Amy: Tonight we've got a hot inflation report. So what does that mean? And an entire show dedicated to improving your financial literacy and why we think that's so very important. You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. I will remind you we are in this upside down topsy turvy world where good financial news can actually also be bad financial news.

Steve: Yeah, so what Amy's talking about here is a headline inflation report. You know, jobs numbers come out, they look good, consumer price index comes in, and it rose faster than expected in March. So indicating that obviously inflation here is remaining a little bit more stubbornly higher. That could impact the Federal Reserve's decision on what to do with interest rates. Now, they're not going to hike them again. It's just more or less how much longer will they pause at this point?

Amy: And a reminder coming into 2024, there were a lot of economists who were predicting we could have seven rate cuts this year, right? Now we're in April and the more and more economic data that comes in pointing to the fact that inflation is moving in the wrong direction, the more and more it appears very, very likely we're not going to see anywhere near those seven rate cuts, but it almost becomes when does that even happen? And at what point does the Fed, I don't even know, maybe look at pivoting and we're nowhere close to that now. But I do think we have to pause on days like today and say this is definitely not what the Federal Reserve was hoping to see with these numbers. And it also is starting to feel like a trend when you have three months where inflation is not moving in the right direction.

Steve: Well, the expectation has been set for a long time. We've been talking about it. The Fed's been talking about it, that it's going to be very difficult to get across the finish line. There's always a pause, wait and see what's going to happen, digest the information. And there's a lot of information that they're looking at. In fact, I just saw that what caused this round of inflation not to drop as much as maybe people were expecting was insurance rates.

Amy: Yeah. Car insurance, right?

Steve: Yeah. And to be more specific here about the numbers, by the way, economists surveyed by Dow Jones, they had been looking for about a three-tenths of a percent gain, but it went up four-tenths of a percent. So we're not talking about earth shattering numbers here. The news might be loud and noisy about this one. The markets probably aren't going to like it in the short term because it is a surprise, but it's not like interest rates rose a ton like they had or inflation rose a ton like it had been last year and the year before. Core inflation, remember that excludes more volatile underlying components like food and energy, that went up four-tenths of a percent.

Amy: Yeah. And I think it's important to say, and I think you kind of made this point, it's not a huge miss, it is a miss. And it's unfortunately a miss in the wrong direction. You talked about auto insurance being one of the main contributors. Housing remains stubbornly high for a number of reasons. Gas prices as well lately have been on the rise and all of those things together point to inflation moving in the wrong direction. That coupled with the jobs report, and as I said, that jobs report on its face would be great news. It's just not good news right now as the Federal Reserve is trying with all its might, everything that it can to bring down inflation by raising interest rates. It looked like, I don't know, in December of last year, okay, everything that needs to be done has been done. And the hope was that we would see then this kind of steady falling of inflation rate throughout the year. And we haven't seen exactly that. So it remains to be seen what the Federal Reserve ends up doing as the result of this. But yeah, I would say safe news to say this is not what they were hoping to see.

Steve: And speaking of remains to be seen, there's still two months of inflation data that's going to come out before the Fed's meeting in June.

Amy: Which is a lifetime of economic news. It really is.

Steve: A lot can change. A lot of new data can come in. Yes, we're not going to see seven decreases in interest rates this year, but we still don't know what's going to happen in June for sure. Like you said, there's an eternity between now and then as far as economic news is concerned.

Amy: Now when you think about it, over the last year, we have seen major economic news come out on a Thursday or a Friday. And by the following Wednesday, the Fed is doing something completely different than what had been expected prior to that news. So yeah, I mean, there's so much that will come out in the next two months. And of course, we'll help you digest it and let you know what we think it's going to mean. But yeah, a lot remains to be seen here.

You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby as we look at the latest inflation numbers. And I think we can safely say this was a miss. This is not what the Federal Reserve was hoping to see. But sometimes we talk about Wall Street and we should be focusing on Main Streets. And I think it's important to say when we talk about inflation coming down, that being the goal, if you expect that when you go to the grocery store, the cost of that bill is going to go down, that may not be the case. When we look at inflation rates, it's how much prices are going up year over year. When we talk about bringing inflation down, it does not necessarily mean that the price of everything you pay is going to go down. It just means the price isn't going to go up as quickly as it has been.

Steve: Yeah, remember that some inflation is good. That's why there's a target goal. It is very healthy. That's why the Fed has a target goal of 2.5%. Moderate inflation is a sign of economic growth. Sustained moderate inflation that is stable can prolong that growth. It's because when this happens, when prices go up, wages are naturally going to increase in tandem, which gives consumers more money to spend, which is a major driver in the economy.

Amy: And need I remind you when we talk about this 2, 2.5% goal, where it even came from? Because I love the story and I think it's so interesting. In the '80s, the head of the central bank for New Zealand went on a talk show and was asked, "Hey, what's the goal?" And he literally on live TV with maybe no preparation just threw out like a number that came to him out of the air, right, 2%. And somehow that number then became kind of the gold standard for all central banks across the globe to say, "Okay, yeah, 2% makes sense." And it does make sense, right? It does show kind of the healthy growth of an economy. No inflation means there's no growth and too much inflation means it's growing too quickly and we can't possibly keep up with that. Wages can't possibly keep up with that. But if we have some moderate growth in how much we're paying for things, the goal is that we have moderate growth and how much we're getting paid and so we can afford those things. And that is healthy. And as the Federal Reserve tries to bring it down closer to that 2%, they have actually been very, very clear on the fact that they knew it was going to get more and more stubborn the closer they got to that goal. Whether this is more stubborn than they had hoped for, I don't know. We're not a part of those meetings.

Steve: No, we're sure not. I'm glad I'm not.

Amy: Thank you. Me too.

Steve: Very difficult conversations and decisions those people got to make.

Amy: It is a tight rope that they are walking right now.

Steve: Yeah, it sure is. Because this obviously it affects us here on Main Street, not just Wall Street. When could things start to cost less? I mean, at this point, there's specific items that may drop as inflation throughout the economy moderates. Those tend to have items that are pushed higher due to constraints in supply rather than increased demand. So for example, we were having conversations about eggs last year and that was because of an avian flu outbreak that wiped out farmers' flocks. Eggs got, I eat eggs about every morning. That is something that Steve and I talked about. That got frustrating. It was $9 for a carton of eggs.

Amy: It was crazy.

Steve: Yeah. And supply chain obviously issues have improved there, so it's not as terrible as it was then.

Amy: I think that's a great point. You have to separate supply chain issues in other weird, you know, I mean, we've had the price of citrus going up in the past because there has been an issue with citrus crops. Or we talked about just a few weeks ago, the cost of chocolate going up exorbitantly, not because of anything to do with inflation necessarily, but because there were issues with...

Steve: Weather in West Africa.

Amy: Weather in West Africa, exactly. Things beyond our control that can have a short-term impact on moving the needle on certain prices of certain goods. The problem when we were dealing with eggs is we were dealing with those costs on top of everything else being higher due to inflation. So individual items, if there were supply chain issues like cars, right? We saw cars becoming so expensive. Well, one of the reasons was because the chips to go in the cars, we couldn't find. There weren't enough. A lot of factories shut down that produced those during the pandemic and then people were out. There was a huge demand to buy cars and not enough chips to go in them. Okay. That is a cost that you can expect to go down.

But the average normal inflation costs aren't going to go down. You think about the fact that we talked a lot about Chipotle during the pandemic, right? They raised prices. One of the reasons why they raised prices, yes, was because of some of the ingredients, but also because the cost to hire talent that was going to show up for work every day increased. Well, people aren't going to suddenly start going to work for less money. So some of these inflationary prices that we're paying become the new norm. We adjust to them. What we hope is that they don't continue at a 9% year-over-year rate because that's when it becomes nearly impossible to afford.

Steve: Yeah, that's when the Fed steps in and raises interest rates like they did to help normalize things. And it will take a while to get across the finish line. Now, keep in mind that when we talk about inflation here, yes, too high is a huge problem. Too low on the other side, deflation. That's why they have the sweet spot, 2%, 2.5%. Deflation is actually when prices decrease too much. And that can be catastrophic for an economy because when prices keep falling, consumers, businesses, they put their spending on hold. They sit on cash hoping to defer until prices fall even lower. And when that spending slows, economic growth will stall. That is a terrible thing because at that point, company profits shrink and unemployment rises.

Amy: Yeah, it becomes a vicious cycle. It sounds good at first, right? Of course, I want to pay less for something. What you don't think about is how that plays throughout the economy. When businesses aren't able to sell things at what they were selling them for before, right, their profit margins shrink. That means they have to let people go. People are worried about their jobs. They're spending less and hence the cycle. And that is definitely one that we don't need to be or want to be part of.

One thing I think that's also worth mentioning during this conversation of inflation and interest rates is you better bet that the presidential election will largely be centered on this conversation. I will remind you that many times on the show, we have said that the American economy is larger than whoever is in that Oval Office. But during a presidential election year, you either take credit or you assign blame based on what party you're in. So just keep an eye out for that because that will definitely play out. Here's the Allworth advice. One takeaway here is if you have emergency cash lying around right now, get those dollars into a high-yield savings account because it looks like interest rates may stay higher, at least for a little bit longer.

Coming up next, we've got a crash course we hope will make you a little smarter about money. 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 Steve Hruby. If you have to miss our show one day, you don't have to miss a thing that we talk about because we have a daily podcast for you. Just search Simply Money. It's on the iHeart app or wherever you get your podcasts. Certain months have certain things to celebrate. Many of them I pay zero attention to, but April I do pay attention to because it's actually something that I and I would say we, all of us at Allworth are incredibly passionate about. April is financial literacy month. I think that when I go out and I speak to big groups of people, Steve, one of my major takeaways is that many of us did not grow up in homes where people were talking about money, smart things to do with money. Obviously, many of us didn't go to high schools or colleges where these things were taught. We didn't take classes on this. If this is something you haven't necessarily been brought up in, it's not in your DNA, you're not alone.

Steve: No, you're not. Financial knowledge, obviously it matters. According to FINRA, there was a survey recently done that showed that those that scored above the median on a seven-question financial literacy quiz were more likely to make ends meet than those with lower financial literacy.

Amy: Essentially, understanding money matters, right? It matters in a big way.

Steve: That is not a surprising finding to me. Of course, if you have more literacy, you're going to be better off. But they actually kind of put a monetary figure to this, which is a little scary. Americans' lack of knowledge about personal finances cost them an average of about $1,200 per person, $1,200 per person. That's a survey done of 1,500 people released last month by the National Financial Educators Council. Nearly one in five estimated that their lack of know-how cost them $2,500 or more per year.

Amy: Yeah. Not knowing can cost you. I always say knowledge is power, and I guess you could also say knowledge is money. When we looked at these questions that people don't know, there's some common questions, some common themes that just aren't necessarily clear. Some of the questions that were asked as part of this survey, which of the following statements describes the main function of the stock market? One of the answers, it brings people who want to buy stocks together with people who want to sell stocks. One of the answers, the stock market helps predict stock earnings. Another option here, the stock market results in an increase in the price of stocks. None of the above. Not sure. We look at this and we're like, "A, A," people are buying and selling stocks. It's a stock exchange. It's a stock market. That's why it's called that. Four in 10 boomers, these are the people who are retiring right now who hopefully have been invested in the stock market. They got that right. Also, 4 in 10 millennials got it right on the other end of the spectrum. Huge miss, and this is a foundational kind of thing you have to understand to understand money.

Steve: Yeah, absolutely. Here's another question that was asked in the survey. Which provides a safer return, buying a single company stock or a mutual fund? A, single company stock, B, mutual fund, C, not sure. They gave you a lifeline there, not sure. This one, two-thirds of boomers got it right. About half of millennials answered the question right. It's a mutual fund. It casts a large net. A single company stock can go away. It can go away. That's very surprising to me. People that have been around longer have seen situations where company stocks have gone to zero or at least gotten absolutely rocked and kicked in the teeth in this area.

Amy: General Electric for locals? Yeah.

Steve: Exactly. GE is exactly what I was going to bring up. A mutual fund on the other hand that casts a large net and touches a lot of different companies all at the same time, that of course is going to be less risky inherently than a single company stock.

Amy: We've spent a lot of time this year talking about the magnificent seven, right, these seven major kind of technology stocks that were up, up, up, up, up. Well, now the market's a little down and they're going down more swiftly than any of the other stocks. Things like Tesla and Nvidia. There's headlines all over the place about Nvidia heading toward correction territory. That is the price. That is the risk of individual stocks. If you can spread out that risk among a number of companies, you're going to be far greater off.

Another thing that a lot of people aren't really clear about, and this is surprising, I don't know if it's surprising to me, it makes me want to pull my hair out. And this is a question about credit cards. Should you pay them off each month? Six in 10 people, so 60% said, yeah, you should. There's 40% who didn't get that right, who thought that I guess paying interest every month makes a lot of sense. That makes zero sense to me.

Steve: No, it doesn't make any sense at all. You don't want to pay interest to a credit card company when you don't have to. We are proponents of having a credit card as long as you're using it in the way that you should be, which is capturing the benefits that it offers, getting points, getting rewards, and then paying it off every month so that you're not giving these credit card companies interest. They have a lot of money already. They don't need your money, but 40% of people, I guess, are giving it to them.

Amy: Another thing that people aren't super clear on, 401(k)s, whether contributions are taxed or not taxed until withdrawal. A traditional 401(k), yes, they are taxed when you take that money out. Only 40%, 4 in 10, got that correct. These are basics. And when you have the basics down, it's like personal finance 101. You build on that knowledge. Money is a tool, and the more you understand, the more that you can take advantage of that.

Recently ran across a woman who's brilliant, brilliant at what she does in from the outside, would appear to have it all together, to have a great salary, to just be incredibly successful. You dig a little deeper and there's a ton of debt there. When you look at the situation, there are options. But if you don't have a grasp of these kind of fundamentals of investing and saving and getting yourself out of debt, you can get yourself into a huge hole. So that's why we're incredibly passionate about making sure that not only that you understand money, but that you're having these conversations in your relationships with your children. We make fun of me all the time, but this is a conversation I have even when I'm out with friends. I'm such a, I'm always the life of the party as you can imagine.

Steve: Financial nerd. That's a good thing. It's good to have somebody like you around, Amy. I think that part of the reason why these conversations are so important, having some level of financial literacy, is because things have changed. More specifically, people used to get pensions.

Amy: Yes.

Steve: Pensions are few and far between at this point. So as long as you put your head down, did your work, you could retire and get a significant chunk of your income for the rest of your life. Social Security isn't going to cut it. That's why we need to have solid financial foundations and understanding some of the vehicles that are available to us to save in, like a 401(k) through your employer, like IRAs, if you don't get one through your employer. We need to take personal responsibility for saving for our own retirement. So this financial literacy, this is concerning to me, seeing these figures.

Amy: If you don't know and you're not saving, the thing here is you've got no one else to blame but yourself. Right? So knowledge is power. Coming up next, speaking of financial literacy, this is one of the coolest stories that we've been able to tell in a long time. A local school competing on a national level because of, yes, financial planning. 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 Steve Hruby. As you know, we are incredibly passionate about financial literacy and many of us grew up and went to high schools where we didn't take these classes. So recently I came across something that stood out as different and exciting and we want to bring it to you tonight. There is a national personal finance competition and a school right here in the tri-state actually ranked number one in the state of Kentucky. Joining us tonight is Bridget Kaiser-Munday. She is a teacher at St. Henry District High School in northern Kentucky and three students on her personal finance team, Ryan Hartman, John Lubert and Gabe Thielen. Mrs. Kaiser-Munday, I want to start with you. You and I have talked about this. We know there is not a law in Kentucky yet requiring that kids have exposure to personal finance, but this is something that you are incredibly passionate about. How'd you learn about this competition?

Bridget: I feel so passionate that I sign up for a lot of emails from different groups and different organizations that promote education about personal finance for students. And one of those emails came across a couple months ago with this particular competition, the Kentucky State Personal Finance Challenge that was going to be hosted at NKU. And I thought, well, it's right in our backyard. We really have no excuse to do this. And even though it was during spring break, my brain immediately went to one of my students, John Lubert, and I have him in class and I know he's very much interested in finance. And then I reached out to a couple of my colleagues at school to talk to them and see if they had any ideas. And John brought Gabe with us. And then Ryan is in one of my government classes and was asking some really poignant questions. And I thought, I need to get this kid on this team too. And so it was kind of a joint effort of just one person bringing one and then another and then another. And here we are today. And it's great. They did a great job.

Amy: And what did you do to prepare them? So my understanding is the first round was a written test. You know, obviously, this isn't something they're learning in the classroom. So what do you do to prepare them?

Bridget: I think some of them are getting this from home. I think some of them are getting this because of interest. I know two of the boys are currently in an accounting class. Ryan took personal finance at his previous school. And so they came with a really great base level. They read a lot of stuff going in. They studied a little bit before taking the written test. They did a great job on the written test. They scored one of the top four teams in the state of Kentucky, but they really shined when it came to the presentation.

Amy: Ryan, I want to turn to you now. When you took that written test, were you confident going into it? Were there certain parts that were really difficult? Or how did you feel about what that looked like?

Ryan: I'll be honest, with being a year removed from a personal finance class and them being in the Accounting II class, I felt like I was a little bit behind the eight ball. So I acted confident. Probably wasn't that confident, but I read some books, did some research, talked to my mom a little bit to prepare. And by the time it came, I was more confident, but I didn't know exactly where I was. But it ended up going pretty well.

Amy: You guys did well enough that you got to go to then the state competition. Explain what that was. What was the scenario that you guys were presented with and what was the recommendation that you guys made?

Ryan: So what it was for the state competition was a fictional family that was given to us and we had to create a financial plan for them and try and carry them to their goals, making them financially stable, etc. So we spent two hours for about a week over spring break every morning working on our plan for this family and how we were going to help set them up for their future. So it was kind of a joint effort and we came in and knew we had to work hard for it, but we got through it and it turned out well.

Amy: John, what were some of the major recommendations that were part of what you said? Okay, this family is in a financial crisis and a bad situation. Here's what we recommend that they do.

John: So we started off by paying off the major debts with the highest interest rates. That's a pretty good rule to generally follow. You want to pay off things that aren't going to build over time. So we took that into consideration. They had pretty high credit card debt, so we paid that off first and we kind of just took it step by step, paying off things that we knew needed to get done quickly and then saved other stuff for down the road, like other loans and stuff.

Amy: Did you feel pretty confident when you guys were finished that you had done really well?

John: I think so. I think we came in there and we're already confident just because we knew we had worked so hard on it that all that was left was for us to showcase what we knew and I think after we sat down we knew we were in a pretty good spot.

Amy: Number one in the state of Kentucky, congratulations you guys. Gabe, if you were to sum up what you think you've kind of learned in this process so far, what would you say? What are your takeaways?

Gabe: So, I think we learned a lot on how to like budget. So we set up a budget with a bunch of variable and fixed expenses and that's a good real life skill to have to learn because we were able to set up monthly budgets and then take our gross income and subtract it from our expenses, find our net income. And that's just a good skill for us to learn because we can use that later in life when we're planning out our monthly expenses and how we want to invest and, you know, if we want to invest a certain income that we have left over into like Roth IRAs and stuff, that's a good skill to be able to learn for us to be able to use in the future.

Amy: So you guys head to the national competition in Cleveland next month. Any idea what that's going to entail, and what are you guys doing to prepare for that?

Ryan: So we know right now that it's I think May 19th so just right before graduation and we will be, so we won't actually know the prompt until the day of the competition. So we'll have, there's four options right now that we know of and there'll be one of those four and then we will have two hours after we hear about it to build our presentation. So as of now we're probably going to look into all four possibilities, maybe do a little blueprint for those and then once we find out the actual prompt then we'll dive deeper into it. But we know it's going to be a lot harder obviously, better competition so we got to step up our game just as much more.

Amy: Mrs. Kaiser-Munday, I was talking to some colleagues about this. When we hear about schools talking about investing in personal finance, many times it's a stock market game, right, stock market challenge where students are picking individual stocks, which isn't something that we would even say is necessarily the best long-term plan. This though is focused on financial planning. I just wanted to get your take on that from an educator's standpoint.

Bridget: I think it's so important that this is something real, that students understand that this can and should affect you long term. What you learn today can make a difference for the rest of your life and it's something that I learned fairly early because I knew I wanted to be a teacher, I knew I wanted to be financially stable, I knew I wanted to work that all out. So what did that look like for me on a teacher's salary? And I think that is so crucial that we teach people young, especially in high school when they're having jobs, when they're making their own money. What can you do with that that's going to pay dividends? Maybe not tomorrow with that purchase that you make at Target or Walmart, but what you're going to do with it when you're 30, 40, 50 years old and you're buying a house or you're saving towards retirement. Those are big questions that these kids need to have too.

Amy: Huge concepts, right? Life changers, game changers when it comes to starting out their lives and building wealth. Is this something that you anticipate St. Henry will be involved in in the future?

Bridget: Oh, most definitely. We're going to be doing this for a long, long time. I think the energy and the enthusiasm and the excitement is there and we are so thrilled about what this was able to accomplish. And I think it's just going to snowball from here and we're going to go and do big things with it.

Amy: I'm glad to hear it. My son will be a freshman there next year. I will point him in your direction. All of you, congratulations. Will you come back on the show after you do nationals and let us know how it goes?

Ryan: Absolutely. Yeah, we'd be happy to.

Amy: Awesome. Fantastic. Once again, this is a personal finance competition, the Kentucky State Challenge and the number one team in the state of Kentucky was St. Henry District High School. The brilliant members of that team and their coach are joining us here tonight and we will check back with them in a month. 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 Steve Hruby. If you've got a financial question keeping you up at night, maybe you think you're right and your spouse is wrong, we can help settle that dispute for you. 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 and it's coming straight to us. We're talking about financial literacy and when it comes to retirement and money, I am always amazed at how many myths are out there, just bad information. So one of the most important segments we can do is to separate fact from fiction. So let's get right to it. Steve, fact or fiction with this one? With a Roth IRA, you contribute with pre-tax dollars so you pay tax when you make withdrawals.

Steve: Attention to detail, this one is a fiction. Roth IRA money is funded with after-tax dollars and you do not pay any taxes when you take the distributions as long as the money has been tucked away in that account for five years and you're at least 59 and a half years or older.

Amy: And the key here to understand is I like having money in both pre-tax and after-tax buckets because it gives you more flexibility, more options when you get to retirement. So you have to buy a car. Do you want to have to take out additional money and pay the taxes on that at the time you're buying that car or do you pay with Roth dollars where you've already paid taxes? So I think understanding that having money in both kinds of accounts can actually make a lot of sense. Here's the next one. Fact or fiction, when interest rates rise, bond prices fall and vice versa.

Steve: Exactly, yes. This is fact. There is an inverse relationship between bond prices and interest rates. Most bonds...

Amy: It's a teeter-totter.

Steve: Yeah, that bonds, most of them pay a fixed interest rate that becomes more attractive if interest rates fall, driving up the demand and the price of the bond. On the flip side of that, if interest rates rise, then investors no longer prefer the lower fixed interest that you will be receiving in that bond, which results in a decline in the price that people will pay for it in the secondary market.

Amy: Right. Give me a bond that makes me more money. And if you have a bond that makes me less money, I'm less excited in that. So then the value of that bond goes down. So yes, teeter-totter. Interest rates go up, bond prices go down. Fact or fiction, a 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but total interest over the life of that loan will be less.

Steve: Fact. Yeah. So especially if it's for the same dollar amounts for that term, 15 or 30 years, because you have to pay it off in less time. But less time also means less chance for interest to build up. So it is going to save you money on interest over that time period, as long as you can foot the bill for the higher payments.

Amy: Another thing to think here is, and I love a 15-year mortgage, if it's something that you can handle. I think the 30-year becoming standard just means we're paying way more in interest than maybe we need to. If you can afford the cost of an extra payment or two a year, right, when you get a bonus or something like that, then you're essentially paying more toward that balance, toward that principle. And then you're paying less over the lifetime of that loan. So you can not necessarily lock yourself into that 15-year rate, but you can bring it down over the course of time. Just check and make sure that that's an option to you with your particular mortgage contract. Fact or fiction, buying a single company stock usually provides a safer return than a stock mutual fund.

Steve: Hey, we talked about this today.

Amy: This is worth repeating.

Steve: Yeah, it is worth repeating. So buying a single company stock does not provide a safer return than a mutual fund. This gives you higher risk than casting a larger net. A single company stock technically can go to zero, whereas a mutual fund, that's almost never going to happen because it has investments and investments all over the place, much more diversified than owning just one company stock.

Amy: If you have a mutual fund that goes to zero, you've got bigger problems than just the stock market at that point. Yeah, no, it just makes so much sense to spread out your risk. I would say our rule, and this is the rule that we sort of live and die by when it comes to your money and your investments, is if you are incredibly passionate about one particular company, we would say if you're looking at your entire portfolio, no more than 10% of that should be in individual stocks. And that doesn't mean 10% of it in this stock and 10% of it in that stock. No, 10% total in individual stocks. And beyond that, yes, mutual funds, indexes, ETFs spread out your risk. We're huge fans of diversification and history shows that makes the most sense.

Here's another one for you. Fact or fiction, closing a long-held credit card account can hurt your credit score. Absolutely fact here, and this is one that really catches people off of guard. Here's why. You can easily think, okay, the less credit cards I have open, right, the better my credit score could be. One of the things that your credit score is made up of is the history that you have been responsible with credit. And so when you close those longer accounts that you've had, you're actually closing that window and also you're closing down some of the credit that's available to you and credit utilization is a big part of that. So there are some people kind of in our world, Steve, who will say no credit cards. We're not strong believers in that. We believe they're a good tool to help you build good credit if you understand how best to do that.

Steve: When used properly, I think is the key there. Not letting debt get out of hand, not paying more interest rate than you need to, capturing the benefits of using the credit card, not destroying it. I think that that is not something that you want to do.

Amy: Coming up next, advice from who could be the most financially literate human being on the earth, words to live by. 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 Steve Hruby. Okay, there are the financially literate, right, and that's what we're kind of talking about in the show today. And then there's next level. And next level, I would say as a Warren Buffett fangirl, is Warren Buffett. This dude is a legend. And the thing about him is he makes it so understandable and so simple. You like to think, I think so many people like to think that to really be successful and to build a lot of money, there are secrets, there are tricks. He makes it so clear, like, hey, just be smart about it. Be a long-term investor, understand what you're investing in. And that's really the trick, which isn't so tricky.

Steve: Yeah. So one of his first quotes that we're going to shine some light on today is rule number one is never lose money. Rule number two is never forget rule number one. Now, the way that I look at this is there's a different mindset investors and investors who view the stock market as gambling and those that view it as a tool to build wealth over a long period of time. So what this quote really means is when you eliminate decisions that expose your portfolio to loss, what's left is more likely to be gains.

Amy: Another one that he says, and it is so, so true, but it is so difficult for so many of us when we come to a behavioral finance kind of a situation, attempt to be fearful when others are greedy and to be greedy when others are fearful. So if people are selling in the stock market, many of us, we tend to think something is wrong, we need to get out too. What that means is that stocks are on sale. And if you have money on the sidelines, we would say you should buy it. And I remember, you know, many times doing this show with Steve Sprovak before he retired. And there would be days when the stock market was way down, headlines were terrible. And we would get off the show and we'd be walking out of the studio and we would say, we're going to put our money in the stock market today. Right? Like we know that's the best time to do it. It feels counterintuitive, but it is, you know, it is what pays off over the long term. Buy things when they're on sale.

Steve: The way that an everyday investor can do this, by the way, is rebalancing your portfolio. When you have a diversified mix, say in your 401(k), for example, the entire portfolio isn't going to go up at the same time. You're going to have some investments that do more poorly than others. And what you do in that case is you sell the ones that have done better and you buy the ones that have done poorly. In that situation, you are doing exactly what Buffett would recommend, which is kind of a contrarian behavior and capitalizing on some of those market fluctuations.

Amy: Another one that he has said, and I just love this, after all, you only find out who is swimming naked when the tide goes out. When the tide is high, when the markets are high, everyone looks brilliant. Everyone feels brilliant. When you are checking your 401(k) month after month, quarter after quarter, whatever it is, and it's going up, up, up, you can easily think you are just, got it all figured out.

Steve: I'm a genius.

Amy: When the water goes down, when the market goes down, that's when the real kinks in the plan, or if you're swimming naked, that's when that's exposed. So lots of words to live by. And if you can live by these, you're going to be better off. Thanks for listening. We hope you're going to tune in tomorrow. We're talking about an investing principle that is ringing especially true this week. We like to say we told you so. You've been listening to Simply Money presented by Allworth Financial here on 55KRC, The Talk Station.