Political Noise, Market Drops, Portfolio Protection, and Smart Diversification Moves
On this week’s Best of Simply Money podcast, Amy and Bob unpack what’s really behind the latest market turbulence — and it’s not just the headlines. Tensions are rising between President Trump and Fed Chair Jerome Powell, and the ripple effects are hitting investors hard. They’ll take you through past moments when presidents have clashed with the Fed, and what history can teach us about what might come next.
Plus, they share practical advice for keeping your financial plan steady — including why a globally diversified portfolio and a fresh look at bonds and international stocks might be exactly what your portfolio needs right now.
Download and rate our podcast here.
Amy: Tonight, latest headlines. President Trump wants to fire the head of the Fed, our nation's central bank, plus, a blind spot in your portfolio you may not even know you have. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. Man, I feel like we get one thing a little bit behind us and then we're smacked in the face with the next thing. And, you know, just a reminder, everyone, markets like certainty, and we have lots of uncertainty, the latest dose of uncertainty coming in the form of our president having some very pointed remarks about the Chair of our nation's Central Bank, Jerome Powell.
Bob: While the rest of us were just out doing Easter egg hunts, Amy.
Amy: Can we just stick with the Easter egg hunting, please?
Bob: All right. Well, you know, obviously the markets were down, you know, big yesterday, and everybody always likes to guess on why that happened. I think there's a couple things that happened. And one of which is, to your point, Amy, the President, you know, went on Truth Social, called Fed Chairman Powell, a loser and all that. I think that stuff can be very unsettling, you know, to the markets. And it was yesterday.
I think the other thing is, folks were hoping for some resolution somewhere, somehow on some of these trade deals. And we got nothing on that over a long three day weekend as well. So you combine that and again, Amy, just an opinion. I think President Trump, it just looked like he was trying to find somebody to blame other than himself for not getting some of these trade tariff deals done. And the target this week or this weekend was Chair Powell. Markets didn't like it and for good reason.
Amy: Well, and I have to point out too, this is nothing new, a president going after a Fed Chair. And I think it's important to then step back and say "What's happening here?" And make sure that you understand what the whole point of the Federal Reserve is, right? And so first of all, it's supposed to be apolitical. I mean, even the paychecks for the people in the Fed come from outside the Congressional budget. Like, this is supposed to be set up in a way where there's a bit of a political wall around the Federal Reserve. And they're supposed to keep their heads down.
Bob: I mean, it's called "checks and balances" in government. That served us well for well over 200 years.
Amy: Yes. Yes. Absolutely. And the dual mandate of the Federal Reserve is two things. Two things. It is to make sure that we keep inflation in check and that people are working, right? That's what...their nose is supposed to be down looking at reams of data. And there's only a few levers that they can kind of pull in order to keep those things in check. One of those, of course, is interest rates. And historically, the issue with presidents is if you are going to lower interest rates, it tends to juice the economy, right? It's cheaper for people to borrow money. It tends to kind of loosen up the economy. So, when you have maybe an incumbent president running for reelection, they might go to the Fed Chair and say, "Hey, would be great, right, if you could lower interest rates." And there's evidence of that in our country's history. I mean, you go back to President Nixon and he was doing this to the Fed Chair at the time. And the Fed Chair under Nixon, in his diary going back, he talks about lots of pressure from the President who's seeking reelection and kind of wanting me to help him with that. But again, this is an office. This is an entity that is supposed to be apolitical. So, when you have President Trump making these decisions about things like tariffs that could potentially be inflationary, I think his sort of inexplicit message is, "Hey, can you help me a little bit here? If we lower interest rates, things might go a little more smoothly on my agenda." Point being, that's not necessarily the job of the Fed.
Bob: No, it's not. And just trying to stay politically neutral here, which is what we need to do and just look at facts. I mean, under the last administration, people were pulling their hair out over that term "weaponization of government." We didn't like it when we felt like one side of the aisle or one administration was using parts of the government inappropriately. Well, if you don't like it then, you shouldn't like it now either. And I think historically, a lot of times... I mean, I think we're naíve if we don't think presidents have sat down and had a cup of coffee with the Fed Chairman or played a round a golf. But you...
Amy: Absolutely. Passed a note. When Bush passed a note to the Fed Chair and was like, kind of, "Hey, can you help me out here?"
Bob: Yeah.
Amy: There is a history of this going back decades.
Bob: But you do that in a collegial manner behind closed doors. You don't go on social media and basically call the guy an idiot and a fool and that you're going to fire him. And we've talked about this umpteen different times. I mean, that's the way our current President likes to communicate. It is unsettling to a lot of people and it was unsettling to the markets yesterday. On top of the fact we got no progress on trade talks and we're in a pretty busy corporate earnings season right now getting very little guidance from a lot of companies because of the uncertainty around trade policy.
Amy: You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. Every time I think we hope we can take a collective breath and maybe check our 401(k)s and not have bad news, there is a fresh round of news. And this week, I think volatility that we're seeing is because President Trump is now saying, "Hey, I want to fire the Chair of the Federal Reserve." Keep in mind too, this is the President who appointed him during his first term.
Bob: Yep. President Trump appointed Chair Powell in 2017. He took office in 2018. And then President Biden reappointed Chair Powell to an additional 4-year term in 2022. So, you know, he is supposed to be in there until May of 2026. And yeah, so, you know, this is the guy you appointed. And I know he said even back in 2022 that, you know, they were too late to raise rates and then had to raise them 7 times. We can all have our opinions on how to run the economy. It's how you communicate that publicly and keeping in mind that you are the leader of the free world. That's what can get people unsettling.
Amy: It is the latest round of uncertainty. And so, you know, I think if you step back and say, okay, lots going on in the U.S. right now, maybe one thing that you can do as an investor, right, we cannot certainly control what's going on in Washington. Maybe we would not even want to try. But the point of being truly diversified is that right now, some U.S. companies are taking a bit of a beating. And so, I think the question you have to ask yourself is if I'm truly well-diversified, I'm actually also invested in global markets outside of the U.S. I think we love kind of homegrown. And, you know, we work for these companies. We believe in these companies. Our neighbors, our relatives all work for these companies. But I think to be truly diversified, you have to also look outside of the U.S.
Bob: Yeah. And, Amy, you and I have discussed the importance of bonds in a portfolio and how well those have done to kind of cushion volatility and diversified portfolios so far in 2025. The same can be said of international stocks. And if we just look at the largest, most common international stock index, it's called the EFA index, Europe, Australia, and Far East. That index is up 7% year-to-date as of Friday. It's up 10% over the last year. And interestingly enough now, over the last 3-year period, 3-year average annual return, the EFA index is up 7.9% per year over the last t3 years, exactly equal to the S&P 500.
Amy: Yeah.
Bob: And like, we talked about with bonds, when tech stocks are going gangbusters and you can just set it and forget it with big cap U.S. stocks, people tend to forget the importance of diversity. Kudos to our Chief Investment Officer, Andy Stout. He's got this stuff in our portfolios here at Allworth all the time, and it's doing its job.
Amy: Yeah. The average American investor has close to 80% of their stock holdings in U.S. companies, but the U.S. actually only makes up about 60% of the global stock market. So you could be missing out on something here. And I think here's an exercise for you. Pay attention during the course of one day to the products that you use all the time that you love. Is your car made here in the U.S.? Is your phone made here in the U.S.? The coffee machine that you're getting your coffee out of, where is that made? You're probably interacting pretty regularly with companies outside the U.S.
Bob: Well, you buy a lot of expensive shoes and purses, Amy. I highly doubt those come from the United States. [crosstalk 00:09:52]
Amy: I think most of mine are actually from Target, but I'm glad I fooled you there. And I think it's just important, though, to look at, you know, and we talk about behavioral finance a lot. Behavioral economists call this home-country bias, right? We know our companies here, but if you do have that bias, and we've said this many times, you check your political bias at the door when you're investing, and I think you've got to check that bias here as well. Do you know if you own other countries' portfolios, other countries' companies in your portfolio? I think it's time to do a check on that.
Bob: Well, I think it just comes down to valuation. You want to look at valuation for any asset that you're looking at buying, whether that's a U.S. stock, a global stock, a bond, a piece of real estate. You're trying to buy it on sale when it's oftentimes out of favor. And that's what we're talking about here. There are different asset classes at any given time where on a price earnings basis, you know, based on historical performance, it can be a little undervalued. And international stocks are an example of an asset class that was pretty much ignored for, you know, the last few years. And lo and behold, now, money's starting to go into it and it's helping us make money.
Amy: Are we saying go all in on the globe?
Bob: No.
Amy: No, absolutely not. But do you own a portion of the global economy and do you even know? You know, we talk about kind of building the boat for times like this where we're seeing volatility in the markets. I think a lot of building the boat is educating yourself on exactly how you are invested. You should know what's making up your portfolio. You should know how your 401(k) is invested.
Bob: Well, and ideally, you build the boat before the storm comes, not after. So, we are not saying bail out on all your U.S. stocks now and pile into international.
Amy: No.
Bob: We're just saying, you know, this is a good reminder to have a good diversified portfolio at all times.
Amy: Yes.
Bob: And it helps you find that sweet spot, ideally, to get the highest rate of return per unit of risk. And that's what good, responsible asset allocation is all about.
Amy: Yep. Here's the Allworth advice. The world is actually bigger than the S&P 500 and smart investors know that sometimes the best opportunities aren't always located in your own backyard.
Coming up next, a strategy that is all the rage right now. Is it a strategy that makes sense 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. Straight ahead at 6:43, tax season is over, but maybe you should just be getting started on your taxes. We'll explain to you what we mean by that. There is a strategy that I'm having conversations with a lot more often now in my office, it's called, buffer ETF. And in fact, you know, yesterday, Bob, I had someone in my office, who, we put into this strategy about a year ago and they were really, really glad that we had because, you know, when the overall markets are down, pretty bad so far this year, they have truly been buffered from a large part of that downside. If you are someone who this volatility is making really nervous right now, I would say lean in, listen up. This might be a good strategy for you.
Bob: Well, about $7 billion of capital has flowed into these buffered ETFs as of early April of this year. So, this is a popular strategy that's being used. We have a buffered ETF built-out strategy and portfolio here at Allworth. So, we're using multiple buffered ETFs in one single portfolio, which is a real nice strategy, but yeah. At the end of the day, you've got clients and we all have them, that they intellectually know that they've got to have a piece of their portfolio in the game, so to speak, where they have the opportunity to earn the type of investment returns that come with being in the stock market, but they just can't handle the potential downside volatility. So, a buffered-ETF strategy just puts brackets around those potential returns, both on the upside and the downside, and they come in all shapes, sizes and colors. And you can dial up the level of buffers on the upside and downside, and it helps to put, you know, some parameters around what your worst-case scenario can be in a down market, and people are finding that attractive.
Amy: Yeah. So let's give an example. So, say you have a buffer ETF set up to buffer you from the first 10%, right, of any kind of market downturn. So if the S&P 500 drops 8%, your ETF has that 10% buffer. You're good, right?
Bob: Well, you're good, meaning you don't take on any of the downside.
Amy: You don't feel any of that downside. Yes.
Bob: Yeah.
Amy: If the S&P 500, say, drops 20%, okay, you are going to be down. Everyone else is down 20%. You're only down 10% because you've got that first 10% buffer.
Bob: The first 10% was on the house, right?
Amy: Absolutely. Absolutely. On the flip side, right, on the upswing here, if the S&P 500 gains 18% and your cap is at 15%, okay, well, then you're only going to participate in the first 15% of that upside, right? So, kind of the downside protection comes from that upside cap. But for nervous investors who lose sleep during times of market downturn, what a nice option, as an investor, to know that the first 10%, the first 15% of the market downturn, you may not even be exposed to, you may not even have to participate in.
Bob: Yeah. Because we talk about all the time, Amy, the average entry year drop of the S&P 500 on average, going back over 50 years is around 14%. Well, you put somebody in there with a 15% buffer, you know, with a good buffered ETF strategy, they don't take on any of that downside. So the odds are in your favor. And people like the fact that, "Hey, the average is 14.3% shelter me from the first 15%. I'm good."
Amy: Yeah.
Bob: "I don't have to watch cable news eight hours a day to figure out what's going on because I know some of my downside, it's protected." And I have to bring up, Amy, you know, this is in comparison to some of these annuity strategies...
Amy: Yes.
Bob: ...that are being sold out there with huge commissions, huge surrender charge periods and...
Amy: And they're talking about protection, protection, protection, right? That's how they sell those annuities.
Bob: And by the time you look at what your actual return could possibly be, even in a good scenario, when you net it out for fees and expenses and all that, you might as well have just bought a bond, you know.
Amy: Yeah.
Bob: So, these are much more...they're more fee-attractive to people. You can get out of them at any time.
Amy: You're not buying something, you're investing in it.
Bob: Yeah. There's no commissions. It's a much better way to play the buffering your downside in your portfolio and people love it.
Amy: I do want to get your take on this. Okay. So, say someone's listening and they're like, "Yes, yes, this is for me. Put all my money in a buffer ETF right now, because I hate downside." Do you think it's a good strategy to go all in on these?
Bob: Absolutely not. And without getting too far into the weeds here, our strategy that, you know, Andy Stout, our Chief Investment Officer and his team, run here at Allworth, it's comprised of a bunch of different buffered ETFs. But we tell clients up front, the best way to take advantage of this strategy is to commit to it for at least one year.
Amy: Yep.
Bob: That allows it to work because during periods of volatility, they will sell one of these buffered ETFs that protected downside, reset your downside by something else, you got to let the strategy work for about a year to see the benefits of it. So, we still go back, Amy, to what you and I talk about all the time, that one to three-year cash flow position being completely out of the market, being in less volatile asset classes like short-term bonds, treasury bills, CDs, cash. That allows you to weather from a cash-flow standpoint, volatility, like, what we're going on. These buffers, buffered ETFs are more, I think, for the emotional threshold.
Amy: Yeah.
Bob: "Hey, I know I need to be in for the long term. I'm willing to put it away and not think about it. But boy, I don't want to see my portfolio balance flying all over the place."
Amy: Yeah.
Bob: And that's where people like having a portion... You know, these are risk-averse people having a portion of their long-term capital invested in strategies like this.
Amy: It helps you kind of stomach the volatility a little bit better.
Bob: Yes.
Amy: And if this is something you've never heard about before, it's actually a relatively new strategy. 2018, 2019 is really when it first came on the market and we've been kind of using them more and more often here over the past few years. So, if this sounds like maybe something you're interested in, I would say, hey, do your research, but it could be an option for you.
Bob: Yeah. And by do your research, I would put this in the category of, you know, don't try this at home.
Amy: Don't do this at home. Yeah.
Bob: Because the contractual fine print on these things varies, you know, amongst different buffered ETFs. So, you really need to have a good fiduciary sit down with you and explain how this works so you know what you're buying before you put your money on the table.
Amy: Here's the Allworth advice. Buffered ETFs can be a useful tool if maybe you are a conservative investor, especially if you are near or in retirement, and you still know, "Hey, I need exposure to the stock market, but I have a bit of a safety net here."
Coming up next, how to deal with an unexpected emergency that you likely never thought might be one. 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. Are diamonds really a girl's best friend? I would say they're probably up there. But honestly, we've got Al Riddick from Game Time Budgeting coming on today. And one of the things about Al is I never know where these segments are going to go. He just says, "Here's what I want to talk about," and then he takes it. So I'm just going to say, all right, Al, we're listening. Are diamonds really a girl's best friend.
Al: So, the answer to that question might be "It remains to be seen." However, you know, I have a story for you, Amy.
Amy: Okay. I know you do.
Al: So, I'm sitting in my office and then my cell phone buzzes because I get a text from my wife. So when I turn my phone over to read the text, it reads, "I lost a diamond from my ring." So for our 10-year anniversary, Amy, just to give you a little bit of backstory, I upgraded my wife's wedding band. So keep in mind, we've been married for over 22 years. But when I heard about her losing the diamond, naturally, a guy that thinks the way I do about money, I started thinking about the length of time that she's had to upgrade and the cost per use for that potential loss of diamond.
Amy: Of course, you did. Of course, you did.
Al: That's just the way my mind works, Amy.
Amy: And assuming she wears it every day, Al, you got your money's worth, right?
Al: Of course, I did. But I have to tell you one of the initial thoughts that I had on a serious tip, so to speak. First, I was like, "Man, I wonder how traumatized my wife might be about this ring situation?" And then it hit me. I was like, "Man, I need some clarity. Is she talking about what I refer to as the Mother diamond? Or is she talking about what I call one of the baby diamonds because we're talking two totally different ends of the cost spectrum, you know?"
Another thing as well, Amy, with the big diamond that she has, of course, that's insured. But when I purchased the upgrade for the smaller wedding band with the baby diamonds, I was like, "Man, what's the chances of a diamond falling out?" And it's five little diamonds. I was like, "You know, it's about 20%, you know, 1 out of 5." So I didn't insure the wedding band, so to speak. But of course, I had insurance on the big diamond. So, I guess I'm just going to have to eat that cost, huh, Amy?
Amy: Well, is that the answer, it was one of the baby diamonds?
Al: It was one of the baby diamonds.
Amy: Okay.
Al: Sorry, sorry for my lack of clarity there. So, that is what the situation had presented to us. And I'm kind of tossing back and forth in my mind, Amy, like, "This type of expense, you know, is it coming out of the emergency fund?"
Amy: Mm-hmm.
Al: "Should I just consider it another gift for my wife?" But honestly, I'm leaning more towards the emergency fund. What do you think, Amy?
Bob: Hey, Al, I got a question for you. Putting my financial advisor hat on here for just a second.
Al: Yes, sir.
Bob: You talked about insurance. What was the difference in premium between insuring the entire ring versus trying to save a few pennies on the dollar and just insuring the Mother Lode diamond only? Did you ever run those numbers?
Al: You know, actually, it's been so long ago. I don't remember what those numbers were. I just know that I was willing to take that risk, sir, because the upgrade, it was just for the one with the five diamonds. The Mother diamond, that was already insured from day one, you know?
Amy: Yeah. You know, Al, though you make a great point, and I do want to go back to the question that you had about where the money should come from. Because one of the things I very much admire about you and your wife is you give every dollar that comes into your household, a job. You know exactly where it's going to go. So when something unexpected happens... You're planning for every vacation, every vehicle purchase, but when something unexpected happens, like, you lose a high-dollar item like a diamond, where do you go for that? Do you go to your emergency fund? I mean, I think that probably makes sense.
Al: We are definitely going to go to our emergency fund, I believe, to cover this expense. And one of the funny things about this, my wife, she's now wearing like, her old wedding band, and she hasn't brought it up, the fact that she needs a new diamond for the old one. So I'm like, "Is she really ever going to replace it?" Well, you are correct, Amy, this expense is going to come out of our emergency fund. And when you think about it, although this is a very unique situation so far as losing a diamond, you could almost look at it as how is this a reflection about most people's average everyday life, you know?
Amy: Yeah. Yeah.
Al: Do you have the money set aside for like, when the oven goes out or when you need a new refrigerator?
Amy: Unexpected.
Al: So, I think it's always wise to have that pot of cash that you can tap into for some of those unexpected events. And obviously, in this case, I think we're just going to call that an emergency expense and just roll with it from there, Amy.
Bob: All right. Hey, Al, speaking of roll with it, and I'm trying to put myself in your shoes...
Al: Yes, sir.
Bob: ...as the mayor in this equation, you got your wife rolling around here in her old wedding band. When are you going to just cut the ripcord here and replace the diamond and get it done, brother? Let's go.
Al: So listen, to me...
Bob: What are we doing?
Al: So to me, I'm using her as my thermometer, so to speak, right?
Amy: Okay.
Al: When she really wants to execute the next action as it relates to a replacement, we can do it.
Bob: Are you trying to like, extract as many favors from her as you can before you reward her?
Al: No, I am not.
Bob: Is that the game we're playing here, Al?
Al: Actually, I already have the process to fix this situation. So, I know where the money's coming from.
Amy: Okay.
Al: But can you believe I did a little research online? You can actually purchase a lab-made diamond, believe it or not. It is grown in a lab under the same conditions as a diamond that comes out of the earth, but you can get it for a lot less expense. All you have to do, they just need the millimeter dimensions of the diamond, and you can actually order one. So I'm just waiting on my wife to say, "Honey, it's time to go ahead and get that diamond." And then I'll make a move, you know?
Amy: Yes. Hey, Al, one of the things I love about you is you take your real-life experiences, we all have them, and you bring it back to money. And, you know, for listeners, I want to be really clear about what it is that you do, because they can work with you. And I've even sent people to you who maybe need help figuring out how to budget, people who are convicted about making money changes in their lives, but they do not know where to start. Can you briefly walk us through what it looks like to work with you?
Al: So when you engage with Al Riddick, first of all, I have to tell everybody, the reason that I wake up in the morning is to help people develop the proper mindset, behaviors and systems with money, so they can save more, reduce debt and improve their quality of life, right?
Amy: Yeah.
Al: So throughout our coaching sessions, my goal is to help you tap into what I call some of that reserve discipline that we have not exerted towards money. We've been doing it in a lot of other places, but not towards money to help you come up with a simple and easy-to-duplicate system that you can follow over and over and over again to make the gap between income and spending as wide as possible to increase the number of options that you have with money. That's all it is at the end of the day. I could try to use some 13-letter words to make it sound fancy, but all I'm trying to do is help people learn to make money [crosstalk 00:28:32].
Amy: Yeah.
Bob: Like budget alpha?
Amy: Exactly. Exactly. Well, and I love that you use the word "coaching," right? We all have it in us, but some of it needs to be coached out a little bit more. So, if you are someone who does feel like, "Okay, you know what? I'm tired of living paycheck to paycheck and I'm tired of feeling like my money controls me," that might be a good time to reach out to Al, right, Game Time Budgeting and say, "Okay. I'm going to get serious about this. Let's partner together. Help me figure this out." This is a game-changing decision, potentially, in your financial journey. Al Riddick, we are super-grateful for you. We always love your stories. We always learn from you and we're grateful for the work you are doing with so many investors. 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. If you have a financial question you just got to get it figured out, maybe it's keeping you up at night. There's a red button you can click on while you're listening to the show. It's right there on your iHeart app. Record your question. It's coming straight to us.
And straight ahead, we would say seven reasons it's important to have a fiduciary financial advisor in your corner or the appropriate education. We'll get into what that looks like. Okay. Many of you have collectively kind of breathed a sigh of relief over the past couple of years. Why? Because you filed your taxes. And then you're like, "Okay, I'm done with that. I'm not going to think about it until next spring." And we would say, if that's how you think about your taxes, you're missing out.
Bob: Amy, tax proactive tax planning, and I underline "planning" as opposed to simply tax preparation...
Amy: Big difference.
Bob: ...is a huge part of what we do for our clients here at Allworth. So now, is a great time to dust off that tax return because it's fresh in people's mind. They see what they did or didn't do in 2024. I know in the meetings I'm having, I know in the meetings you're having with your clients, Amy, it's like, "Hey, give us that 2024 tax return. Let us put that thing up on the rack and let's start planning ahead for 2025 in order to help our clients keep more money in their pocket." Because after all, it's not what you make, it's what you keep at the end of the day that really matters.
Amy: Yeah. I mean, maybe I'm creating more work for my clients, but I'm like, "Okay. Guys, as soon as you get that tax return, I want to see it, you get it to me." And we're already planning lots of conversations over the course of the next few weeks about whether Roth conversions make sense. You know, looking at your tax return is also a great way to plan income strategies in retirement. You know, how do you take money out of your investments and be as tax-efficient as possible? All of this is part of tax planning. I had someone in my office yesterday who, together, this couple has built a substantial amount of wealth. But now, there's concentrated positions in a few companies and they feel a little bit backed into the corner from a tax standpoint, because if they were going to sell out of those, it would be, you know, high taxes.
So, we talked about different strategies and he looked at me and he said, "Why has no one talked to me about this before?"
Bob: Yeah.
Amy: "You just used this term, 'tax alpha' and I don't even know what you're talking about." And I said, "Okay, let's talk about tax alpha. You could have investor A and investor B. And investor A is just going along, doing all the right things, socking money into their 401(k)s, investing everything. They've got taxable accounts open. They're seriously saving for their future. The other investor, investor B, doing the same thing, but they're thinking through it from a tax standpoint. How do we keep as much of this money in my pocket and out of Uncle Sam's hands as possible? And that, the difference between those two ways of thinking is tax alpha. How do you keep more money in your own pocket?"
Bob: Yeah. And I've seen data that suggests as high as 85% of CPAs and tax preparation folks don't do any advanced planning. And it's not their fault. They don't have time to do it.
Amy: Right.
Bob: They're getting inundated with this pile of stuff to just generate the returns at the last minute and they're busy.
Amy: Yeah.
Bob: So, you spend the other 9 to 11 months of the year doing the kind of stuff that you just talked about. And that's what we do to help our clients plan ahead. So, you already talked about managing where you take your cash flow from. The other thing is RMDs, which you mentioned too. And again, conceptually at age 73 is when you have to start taking required minimum distributions from your IRAs and 401(k)s. Well, a lot of times, people retire before age 73 and they've got that period of time where they're in a lower tax bracket than they were when they were working, and a lower tax bracket than they will be in if they do nothing and just allow these required minimum distributions to rear their ugly heads. So that's where we can get in and proactively plan, you know, take a little bit out now, paying a lower tax rate, converting that to a Roth or using some of that money to support their monthly income. There's lots of things we can do there. So, managing withdrawals, RMDs, let's talk, Amy, talk about charitable planning.
Amy: Yeah. So, I had someone in my office just yesterday in this situation, they had worked with another advisor before. They had been doing charitable donations out of their checking accounts. You know, they have big hearts, they love these organizations. They want to make an impact. But they're also 71, 72 years old and they have the ability to pull those donations directly out of their IRAs, give them straight to those charities. So, same impact, but here's the deal. If it's coming directly out of that tax-deferred IRA and going directly to the charity, you actually don't have to pay taxes on that money. So, they were missing a step and they were getting taxed on the money. You know, they were putting the money into the charity that they had already been taxed on. So, it was just a miss there when it comes to taxes.
Bob: Well, and now with the standard deduction being $30,000 a year for married filing-joint couples, unfortunately, there's a lot of people that don't get the tax benefit of just dropping that money in the offering plate at church anymore.
Amy: Yeah.
Bob: And Amy, I'm continuing to be shocked at how many people don't know how to do this. You can start doing this when you're 70-and-a-half...
Amy: Yes.
Bob: ...up to $100,000 a year. You don't have to wait until you're 73 and get into a required minimum distribution situation. It's a wonderful planning opportunity that far too few people are taking advantage of.
Amy: I get lots of people in my office who have recently retired and you got the memo. You have to save for your own retirement, right? So, they have shoved and shoved and shoved money into their 401(k)s. And the problem is it's all tax deferred. And so then, that becomes a huge tax burden. There are strategies here where you can diversify out of that. I think the question for you is, are you looking into them? Do you understand them? Here's the Allworth advice. Tax planning isn't just this kind of smart add-on to your retirement strategy. It's really kind of a foundational piece that can significantly impact your financial future. Next, a sobering look at the state of financial literacy. 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. One of the reasons I love my job so much is because I am so passionate about helping people make smart money decisions. And so, when there is evidence that it's working, I get excited. And when there's evidence that people are still missing out, that there are major gaps in what we know about money, it does make me a little bit sad.
Bob: And you even cover things in the produce aisle at Kroger. That's how passionate you are.
Amy: Find me in Kroger and I will talk to you about Social Security or whatever you want to talk to me about.
Bob: All right. Well, let's get into this financial literacy topic. FINRA, which is a large financial regulatory organization, you know, did a 7-question quiz to 25,500 adults in recent months. And some of these test results were pretty remarkable. Three in 10 test takers missed a simple question about interest rates. Two in five flubbed a question about how inflation works. So let's get into this, Amy. We got some educating to do.
Amy: Yeah. I mean, we're asking you right now, do you know the answers to this question? Okay. So, imagine that the interest rate on your savings account last year was 1% and inflation then was 2%. So after one year, how much would you be able to buy with the money in this account? The answers: more than today, exactly the same or less than today, don't know. So, you've got inflation at 2%, interest at 1%. Guys, the answer is your purchasing power has gone down, right? Inflation is eating up the interest that you're getting on this. And the fact that 25,000 people are taking this test and many of them are not getting it right. Right? This is a simple...
Bob: Well, 4 in 10 got that question wrong, Amy.
Amy: Yeah. Yeah. So that's a big gap in knowledge that we have to make sure people understand. Here's another one. True or false? Buying a single company's stock usually provides a safer return than a stock mutual fund.
Bob: Only 40% of people got that answer correct, you know, that it's generally riskier to invest in a single stock rather than spread risk among many stocks in a diversified mutual fund. So, yeah. Now here's, I guess, some good news and it all depends on what these youngsters are being taught in school. In Ohio in 2026, it'll be the first graduating high school class to be required to take a personal finance course. In Kentucky, that year is 2030. That'll be the first year that high school graduates have been required to take a personal finance course. I think that's good.
Amy: I think it's great.
Bob: It all depends on what these youngsters are being taught. But I have to think a basic financial literacy course will help more than 4 of 10 people answer those 2 questions we just reviewed correctly.
Amy: And guys, it has to start at home too, by the way. You totally just dated yourself by using the word "youngsters." Thanks for listening. Tune in tomorrow. We're talking about our take on a claim you should be 100% invested in stocks. You've been listening to "Simply Money" presented by Allworth Financial here on 55KRC, The Talk Station.
Bob: While the rest of us were just out doing Easter egg hunts, Amy.
Amy: Can we just stick with the Easter egg hunting, please?
Bob: All right. Well, you know, obviously the markets were down, you know, big yesterday, and everybody always likes to guess on why that happened. I think there's a couple things that happened. And one of which is, to your point, Amy, the President, you know, went on Truth Social, called Fed Chairman Powell, a loser and all that. I think that stuff can be very unsettling, you know, to the markets. And it was yesterday.
I think the other thing is, folks were hoping for some resolution somewhere, somehow on some of these trade deals. And we got nothing on that over a long three day weekend as well. So you combine that and again, Amy, just an opinion. I think President Trump, it just looked like he was trying to find somebody to blame other than himself for not getting some of these trade tariff deals done. And the target this week or this weekend was Chair Powell. Markets didn't like it and for good reason.
Amy: Well, and I have to point out too, this is nothing new, a president going after a Fed Chair. And I think it's important to then step back and say "What's happening here?" And make sure that you understand what the whole point of the Federal Reserve is, right? And so first of all, it's supposed to be apolitical. I mean, even the paychecks for the people in the Fed come from outside the Congressional budget. Like, this is supposed to be set up in a way where there's a bit of a political wall around the Federal Reserve. And they're supposed to keep their heads down.
Bob: I mean, it's called "checks and balances" in government. That served us well for well over 200 years.
Amy: Yes. Yes. Absolutely. And the dual mandate of the Federal Reserve is two things. Two things. It is to make sure that we keep inflation in check and that people are working, right? That's what...their nose is supposed to be down looking at reams of data. And there's only a few levers that they can kind of pull in order to keep those things in check. One of those, of course, is interest rates. And historically, the issue with presidents is if you are going to lower interest rates, it tends to juice the economy, right? It's cheaper for people to borrow money. It tends to kind of loosen up the economy. So, when you have maybe an incumbent president running for reelection, they might go to the Fed Chair and say, "Hey, would be great, right, if you could lower interest rates." And there's evidence of that in our country's history. I mean, you go back to President Nixon and he was doing this to the Fed Chair at the time. And the Fed Chair under Nixon, in his diary going back, he talks about lots of pressure from the President who's seeking reelection and kind of wanting me to help him with that. But again, this is an office. This is an entity that is supposed to be apolitical. So, when you have President Trump making these decisions about things like tariffs that could potentially be inflationary, I think his sort of inexplicit message is, "Hey, can you help me a little bit here? If we lower interest rates, things might go a little more smoothly on my agenda." Point being, that's not necessarily the job of the Fed.
Bob: No, it's not. And just trying to stay politically neutral here, which is what we need to do and just look at facts. I mean, under the last administration, people were pulling their hair out over that term "weaponization of government." We didn't like it when we felt like one side of the aisle or one administration was using parts of the government inappropriately. Well, if you don't like it then, you shouldn't like it now either. And I think historically, a lot of times... I mean, I think we're naíve if we don't think presidents have sat down and had a cup of coffee with the Fed Chairman or played a round a golf. But you...
Amy: Absolutely. Passed a note. When Bush passed a note to the Fed Chair and was like, kind of, "Hey, can you help me out here?"
Bob: Yeah.
Amy: There is a history of this going back decades.
Bob: But you do that in a collegial manner behind closed doors. You don't go on social media and basically call the guy an idiot and a fool and that you're going to fire him. And we've talked about this umpteen different times. I mean, that's the way our current President likes to communicate. It is unsettling to a lot of people and it was unsettling to the markets yesterday. On top of the fact we got no progress on trade talks and we're in a pretty busy corporate earnings season right now getting very little guidance from a lot of companies because of the uncertainty around trade policy.
Amy: You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. Every time I think we hope we can take a collective breath and maybe check our 401(k)s and not have bad news, there is a fresh round of news. And this week, I think volatility that we're seeing is because President Trump is now saying, "Hey, I want to fire the Chair of the Federal Reserve." Keep in mind too, this is the President who appointed him during his first term.
Bob: Yep. President Trump appointed Chair Powell in 2017. He took office in 2018. And then President Biden reappointed Chair Powell to an additional 4-year term in 2022. So, you know, he is supposed to be in there until May of 2026. And yeah, so, you know, this is the guy you appointed. And I know he said even back in 2022 that, you know, they were too late to raise rates and then had to raise them 7 times. We can all have our opinions on how to run the economy. It's how you communicate that publicly and keeping in mind that you are the leader of the free world. That's what can get people unsettling.
Amy: It is the latest round of uncertainty. And so, you know, I think if you step back and say, okay, lots going on in the U.S. right now, maybe one thing that you can do as an investor, right, we cannot certainly control what's going on in Washington. Maybe we would not even want to try. But the point of being truly diversified is that right now, some U.S. companies are taking a bit of a beating. And so, I think the question you have to ask yourself is if I'm truly well-diversified, I'm actually also invested in global markets outside of the U.S. I think we love kind of homegrown. And, you know, we work for these companies. We believe in these companies. Our neighbors, our relatives all work for these companies. But I think to be truly diversified, you have to also look outside of the U.S.
Bob: Yeah. And, Amy, you and I have discussed the importance of bonds in a portfolio and how well those have done to kind of cushion volatility and diversified portfolios so far in 2025. The same can be said of international stocks. And if we just look at the largest, most common international stock index, it's called the EFA index, Europe, Australia, and Far East. That index is up 7% year-to-date as of Friday. It's up 10% over the last year. And interestingly enough now, over the last 3-year period, 3-year average annual return, the EFA index is up 7.9% per year over the last t3 years, exactly equal to the S&P 500.
Amy: Yeah.
Bob: And like, we talked about with bonds, when tech stocks are going gangbusters and you can just set it and forget it with big cap U.S. stocks, people tend to forget the importance of diversity. Kudos to our Chief Investment Officer, Andy Stout. He's got this stuff in our portfolios here at Allworth all the time, and it's doing its job.
Amy: Yeah. The average American investor has close to 80% of their stock holdings in U.S. companies, but the U.S. actually only makes up about 60% of the global stock market. So you could be missing out on something here. And I think here's an exercise for you. Pay attention during the course of one day to the products that you use all the time that you love. Is your car made here in the U.S.? Is your phone made here in the U.S.? The coffee machine that you're getting your coffee out of, where is that made? You're probably interacting pretty regularly with companies outside the U.S.
Bob: Well, you buy a lot of expensive shoes and purses, Amy. I highly doubt those come from the United States. [crosstalk 00:09:52]
Amy: I think most of mine are actually from Target, but I'm glad I fooled you there. And I think it's just important, though, to look at, you know, and we talk about behavioral finance a lot. Behavioral economists call this home-country bias, right? We know our companies here, but if you do have that bias, and we've said this many times, you check your political bias at the door when you're investing, and I think you've got to check that bias here as well. Do you know if you own other countries' portfolios, other countries' companies in your portfolio? I think it's time to do a check on that.
Bob: Well, I think it just comes down to valuation. You want to look at valuation for any asset that you're looking at buying, whether that's a U.S. stock, a global stock, a bond, a piece of real estate. You're trying to buy it on sale when it's oftentimes out of favor. And that's what we're talking about here. There are different asset classes at any given time where on a price earnings basis, you know, based on historical performance, it can be a little undervalued. And international stocks are an example of an asset class that was pretty much ignored for, you know, the last few years. And lo and behold, now, money's starting to go into it and it's helping us make money.
Amy: Are we saying go all in on the globe?
Bob: No.
Amy: No, absolutely not. But do you own a portion of the global economy and do you even know? You know, we talk about kind of building the boat for times like this where we're seeing volatility in the markets. I think a lot of building the boat is educating yourself on exactly how you are invested. You should know what's making up your portfolio. You should know how your 401(k) is invested.
Bob: Well, and ideally, you build the boat before the storm comes, not after. So, we are not saying bail out on all your U.S. stocks now and pile into international.
Amy: No.
Bob: We're just saying, you know, this is a good reminder to have a good diversified portfolio at all times.
Amy: Yes.
Bob: And it helps you find that sweet spot, ideally, to get the highest rate of return per unit of risk. And that's what good, responsible asset allocation is all about.
Amy: Yep. Here's the Allworth advice. The world is actually bigger than the S&P 500 and smart investors know that sometimes the best opportunities aren't always located in your own backyard.
Coming up next, a strategy that is all the rage right now. Is it a strategy that makes sense 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. Straight ahead at 6:43, tax season is over, but maybe you should just be getting started on your taxes. We'll explain to you what we mean by that. There is a strategy that I'm having conversations with a lot more often now in my office, it's called, buffer ETF. And in fact, you know, yesterday, Bob, I had someone in my office, who, we put into this strategy about a year ago and they were really, really glad that we had because, you know, when the overall markets are down, pretty bad so far this year, they have truly been buffered from a large part of that downside. If you are someone who this volatility is making really nervous right now, I would say lean in, listen up. This might be a good strategy for you.
Bob: Well, about $7 billion of capital has flowed into these buffered ETFs as of early April of this year. So, this is a popular strategy that's being used. We have a buffered ETF built-out strategy and portfolio here at Allworth. So, we're using multiple buffered ETFs in one single portfolio, which is a real nice strategy, but yeah. At the end of the day, you've got clients and we all have them, that they intellectually know that they've got to have a piece of their portfolio in the game, so to speak, where they have the opportunity to earn the type of investment returns that come with being in the stock market, but they just can't handle the potential downside volatility. So, a buffered-ETF strategy just puts brackets around those potential returns, both on the upside and the downside, and they come in all shapes, sizes and colors. And you can dial up the level of buffers on the upside and downside, and it helps to put, you know, some parameters around what your worst-case scenario can be in a down market, and people are finding that attractive.
Amy: Yeah. So let's give an example. So, say you have a buffer ETF set up to buffer you from the first 10%, right, of any kind of market downturn. So if the S&P 500 drops 8%, your ETF has that 10% buffer. You're good, right?
Bob: Well, you're good, meaning you don't take on any of the downside.
Amy: You don't feel any of that downside. Yes.
Bob: Yeah.
Amy: If the S&P 500, say, drops 20%, okay, you are going to be down. Everyone else is down 20%. You're only down 10% because you've got that first 10% buffer.
Bob: The first 10% was on the house, right?
Amy: Absolutely. Absolutely. On the flip side, right, on the upswing here, if the S&P 500 gains 18% and your cap is at 15%, okay, well, then you're only going to participate in the first 15% of that upside, right? So, kind of the downside protection comes from that upside cap. But for nervous investors who lose sleep during times of market downturn, what a nice option, as an investor, to know that the first 10%, the first 15% of the market downturn, you may not even be exposed to, you may not even have to participate in.
Bob: Yeah. Because we talk about all the time, Amy, the average entry year drop of the S&P 500 on average, going back over 50 years is around 14%. Well, you put somebody in there with a 15% buffer, you know, with a good buffered ETF strategy, they don't take on any of that downside. So the odds are in your favor. And people like the fact that, "Hey, the average is 14.3% shelter me from the first 15%. I'm good."
Amy: Yeah.
Bob: "I don't have to watch cable news eight hours a day to figure out what's going on because I know some of my downside, it's protected." And I have to bring up, Amy, you know, this is in comparison to some of these annuity strategies...
Amy: Yes.
Bob: ...that are being sold out there with huge commissions, huge surrender charge periods and...
Amy: And they're talking about protection, protection, protection, right? That's how they sell those annuities.
Bob: And by the time you look at what your actual return could possibly be, even in a good scenario, when you net it out for fees and expenses and all that, you might as well have just bought a bond, you know.
Amy: Yeah.
Bob: So, these are much more...they're more fee-attractive to people. You can get out of them at any time.
Amy: You're not buying something, you're investing in it.
Bob: Yeah. There's no commissions. It's a much better way to play the buffering your downside in your portfolio and people love it.
Amy: I do want to get your take on this. Okay. So, say someone's listening and they're like, "Yes, yes, this is for me. Put all my money in a buffer ETF right now, because I hate downside." Do you think it's a good strategy to go all in on these?
Bob: Absolutely not. And without getting too far into the weeds here, our strategy that, you know, Andy Stout, our Chief Investment Officer and his team, run here at Allworth, it's comprised of a bunch of different buffered ETFs. But we tell clients up front, the best way to take advantage of this strategy is to commit to it for at least one year.
Amy: Yep.
Bob: That allows it to work because during periods of volatility, they will sell one of these buffered ETFs that protected downside, reset your downside by something else, you got to let the strategy work for about a year to see the benefits of it. So, we still go back, Amy, to what you and I talk about all the time, that one to three-year cash flow position being completely out of the market, being in less volatile asset classes like short-term bonds, treasury bills, CDs, cash. That allows you to weather from a cash-flow standpoint, volatility, like, what we're going on. These buffers, buffered ETFs are more, I think, for the emotional threshold.
Amy: Yeah.
Bob: "Hey, I know I need to be in for the long term. I'm willing to put it away and not think about it. But boy, I don't want to see my portfolio balance flying all over the place."
Amy: Yeah.
Bob: And that's where people like having a portion... You know, these are risk-averse people having a portion of their long-term capital invested in strategies like this.
Amy: It helps you kind of stomach the volatility a little bit better.
Bob: Yes.
Amy: And if this is something you've never heard about before, it's actually a relatively new strategy. 2018, 2019 is really when it first came on the market and we've been kind of using them more and more often here over the past few years. So, if this sounds like maybe something you're interested in, I would say, hey, do your research, but it could be an option for you.
Bob: Yeah. And by do your research, I would put this in the category of, you know, don't try this at home.
Amy: Don't do this at home. Yeah.
Bob: Because the contractual fine print on these things varies, you know, amongst different buffered ETFs. So, you really need to have a good fiduciary sit down with you and explain how this works so you know what you're buying before you put your money on the table.
Amy: Here's the Allworth advice. Buffered ETFs can be a useful tool if maybe you are a conservative investor, especially if you are near or in retirement, and you still know, "Hey, I need exposure to the stock market, but I have a bit of a safety net here."
Coming up next, how to deal with an unexpected emergency that you likely never thought might be one. 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. Are diamonds really a girl's best friend? I would say they're probably up there. But honestly, we've got Al Riddick from Game Time Budgeting coming on today. And one of the things about Al is I never know where these segments are going to go. He just says, "Here's what I want to talk about," and then he takes it. So I'm just going to say, all right, Al, we're listening. Are diamonds really a girl's best friend.
Al: So, the answer to that question might be "It remains to be seen." However, you know, I have a story for you, Amy.
Amy: Okay. I know you do.
Al: So, I'm sitting in my office and then my cell phone buzzes because I get a text from my wife. So when I turn my phone over to read the text, it reads, "I lost a diamond from my ring." So for our 10-year anniversary, Amy, just to give you a little bit of backstory, I upgraded my wife's wedding band. So keep in mind, we've been married for over 22 years. But when I heard about her losing the diamond, naturally, a guy that thinks the way I do about money, I started thinking about the length of time that she's had to upgrade and the cost per use for that potential loss of diamond.
Amy: Of course, you did. Of course, you did.
Al: That's just the way my mind works, Amy.
Amy: And assuming she wears it every day, Al, you got your money's worth, right?
Al: Of course, I did. But I have to tell you one of the initial thoughts that I had on a serious tip, so to speak. First, I was like, "Man, I wonder how traumatized my wife might be about this ring situation?" And then it hit me. I was like, "Man, I need some clarity. Is she talking about what I refer to as the Mother diamond? Or is she talking about what I call one of the baby diamonds because we're talking two totally different ends of the cost spectrum, you know?"
Another thing as well, Amy, with the big diamond that she has, of course, that's insured. But when I purchased the upgrade for the smaller wedding band with the baby diamonds, I was like, "Man, what's the chances of a diamond falling out?" And it's five little diamonds. I was like, "You know, it's about 20%, you know, 1 out of 5." So I didn't insure the wedding band, so to speak. But of course, I had insurance on the big diamond. So, I guess I'm just going to have to eat that cost, huh, Amy?
Amy: Well, is that the answer, it was one of the baby diamonds?
Al: It was one of the baby diamonds.
Amy: Okay.
Al: Sorry, sorry for my lack of clarity there. So, that is what the situation had presented to us. And I'm kind of tossing back and forth in my mind, Amy, like, "This type of expense, you know, is it coming out of the emergency fund?"
Amy: Mm-hmm.
Al: "Should I just consider it another gift for my wife?" But honestly, I'm leaning more towards the emergency fund. What do you think, Amy?
Bob: Hey, Al, I got a question for you. Putting my financial advisor hat on here for just a second.
Al: Yes, sir.
Bob: You talked about insurance. What was the difference in premium between insuring the entire ring versus trying to save a few pennies on the dollar and just insuring the Mother Lode diamond only? Did you ever run those numbers?
Al: You know, actually, it's been so long ago. I don't remember what those numbers were. I just know that I was willing to take that risk, sir, because the upgrade, it was just for the one with the five diamonds. The Mother diamond, that was already insured from day one, you know?
Amy: Yeah. You know, Al, though you make a great point, and I do want to go back to the question that you had about where the money should come from. Because one of the things I very much admire about you and your wife is you give every dollar that comes into your household, a job. You know exactly where it's going to go. So when something unexpected happens... You're planning for every vacation, every vehicle purchase, but when something unexpected happens, like, you lose a high-dollar item like a diamond, where do you go for that? Do you go to your emergency fund? I mean, I think that probably makes sense.
Al: We are definitely going to go to our emergency fund, I believe, to cover this expense. And one of the funny things about this, my wife, she's now wearing like, her old wedding band, and she hasn't brought it up, the fact that she needs a new diamond for the old one. So I'm like, "Is she really ever going to replace it?" Well, you are correct, Amy, this expense is going to come out of our emergency fund. And when you think about it, although this is a very unique situation so far as losing a diamond, you could almost look at it as how is this a reflection about most people's average everyday life, you know?
Amy: Yeah. Yeah.
Al: Do you have the money set aside for like, when the oven goes out or when you need a new refrigerator?
Amy: Unexpected.
Al: So, I think it's always wise to have that pot of cash that you can tap into for some of those unexpected events. And obviously, in this case, I think we're just going to call that an emergency expense and just roll with it from there, Amy.
Bob: All right. Hey, Al, speaking of roll with it, and I'm trying to put myself in your shoes...
Al: Yes, sir.
Bob: ...as the mayor in this equation, you got your wife rolling around here in her old wedding band. When are you going to just cut the ripcord here and replace the diamond and get it done, brother? Let's go.
Al: So listen, to me...
Bob: What are we doing?
Al: So to me, I'm using her as my thermometer, so to speak, right?
Amy: Okay.
Al: When she really wants to execute the next action as it relates to a replacement, we can do it.
Bob: Are you trying to like, extract as many favors from her as you can before you reward her?
Al: No, I am not.
Bob: Is that the game we're playing here, Al?
Al: Actually, I already have the process to fix this situation. So, I know where the money's coming from.
Amy: Okay.
Al: But can you believe I did a little research online? You can actually purchase a lab-made diamond, believe it or not. It is grown in a lab under the same conditions as a diamond that comes out of the earth, but you can get it for a lot less expense. All you have to do, they just need the millimeter dimensions of the diamond, and you can actually order one. So I'm just waiting on my wife to say, "Honey, it's time to go ahead and get that diamond." And then I'll make a move, you know?
Amy: Yes. Hey, Al, one of the things I love about you is you take your real-life experiences, we all have them, and you bring it back to money. And, you know, for listeners, I want to be really clear about what it is that you do, because they can work with you. And I've even sent people to you who maybe need help figuring out how to budget, people who are convicted about making money changes in their lives, but they do not know where to start. Can you briefly walk us through what it looks like to work with you?
Al: So when you engage with Al Riddick, first of all, I have to tell everybody, the reason that I wake up in the morning is to help people develop the proper mindset, behaviors and systems with money, so they can save more, reduce debt and improve their quality of life, right?
Amy: Yeah.
Al: So throughout our coaching sessions, my goal is to help you tap into what I call some of that reserve discipline that we have not exerted towards money. We've been doing it in a lot of other places, but not towards money to help you come up with a simple and easy-to-duplicate system that you can follow over and over and over again to make the gap between income and spending as wide as possible to increase the number of options that you have with money. That's all it is at the end of the day. I could try to use some 13-letter words to make it sound fancy, but all I'm trying to do is help people learn to make money [crosstalk 00:28:32].
Amy: Yeah.
Bob: Like budget alpha?
Amy: Exactly. Exactly. Well, and I love that you use the word "coaching," right? We all have it in us, but some of it needs to be coached out a little bit more. So, if you are someone who does feel like, "Okay, you know what? I'm tired of living paycheck to paycheck and I'm tired of feeling like my money controls me," that might be a good time to reach out to Al, right, Game Time Budgeting and say, "Okay. I'm going to get serious about this. Let's partner together. Help me figure this out." This is a game-changing decision, potentially, in your financial journey. Al Riddick, we are super-grateful for you. We always love your stories. We always learn from you and we're grateful for the work you are doing with so many investors. 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. If you have a financial question you just got to get it figured out, maybe it's keeping you up at night. There's a red button you can click on while you're listening to the show. It's right there on your iHeart app. Record your question. It's coming straight to us.
And straight ahead, we would say seven reasons it's important to have a fiduciary financial advisor in your corner or the appropriate education. We'll get into what that looks like. Okay. Many of you have collectively kind of breathed a sigh of relief over the past couple of years. Why? Because you filed your taxes. And then you're like, "Okay, I'm done with that. I'm not going to think about it until next spring." And we would say, if that's how you think about your taxes, you're missing out.
Bob: Amy, tax proactive tax planning, and I underline "planning" as opposed to simply tax preparation...
Amy: Big difference.
Bob: ...is a huge part of what we do for our clients here at Allworth. So now, is a great time to dust off that tax return because it's fresh in people's mind. They see what they did or didn't do in 2024. I know in the meetings I'm having, I know in the meetings you're having with your clients, Amy, it's like, "Hey, give us that 2024 tax return. Let us put that thing up on the rack and let's start planning ahead for 2025 in order to help our clients keep more money in their pocket." Because after all, it's not what you make, it's what you keep at the end of the day that really matters.
Amy: Yeah. I mean, maybe I'm creating more work for my clients, but I'm like, "Okay. Guys, as soon as you get that tax return, I want to see it, you get it to me." And we're already planning lots of conversations over the course of the next few weeks about whether Roth conversions make sense. You know, looking at your tax return is also a great way to plan income strategies in retirement. You know, how do you take money out of your investments and be as tax-efficient as possible? All of this is part of tax planning. I had someone in my office yesterday who, together, this couple has built a substantial amount of wealth. But now, there's concentrated positions in a few companies and they feel a little bit backed into the corner from a tax standpoint, because if they were going to sell out of those, it would be, you know, high taxes.
So, we talked about different strategies and he looked at me and he said, "Why has no one talked to me about this before?"
Bob: Yeah.
Amy: "You just used this term, 'tax alpha' and I don't even know what you're talking about." And I said, "Okay, let's talk about tax alpha. You could have investor A and investor B. And investor A is just going along, doing all the right things, socking money into their 401(k)s, investing everything. They've got taxable accounts open. They're seriously saving for their future. The other investor, investor B, doing the same thing, but they're thinking through it from a tax standpoint. How do we keep as much of this money in my pocket and out of Uncle Sam's hands as possible? And that, the difference between those two ways of thinking is tax alpha. How do you keep more money in your own pocket?"
Bob: Yeah. And I've seen data that suggests as high as 85% of CPAs and tax preparation folks don't do any advanced planning. And it's not their fault. They don't have time to do it.
Amy: Right.
Bob: They're getting inundated with this pile of stuff to just generate the returns at the last minute and they're busy.
Amy: Yeah.
Bob: So, you spend the other 9 to 11 months of the year doing the kind of stuff that you just talked about. And that's what we do to help our clients plan ahead. So, you already talked about managing where you take your cash flow from. The other thing is RMDs, which you mentioned too. And again, conceptually at age 73 is when you have to start taking required minimum distributions from your IRAs and 401(k)s. Well, a lot of times, people retire before age 73 and they've got that period of time where they're in a lower tax bracket than they were when they were working, and a lower tax bracket than they will be in if they do nothing and just allow these required minimum distributions to rear their ugly heads. So that's where we can get in and proactively plan, you know, take a little bit out now, paying a lower tax rate, converting that to a Roth or using some of that money to support their monthly income. There's lots of things we can do there. So, managing withdrawals, RMDs, let's talk, Amy, talk about charitable planning.
Amy: Yeah. So, I had someone in my office just yesterday in this situation, they had worked with another advisor before. They had been doing charitable donations out of their checking accounts. You know, they have big hearts, they love these organizations. They want to make an impact. But they're also 71, 72 years old and they have the ability to pull those donations directly out of their IRAs, give them straight to those charities. So, same impact, but here's the deal. If it's coming directly out of that tax-deferred IRA and going directly to the charity, you actually don't have to pay taxes on that money. So, they were missing a step and they were getting taxed on the money. You know, they were putting the money into the charity that they had already been taxed on. So, it was just a miss there when it comes to taxes.
Bob: Well, and now with the standard deduction being $30,000 a year for married filing-joint couples, unfortunately, there's a lot of people that don't get the tax benefit of just dropping that money in the offering plate at church anymore.
Amy: Yeah.
Bob: And Amy, I'm continuing to be shocked at how many people don't know how to do this. You can start doing this when you're 70-and-a-half...
Amy: Yes.
Bob: ...up to $100,000 a year. You don't have to wait until you're 73 and get into a required minimum distribution situation. It's a wonderful planning opportunity that far too few people are taking advantage of.
Amy: I get lots of people in my office who have recently retired and you got the memo. You have to save for your own retirement, right? So, they have shoved and shoved and shoved money into their 401(k)s. And the problem is it's all tax deferred. And so then, that becomes a huge tax burden. There are strategies here where you can diversify out of that. I think the question for you is, are you looking into them? Do you understand them? Here's the Allworth advice. Tax planning isn't just this kind of smart add-on to your retirement strategy. It's really kind of a foundational piece that can significantly impact your financial future. Next, a sobering look at the state of financial literacy. 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. One of the reasons I love my job so much is because I am so passionate about helping people make smart money decisions. And so, when there is evidence that it's working, I get excited. And when there's evidence that people are still missing out, that there are major gaps in what we know about money, it does make me a little bit sad.
Bob: And you even cover things in the produce aisle at Kroger. That's how passionate you are.
Amy: Find me in Kroger and I will talk to you about Social Security or whatever you want to talk to me about.
Bob: All right. Well, let's get into this financial literacy topic. FINRA, which is a large financial regulatory organization, you know, did a 7-question quiz to 25,500 adults in recent months. And some of these test results were pretty remarkable. Three in 10 test takers missed a simple question about interest rates. Two in five flubbed a question about how inflation works. So let's get into this, Amy. We got some educating to do.
Amy: Yeah. I mean, we're asking you right now, do you know the answers to this question? Okay. So, imagine that the interest rate on your savings account last year was 1% and inflation then was 2%. So after one year, how much would you be able to buy with the money in this account? The answers: more than today, exactly the same or less than today, don't know. So, you've got inflation at 2%, interest at 1%. Guys, the answer is your purchasing power has gone down, right? Inflation is eating up the interest that you're getting on this. And the fact that 25,000 people are taking this test and many of them are not getting it right. Right? This is a simple...
Bob: Well, 4 in 10 got that question wrong, Amy.
Amy: Yeah. Yeah. So that's a big gap in knowledge that we have to make sure people understand. Here's another one. True or false? Buying a single company's stock usually provides a safer return than a stock mutual fund.
Bob: Only 40% of people got that answer correct, you know, that it's generally riskier to invest in a single stock rather than spread risk among many stocks in a diversified mutual fund. So, yeah. Now here's, I guess, some good news and it all depends on what these youngsters are being taught in school. In Ohio in 2026, it'll be the first graduating high school class to be required to take a personal finance course. In Kentucky, that year is 2030. That'll be the first year that high school graduates have been required to take a personal finance course. I think that's good.
Amy: I think it's great.
Bob: It all depends on what these youngsters are being taught. But I have to think a basic financial literacy course will help more than 4 of 10 people answer those 2 questions we just reviewed correctly.
Amy: And guys, it has to start at home too, by the way. You totally just dated yourself by using the word "youngsters." Thanks for listening. Tune in tomorrow. We're talking about our take on a claim you should be 100% invested in stocks. You've been listening to "Simply Money" presented by Allworth Financial here on 55KRC, The Talk Station.