could be a lot more volatile in the short term on the upside and the downside.
Amy: Okay, you just touched on this, but I think it's worth making the point for an investor who's hearing you and saying, "Okay, so you're telling me 3,000 companies are in this index. It's tech-weighted, tech-focused." And I think tech is the way of the future. It's what's been driving all these major gains in the market. Why would I not go all in on the NASDAQ?
Bob: Well, technology stocks, as we have seen, not just recently with the tariff volatility, but, Amy, the large cap tech stocks have been trending down now, you know, for three or four months so far this year. And that's because they've had such a huge run the last couple of years. And price-earnings ratios can get a little out of whack. Growth estimates can get a little ambitious here. And that's why it can be more volatile on the upside and downside because these tend to be the growth companies. And growth companies do well when earnings are continuing to go up and earnings estimates continue to go up. But, boy, at the first sign of any turbulence, those things can come down quickly. And we've seen that.
Amy: You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. What are you paying attention to when you decide or determine how good the day was, how healthy the markets are doing? Is it because you're hearing the Dow is up a few hundred points, the Dow is down a few hundred points? We've certainly heard both a lot over the course of the past week. But we would say, "Hey, you need to understand, first of all, what the Dow is. Only 30 companies. And you need to understand all of these indexes and what they mean." If you are a long-term investor looking to be truly diversified, I would argue the best index, the index that you should be focused on is the S&P 500.
Bob: Yeah. And when people talk about "the market," most of the time in news shows or on financial shows or with financial advisors, when people use "the market," they're talking about the S&P 500, the 500 largest U.S.-based companies. And it is cap-weighted. And we've talked about this in prior shows. So cap-weighted means the higher-valued companies' shares times the price is going to move that index. And, you know, 35% of the S&P 500 on a cap-weighted basis was just in those magnificent 7 companies very recently. So it can get a little bit out of whack too, but it is more representative of the overall stock market.
A couple of other points I want to make here. We talked about the NASDAQ being 3,000 companies. You know, people see 3,000 companies and think they're diversified. A way better way to go if you really want to be diversified in 3,000 companies across all sectors of the stock market, something like the Vanguard Total Stock Market Index. That's going to get you small-cap, mid-cap, large-cap growth value among 3,000 companies. And there you truly are diversified.
The other point I'd make about the S&P, and Amy, I know you and I have talked about this a couple times in recent months, is there are ETFs out there right now that will put you in the S&P 500, but they will equally cap the companies. So it's not getting so skewed to the Magnificent Seven stocks and these other high-growth stocks. Think of 500 companies evenly distributed, independent of the cap-weighting, and that can reduce some volatility in your portfolio, and quite frankly, has reduced volatility in the portfolio for those that have used an instrument like that so far in 2025.
Amy: And from just a diversification point, right, if you're looking at the S&P 500, you've got tech, yes, absolutely, but you also have healthcare, energy, consumer goods, right, large banks, all of those sectors represented in the S&P 500. Bob, to your point, obviously, market cap-weighted gives a little more power to those tech stocks, but you also, as an investor, have the power then to control how much of those you owe.
And you said, "Hey, when people are talking about the market, this is actually likely what they're talking about." It's also probably what your 401(k) and your retirement plan could be tied to, right, either directly, maybe through index funds, indirectly through diversified mutual funds, and that's kind of the benchmark with which you can look at your 401(k) and say, "How well am I doing as opposed to the broader economy?"
And within your options for 401(k)s, and I'm having these conversations all the time right now with investors, you know, you've often got those target date funds, and that's where people go. I love that you brought up the Vanguard Total Markets, right, because you really, really want exposure to all the different sectors.
I looked at some dimensional fund research several months ago, and they looked at if you invested a dollar in each sector, right, gold, you know, the large-cap value, large-cap growth, anything you possibly want in the market, whatever, anything you can think of, a dollar, going back to the 1920s, 1930s through now, where would you really come out ahead?
I mean, I think most people listening would be like, "Oh, definitely those large-cap growth stocks." Nope. It's actually small-cap value is where you would have the largest return on that original dollar investment. And that's why when we talk about diversification, we're not just saying, you know, across companies. We're talking about across sectors, across different ways, different investment instruments, because you do not know from year to year where you're going to maybe get the value or the growth, but if you're highly diversified, you're going to be able to take advantage of it in some way, shape, or form.
Bob: Yeah, and I understand that small-cap value for the long term, and, you know, you can't dispute the data. The data is the data. The only caveat and reminder on that is the journey along the way over that 70-year period of holding small-cap value is very volatile.
The point here is this is why Andy Stout and our team here at Allworth and other good fiduciary money managers, they are building diversified portfolios and rebalancing them for our clients continuously. So you have exposure to all of these sectors at any one time, but adjustments can and are being made during markets like this, and that's why you want a good fiduciary advisor and money manager handling things for you in most cases, unless you're really, really good at this on your own.
Amy: Yeah. My litmus test for how investors are feeling is when I go to Kroger. Okay, I've just been doing this for long enough that people know. I am talking about...know that I'm talking about money or whatever. They'll stop me within the aisles and say, "Let's talk about Social Security. What's the deal with this?" Or whatever?
And this week I went in, I thought, "Can I get through without talking about markets and tariffs?" And essentially, I heard someone talking about how many points the markets were down, and I almost wanted to stop them and say, "Percentages. Just remember, percentages are what's really important." Here's the Allworth advice.
Bob: So Amy, you're talking about China trade policy and the produce aisle at Kroger? Is that happening to you right now?
Amy: You never know. If you time your Kroger trips, right, and you are shopping at the Fort Mitchell Kroger, you never know what the conversation is going to be like. But usually, yep, it's something about money. And I think, you know, I will often try to keep to myself, but in that particular situation, I was like, "Do not talk about points. It's really percentages that you should care about."
Here's the Allworth advice. The next time you see Dow down 500 points, take a breath. Ask yourself, "How is the S&P doing?" That's the index that really reflects your money, your retirement, your future. Coming up next, a contributing factor to all of this market volatility that you may not be thinking about.
You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. These crazy markets lately, every day as an investor feels like a year. So you may not want to miss the show on any given day. And if you do, we have a daily podcast for you. Just search "Simply Money." It's right there on the iHeart app or wherever you get your podcasts.
Coming up at 6:43, you really do have a lot of questions right now, and we understand that. You've got some great ones. We will get to those, many of them about this market volatility, in our "Ask the Advisor" segment coming up in just a few minutes.
There's a stat that has caught my attention recently about how many Americans are invested in the stock market. You know, Bob, when I think back to the Great Recession that we saw, right, in 2007, 2008, 2009, what we saw was investors leaving the markets in numbers we had never seen before. And it took a long time for investors, I think, to feel safe and calm there again. And now we're there. And now we have all this market volatility.
I was listening to someone saying just this morning, "Hey, if you've been invested for 30, 40 years, you're a long-term investor, you kind of understand this is part of it." But I do have a soft spot in my heart for someone who maybe graduated a few years ago. They've only experienced up markets, and now they're checking their 401(k) balance, and they're like, "What is happening here?"
Bob: Well, my own son did this...
Amy: Did he?
Bob: ...a couple of days ago.
Amy: That's right. You just got him into his 401(k), right?
Bob: I got him into his 401(k), I don't know, 18 months ago. You know, everything's going great. He funds his Roth IRA. It goes up 22%. You know, life is good. Dad's a genius, you know, all the above.
Amy: And how's Dad looking this week?
Bob: Well, I'm sitting there trying to watch a movie the other night, and I get a text from my son saying, "Dad, I pulled up my Fidelity app, and my Roth IRA is down $4,000. Is something going on?" So he has no idea. I mean, he's out working every day, coaching football, whatever. He doesn't know what's going on. All he cares about is the things up and the things down, and he wants to know why. So you got people today trading Bitcoin on a Coinbase app on their phone.
We've already talked about GameStop. Yeah, younger people, they like the volatility because they like the adrenaline rush, and they like the ability to make money quickly. And weeks and days, like what we're experiencing right now, it's the first time they've been through anything like this.
Amy: But parents and grandparents, right? Like, you probably have that perspective. I mean, I can even tell from my clients. The ones who are nervous are usually the younger ones right now. I always am an advocate for financial literacy. Call and check on your 20-something kids or grandkids and say, "How are you feeling this week?" Maybe they're not paying attention, but if they are, can you share, "Hey, you know, in 2000, here's how much I lost, in 2007, 2008." You know, bring up COVID if they weren't an investor until after that time, and talk about the fact that, yes, you have experienced major dips like this in the circumstances around them. Always different, but the market cycles are not. And remind them not only, you know, did you survive those things, but because you stayed in as a smart long-term investor, you've reaped the reward so that they understand, they can kind of learn from your longer-term perspective and your wisdom.
Bob: I mean, again, as recently as 2022, which to most people with this 24-hour news cycle now seems like a century ago, 2022, the stock and the bond market both were down in the mid to high teens to almost 20%. People forget that. More importantly, the average annual decline in the broad S&P stock market every single year on average, the average decline is around 14%. So some level of market volatility is normal. And I've heard you say this recently, Amy, and I love this. You say, "Hey, this is the price of admission to being involved in an asset class that is going to grow and increase your purchasing power for decades." You got to be able to handle it to some extent. Does that mean you got to be 100% in stocks? No, but the stock market will move, and we're seeing that right now.
Amy: Yeah. And I think it's important to make sure that your kids or your grandkids understand that. You got to understand they're wired differently. I got all these teenagers in my house, right, coming up on 20s. And they don't even know what commercials on TV are because they've never had to sit and watch commercials. So long-term for them is how long it takes for them to watch a 30-second reel on Instagram. That's long-term for them, right? They're constantly with devices and things like that, stimulated, and I think attention span has grown so much shorter. And I'm not going to get on a tangent about technology here from a parent's perspective, but I think it's important to understand you have to help them define what long-term is. Their version of long-term versus your version of long-term is probably vastly different.
Bob: Totally. Yeah, attention spans are small. The amount of information flowing past all of us has grown exponentially. And we're not talking about just 17-year-olds. I mean, 77-year-olds get caught up in this. The more information you have going through your ears and past your eyes and on your phone, you have a tendency to have a need to want to do something. And information can be dangerous at times because most of it is completely useless. It's clickbait.
Amy: Yeah. But for these kids who are used to watching influencers, right, I use that term in air quotes, those influencers are just influencers because they've gotten a certain number of people to follow them, not necessarily because they have a strong financial background, yet they are out there giving your kids advice on the social media platforms that they are on. So I think it's really important during times like this that they also have your voice in their head.
Here's the Allworth advice. Please don't get swept up in it all. Make sure your kids, grandkids aren't either. Don't feel like you have to act just because the market is moving fast and you've got so much information. Coming up next, what do you do if you've got too much money invested in maybe a few stocks or one stock during this market volatility? Some solutions for you next. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller.
In the Cincinnati area, we often come across investors who have a concentrated position. So think a lot of stock in particular companies, right? We've got some great, big, strong hometown companies that we believe in.
Bob: Who are those being? Can you think of one?
Amy: I'm just going to throw Procter & Gamble out there because, man, do I see it all the time. But, you know, I think over the past couple of years, we've seen people fall in love with tech companies. I have a client who has a large position in Amazon right now. And so this is something we see all the time. And the problem is when that company is doing great, so are you, and when the company is not doing so great, you're not sleeping at night.
So if this is a situation that you are in, right, we see investors in this all the time. We are joined by Andy Stout, our chief investment officer, for kind of a new series that we're starting here on the show, "Investor Solutions," right? If this is something that you're in this boat, how do you handle it?
So Andy, this is not something new to you whatsoever. We've got lots of clients here at Allworth that come to us in this situation. Let's talk about the conversations that we're having with them. If someone is coming to us with a lot of stock, right, a lot of their portfolio exist in one particular company, how can we help them diversify that?
Andy: In many ways. I mean, Procter & Gamble is a classic example. I mean, you mentioned them at the top here. And if you look at where Procter & Gamble... If you go back 10 years ago, it was around $40 a share, which is pretty insignificant compared to where it's trading at today. And so you have these gains built up, right? And now many people want to know, okay, how can I protect my gains? Or how can I reduce my exposure without having a large tax bill? And these are real concerns. And I know Amy and Bob, you're seeing them all the time.
Because one thing that pretty much every single person, at least that I know, can rally around is, you know, let's pay less in taxes. Or how can we, you know, not pay so much to the IRS so that I feel like I'm...
Bob: Well, people love that dividend, too, Andy.
Andy: Yeah, the dividend's a good thing. You don't want to give that up. But you'd probably rather not pay Uncle Sam more than you have to. So how do we do that, right? So one thing, when you think about that, it's not just about paying less in taxes. Because ultimately, it's not necessarily about reducing how many shares you have, but it could also be about minimizing the risk you have there. So when you think about it, yes, we can, you know, have predetermined ways to exit a position in a tax-efficient manner.
Another thing that we can do, or, you know, an advisor can do, is essentially make that single risk more market-wide risk. So instead of having exposure to one stock, which could, you know, be very volatile, could go who knows where, maybe we can transfer that risk from a single stock to the broad market.
So there are quite a few ways that we can handle that as well. So what I'll first talk about is, you know, how an advisor can actually reduce the number of shares in a tax-efficient manner. So when you think about that, there's quite a few ways to do it. One of the more...you know, one of the easier ones to do, Amy and Bob, is if you have someone who happens to be charitably inclined, the easiest thing you can do is donate there.
So this could be like through a donor-advised fund, or, you know, some other mechanism that you can essentially donate a portion of that stock. Because if you're going to donate money anyway, why not just donate the appreciated stock? There, you're essentially eliminating any sort of tax exposure from that donation and reducing or increasing your overall tax basis, and lowering your future taxes. So we got donations. That's a really important one that I think it's overlooked a lot, right?
The second one is creating a plan to exit out of the position over a period of time through aggressive tax-loss harvesting. And there are certain ways that companies and advisors can help with this. Certain types of programs that essentially generate losses and take those losses to offset gains in other areas. So we can do this through programs like Tax-Smart Trading, as an example, where you look to look for losses in other positions and then sell those.
But in order to not reduce your overall exposure, maybe you go into something similar but not identical for IRS reasons, obviously. That allows you to maintain your overall exposure, bank those losses, and use those to offset gains on the individual stock.
Bob: A big thing with the charitable giving that I don't think you mentioned is just a reminder that you get a tax deduction for the full fair market value of the stock that you give away to your donor-advised fund or a chosen charity. Right, Andy?
Andy: Yeah, it's just like donating cash in the same amount. And you can definitely have that deduction on top of that. So it's a really good way to essentially help others while also helping yourself. Now, we talked about ways to reduce your tax exposure by actually exiting out of the shares. Now, when we think about, well, maybe you want to keep the stock, but you want to reduce your overall exposure. There are some...
Amy: I'm glad you're making that point, Andy. I'm glad we're talking about this because, you know, we can't make our investors, right, even though we're saying, like, "Hey, maybe being diversified is better." Lots of people have very strong, even sometimes emotional ties to companies. Maybe it's my grandfather bought this stock, said...you know, they willed it to me and told me never to sell it. Like, I've heard every story on the spectrum about why someone needs to keep a position in a certain company. And so how then can we help kind of protect them against themselves at that point?
Andy: Yeah, there's a couple of ways that we can do this. One of the more common ways is using stock options. Now, stock options can be complicated. So you definitely want to make sure that you fully understand what you're doing. But one way that you can essentially reduce your risk while also keeping the underlying stock is employing, without going into the weeds, I'll call an exchange fund replication strategy.
So using stock options, which are calls and puts, you can essentially mimic an underlying index like the S&P 500. And at the same time, you can offset all of the risk of the stock going up or down doing what's called a caller. And again, you want to have a long conversation with an advisor about this because stock callers and stock options can be pretty complicated to fully understand without going into the weeds.
So that's one thing that you can use is stock options to still maintain that Procter & Gamble position but eliminate that company-specific risk. And you don't have to use just stock options for that. You can also use some other strategies that are out there. But stock options are probably one of the more well-known ones in order to maintain your exposure.
Amy: Andy, these are the conversations we're having in our offices day in and day out, right? Someone coming to us with a large part of their portfolio in one individual company and one individual stock. So we're having these conversations. How do you mitigate this risk? What are your options? Very much appreciate your insights on how best to handle this.
You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. You probably have, I don't know, maybe a money question or two right now. Is your money properly allocated, diversified? Are you nervous right now?
Well, there's a red button you can click on while you're listening to the show right there on the iHeart app. Record your question. It's coming straight to us. And in this week, we are really focusing on the questions that we are getting from you. They're good ones. I think many of your questions apply to hundreds, thousands of other people out there thinking and wondering the same things.
So let's get to John in Bridgetown here. "My hope was to retire in about six months. Well, now I'm not so sure. How do I even know if I can pull the trigger? And what do I need to have in place?"
Bob: Well, John, what I'd say you need to have in place is a comprehensive, coordinated financial plan. And by that, I mean have somebody sit down with you and review your current assets, your current present and future income sources, Social Security, pension, things like that, and what your spending needs and wants are going to be in retirement. And then have somebody give you an objective look at whether it's going to work today.
The other thing to do is stress test your portfolio. Look at what's in your portfolio, and look at how those things would tend to perform in a good market and in a down market. And that's the time to say, "Wow, maybe my portfolio is a little more volatile in terms of its construction than what's going to work for me in retirement. So that'd be my answer. Sit down with somebody that can help you do that evaluation.
Amy: John, what I'm seeing a lot is people retiring or getting ready to retire, and they've gotten the memo. They've gotten the message that retirement is on them, and they have just put so much money into those tax-deferred 401(k)s and IRAs. And if this is you, I would say, "Hey, one of the focuses you need to have is on your emergency cash reserves."
So in the months that you've got leading up to retirement, if those aren't fully funded, maybe don't... You'll rarely hear me say this, but maybe you quit saving for retirement specifically in those kinds of accounts that you maybe already have a ton of money in that you're still going to owe regular income tax on, and you fully fund your emergency cash reserves. Because when you get to retirement, if this volatility is still here, right, we've got a bit of a reprieve now, but we do not know what's going to happen down the pike when it comes to these tariffs or whatever the next thing is down the road.
If you have to lock in losses as soon as you retire, it's not the best outcome for you. If you've got a fully funded cash reserve that you can live off of for a year, a year and a half, that's the conversation I'm having with my investors right now, then you can weather kind of any storm because you're probably going to have several market cycles over the course of your retirement.
Bob: All right. Here's one for you, Amy, from Bob in Kenwood. This question is probably near and dear to your heart, with having all those college-age kiddos running around. Here's Bob's question. "I was about to pull money out of our 529 plan for our son's college. Should I wait for the market to bounce back?"
Amy: I don't hate this idea if you do have funding from somewhere else. But then I also think what you have to understand about 529 plans, the way that most of them are set up, it's very similar to a target date fund in your 401(k). And there's a glide path within it, right? When your kids or babies or toddlers, there's a lot more market exposure within that 529. As they get closer to not retirement, as they get closer to college age, it often dials back the exposure to the markets. So...
Bob: If you're using an age-based portfolio, right? Not everybody does.
Amy: Not everyone does. I guess I find that a lot of my clients do have that within their 529. So I guess it's important to know how that money is invested. But it can tend to get a little more conservative. Listen, if you need the money, though, and you don't have the option, and the 529 is the plan, I don't hate taking it out right now. I would prefer that you do that than look for other sources to try to find that money.
Bob: Yeah, I would just add that now is a good time to look at, for all of your 529 plans, how are they invested? How are they allocated? Because if you got to write a tuition check in three months or six months, and you decided to put that whole 529 plan in large-cap growth stocks, that's not probably a good way to go. Just like anything else in life, and you just brought it up from a retirement standpoint, Amy, it's good to have some cash available for your short-term needs. And college tuition and room and board is one of those short-term needs. So the reminder is how that 529 plan is allocated and invested so you don't get caught with your proverbial pants down in a down market.
Amy: Absolutely. Let's get to Andy's question. He's in Mount Washington. "Hey, is now a good time to rebalance my portfolio?"
Bob: It absolutely is. And I think the rebalancing should take on a couple of dimensions here. Number one, this is a great time when we've had things moving up and then moving down. Rebalancing might be done as a result of our true risk tolerance being a little bit different than maybe we thought it was. That'd be one reason to rebalance. The other reason to rebalance is, hey, when the market goes down 15%, 18%, 20%, there's an opportunity to buy things on sale. We've talked about bonds being up so far this year. You slice a little bit off of those profits, and you buy stocks when they're on sale. That's some basic things that should be going on on a continual basis.
But in periods of what we'll call more severe volatility, it's imperative to rebalance your portfolio. The good news is, again, for our clients here at Allworth, that's being done on a continual basis without our clients having to call and ask that it be done. We're just doing it for them, and that tends to work out beautifully.
Amy: I think during these times, too, there are some questions about, okay, if I do have money sitting on the sidelines, what's the best way to focus that money? So coming up next, some thoughts for you if that is the case for you. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller.
What if you are someone who is in the position right now, you got a little money on the sidelines, what's the best way for you to do it? We've been talking a lot lately about having a fully funded emergency fund. And also, Bob, we've been talking a lot lately about the opportunity to buy parts of companies when they're on sale. So how do you look at this?
Bob: Well, if we're talking about either/or boosting the emergency fund or buying the dip in the stock market, and I don't claim to know anyone's specific situation, but the first answer that comes to my mind is it might be time to do both.
Amy: Yes.
Bob: Doing both might be a great solution. And that's just part of responsible financial planning, meaning that greed and fear, both emotions, can rear their ugly head during times like this, and we forget to do the basic blocking and tackling of keeping that emergency fund in a healthy place. So hopefully, if you have enough reserves to do both, now might be a great time to do both.
Amy: It's funny. I often get someone coming into my office, and they already think they've figured out their problem. It's like, "I have money, and here's what I'm going to do with it," or, "I need money, and I've decided the best place to take it from is my 401(k)." And it's like we just get laser-focused on whatever it is that we're thinking about, and I think that's one of the best benefits of working with a fiduciary financial advisor because the answer sometimes isn't all one thing or another. It's a little bit of both.
I think that emergency fund is incredibly important, but also don't miss out the opportunity to buy the dip. And so both of those things, I think, can exist at the same time. And I often also think what you have to remember is you're often making a money decision for your current self, right? You're just thinking about it in the here and now. If you could bring your future self into the room, you might think about those decisions a little bit differently.
Bob: Yeah, and saying the same thing, maybe a little bit differently or an additionally, a lot of times our clients have very good ideas. They're not invalid ideas. They just might be a different way to go about executing on the idea, and that's why it's good to have an advisor walk with you side by side and say, "Hey, I hear you. I agree with you. This sounds like a great idea, but here's two or three other ways we could get to the same end point." And there might be some great tax benefits and other benefits associated with looking at the same concept or idea through a slightly different lens.
Amy: Yeah, this is why I'm a huge proponent of, hey, do not... If I'm working with a couple, I don't only want to see one of you year in and year out, because even if that person is the person who is the technical money person, the other voice at the table also provides such great perspective for me as an advisor.
And had someone in my office recently, same thing. She had kind of big picture. "Here's our goals for our money." He was doing, to your point, the basic blocking and tackling. And then if you can add another voice to that conversation of someone who's walked this path with many others and can give you some great options, there's where I think you truly find your value, even during this time of volatility.
Thanks for listening tonight. You've been listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
Bob: Well, it means a lot to people, I think, depending on what your age is. I mean, the Dow has always been a longtime measure of "the market." But let's remember...
Amy: But should it be?
Bob: No, it's 30 companies. It's made up of 30 of the most well-known companies, and those are companies that are selected for this index. Trying to give you a diversified picture of the economy and the stock market, but it's really a very small slice of the pie. And you made the main point, Amy. The higher this market goes over years and decades, when we have a down day, the point total looks astronomical, and you got to really look at the percentage. So yeah, I agree. It's not very indicative of what's really going on in the economy and the market.
Amy: So please, as a long-term investor, just keep those two points in mind. If you are looking at the Dow, you're seeing headlines or people talking about the Dow, first of all, just keep in mind, only 30 companies, as diversified as they try to be. I mean, and there's definitely some big names in there. Apple, Boeing, Coca-Cola. That's just at the top of the alphabetical list, but still only 30 companies. I mean, how representative can you be of the entire American economy in markets with 30 companies? I would argue it's difficult. And then second, points are points. Percentages are going to give you a better idea of exactly the movement of the market and what it means to you.
Bob: Yeah, and then another big point to throw out there, and this is... It doesn't matter whether the Dow is up or down. We're not talking about that. But the thing to remember is the Dow index is price-weighted. It's not cap-weighted. It's price-weighted, meaning that if a stock's dollar price is very high, that's going to move the Dow index, irrespective of the value of the actual company. So yeah, it's a pretty outdated index if you really want to look at what's really going on in the economy and the market.
Amy: Yeah. Well, you mentioned market cap, right? That's how the S&P 500 is set up. And that is the price of shares times the number of outstanding shares, right, which gives you a larger picture of how that particular company fits into the overall economy, right? So very different. And I think as many people kind of throw these terms around, these indexes around, the Dow, the NASDAQ, the S&P 500, investors often don't know exactly what we're talking about or the differences between them.
So let's take a pause this week in the midst of all of this market volatility and give you this background so that when you are reading these headlines, when you are hearing these terms, you actually know exactly what they're talking about. And more importantly, what does it mean to you and your 401(k) and your investments and your retirement?
Bob: Another major index that people look at is the NASDAQ, and that's a bit more modern and newer, and it is more tech-heavy. Now, this index makes up of 3,000 companies that are listed just on the NASDAQ index. But the real stars of that index are, as we might imagine, the big tech names. Apple, Microsoft, Amazon, NVIDIA, Meta, and so on, and so on. So it can tend to be a more technology-weighted index, therefore, it could be a lot more volatile in the short term on the upside and the downside.
Amy: Okay, you just touched on this, but I think it's worth making the point for an investor who's hearing you and saying, "Okay, so you're telling me 3,000 companies are in this index. It's tech-weighted, tech-focused." And I think tech is the way of the future. It's what's been driving all these major gains in the market. Why would I not go all in on the NASDAQ?
Bob: Well, technology stocks, as we have seen, not just recently with the tariff volatility, but, Amy, the large cap tech stocks have been trending down now, you know, for three or four months so far this year. And that's because they've had such a huge run the last couple of years. And price-earnings ratios can get a little out of whack. Growth estimates can get a little ambitious here. And that's why it can be more volatile on the upside and downside because these tend to be the growth companies. And growth companies do well when earnings are continuing to go up and earnings estimates continue to go up. But, boy, at the first sign of any turbulence, those things can come down quickly. And we've seen that.
Amy: You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. What are you paying attention to when you decide or determine how good the day was, how healthy the markets are doing? Is it because you're hearing the Dow is up a few hundred points, the Dow is down a few hundred points? We've certainly heard both a lot over the course of the past week. But we would say, "Hey, you need to understand, first of all, what the Dow is. Only 30 companies. And you need to understand all of these indexes and what they mean." If you are a long-term investor looking to be truly diversified, I would argue the best index, the index that you should be focused on is the S&P 500.
Bob: Yeah. And when people talk about "the market," most of the time in news shows or on financial shows or with financial advisors, when people use "the market," they're talking about the S&P 500, the 500 largest U.S.-based companies. And it is cap-weighted. And we've talked about this in prior shows. So cap-weighted means the higher-valued companies' shares times the price is going to move that index. And, you know, 35% of the S&P 500 on a cap-weighted basis was just in those magnificent 7 companies very recently. So it can get a little bit out of whack too, but it is more representative of the overall stock market.
A couple of other points I want to make here. We talked about the NASDAQ being 3,000 companies. You know, people see 3,000 companies and think they're diversified. A way better way to go if you really want to be diversified in 3,000 companies across all sectors of the stock market, something like the Vanguard Total Stock Market Index. That's going to get you small-cap, mid-cap, large-cap growth value among 3,000 companies. And there you truly are diversified.
The other point I'd make about the S&P, and Amy, I know you and I have talked about this a couple times in recent months, is there are ETFs out there right now that will put you in the S&P 500, but they will equally cap the companies. So it's not getting so skewed to the Magnificent Seven stocks and these other high-growth stocks. Think of 500 companies evenly distributed, independent of the cap-weighting, and that can reduce some volatility in your portfolio, and quite frankly, has reduced volatility in the portfolio for those that have used an instrument like that so far in 2025.
Amy: And from just a diversification point, right, if you're looking at the S&P 500, you've got tech, yes, absolutely, but you also have healthcare, energy, consumer goods, right, large banks, all of those sectors represented in the S&P 500. Bob, to your point, obviously, market cap-weighted gives a little more power to those tech stocks, but you also, as an investor, have the power then to control how much of those you owe.
And you said, "Hey, when people are talking about the market, this is actually likely what they're talking about." It's also probably what your 401(k) and your retirement plan could be tied to, right, either directly, maybe through index funds, indirectly through diversified mutual funds, and that's kind of the benchmark with which you can look at your 401(k) and say, "How well am I doing as opposed to the broader economy?"
And within your options for 401(k)s, and I'm having these conversations all the time right now with investors, you know, you've often got those target date funds, and that's where people go. I love that you brought up the Vanguard Total Markets, right, because you really, really want exposure to all the different sectors.
I looked at some dimensional fund research several months ago, and they looked at if you invested a dollar in each sector, right, gold, you know, the large-cap value, large-cap growth, anything you possibly want in the market, whatever, anything you can think of, a dollar, going back to the 1920s, 1930s through now, where would you really come out ahead?
I mean, I think most people listening would be like, "Oh, definitely those large-cap growth stocks." Nope. It's actually small-cap value is where you would have the largest return on that original dollar investment. And that's why when we talk about diversification, we're not just saying, you know, across companies. We're talking about across sectors, across different ways, different investment instruments, because you do not know from year to year where you're going to maybe get the value or the growth, but if you're highly diversified, you're going to be able to take advantage of it in some way, shape, or form.
Bob: Yeah, and I understand that small-cap value for the long term, and, you know, you can't dispute the data. The data is the data. The only caveat and reminder on that is the journey along the way over that 70-year period of holding small-cap value is very volatile.
The point here is this is why Andy Stout and our team here at Allworth and other good fiduciary money managers, they are building diversified portfolios and rebalancing them for our clients continuously. So you have exposure to all of these sectors at any one time, but adjustments can and are being made during markets like this, and that's why you want a good fiduciary advisor and money manager handling things for you in most cases, unless you're really, really good at this on your own.
Amy: Yeah. My litmus test for how investors are feeling is when I go to Kroger. Okay, I've just been doing this for long enough that people know. I am talking about...know that I'm talking about money or whatever. They'll stop me within the aisles and say, "Let's talk about Social Security. What's the deal with this?" Or whatever?
And this week I went in, I thought, "Can I get through without talking about markets and tariffs?" And essentially, I heard someone talking about how many points the markets were down, and I almost wanted to stop them and say, "Percentages. Just remember, percentages are what's really important." Here's the Allworth advice.
Bob: So Amy, you're talking about China trade policy and the produce aisle at Kroger? Is that happening to you right now?
Amy: You never know. If you time your Kroger trips, right, and you are shopping at the Fort Mitchell Kroger, you never know what the conversation is going to be like. But usually, yep, it's something about money. And I think, you know, I will often try to keep to myself, but in that particular situation, I was like, "Do not talk about points. It's really percentages that you should care about."
Here's the Allworth advice. The next time you see Dow down 500 points, take a breath. Ask yourself, "How is the S&P doing?" That's the index that really reflects your money, your retirement, your future. Coming up next, a contributing factor to all of this market volatility that you may not be thinking about.
You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. These crazy markets lately, every day as an investor feels like a year. So you may not want to miss the show on any given day. And if you do, we have a daily podcast for you. Just search "Simply Money." It's right there on the iHeart app or wherever you get your podcasts.
Coming up at 6:43, you really do have a lot of questions right now, and we understand that. You've got some great ones. We will get to those, many of them about this market volatility, in our "Ask the Advisor" segment coming up in just a few minutes.
There's a stat that has caught my attention recently about how many Americans are invested in the stock market. You know, Bob, when I think back to the Great Recession that we saw, right, in 2007, 2008, 2009, what we saw was investors leaving the markets in numbers we had never seen before. And it took a long time for investors, I think, to feel safe and calm there again. And now we're there. And now we have all this market volatility.
I was listening to someone saying just this morning, "Hey, if you've been invested for 30, 40 years, you're a long-term investor, you kind of understand this is part of it." But I do have a soft spot in my heart for someone who maybe graduated a few years ago. They've only experienced up markets, and now they're checking their 401(k) balance, and they're like, "What is happening here?"
Bob: Well, my own son did this...
Amy: Did he?
Bob: ...a couple of days ago.
Amy: That's right. You just got him into his 401(k), right?
Bob: I got him into his 401(k), I don't know, 18 months ago. You know, everything's going great. He funds his Roth IRA. It goes up 22%. You know, life is good. Dad's a genius, you know, all the above.
Amy: And how's Dad looking this week?
Bob: Well, I'm sitting there trying to watch a movie the other night, and I get a text from my son saying, "Dad, I pulled up my Fidelity app, and my Roth IRA is down $4,000. Is something going on?" So he has no idea. I mean, he's out working every day, coaching football, whatever. He doesn't know what's going on. All he cares about is the things up and the things down, and he wants to know why. So you got people today trading Bitcoin on a Coinbase app on their phone.
We've already talked about GameStop. Yeah, younger people, they like the volatility because they like the adrenaline rush, and they like the ability to make money quickly. And weeks and days, like what we're experiencing right now, it's the first time they've been through anything like this.
Amy: But parents and grandparents, right? Like, you probably have that perspective. I mean, I can even tell from my clients. The ones who are nervous are usually the younger ones right now. I always am an advocate for financial literacy. Call and check on your 20-something kids or grandkids and say, "How are you feeling this week?" Maybe they're not paying attention, but if they are, can you share, "Hey, you know, in 2000, here's how much I lost, in 2007, 2008." You know, bring up COVID if they weren't an investor until after that time, and talk about the fact that, yes, you have experienced major dips like this in the circumstances around them. Always different, but the market cycles are not. And remind them not only, you know, did you survive those things, but because you stayed in as a smart long-term investor, you've reaped the reward so that they understand, they can kind of learn from your longer-term perspective and your wisdom.
Bob: I mean, again, as recently as 2022, which to most people with this 24-hour news cycle now seems like a century ago, 2022, the stock and the bond market both were down in the mid to high teens to almost 20%. People forget that. More importantly, the average annual decline in the broad S&P stock market every single year on average, the average decline is around 14%. So some level of market volatility is normal. And I've heard you say this recently, Amy, and I love this. You say, "Hey, this is the price of admission to being involved in an asset class that is going to grow and increase your purchasing power for decades." You got to be able to handle it to some extent. Does that mean you got to be 100% in stocks? No, but the stock market will move, and we're seeing that right now.
Amy: Yeah. And I think it's important to make sure that your kids or your grandkids understand that. You got to understand they're wired differently. I got all these teenagers in my house, right, coming up on 20s. And they don't even know what commercials on TV are because they've never had to sit and watch commercials. So long-term for them is how long it takes for them to watch a 30-second reel on Instagram. That's long-term for them, right? They're constantly with devices and things like that, stimulated, and I think attention span has grown so much shorter. And I'm not going to get on a tangent about technology here from a parent's perspective, but I think it's important to understand you have to help them define what long-term is. Their version of long-term versus your version of long-term is probably vastly different.
Bob: Totally. Yeah, attention spans are small. The amount of information flowing past all of us has grown exponentially. And we're not talking about just 17-year-olds. I mean, 77-year-olds get caught up in this. The more information you have going through your ears and past your eyes and on your phone, you have a tendency to have a need to want to do something. And information can be dangerous at times because most of it is completely useless. It's clickbait.
Amy: Yeah. But for these kids who are used to watching influencers, right, I use that term in air quotes, those influencers are just influencers because they've gotten a certain number of people to follow them, not necessarily because they have a strong financial background, yet they are out there giving your kids advice on the social media platforms that they are on. So I think it's really important during times like this that they also have your voice in their head.
Here's the Allworth advice. Please don't get swept up in it all. Make sure your kids, grandkids aren't either. Don't feel like you have to act just because the market is moving fast and you've got so much information. Coming up next, what do you do if you've got too much money invested in maybe a few stocks or one stock during this market volatility? Some solutions for you next. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller.
In the Cincinnati area, we often come across investors who have a concentrated position. So think a lot of stock in particular companies, right? We've got some great, big, strong hometown companies that we believe in.
Bob: Who are those being? Can you think of one?
Amy: I'm just going to throw Procter & Gamble out there because, man, do I see it all the time. But, you know, I think over the past couple of years, we've seen people fall in love with tech companies. I have a client who has a large position in Amazon right now. And so this is something we see all the time. And the problem is when that company is doing great, so are you, and when the company is not doing so great, you're not sleeping at night.
So if this is a situation that you are in, right, we see investors in this all the time. We are joined by Andy Stout, our chief investment officer, for kind of a new series that we're starting here on the show, "Investor Solutions," right? If this is something that you're in this boat, how do you handle it?
So Andy, this is not something new to you whatsoever. We've got lots of clients here at Allworth that come to us in this situation. Let's talk about the conversations that we're having with them. If someone is coming to us with a lot of stock, right, a lot of their portfolio exist in one particular company, how can we help them diversify that?
Andy: In many ways. I mean, Procter & Gamble is a classic example. I mean, you mentioned them at the top here. And if you look at where Procter & Gamble... If you go back 10 years ago, it was around $40 a share, which is pretty insignificant compared to where it's trading at today. And so you have these gains built up, right? And now many people want to know, okay, how can I protect my gains? Or how can I reduce my exposure without having a large tax bill? And these are real concerns. And I know Amy and Bob, you're seeing them all the time.
Because one thing that pretty much every single person, at least that I know, can rally around is, you know, let's pay less in taxes. Or how can we, you know, not pay so much to the IRS so that I feel like I'm...
Bob: Well, people love that dividend, too, Andy.
Andy: Yeah, the dividend's a good thing. You don't want to give that up. But you'd probably rather not pay Uncle Sam more than you have to. So how do we do that, right? So one thing, when you think about that, it's not just about paying less in taxes. Because ultimately, it's not necessarily about reducing how many shares you have, but it could also be about minimizing the risk you have there. So when you think about it, yes, we can, you know, have predetermined ways to exit a position in a tax-efficient manner.
Another thing that we can do, or, you know, an advisor can do, is essentially make that single risk more market-wide risk. So instead of having exposure to one stock, which could, you know, be very volatile, could go who knows where, maybe we can transfer that risk from a single stock to the broad market.
So there are quite a few ways that we can handle that as well. So what I'll first talk about is, you know, how an advisor can actually reduce the number of shares in a tax-efficient manner. So when you think about that, there's quite a few ways to do it. One of the more...you know, one of the easier ones to do, Amy and Bob, is if you have someone who happens to be charitably inclined, the easiest thing you can do is donate there.
So this could be like through a donor-advised fund, or, you know, some other mechanism that you can essentially donate a portion of that stock. Because if you're going to donate money anyway, why not just donate the appreciated stock? There, you're essentially eliminating any sort of tax exposure from that donation and reducing or increasing your overall tax basis, and lowering your future taxes. So we got donations. That's a really important one that I think it's overlooked a lot, right?
The second one is creating a plan to exit out of the position over a period of time through aggressive tax-loss harvesting. And there are certain ways that companies and advisors can help with this. Certain types of programs that essentially generate losses and take those losses to offset gains in other areas. So we can do this through programs like Tax-Smart Trading, as an example, where you look to look for losses in other positions and then sell those.
But in order to not reduce your overall exposure, maybe you go into something similar but not identical for IRS reasons, obviously. That allows you to maintain your overall exposure, bank those losses, and use those to offset gains on the individual stock.
Bob: A big thing with the charitable giving that I don't think you mentioned is just a reminder that you get a tax deduction for the full fair market value of the stock that you give away to your donor-advised fund or a chosen charity. Right, Andy?
Andy: Yeah, it's just like donating cash in the same amount. And you can definitely have that deduction on top of that. So it's a really good way to essentially help others while also helping yourself. Now, we talked about ways to reduce your tax exposure by actually exiting out of the shares. Now, when we think about, well, maybe you want to keep the stock, but you want to reduce your overall exposure. There are some...
Amy: I'm glad you're making that point, Andy. I'm glad we're talking about this because, you know, we can't make our investors, right, even though we're saying, like, "Hey, maybe being diversified is better." Lots of people have very strong, even sometimes emotional ties to companies. Maybe it's my grandfather bought this stock, said...you know, they willed it to me and told me never to sell it. Like, I've heard every story on the spectrum about why someone needs to keep a position in a certain company. And so how then can we help kind of protect them against themselves at that point?
Andy: Yeah, there's a couple of ways that we can do this. One of the more common ways is using stock options. Now, stock options can be complicated. So you definitely want to make sure that you fully understand what you're doing. But one way that you can essentially reduce your risk while also keeping the underlying stock is employing, without going into the weeds, I'll call an exchange fund replication strategy.
So using stock options, which are calls and puts, you can essentially mimic an underlying index like the S&P 500. And at the same time, you can offset all of the risk of the stock going up or down doing what's called a caller. And again, you want to have a long conversation with an advisor about this because stock callers and stock options can be pretty complicated to fully understand without going into the weeds.
So that's one thing that you can use is stock options to still maintain that Procter & Gamble position but eliminate that company-specific risk. And you don't have to use just stock options for that. You can also use some other strategies that are out there. But stock options are probably one of the more well-known ones in order to maintain your exposure.
Amy: Andy, these are the conversations we're having in our offices day in and day out, right? Someone coming to us with a large part of their portfolio in one individual company and one individual stock. So we're having these conversations. How do you mitigate this risk? What are your options? Very much appreciate your insights on how best to handle this.
You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. You probably have, I don't know, maybe a money question or two right now. Is your money properly allocated, diversified? Are you nervous right now?
Well, there's a red button you can click on while you're listening to the show right there on the iHeart app. Record your question. It's coming straight to us. And in this week, we are really focusing on the questions that we are getting from you. They're good ones. I think many of your questions apply to hundreds, thousands of other people out there thinking and wondering the same things.
So let's get to John in Bridgetown here. "My hope was to retire in about six months. Well, now I'm not so sure. How do I even know if I can pull the trigger? And what do I need to have in place?"
Bob: Well, John, what I'd say you need to have in place is a comprehensive, coordinated financial plan. And by that, I mean have somebody sit down with you and review your current assets, your current present and future income sources, Social Security, pension, things like that, and what your spending needs and wants are going to be in retirement. And then have somebody give you an objective look at whether it's going to work today.
The other thing to do is stress test your portfolio. Look at what's in your portfolio, and look at how those things would tend to perform in a good market and in a down market. And that's the time to say, "Wow, maybe my portfolio is a little more volatile in terms of its construction than what's going to work for me in retirement. So that'd be my answer. Sit down with somebody that can help you do that evaluation.
Amy: John, what I'm seeing a lot is people retiring or getting ready to retire, and they've gotten the memo. They've gotten the message that retirement is on them, and they have just put so much money into those tax-deferred 401(k)s and IRAs. And if this is you, I would say, "Hey, one of the focuses you need to have is on your emergency cash reserves."
So in the months that you've got leading up to retirement, if those aren't fully funded, maybe don't... You'll rarely hear me say this, but maybe you quit saving for retirement specifically in those kinds of accounts that you maybe already have a ton of money in that you're still going to owe regular income tax on, and you fully fund your emergency cash reserves. Because when you get to retirement, if this volatility is still here, right, we've got a bit of a reprieve now, but we do not know what's going to happen down the pike when it comes to these tariffs or whatever the next thing is down the road.
If you have to lock in losses as soon as you retire, it's not the best outcome for you. If you've got a fully funded cash reserve that you can live off of for a year, a year and a half, that's the conversation I'm having with my investors right now, then you can weather kind of any storm because you're probably going to have several market cycles over the course of your retirement.
Bob: All right. Here's one for you, Amy, from Bob in Kenwood. This question is probably near and dear to your heart, with having all those college-age kiddos running around. Here's Bob's question. "I was about to pull money out of our 529 plan for our son's college. Should I wait for the market to bounce back?"
Amy: I don't hate this idea if you do have funding from somewhere else. But then I also think what you have to understand about 529 plans, the way that most of them are set up, it's very similar to a target date fund in your 401(k). And there's a glide path within it, right? When your kids or babies or toddlers, there's a lot more market exposure within that 529. As they get closer to not retirement, as they get closer to college age, it often dials back the exposure to the markets. So...
Bob: If you're using an age-based portfolio, right? Not everybody does.
Amy: Not everyone does. I guess I find that a lot of my clients do have that within their 529. So I guess it's important to know how that money is invested. But it can tend to get a little more conservative. Listen, if you need the money, though, and you don't have the option, and the 529 is the plan, I don't hate taking it out right now. I would prefer that you do that than look for other sources to try to find that money.
Bob: Yeah, I would just add that now is a good time to look at, for all of your 529 plans, how are they invested? How are they allocated? Because if you got to write a tuition check in three months or six months, and you decided to put that whole 529 plan in large-cap growth stocks, that's not probably a good way to go. Just like anything else in life, and you just brought it up from a retirement standpoint, Amy, it's good to have some cash available for your short-term needs. And college tuition and room and board is one of those short-term needs. So the reminder is how that 529 plan is allocated and invested so you don't get caught with your proverbial pants down in a down market.
Amy: Absolutely. Let's get to Andy's question. He's in Mount Washington. "Hey, is now a good time to rebalance my portfolio?"
Bob: It absolutely is. And I think the rebalancing should take on a couple of dimensions here. Number one, this is a great time when we've had things moving up and then moving down. Rebalancing might be done as a result of our true risk tolerance being a little bit different than maybe we thought it was. That'd be one reason to rebalance. The other reason to rebalance is, hey, when the market goes down 15%, 18%, 20%, there's an opportunity to buy things on sale. We've talked about bonds being up so far this year. You slice a little bit off of those profits, and you buy stocks when they're on sale. That's some basic things that should be going on on a continual basis.
But in periods of what we'll call more severe volatility, it's imperative to rebalance your portfolio. The good news is, again, for our clients here at Allworth, that's being done on a continual basis without our clients having to call and ask that it be done. We're just doing it for them, and that tends to work out beautifully.
Amy: I think during these times, too, there are some questions about, okay, if I do have money sitting on the sidelines, what's the best way to focus that money? So coming up next, some thoughts for you if that is the case for you. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller.
What if you are someone who is in the position right now, you got a little money on the sidelines, what's the best way for you to do it? We've been talking a lot lately about having a fully funded emergency fund. And also, Bob, we've been talking a lot lately about the opportunity to buy parts of companies when they're on sale. So how do you look at this?
Bob: Well, if we're talking about either/or boosting the emergency fund or buying the dip in the stock market, and I don't claim to know anyone's specific situation, but the first answer that comes to my mind is it might be time to do both.
Amy: Yes.
Bob: Doing both might be a great solution. And that's just part of responsible financial planning, meaning that greed and fear, both emotions, can rear their ugly head during times like this, and we forget to do the basic blocking and tackling of keeping that emergency fund in a healthy place. So hopefully, if you have enough reserves to do both, now might be a great time to do both.
Amy: It's funny. I often get someone coming into my office, and they already think they've figured out their problem. It's like, "I have money, and here's what I'm going to do with it," or, "I need money, and I've decided the best place to take it from is my 401(k)." And it's like we just get laser-focused on whatever it is that we're thinking about, and I think that's one of the best benefits of working with a fiduciary financial advisor because the answer sometimes isn't all one thing or another. It's a little bit of both.
I think that emergency fund is incredibly important, but also don't miss out the opportunity to buy the dip. And so both of those things, I think, can exist at the same time. And I often also think what you have to remember is you're often making a money decision for your current self, right? You're just thinking about it in the here and now. If you could bring your future self into the room, you might think about those decisions a little bit differently.
Bob: Yeah, and saying the same thing, maybe a little bit differently or an additionally, a lot of times our clients have very good ideas. They're not invalid ideas. They just might be a different way to go about executing on the idea, and that's why it's good to have an advisor walk with you side by side and say, "Hey, I hear you. I agree with you. This sounds like a great idea, but here's two or three other ways we could get to the same end point." And there might be some great tax benefits and other benefits associated with looking at the same concept or idea through a slightly different lens.
Amy: Yeah, this is why I'm a huge proponent of, hey, do not... If I'm working with a couple, I don't only want to see one of you year in and year out, because even if that person is the person who is the technical money person, the other voice at the table also provides such great perspective for me as an advisor.
And had someone in my office recently, same thing. She had kind of big picture. "Here's our goals for our money." He was doing, to your point, the basic blocking and tackling. And then if you can add another voice to that conversation of someone who's walked this path with many others and can give you some great options, there's where I think you truly find your value, even during this time of volatility.
Thanks for listening tonight. You've been listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.