What Smart Investors Are Doing With Their Portfolios Right Now
On this episode of Simply Money presented by Allworth Financial, Bob and Brian break down why investors aren’t panicking despite rising geopolitical tensions, what that means for your portfolio, and how to prepare for volatility with smart planning, liquidity, and tax strategies—plus insights on life insurance decisions, concentrated stock risk, selling a business, Roth conversions, and why having proactive family conversations about long-term care matters more than ever.
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Bob: Just how panicked are investors right now over this ongoing war in Iran? The answer can serve as an important lesson for you. You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James.
All right, let's talk about something we are starting to see now beneath the surface of the market. There are some signs out there that investors are getting a little more cautious, not panicked, not running for the exits, not moving their entire portfolios to cash, but definitely, adjusting here as the uncertainty in the Middle East drags on. Brian, let's look at some updated data from JP Morgan who, obviously, sees what a lot of folks are doing with their money.
Brian: Well, there's a team over there, Bob, that's tracking how much money investors are keeping in cash versus putting to work, and they're looking at all the money floating around the system and comparing that to the overall value of the financial assets. Pretty clear takeaways here, investors are starting to increase their cash positions. This isn't too shocking given the headlines that has everybody on edge a little bit. But here's the key thing, they're not doing it super aggressively.
So, let's put a little perspective behind this. Go back to 2022 when Russia first invaded Ukraine. That was a very different story. Investors kind of quickly moved into cash thinking that this was going to turn into a much bigger conflict. We don't know what's coming, so we're just going to get defensive right now. So, now, the United States itself is directly involved in a conflict involving Iran. About 20% of the global oil supply is impacted. And this move into cash, though, has been pretty modest. We're kind of already on a war footing. And I kind of can't help but think that maybe the Russian invasion of Ukraine kind of put everybody in the mindset of, "Okay, I guess we're in a new bit of a new era now, so maybe these things aren't going to be as surprising as we thought."
And if you think back to all of the major conflicts and the things that spooked the market, there tends to usually be an initial, pretty visceral reaction. And I think back to tariffs about a year ago now, when tariffs were first announced, we had a pretty panicky reaction to it. The market came down pretty quickly, about 20%. But then we realized that, okay, this is just the way this administration is going to operate, and maybe we don't need to panic about every last little bit of news that comes out of it. So, I think now, we're just kind of used to the idea that maybe we're not in Kansas anymore. We just need to be ready and be nimble and be a little flexible. So, people are sensitive, moving little bits to cash, but not, what I would definitely say, we're pretty far from panic mode.
Bob: Yeah, and just to add to that, you mentioned 2022, and I just want to go back and add, you know, there are a few things that are different today in terms of the fundamental economics of the economy. And by that, I mean, inflation is much lower than it was in 2022. So, I think in 2022, investors were already a little bit nervous about the inflation rate coming out of the COVID crisis and all that. And we can look at this now in the rearview mirror. I mean, the Fed started to raise interest rates. They raised rates seven times during 2022.
So, I don't care what's going on. The economy hates three things. It hates uncertainty, it hates rising interest rates, and it hates inflation. And sometimes if you get all three of those simultaneously, that's what's going to really move this market down precipitously and probably cause a recession. I think the two things today that are different than 2022, as I already pointed out, inflation, there is a threat of a little bit of inflation here with this oil shock, but inflation today is nowhere near where it was in 2022. We don't have a high risk of the Fed raising interest rates right now. That could happen if inflation really starts to tick up as a result of an extended oil shock. But things are different. You take war out of it, things are different in terms of the fundamentals of the economy right now.
Looking at this JP Morgan study of what investors are actually doing, I think this is actually showing that people are being pretty rational. Back in January, according to their study, investors were pretty aggressively allocated. More invested in equities than about 80% of all the times they had measured historically. And I think that comes down to the fact we've had a few pretty good years in the market. People have been rewarded for investing heavily in stocks.
And you know how this game works, Brian. People tend to be biased toward recent returns. They're running into 2026 heavily invested in stocks. Today, now that we get a little volatility, people are saying, "All right, maybe it's time to step away here. Things are not going to be hunky-dory 100% of the time." So, moving from 80% allocation down to 62% for moderate risk investors, I think that's rational and makes a whole lot of sense. So, I'm quite pleased to see what investors are actually doing right now. I think a lot of them are just doing healthy financial planning, refilling their cash balances, putting some money away that they might need to spend here if we have some ongoing volatility. I think this is a good study.
Brian: Yeah, I agree. And I think it's the lack of panic, though, is what does it for me. It makes me feel like it. I definitely wouldn't look at this and say everybody should be getting more conservative. The market's down, I don't know what it is, 6%, 7%, or whatever it is right about now. If you were okay with your allocation two months ago before any of this happened, then you should be okay now because that would assume that you understand the kind of volatility you should expect, which is where we are right now.
So, I'm glad that people aren't headed for the exits on a broad-scale basis. But at the same time, again, we don't believe at all in market timing. You can be right 9 times in a row and be wrong the 10th time and you go right back to where you started. So, that's not at all what we're saying. But it is a sign that yes, investors are aware of the headlines. They are making moves that they deem to be right for their own situations. And like Bob said, a lot of people are simply filling up the cash bucket again with the concern for just maybe making sure they've got enough liquidity to prevent them from having to hit their longer-term investments wholesale.
Bob: Yeah, I'll give you an actual example of a meeting, a Zoom meeting I had with a long-time client yesterday. And he just wanted to, in his words, get calibrated, "Where are we at? What are you guys doing over there at Allworth? How's my plan look?" All that. And he just wanted to touch base and see, "Hey, in light of some of this uncertainty, how is my portfolio doing? How is it positioned to have a little bit of protection against volatility?" And the good news is we had worked together going back a year, two years with annual reviews, we already had some buffered ETF strategies in place for his IRA to mitigate some volatility. We had already intentionally put away some cash in a short-term, high-yield money market account to maintain some liquidity in the portfolio.
And this particular client was only down about 1.8% year to date after having very nice returns in '25 and '24. But it was a great time to just touch base, make sure everything is working, get a little bit of update on what could happen, and what we're going to do about it over here. It was a very healthy phone call. And I think that's kind of what this JP Morgan study is revealing. A lot of people are starting to, you know, in a good way, just... And this is a great time to sit down with your advisor if you have one, and have that same kind of, what I'll call, calibration meeting with your advisor.
Brian: Yeah. And I agree. And even when the headlines aren't scary, that's a good time to do that. And I think that's the important part, is staying on some kind of a routine where you're checking the health of your overall financial situation. Really no different than going to see your doctor and making sure that, you know, "Just kind of check under the hood. Check the vital signs and see what's going on. What are the things that I should be paying attention to now that I'm whatever age I am?" And so forth. Because without that, that's how we get surprised, and that's what causes the panic. When I didn't know what to anticipate, and then something happened that caused my beliefs to kind of pivot a little bit, then I feel like it's a mistake.
And I think people convince themselves that a lot of times these headlines are some kind of aberration or a mistake or something we've never seen before. And that's really just never the case. It's just a pivot from whatever path we were on before. New information, now we've got a slightly different outcome here. And it's just something to make sure that you have understood, you know, how are you situated now, you know, when the portfolio is stable and things are going okay, and then, "What should I anticipate, you know, when things don't go that way?"
And if it does something, there are plenty of software tools out there and websites and all this kind of thing, or your financial advisor should be able to stress test these things for you, but there should be ways that you can look at, how has my portfolio behaved in past similar situations? Because the '80s and the '90s, to me, and I say this all the time, we're a really calm period. But ever since then, it's been a lot more looking like history. The last 25 years have been a good amount of chaos. But if you think about it, the overall world has been through far more chaos than it has stability. The '80s and the '90s were an anomaly. But I think people think that that was a mistake. And we've been through a lot of more negative things than we actually have right now.
Bob: Now, you bring up a great point, Brian, and you use the term stress testing. And that's exactly what this client brought up to me yesterday. He said, "Hey, if we do get a 1970s style oil shock, can we sit down and stress test this portfolio and see?" He wasn't predicting that it's going to happen. He just would like to know in advance a little bit here on how wide those guardrails are going to expand in terms of downside risk if this oil shock gets a little bit out of control.
And to your point, yeah, we have those tools where we can reasonably simulate these historical periods of time. And I think that's what gives people peace of mind, when they've sat down, they've stress test their overall plan, they stress test their investment portfolio, and that helps them give some peace of mind with actual useful data information as opposed to some of these talking headline people on cable news that just try to inflame everybody and get everybody upset. And you made an excellent point, too, hey, the time to do this is when the markets are up 20%, not waiting until they're down 10%. It's funny how that works. People's risk tolerance tends to expand greatly when everything's going great. We never get the phone calls saying, "Hey, how and why did I get outsized gains last year in my portfolio relative to what my chosen risk tolerance should give me?" Those phone calls and meetings only happen when the market goes down. I guess that's just human nature.
Brian: Yeah, I would agree with that completely. That said, I don't know about you, but my phones have been relatively quiet.
Bob: Same.
Brian: I don't think anybody is really calling in. It does come up, of course, when we're doing our annual reviews for meetings that we're going to be scheduled around now anyway, because that's part of the routine. People do want to know, but nobody's really in panic mode. And I think that's what that JP Morgan data is telling us, too. There are some people out there making moves. And we do that as well when somebody's plan dictates it. But I don't have anybody right now calling in an absolute panic just ready to head for the hills.
Bob: Same. Same on this end. Here's the Allworth advice, make sure your plan is built to handle uncertainty before it shows up in your portfolio. And that leads us to this, it's your portfolio recession proof. We'll talk about that next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. If you cannot listen to Simply Money live every night, subscribe and get our daily podcast. Just search "Simply Money" on the iHeart app or wherever you find your podcasts. Are you thinking about selling your business, but not sure how to handle the offers that might be coming in? Plus smart strategies for managing IRA heavy retirement income, and how real estate wealth truly fits into an overall financial plan. Help is on the way straight ahead.
Anytime we start talking about slowing growth, potential for recession, all of that kind of stuff, the natural question becomes, how do you actually protect your portfolio from these kinds of evil, bad things that can happen? And when people hear the words, "recession proof", some immediately think, "Okay, that means I should just move everything to cash." Let's get into some of the options people have to make slight adjustments in their portfolio rather than just heading for the hills and burying it all in a coffee can in the backyard, Brian.
Brian: Well, stop me if you've heard this before, but here's the problem, you don't know when to get out, then you definitely don't know when to get back in. That's because, remember, this is a two-sided decision. If you're going to try to protect things... And I actually saw an online discussion about this very thing, "There's a recession coming. What should I do about it? How do I move my money to something safe so that I can sidestep this?" And I think the most dangerous thing anybody can do, although I've also concluded that everybody needs to try it so they can understand exactly how bad of an idea it is, is to put a high watermark under your portfolio and whatever your value is and declare that anything below that is some kind of mistake or some kind of aberration and you should have done something. That is an extremely dangerous pattern to get yourselves into. And the worst case that can happen is that you'll actually maybe get lucky and be right. And then you'll try it three, four more times before you realize that this is not a way that real investors make money and it's not going to help you in the long run.
So, let's use an example. Let's say you get $5 million. So, instead of being overly aggressive, you're realizing, "Maybe I've got enough to kind of make it, so I still want growth to keep up with inflation, but I don't want to be super aggressive." So, maybe this is 60% stocks, 30% fixed income, and 10% in alternatives or cash, something like that. So, now, we have a recession. Stocks drop about 20%. That's not unheard of. That's fairly common. The market will react to that type of news. Your portfolio though, is not all stocks, therefore it's not down 20%. Maybe you're only down 10% to 12%, which isn't a fun thing. Nobody's happy about this, but that's much more manageable. And so, here's the key. You've still got that stability in the portfolio. The headlines are scarier than your portfolio returns are looking at the moment. Your assets didn't fall as much, and that's going to give you that flexibility.
Bob: Yeah, Brian, a couple of thoughts come to mind. You know, I forget who said this. You might know. But, you know, the saying goes, volatility is the price you have to pay to get long-term, outsized returns that outpace taxes and inflation. I mean, that's the price of admission. You're going to have to weather some volatility. And to the point that you brought up, the question becomes, how much does my plan need to take on in order to achieve my long-term financial goals? And then there's always an emotional quotient to this too, how much can my stomach take? How much volatility can happen before I start losing sleep at night and my quality of life goes down and all that? And that's the purpose of stress testing a financial plan and stress testing a portfolio in advance during regular, annual financial planning reviews. You know, you get out in front of this stuff in advance, and you let people kind of define what their own guard rails are going to be based on what their personal financial goals are and then what their emotional quotients or tolerance for risk is. That's what financial planning, among other things, that's a big part of what needs to be done here, you know, when setting an asset allocation strategy and investment management strategy.
Brian: So, let's look at that. Let's look at this in reality here and look at another example. So, liquidity, of course, creates opportunity, as Bob was just saying. So, let's take these two investors again, same $5 billion net worth. The first one is fully invested, no excess cash. Second one's got maybe 10% to 15% liquid reserves. Then we go through that same recession period that we talked about before. Maybe the market drops another 20%. Investor A is stuck knowing that, "Well, if I need money, I'm just going to have to take the losses on these investments because I've got bills to pay it. I can't do anything about it."
Investor B has given themselves options. In the short-run, they can use that parachute that they built in for themselves and spend that cash down consciously to pay the bills, and/or if there's some leftover, then they can buy assets when they're cheaper. They can go ahead and get that invested if they've decided that they don't need all of that cash out there. But that's, again, the whole point of having a financial plan just to make sure that all the puzzle pieces fit together. That is how wealthy people stay wealthy. That's how people who are a little lesser in assets grow themselves to a position where they've got more flexibility by taking advantage of those moments. And the most important part about it, Bob, is the anticipation, not being surprised by it, knowing that it's coming, and knowing how you will react to it.
Bob: Yeah. In other words, you want to be in a position where you could say, "Yep, we had a plan for that. And more importantly, in an unemotional way, we executed on the plan." And you mentioned taking advantage of downside volatility in these non-IRA accounts, taxable investment accounts. This is a reminder, this is a beautiful time and reason to have some tax loss harvesting strategies embedded in your taxable accounts. This is where those things shine. Volatility is your friend in these environments because you can really harvest those losses and use them long down the road to offset future gains and make these non-IRA, taxable portfolios extremely tax efficient, all while staying fully invested and taking advantage of market dips at the same time. So, like we always say, most of the time, the biggest risk here is not the market itself, it's investor behavior, making irrational, emotional decisions when we start to get a little bit of volatility, like what's going on right now.
Brian: Yeah, I couldn't agree more. And I think at this point, we've beaten the horse dead enough. Just make sure that you understand how you react. It doesn't matter what you think the next the X, Y, Z fund is going to do or whatever, trying to guess, this fund versus that fund. What is important is the biggest variable in all of this, and that is the human being behind the decision making. Make sure you understand how you will react in these various environments, both good and bad.
Bob: Here's the Allworth advice, you can't avoid recessions, but you can build a portfolio strong enough to handle them and discipline enough to take advantage of them. Are your life insurance policies still serving your bigger, overall, long-term financial picture? Our insurance expert is in next with some actual real life solutions. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James, joined tonight by Allworth's Director of Insurance, Jodee Deutsch. Jodee, thanks as always for making some time for us tonight. We want to get into the topic of existing life insurance policies. And Brian and I always come across people that have had these permanent cash value life insurance policies, you know, oftentimes for 20, 30, 40, even 50 years. And a lot of times, these policies don't get reviewed within the context of their overall financial plan and goals today in 2026. And when we get into these kind of discussions, oftentimes, some different examples of deploying those assets and that cash value perhaps more efficiently come up. And you want to walk through a couple of actual examples that you've helped people with so far in 2026. I'm looking forward to the discussion.
Jodee: Awesome. Thank you so much. I spend a lot of my time reviewing clients' policies, and like you said, looking at it in the context of their overall plan. These two scenarios were really focused on helping clients figure out what their options were. So, the first couple that I worked with, he was 75 and she was 72. They both had permanent life insurance policies that they bought way back when to protect their families. They didn't have a life insurance need anymore, but they had this emotional connection to wanting to have some life insurance for the beneficiary when someone passed away.
And we discussed all the options, keeping what they had, making changes, surrendering the policies, etc. And initially they said, we're just going to keep things as is. Because if they didn't pay any more premium, the policies were going to last to pay out when each of them passed away. Two weeks after we met the initial time, they called me and said, "You know what? You told us that if we surrendered these policies and took the cash value, that there was no taxable event. And there's $32,000 in these policies. And we've decided to make a life change and move closer to our son and daughter-in-law and grandkids.
We want to build a new patio home. And we were thinking, where are we going to get the funds to put down as a down payment? We don't want to take them out of our investment accounts and we don't want to take them from a home equity loan. And we want to wait to put our house on the market until we know the timeline. We're going to use the cash value in these policies." They were thrilled. They surrendered them, got checks, and they were able to really make a difference in what they did in their lives from a legacy perspective by using the cash now and didn't have to impact their investments. So, it was a win-win all around.
Bob: Yeah. It sounds like a great situation, a win-win for everybody, for all the reasons you've already mentioned. It brings up one question that I have though, Jodee, is you literally can't turn on the news every night without seeing three or four commercials for these firms offering to buy your life insurance policies from you for all the reasons you just stated. Are you running into those kinds of scenarios? And what do you generally find the pros and cons if any, to working with one of those firms to actually sell your policy versus doing what you did in this scenario, is just take the cash value, move on, buy the patio home. Any thoughts on that?
Jodee: Yes. I get a lot of questions about it. Like, I just want to sell this policy. Number one, it has to be a permanent insurance policy with value. Number two, for the numbers to really make sense, the insured needs to not be healthy, meaning likely terminally ill, diagnosed with cancer.
Bob: Interesting.
Jodee: For healthier older people, the numbers of what these companies would pay for them just aren't enough to sell the policy.
Brian: It's a little morbid, isn't it? But I guess, the only reason they're buying is because they're looking for a payoff and they want to know, they want to have an idea that this payoff is going to come.
Bob: It's very interesting.
Jodee: Exactly.
Brian: One of these companies doesn't want somebody to live to be 120.
Jodee: Out of every 25 requests I've received, one may actually make sense, and maybe half of those people actually move forward with doing the transaction to get the cash. So, it's one of those. It sounds better than it is many times.
Bob: Good to know. Hey, move us into to scenario number two, because this is an all too common scenario that a lot of people I think don't realize they have the option to take advantage of.
Jodee: Absolutely. So, a couple age 55. Their kids were out of the house. They each had a whole life policy with a total of about $365,000 of death benefit. And they were spending almost $7,000 a year in premium. They didn't need the life insurance, but they wanted to keep a little bit of it just from a legacy perspective, and because they were still 10 years or so away from retirement. I worked with them to get in force quotes if they did a reduced paid up policy, which basically means reducing the death benefit, assuming you pay no additional premium, and then it's really a set it and forget it. In this scenario, they chose to take that option. They saved their $7 grand a year in premium. So, they're not taking it out of their investment accounts. And the death benefit was dropped from the $365,000 total to about $273,000. So, they still each got to keep a decent-sized policy, but save all those funds and be able to deploy those in other ways.
Brian: Yeah, Jodee, I think that's a great conversation for people to have with their advisors. In other words, I've got this old thing that I don't really need anymore, but I also don't need the cash out of it, I don't want to pay the taxes, so what else can I do? Am I stuck? Am I stuck, you know, just dead in the water with this thing? No, the answer is no. But you just have to be willing to have the death benefit come down. In other words, if I'm not going to pump any more money into this, then what's the maximum death benefit I can get? So, let me ask you about that. So, in this case, when they stopped putting new money in the death benefit dropped from $365,000 to $273,000. But am I correct, they didn't have to go through any underwriting. There was nothing new, just a rejiggering of the math behind the policies, right?
Jodee: Yes, just a calculation by the insurance company to say, "we will guarantee you this death benefit with no additional premium for the rest of your life." It was literally one form for each of them to complete. No underwriting, no nothing.
Brian: Got it. Okay, so is there a way to know? I mean, can somebody ballpark what their...? Is it based off of age, or is there a way to ballpark what the death benefit might drop to?
Jodee: It really depends.
Brian: You know, if they waited another five years, what would it have been?
Jodee: So, the best way to review a policy is to have a current policy statement. Every client should get one every year. We look at an annual statement, it's going to depend on the product type, how long they've had it, what their goals are. And we can review those to tell them, should they keep it? Should they make changes? Should they consider walking away? Or could we reposition that cash in a different type of policy?
Brian: Got it. That's great. That's supper helpful. I'm glad you're on the team to help us deal with this stuff for our clients.
Bob: And Jodee, correct me if I'm wrong, but in this scenario number two you just walked through, there was a zero tax impact, right? This was a completely tax-free situation because we did not take any cash value out. We just lowered the death benefit, lowered the premium. Everybody walks away scot-free, right?
Jodee: Absolutely, yep. No tax impact. The biggest thing was the premium savings. They repositioned that $7 grand to do other things.
Bob: Great stuff, Jodee. Thanks for joining us tonight. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Do you have a financial question you'd like for us to cover? There's a red button you can click while you're listening to the show if you're listening on the iHeart app. Simply record your question, and it will come straight to us. All right, Brian, Michael in Milford says, "We've got a little over a million dollars in a single tech stock with a very low cost basis. What are the smartest ways to diversify out of that big concentrated position without triggering a huge tax bill?"
Brian: Well, that's a great question. So, when you've got that much in a low-tax stock, there's really two things happening here. You're talking about concentration risk and tax risk. The goal is to reduce the one without letting the other dominate the decision. But let's call a spade a spade here. Doing nothing is a decision. That's probably how this occurred to begin with, letting a stock run to the point where it dominates the portfolio. It's not a bad thing. More money is good, but at the same time, now all of a sudden, your financial success has a lot to do with conference calls and earnings reports, a lot more than you might have wanted it to.
So, here's one way to think about it. You might, just to keep it simple, use a gradual selling strategy. Don't dump the whole position at once. Spread it over multiple tax years. For example, we're about a quarter of the way through this tax year. That means in nine months we're going to be in another tax year. My favorite thing to do within this type of a situation is if we happen to be in the 4th quarter talking about it, well, if it's December, then that means you can get into 3 tax years over the course of about 14 months. So, just think about what your income situation is going to be in those various tax years, and then maybe spread those sales over time.
And we've already mentioned this a couple of times today, but you can also pair sales with tax loss harvesting. If you have some other unrelated positions that may be sitting at a loss, and maybe not the entire position, but if you look underneath the individual tax lots of that position could be sitting at a loss, then you liquidate those. And be very careful, you're liquidating the tax lots that are actually showing a loss, and you can offset that capital gain.
And third, and this is probably one of the bigger ones, think about charity. If philanthropy is already on your mind, if you are already charitably inclined and giving, writing checks to organizations, then what you might do is donate these appreciated shares, some portion of them. That's one of the most tax-efficient moves available. Because, again, if it's something that you would have done anyway, because you are charitably inclined, already giving to charity, then you can donate these shares. You will, of course, get a bit of a deduction. If it's over and above your standard deduction, that's a different conversation.
But the more important thing is you did not sell anything, so therefore you did not eat any of the capital gains taxes. The charity will turn around, they'll sell it, but if they're a 501(c)(3) legit charity, they're not going to pay in taxes either. So, you'll still get credit for having donated that dollar amount, but you're not going to pay any capital gains on it, and you're also not writing checks using your liquid cash to do it.
Matter of fact, I would say, if anybody is out there sitting on appreciated shares of something and writing checks to their church or their favorite charities, you're doing it wrong. If you really want to hold on that position, then donate the appreciated shares and use your cash to buy them more and reset your cost basis for the low, low price of nothing. Hope that helps. All right, so let's move on to Brad in Madisonville. Brad is saying he's a business owner and he's saying he's getting some informal offers for it, but he hasn't done any planning around it, yet. So, how do you start this process, Bob? What should be in place financially before he even considers accepting one of these offers?
Bob: Well, Brian, as I listen to you answer Michael's question about selling a single stock, a lot of times these same situations arise when selling a business. Because for a lot of people, their closely held business is by far and away their largest financial asset. It's a huge concentrated position in terms of their overall net worth. So, my answer to Brad is, first of all, I'm just assuming because I don't have your whole financial picture in front of me, but you're thinking about selling this business hoping to retire and maybe not work anymore.
So, I think the first planning you need to do is you need to factor in your cost basis in the business, what capital gains exposure you're going to have if you sell it and sell it for a certain price, and then run a financial plan to say, "Hey, is the net amount going to be enough to meet you and your wife and your family's income needs over the balance of your life?" That's kind of financial planning 101. Count the cost of selling the business, removing yourself from the business, and do I have enough money to be able to retire? Now, if your net worth happens to be higher, and Brian got into this with his prior answer to Michael's question, now, if you're charitably inclined, if we have a need to save federal estate taxes, now, you can get into some more complex things like charitable trust, getting some minority discounts perhaps for giving some of those shares in the business to your kids or other family members prior to selling. Those are all things that get a lot more nuanced, a lot more detailed, and we would want to have the involvement of a good CPA, an attorney and all that.
So, sitting down and developing a financial plan on just what you need to accomplish before you really start to entertain serious options, I would say, now's the time to start that process. Hope that helps Brad, and good luck to you. Julian Anderson says, "We're both 62 and most of our assets are in IRAs. Should we be aggressively doing Roth conversions now, even if that means paying higher taxes today?" Brian?
Brian: So, I think you're hitting the right window to be considering it, but I'm glad you're asking the question as opposed to just doing it blindly. So, there is no black and white answer to this, right? If that was the case, then we would all retire based off of advice from TikTok videos. One size does not fit all with regard to this stuff. And so, I think we really need to kind of step back and look at the question. So, Roth conversions often make sense here at this age and with your situation as you're describing it, which we don't have a lot of detail, but we need to define what you mean by aggressively.
So, here's the good part. Here's the thing that provides the opportunity. You're probably in a temporary tax valley, meaning if you're retired, that means you've obviously left your jobs. Your income is probably lower than it's been in a very long time. That means so are your tax bracket. You have a long time until Required Minimum Distributions or RMDs. That could be 73 or 75, depending on when you were born. Maybe you haven't turned on Social Security, yet. Income might be lower currently than all it's going to be. Fast forward 10 years, that's going to be the opposite. You'll be back in that higher bracket.
So, the idea now is to, yes, don't think of this low tax bracket period as a wonderful opportunity to not pay taxes. Think of it as an opportunity to pay less taxes on future assets than you will if you do absolutely nothing. But again, figure out what your marginal bracket is, what your actual blended bracket is, and what you're comfortable paying. That's going to be 22%, maybe 24%. That literally gets you into hundreds of thousands of dollars' worth of income, by the way. It might be more than you're thinking. But then also, make sure you understand the impact to IRMAA. Which again, I think this can be over overcooked in terms of, if somebody is really worried about IRMAA and they want to do Roth conversions. My response to that is I don't really worry about IRMAA so much, yet. It might drive up your Medicare premiums for a year or two, but eventually, that will reset versus the benefits of the Roth conversion, which you'll have for the rest of your life. So, I think we're out of time, so I'll throw it back to you, Bob.
Bob: All right. Coming up next, I'm going to take a few minutes to expand upon an important discussion we had yesterday involving the critical nature of planning ahead and communicating with family to get out in front of a potential long-term care event. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Brian, we spent more than a few minutes yesterday just talking about the importance of planning ahead and proactively communicating with family members around a potential long-term care event. And the context we covered yesterday is just, how many Americans across the country, how many hours people are spending time away from work, time and energy expended just to take care of aging loved ones and family members. And I believe I said on the show yesterday, I'm going to test drive this with my own wife, which I did last night. It was a nice night. We sat out on the back porch and had dinner. And I said to my wife, I said, "Hey, let's just say that I had a stroke tomorrow and I couldn't do anything and I needed some care and our whole life is upended. What would you and the kids likely do?" And...
Brian: I hope you liked the answer that you got. This seems like dangerous territory, Bob.
Bob: It wasn't. I don't think this is what she really wanted to cover during dinner last night, but I wanted to test drive it because I said I would do that on the show yesterday. And my wife...
Brian: Did she say kegger for the neighborhood?
Bob: She said, "I'm going to throw a massive party, dump your rear end off at the nearest nursing home, and live happily ever after." Which is exactly what I expected her to say. No, I got this deer in the headlights look, and it was mainly, you know, "Why are you asking me this?" And my point, you know, she's in a mindset... And she's a very emotionally stable, very smart lady. But her mindset right now is, "Hey, we just had a grandson about a year ago. All I'm thinking about is when I'm going to see my grandson in a week. And now, you're springing this on me." And the point being, I said, "What if we sit down with the kids and just ask that question?" It wasn't a conversation she was ready to have.
And that's my whole point. I'm probably going to have to force that conversation, which is what I suggested everybody did on the show yesterday to just get some initial reactions from family members. And that, at least, gives us, you know, kind of what I'd call a baseline or ground zero from which to maybe have some future discussions. Because as we said yesterday, and I'll repeat today, what you don't want to do is just ignore the whole topic until something happens. And then, you know, different kids that live in town, out of town, working full-time, not working full-time, a lot of times these responsibilities get distributed unevenly. And that's where some family discord and stress can come in. And that's, again, I will repeat what I said yesterday, the sooner we can get out in front of that topic with our family, full-fledged conversation, the better. Thanks for listening tonight. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
All right, let's talk about something we are starting to see now beneath the surface of the market. There are some signs out there that investors are getting a little more cautious, not panicked, not running for the exits, not moving their entire portfolios to cash, but definitely, adjusting here as the uncertainty in the Middle East drags on. Brian, let's look at some updated data from JP Morgan who, obviously, sees what a lot of folks are doing with their money.
Brian: Well, there's a team over there, Bob, that's tracking how much money investors are keeping in cash versus putting to work, and they're looking at all the money floating around the system and comparing that to the overall value of the financial assets. Pretty clear takeaways here, investors are starting to increase their cash positions. This isn't too shocking given the headlines that has everybody on edge a little bit. But here's the key thing, they're not doing it super aggressively.
So, let's put a little perspective behind this. Go back to 2022 when Russia first invaded Ukraine. That was a very different story. Investors kind of quickly moved into cash thinking that this was going to turn into a much bigger conflict. We don't know what's coming, so we're just going to get defensive right now. So, now, the United States itself is directly involved in a conflict involving Iran. About 20% of the global oil supply is impacted. And this move into cash, though, has been pretty modest. We're kind of already on a war footing. And I kind of can't help but think that maybe the Russian invasion of Ukraine kind of put everybody in the mindset of, "Okay, I guess we're in a new bit of a new era now, so maybe these things aren't going to be as surprising as we thought."
And if you think back to all of the major conflicts and the things that spooked the market, there tends to usually be an initial, pretty visceral reaction. And I think back to tariffs about a year ago now, when tariffs were first announced, we had a pretty panicky reaction to it. The market came down pretty quickly, about 20%. But then we realized that, okay, this is just the way this administration is going to operate, and maybe we don't need to panic about every last little bit of news that comes out of it. So, I think now, we're just kind of used to the idea that maybe we're not in Kansas anymore. We just need to be ready and be nimble and be a little flexible. So, people are sensitive, moving little bits to cash, but not, what I would definitely say, we're pretty far from panic mode.
Bob: Yeah, and just to add to that, you mentioned 2022, and I just want to go back and add, you know, there are a few things that are different today in terms of the fundamental economics of the economy. And by that, I mean, inflation is much lower than it was in 2022. So, I think in 2022, investors were already a little bit nervous about the inflation rate coming out of the COVID crisis and all that. And we can look at this now in the rearview mirror. I mean, the Fed started to raise interest rates. They raised rates seven times during 2022.
So, I don't care what's going on. The economy hates three things. It hates uncertainty, it hates rising interest rates, and it hates inflation. And sometimes if you get all three of those simultaneously, that's what's going to really move this market down precipitously and probably cause a recession. I think the two things today that are different than 2022, as I already pointed out, inflation, there is a threat of a little bit of inflation here with this oil shock, but inflation today is nowhere near where it was in 2022. We don't have a high risk of the Fed raising interest rates right now. That could happen if inflation really starts to tick up as a result of an extended oil shock. But things are different. You take war out of it, things are different in terms of the fundamentals of the economy right now.
Looking at this JP Morgan study of what investors are actually doing, I think this is actually showing that people are being pretty rational. Back in January, according to their study, investors were pretty aggressively allocated. More invested in equities than about 80% of all the times they had measured historically. And I think that comes down to the fact we've had a few pretty good years in the market. People have been rewarded for investing heavily in stocks.
And you know how this game works, Brian. People tend to be biased toward recent returns. They're running into 2026 heavily invested in stocks. Today, now that we get a little volatility, people are saying, "All right, maybe it's time to step away here. Things are not going to be hunky-dory 100% of the time." So, moving from 80% allocation down to 62% for moderate risk investors, I think that's rational and makes a whole lot of sense. So, I'm quite pleased to see what investors are actually doing right now. I think a lot of them are just doing healthy financial planning, refilling their cash balances, putting some money away that they might need to spend here if we have some ongoing volatility. I think this is a good study.
Brian: Yeah, I agree. And I think it's the lack of panic, though, is what does it for me. It makes me feel like it. I definitely wouldn't look at this and say everybody should be getting more conservative. The market's down, I don't know what it is, 6%, 7%, or whatever it is right about now. If you were okay with your allocation two months ago before any of this happened, then you should be okay now because that would assume that you understand the kind of volatility you should expect, which is where we are right now.
So, I'm glad that people aren't headed for the exits on a broad-scale basis. But at the same time, again, we don't believe at all in market timing. You can be right 9 times in a row and be wrong the 10th time and you go right back to where you started. So, that's not at all what we're saying. But it is a sign that yes, investors are aware of the headlines. They are making moves that they deem to be right for their own situations. And like Bob said, a lot of people are simply filling up the cash bucket again with the concern for just maybe making sure they've got enough liquidity to prevent them from having to hit their longer-term investments wholesale.
Bob: Yeah, I'll give you an actual example of a meeting, a Zoom meeting I had with a long-time client yesterday. And he just wanted to, in his words, get calibrated, "Where are we at? What are you guys doing over there at Allworth? How's my plan look?" All that. And he just wanted to touch base and see, "Hey, in light of some of this uncertainty, how is my portfolio doing? How is it positioned to have a little bit of protection against volatility?" And the good news is we had worked together going back a year, two years with annual reviews, we already had some buffered ETF strategies in place for his IRA to mitigate some volatility. We had already intentionally put away some cash in a short-term, high-yield money market account to maintain some liquidity in the portfolio.
And this particular client was only down about 1.8% year to date after having very nice returns in '25 and '24. But it was a great time to just touch base, make sure everything is working, get a little bit of update on what could happen, and what we're going to do about it over here. It was a very healthy phone call. And I think that's kind of what this JP Morgan study is revealing. A lot of people are starting to, you know, in a good way, just... And this is a great time to sit down with your advisor if you have one, and have that same kind of, what I'll call, calibration meeting with your advisor.
Brian: Yeah. And I agree. And even when the headlines aren't scary, that's a good time to do that. And I think that's the important part, is staying on some kind of a routine where you're checking the health of your overall financial situation. Really no different than going to see your doctor and making sure that, you know, "Just kind of check under the hood. Check the vital signs and see what's going on. What are the things that I should be paying attention to now that I'm whatever age I am?" And so forth. Because without that, that's how we get surprised, and that's what causes the panic. When I didn't know what to anticipate, and then something happened that caused my beliefs to kind of pivot a little bit, then I feel like it's a mistake.
And I think people convince themselves that a lot of times these headlines are some kind of aberration or a mistake or something we've never seen before. And that's really just never the case. It's just a pivot from whatever path we were on before. New information, now we've got a slightly different outcome here. And it's just something to make sure that you have understood, you know, how are you situated now, you know, when the portfolio is stable and things are going okay, and then, "What should I anticipate, you know, when things don't go that way?"
And if it does something, there are plenty of software tools out there and websites and all this kind of thing, or your financial advisor should be able to stress test these things for you, but there should be ways that you can look at, how has my portfolio behaved in past similar situations? Because the '80s and the '90s, to me, and I say this all the time, we're a really calm period. But ever since then, it's been a lot more looking like history. The last 25 years have been a good amount of chaos. But if you think about it, the overall world has been through far more chaos than it has stability. The '80s and the '90s were an anomaly. But I think people think that that was a mistake. And we've been through a lot of more negative things than we actually have right now.
Bob: Now, you bring up a great point, Brian, and you use the term stress testing. And that's exactly what this client brought up to me yesterday. He said, "Hey, if we do get a 1970s style oil shock, can we sit down and stress test this portfolio and see?" He wasn't predicting that it's going to happen. He just would like to know in advance a little bit here on how wide those guardrails are going to expand in terms of downside risk if this oil shock gets a little bit out of control.
And to your point, yeah, we have those tools where we can reasonably simulate these historical periods of time. And I think that's what gives people peace of mind, when they've sat down, they've stress test their overall plan, they stress test their investment portfolio, and that helps them give some peace of mind with actual useful data information as opposed to some of these talking headline people on cable news that just try to inflame everybody and get everybody upset. And you made an excellent point, too, hey, the time to do this is when the markets are up 20%, not waiting until they're down 10%. It's funny how that works. People's risk tolerance tends to expand greatly when everything's going great. We never get the phone calls saying, "Hey, how and why did I get outsized gains last year in my portfolio relative to what my chosen risk tolerance should give me?" Those phone calls and meetings only happen when the market goes down. I guess that's just human nature.
Brian: Yeah, I would agree with that completely. That said, I don't know about you, but my phones have been relatively quiet.
Bob: Same.
Brian: I don't think anybody is really calling in. It does come up, of course, when we're doing our annual reviews for meetings that we're going to be scheduled around now anyway, because that's part of the routine. People do want to know, but nobody's really in panic mode. And I think that's what that JP Morgan data is telling us, too. There are some people out there making moves. And we do that as well when somebody's plan dictates it. But I don't have anybody right now calling in an absolute panic just ready to head for the hills.
Bob: Same. Same on this end. Here's the Allworth advice, make sure your plan is built to handle uncertainty before it shows up in your portfolio. And that leads us to this, it's your portfolio recession proof. We'll talk about that next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. If you cannot listen to Simply Money live every night, subscribe and get our daily podcast. Just search "Simply Money" on the iHeart app or wherever you find your podcasts. Are you thinking about selling your business, but not sure how to handle the offers that might be coming in? Plus smart strategies for managing IRA heavy retirement income, and how real estate wealth truly fits into an overall financial plan. Help is on the way straight ahead.
Anytime we start talking about slowing growth, potential for recession, all of that kind of stuff, the natural question becomes, how do you actually protect your portfolio from these kinds of evil, bad things that can happen? And when people hear the words, "recession proof", some immediately think, "Okay, that means I should just move everything to cash." Let's get into some of the options people have to make slight adjustments in their portfolio rather than just heading for the hills and burying it all in a coffee can in the backyard, Brian.
Brian: Well, stop me if you've heard this before, but here's the problem, you don't know when to get out, then you definitely don't know when to get back in. That's because, remember, this is a two-sided decision. If you're going to try to protect things... And I actually saw an online discussion about this very thing, "There's a recession coming. What should I do about it? How do I move my money to something safe so that I can sidestep this?" And I think the most dangerous thing anybody can do, although I've also concluded that everybody needs to try it so they can understand exactly how bad of an idea it is, is to put a high watermark under your portfolio and whatever your value is and declare that anything below that is some kind of mistake or some kind of aberration and you should have done something. That is an extremely dangerous pattern to get yourselves into. And the worst case that can happen is that you'll actually maybe get lucky and be right. And then you'll try it three, four more times before you realize that this is not a way that real investors make money and it's not going to help you in the long run.
So, let's use an example. Let's say you get $5 million. So, instead of being overly aggressive, you're realizing, "Maybe I've got enough to kind of make it, so I still want growth to keep up with inflation, but I don't want to be super aggressive." So, maybe this is 60% stocks, 30% fixed income, and 10% in alternatives or cash, something like that. So, now, we have a recession. Stocks drop about 20%. That's not unheard of. That's fairly common. The market will react to that type of news. Your portfolio though, is not all stocks, therefore it's not down 20%. Maybe you're only down 10% to 12%, which isn't a fun thing. Nobody's happy about this, but that's much more manageable. And so, here's the key. You've still got that stability in the portfolio. The headlines are scarier than your portfolio returns are looking at the moment. Your assets didn't fall as much, and that's going to give you that flexibility.
Bob: Yeah, Brian, a couple of thoughts come to mind. You know, I forget who said this. You might know. But, you know, the saying goes, volatility is the price you have to pay to get long-term, outsized returns that outpace taxes and inflation. I mean, that's the price of admission. You're going to have to weather some volatility. And to the point that you brought up, the question becomes, how much does my plan need to take on in order to achieve my long-term financial goals? And then there's always an emotional quotient to this too, how much can my stomach take? How much volatility can happen before I start losing sleep at night and my quality of life goes down and all that? And that's the purpose of stress testing a financial plan and stress testing a portfolio in advance during regular, annual financial planning reviews. You know, you get out in front of this stuff in advance, and you let people kind of define what their own guard rails are going to be based on what their personal financial goals are and then what their emotional quotients or tolerance for risk is. That's what financial planning, among other things, that's a big part of what needs to be done here, you know, when setting an asset allocation strategy and investment management strategy.
Brian: So, let's look at that. Let's look at this in reality here and look at another example. So, liquidity, of course, creates opportunity, as Bob was just saying. So, let's take these two investors again, same $5 billion net worth. The first one is fully invested, no excess cash. Second one's got maybe 10% to 15% liquid reserves. Then we go through that same recession period that we talked about before. Maybe the market drops another 20%. Investor A is stuck knowing that, "Well, if I need money, I'm just going to have to take the losses on these investments because I've got bills to pay it. I can't do anything about it."
Investor B has given themselves options. In the short-run, they can use that parachute that they built in for themselves and spend that cash down consciously to pay the bills, and/or if there's some leftover, then they can buy assets when they're cheaper. They can go ahead and get that invested if they've decided that they don't need all of that cash out there. But that's, again, the whole point of having a financial plan just to make sure that all the puzzle pieces fit together. That is how wealthy people stay wealthy. That's how people who are a little lesser in assets grow themselves to a position where they've got more flexibility by taking advantage of those moments. And the most important part about it, Bob, is the anticipation, not being surprised by it, knowing that it's coming, and knowing how you will react to it.
Bob: Yeah. In other words, you want to be in a position where you could say, "Yep, we had a plan for that. And more importantly, in an unemotional way, we executed on the plan." And you mentioned taking advantage of downside volatility in these non-IRA accounts, taxable investment accounts. This is a reminder, this is a beautiful time and reason to have some tax loss harvesting strategies embedded in your taxable accounts. This is where those things shine. Volatility is your friend in these environments because you can really harvest those losses and use them long down the road to offset future gains and make these non-IRA, taxable portfolios extremely tax efficient, all while staying fully invested and taking advantage of market dips at the same time. So, like we always say, most of the time, the biggest risk here is not the market itself, it's investor behavior, making irrational, emotional decisions when we start to get a little bit of volatility, like what's going on right now.
Brian: Yeah, I couldn't agree more. And I think at this point, we've beaten the horse dead enough. Just make sure that you understand how you react. It doesn't matter what you think the next the X, Y, Z fund is going to do or whatever, trying to guess, this fund versus that fund. What is important is the biggest variable in all of this, and that is the human being behind the decision making. Make sure you understand how you will react in these various environments, both good and bad.
Bob: Here's the Allworth advice, you can't avoid recessions, but you can build a portfolio strong enough to handle them and discipline enough to take advantage of them. Are your life insurance policies still serving your bigger, overall, long-term financial picture? Our insurance expert is in next with some actual real life solutions. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James, joined tonight by Allworth's Director of Insurance, Jodee Deutsch. Jodee, thanks as always for making some time for us tonight. We want to get into the topic of existing life insurance policies. And Brian and I always come across people that have had these permanent cash value life insurance policies, you know, oftentimes for 20, 30, 40, even 50 years. And a lot of times, these policies don't get reviewed within the context of their overall financial plan and goals today in 2026. And when we get into these kind of discussions, oftentimes, some different examples of deploying those assets and that cash value perhaps more efficiently come up. And you want to walk through a couple of actual examples that you've helped people with so far in 2026. I'm looking forward to the discussion.
Jodee: Awesome. Thank you so much. I spend a lot of my time reviewing clients' policies, and like you said, looking at it in the context of their overall plan. These two scenarios were really focused on helping clients figure out what their options were. So, the first couple that I worked with, he was 75 and she was 72. They both had permanent life insurance policies that they bought way back when to protect their families. They didn't have a life insurance need anymore, but they had this emotional connection to wanting to have some life insurance for the beneficiary when someone passed away.
And we discussed all the options, keeping what they had, making changes, surrendering the policies, etc. And initially they said, we're just going to keep things as is. Because if they didn't pay any more premium, the policies were going to last to pay out when each of them passed away. Two weeks after we met the initial time, they called me and said, "You know what? You told us that if we surrendered these policies and took the cash value, that there was no taxable event. And there's $32,000 in these policies. And we've decided to make a life change and move closer to our son and daughter-in-law and grandkids.
We want to build a new patio home. And we were thinking, where are we going to get the funds to put down as a down payment? We don't want to take them out of our investment accounts and we don't want to take them from a home equity loan. And we want to wait to put our house on the market until we know the timeline. We're going to use the cash value in these policies." They were thrilled. They surrendered them, got checks, and they were able to really make a difference in what they did in their lives from a legacy perspective by using the cash now and didn't have to impact their investments. So, it was a win-win all around.
Bob: Yeah. It sounds like a great situation, a win-win for everybody, for all the reasons you've already mentioned. It brings up one question that I have though, Jodee, is you literally can't turn on the news every night without seeing three or four commercials for these firms offering to buy your life insurance policies from you for all the reasons you just stated. Are you running into those kinds of scenarios? And what do you generally find the pros and cons if any, to working with one of those firms to actually sell your policy versus doing what you did in this scenario, is just take the cash value, move on, buy the patio home. Any thoughts on that?
Jodee: Yes. I get a lot of questions about it. Like, I just want to sell this policy. Number one, it has to be a permanent insurance policy with value. Number two, for the numbers to really make sense, the insured needs to not be healthy, meaning likely terminally ill, diagnosed with cancer.
Bob: Interesting.
Jodee: For healthier older people, the numbers of what these companies would pay for them just aren't enough to sell the policy.
Brian: It's a little morbid, isn't it? But I guess, the only reason they're buying is because they're looking for a payoff and they want to know, they want to have an idea that this payoff is going to come.
Bob: It's very interesting.
Jodee: Exactly.
Brian: One of these companies doesn't want somebody to live to be 120.
Jodee: Out of every 25 requests I've received, one may actually make sense, and maybe half of those people actually move forward with doing the transaction to get the cash. So, it's one of those. It sounds better than it is many times.
Bob: Good to know. Hey, move us into to scenario number two, because this is an all too common scenario that a lot of people I think don't realize they have the option to take advantage of.
Jodee: Absolutely. So, a couple age 55. Their kids were out of the house. They each had a whole life policy with a total of about $365,000 of death benefit. And they were spending almost $7,000 a year in premium. They didn't need the life insurance, but they wanted to keep a little bit of it just from a legacy perspective, and because they were still 10 years or so away from retirement. I worked with them to get in force quotes if they did a reduced paid up policy, which basically means reducing the death benefit, assuming you pay no additional premium, and then it's really a set it and forget it. In this scenario, they chose to take that option. They saved their $7 grand a year in premium. So, they're not taking it out of their investment accounts. And the death benefit was dropped from the $365,000 total to about $273,000. So, they still each got to keep a decent-sized policy, but save all those funds and be able to deploy those in other ways.
Brian: Yeah, Jodee, I think that's a great conversation for people to have with their advisors. In other words, I've got this old thing that I don't really need anymore, but I also don't need the cash out of it, I don't want to pay the taxes, so what else can I do? Am I stuck? Am I stuck, you know, just dead in the water with this thing? No, the answer is no. But you just have to be willing to have the death benefit come down. In other words, if I'm not going to pump any more money into this, then what's the maximum death benefit I can get? So, let me ask you about that. So, in this case, when they stopped putting new money in the death benefit dropped from $365,000 to $273,000. But am I correct, they didn't have to go through any underwriting. There was nothing new, just a rejiggering of the math behind the policies, right?
Jodee: Yes, just a calculation by the insurance company to say, "we will guarantee you this death benefit with no additional premium for the rest of your life." It was literally one form for each of them to complete. No underwriting, no nothing.
Brian: Got it. Okay, so is there a way to know? I mean, can somebody ballpark what their...? Is it based off of age, or is there a way to ballpark what the death benefit might drop to?
Jodee: It really depends.
Brian: You know, if they waited another five years, what would it have been?
Jodee: So, the best way to review a policy is to have a current policy statement. Every client should get one every year. We look at an annual statement, it's going to depend on the product type, how long they've had it, what their goals are. And we can review those to tell them, should they keep it? Should they make changes? Should they consider walking away? Or could we reposition that cash in a different type of policy?
Brian: Got it. That's great. That's supper helpful. I'm glad you're on the team to help us deal with this stuff for our clients.
Bob: And Jodee, correct me if I'm wrong, but in this scenario number two you just walked through, there was a zero tax impact, right? This was a completely tax-free situation because we did not take any cash value out. We just lowered the death benefit, lowered the premium. Everybody walks away scot-free, right?
Jodee: Absolutely, yep. No tax impact. The biggest thing was the premium savings. They repositioned that $7 grand to do other things.
Bob: Great stuff, Jodee. Thanks for joining us tonight. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Do you have a financial question you'd like for us to cover? There's a red button you can click while you're listening to the show if you're listening on the iHeart app. Simply record your question, and it will come straight to us. All right, Brian, Michael in Milford says, "We've got a little over a million dollars in a single tech stock with a very low cost basis. What are the smartest ways to diversify out of that big concentrated position without triggering a huge tax bill?"
Brian: Well, that's a great question. So, when you've got that much in a low-tax stock, there's really two things happening here. You're talking about concentration risk and tax risk. The goal is to reduce the one without letting the other dominate the decision. But let's call a spade a spade here. Doing nothing is a decision. That's probably how this occurred to begin with, letting a stock run to the point where it dominates the portfolio. It's not a bad thing. More money is good, but at the same time, now all of a sudden, your financial success has a lot to do with conference calls and earnings reports, a lot more than you might have wanted it to.
So, here's one way to think about it. You might, just to keep it simple, use a gradual selling strategy. Don't dump the whole position at once. Spread it over multiple tax years. For example, we're about a quarter of the way through this tax year. That means in nine months we're going to be in another tax year. My favorite thing to do within this type of a situation is if we happen to be in the 4th quarter talking about it, well, if it's December, then that means you can get into 3 tax years over the course of about 14 months. So, just think about what your income situation is going to be in those various tax years, and then maybe spread those sales over time.
And we've already mentioned this a couple of times today, but you can also pair sales with tax loss harvesting. If you have some other unrelated positions that may be sitting at a loss, and maybe not the entire position, but if you look underneath the individual tax lots of that position could be sitting at a loss, then you liquidate those. And be very careful, you're liquidating the tax lots that are actually showing a loss, and you can offset that capital gain.
And third, and this is probably one of the bigger ones, think about charity. If philanthropy is already on your mind, if you are already charitably inclined and giving, writing checks to organizations, then what you might do is donate these appreciated shares, some portion of them. That's one of the most tax-efficient moves available. Because, again, if it's something that you would have done anyway, because you are charitably inclined, already giving to charity, then you can donate these shares. You will, of course, get a bit of a deduction. If it's over and above your standard deduction, that's a different conversation.
But the more important thing is you did not sell anything, so therefore you did not eat any of the capital gains taxes. The charity will turn around, they'll sell it, but if they're a 501(c)(3) legit charity, they're not going to pay in taxes either. So, you'll still get credit for having donated that dollar amount, but you're not going to pay any capital gains on it, and you're also not writing checks using your liquid cash to do it.
Matter of fact, I would say, if anybody is out there sitting on appreciated shares of something and writing checks to their church or their favorite charities, you're doing it wrong. If you really want to hold on that position, then donate the appreciated shares and use your cash to buy them more and reset your cost basis for the low, low price of nothing. Hope that helps. All right, so let's move on to Brad in Madisonville. Brad is saying he's a business owner and he's saying he's getting some informal offers for it, but he hasn't done any planning around it, yet. So, how do you start this process, Bob? What should be in place financially before he even considers accepting one of these offers?
Bob: Well, Brian, as I listen to you answer Michael's question about selling a single stock, a lot of times these same situations arise when selling a business. Because for a lot of people, their closely held business is by far and away their largest financial asset. It's a huge concentrated position in terms of their overall net worth. So, my answer to Brad is, first of all, I'm just assuming because I don't have your whole financial picture in front of me, but you're thinking about selling this business hoping to retire and maybe not work anymore.
So, I think the first planning you need to do is you need to factor in your cost basis in the business, what capital gains exposure you're going to have if you sell it and sell it for a certain price, and then run a financial plan to say, "Hey, is the net amount going to be enough to meet you and your wife and your family's income needs over the balance of your life?" That's kind of financial planning 101. Count the cost of selling the business, removing yourself from the business, and do I have enough money to be able to retire? Now, if your net worth happens to be higher, and Brian got into this with his prior answer to Michael's question, now, if you're charitably inclined, if we have a need to save federal estate taxes, now, you can get into some more complex things like charitable trust, getting some minority discounts perhaps for giving some of those shares in the business to your kids or other family members prior to selling. Those are all things that get a lot more nuanced, a lot more detailed, and we would want to have the involvement of a good CPA, an attorney and all that.
So, sitting down and developing a financial plan on just what you need to accomplish before you really start to entertain serious options, I would say, now's the time to start that process. Hope that helps Brad, and good luck to you. Julian Anderson says, "We're both 62 and most of our assets are in IRAs. Should we be aggressively doing Roth conversions now, even if that means paying higher taxes today?" Brian?
Brian: So, I think you're hitting the right window to be considering it, but I'm glad you're asking the question as opposed to just doing it blindly. So, there is no black and white answer to this, right? If that was the case, then we would all retire based off of advice from TikTok videos. One size does not fit all with regard to this stuff. And so, I think we really need to kind of step back and look at the question. So, Roth conversions often make sense here at this age and with your situation as you're describing it, which we don't have a lot of detail, but we need to define what you mean by aggressively.
So, here's the good part. Here's the thing that provides the opportunity. You're probably in a temporary tax valley, meaning if you're retired, that means you've obviously left your jobs. Your income is probably lower than it's been in a very long time. That means so are your tax bracket. You have a long time until Required Minimum Distributions or RMDs. That could be 73 or 75, depending on when you were born. Maybe you haven't turned on Social Security, yet. Income might be lower currently than all it's going to be. Fast forward 10 years, that's going to be the opposite. You'll be back in that higher bracket.
So, the idea now is to, yes, don't think of this low tax bracket period as a wonderful opportunity to not pay taxes. Think of it as an opportunity to pay less taxes on future assets than you will if you do absolutely nothing. But again, figure out what your marginal bracket is, what your actual blended bracket is, and what you're comfortable paying. That's going to be 22%, maybe 24%. That literally gets you into hundreds of thousands of dollars' worth of income, by the way. It might be more than you're thinking. But then also, make sure you understand the impact to IRMAA. Which again, I think this can be over overcooked in terms of, if somebody is really worried about IRMAA and they want to do Roth conversions. My response to that is I don't really worry about IRMAA so much, yet. It might drive up your Medicare premiums for a year or two, but eventually, that will reset versus the benefits of the Roth conversion, which you'll have for the rest of your life. So, I think we're out of time, so I'll throw it back to you, Bob.
Bob: All right. Coming up next, I'm going to take a few minutes to expand upon an important discussion we had yesterday involving the critical nature of planning ahead and communicating with family to get out in front of a potential long-term care event. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Brian, we spent more than a few minutes yesterday just talking about the importance of planning ahead and proactively communicating with family members around a potential long-term care event. And the context we covered yesterday is just, how many Americans across the country, how many hours people are spending time away from work, time and energy expended just to take care of aging loved ones and family members. And I believe I said on the show yesterday, I'm going to test drive this with my own wife, which I did last night. It was a nice night. We sat out on the back porch and had dinner. And I said to my wife, I said, "Hey, let's just say that I had a stroke tomorrow and I couldn't do anything and I needed some care and our whole life is upended. What would you and the kids likely do?" And...
Brian: I hope you liked the answer that you got. This seems like dangerous territory, Bob.
Bob: It wasn't. I don't think this is what she really wanted to cover during dinner last night, but I wanted to test drive it because I said I would do that on the show yesterday. And my wife...
Brian: Did she say kegger for the neighborhood?
Bob: She said, "I'm going to throw a massive party, dump your rear end off at the nearest nursing home, and live happily ever after." Which is exactly what I expected her to say. No, I got this deer in the headlights look, and it was mainly, you know, "Why are you asking me this?" And my point, you know, she's in a mindset... And she's a very emotionally stable, very smart lady. But her mindset right now is, "Hey, we just had a grandson about a year ago. All I'm thinking about is when I'm going to see my grandson in a week. And now, you're springing this on me." And the point being, I said, "What if we sit down with the kids and just ask that question?" It wasn't a conversation she was ready to have.
And that's my whole point. I'm probably going to have to force that conversation, which is what I suggested everybody did on the show yesterday to just get some initial reactions from family members. And that, at least, gives us, you know, kind of what I'd call a baseline or ground zero from which to maybe have some future discussions. Because as we said yesterday, and I'll repeat today, what you don't want to do is just ignore the whole topic until something happens. And then, you know, different kids that live in town, out of town, working full-time, not working full-time, a lot of times these responsibilities get distributed unevenly. And that's where some family discord and stress can come in. And that's, again, I will repeat what I said yesterday, the sooner we can get out in front of that topic with our family, full-fledged conversation, the better. Thanks for listening tonight. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.