How to Protect Your Wealth From Mistakes You Can't Undo
On this episode of Simply Money, Bob and Brian explain why today's market bubbles may be smaller—and less dangerous—than the ones investors remember from the dot-com era and the financial crisis. They also discuss when alternative investments like private equity actually make sense, sit down with Allworth Senior Estate Planning Specialist Paul Schwarz to share strategies for preparing the next generation for one of the largest wealth transfers in history, and answer listener questions on building a lasting family legacy and protecting generational wealth.
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Bob: Tonight, why today's so-called bubbles don't look like ones we remember from the past. You're listening to "Simply Money," presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. Well, if you've been watching the markets lately, you've probably noticed something a little bit out of whack, or kinda different. Parts of that AI trade, especially memory chip stocks and other AI infrastructure stocks, really soared during the first half of this year. And then literally overnight, the enthusiasm seemed to fade, and a lot of these stocks have given back a big chunk of their year-to-date gains, as we're sitting here at the beginning of August. And yet, Brian, the S&P 500 is sitting right at all-time highs, and if I'm not mistaken, the Dow did close at an all-time high last night. So, the market overall is still doing quite well.
Brian: Tiny bubbles in my wine. Remember that song by Don Ho? Are you old enough to remember that song, Bob?
Bob: Oh, I remember it. I don't sing it as well as you do, so [crosstalk 00:01:17].
Brian: Let's do rounds. You take that second verse, then.
Bob: No. No, no, no. No. We're not gonna go there. Let's stick to the script here. Talk about the stock market, Brian. Nobody wants to hear us sing. I guarantee you that.
Brian: That is the script. This is what Jason gave us, and I like it because it's talking about what we're experiencing. Bubbles, but tiny ones. So, we're used to those big bubbles. Think back to the year 2000. When the tech bubble burst, it took everything with it. 2008, the housing bubble fell apart, and took everything with it. Banks got in trouble. Credit markets froze. Really nobody was spared. And I remember you and I were both working in this industry. We didn't know each other back then, but definitely was a very long period of our careers, that we'll never forget. But nowadays, it seems like everything's a bubble, right? We always talk about bubbles. I think you and I have been talking about bubbles on these microphones since we started doing this together. Sometimes it's crypto, or it's special-purpose acquisition companies, or SPACs. Those kind of came and went. Cannabis, clean energy, or meme stocks, they explode higher and higher, until they implode, and then the rest of the market just keeps moving along. And that's what we're seeing now with AI. Now, AI, I think, has a little more staying power as something that has industrial use, versus these other things, which really are more speculative in nature, so, [crosstalk 00:02:35]
Bob: Brian, I know you've been a huge fan of SPACs, especially SPACs concentrated in Dogecoins. Were you able to diversify out of those large, rather large positions in your personal account before those declined in value?
Brian: Now, Bob, you know very well you're lying through your teeth. I couldn't even remember what the acronym stood for, if you heard me stumble through that a second ago. But not a big thing for my portfolio, really. I'm a slow-and-steady-wins-the-race kind of a guy. I believed a long time ago that... I learned my lesson with one of the original internet companies, company called CMGI. I put a thousand bucks in it in college, and sold it six months later for two thousand dollars. Doubled my money in six months. By today's standards, that's a glacial pace. But I declared myself Warren Buffett, and decided that I was gonna be this great stock trader. Had I held that thousand bucks through about the year 2000, it would have been worth a quarter million dollars because that was part of the bubble we're talking about. Had I held it a little longer than that, it would have been worth nothing, because the company went away after that bubble burst. That's when I learned that this isn't the right way to go about investing and financial planning. It's much more about figuring out what level of risk you can handle for each part of your portfolio, and then handle accordingly, rather than swinging for the fences during every at bat.
Now, why are we seeing these tiny bubbles, Bob? So, the market has become a little better at isolating risk, right? Everything is about growth nowadays. It's been a very long time. Every now and then, somebody will come to me and say, hey, I wanna buy some good big old blue chips, and live off the dividends. The people who still think that way haven't really paid much attention to what the market cares about. Dividends do not generate the kind of income that they used to on a percentage basis, because companies and the leaders of these publicly-traded companies are very well aware that a dividend is simply not as sexy to attract shareholders as it used to be. It's about a growth story. So that gives us all these tiny little growth stories, hiding everywhere, right? So, 3D printing, stocks in China, volatility stuff. There was a company called ARK, A-R-K, innovation, that was popular for a long time, because they were heavily overweight in this stuff. Crypto SPACs, like we said. Now we're talking about AI infrastructure. Some of those investments lost 80%, 90%, even 95%, Bob. And that's devastating if you own them. But if you had a diversified portfolio, it's a tiny headline under the bigger headlines.
Bob: What we're really talking about here is the risk of being over-concentrated in any specific sector of the market. This is not a prediction that hyperscalers, for AI, hyperscalers are gonna lose 95 percent. What we're saying is that we are seeing more volatility, because, when folks get more focused on growth, earnings growth, rather than dividend yield and some of the other things you just mentioned, the minute that...you know, stocks can get price to perfection almost, and we're seeing some of that right now, and the minute some of that growth, earnings growth, starts to decline at all, you can see these stocks pull back 10%, 15%, 20% in a hurry, and that's really what we've seen go on this year so far. So, it's just a reminder to not hitch too big of a wagon to any one sector of the market. You know, make sure you're managing an overall portfolio designed to do what you need your money to do, and when, to avoid unnecessary volatility in your portfolio. That's really the message here. And we've seen this play out so far in 2026.
Brian: That's right. And this isn't new, right? It's just, technology feels new and sexy and scary to your more conservative investors, but we've always had some kind of thing, some kind of catalyst that drives the market, right? In the 19th century, it was railroads. Just the idea of taking something from one side of the country and getting it to the other, without having to put it on a wagon and drag it across with horses, or oxen, or whatever they used back then. And that gave birth to the Sears catalog, right? Back in the day, the Sears catalog was the Amazon of the 19th century world, and it was positively mind-boggling to people out in the Great Plains and further that they could order things from a catalog, and it would actually show up on their doorstep weeks later. Now, we get annoyed if Amazon tells us it's gonna be here today and then we get that message, which I don't think I've ever successfully gotten the same-day delivery. I always get the message that it's actually coming tomorrow. And that bothers me. But at the same time, that's just where we are now.
After that, the automotive revolution, right. People move to cars. And then, of course, the internet. AI is certainly gonna...it will change and is changing America. But along the way, plenty of investors lost fortunes investing in railroads. Some of those railroads that you remember from the Monopoly board game don't exist anymore. Internet companies, of course, like the one I was talking about, those disappear. Being right about technology in general isn't enough. You gotta figure out which players are gonna be the right ones. You have to be right about the valuation. That means you have to understand the business concepts that they're pursuing. How likely are they to be successful? How much risk are they taking? What are they not telling you? What's hiding in the balance sheet, right? There's always things that are future headlines, that we just simply haven't heard about yet. So, Amazon survived, went from being a very unprofitable bookstore to what it has become now. But most of those dot-com companies didn't. The internet absolutely did change the world. But if you were on the wrong side of it, or you paid too much for those things, you spent years digging themselves out, if you've recovered at all.
Bob: And this is where responsible financial planning really becomes a conversation, a non-emotional conversation, between yourself, and, if you have one, a good fiduciary advisor. And I'll give you an example. Brian, I think this is a meeting you and I did two or three weeks ago. We had somebody come in that had highly concentrated positions, and these were in an IRA. So, they could liquidate these positions with really no tax consequences whatsoever. But, you know, it was one of these spreadsheet guys, and he opens up the meeting talking about his accumulated 1400% return in these stocks. And, you know, I looked at him and I'm like, does that really matter? How have these stocks done over the last two, three, five years? And, how would you react if they dropped by 20% over the next year and a half? And you get this deer-in-the-headlights look back. People wanna stare at these huge gains they've had in their portfolio in individual stocks and ETFs, and sometimes it's hard to get people to just do the responsible thing, you know, not pay a ton of taxes, but responsibly trim and rebalance some of these positions, so that they don't get an unpleasant surprise if and when we do get a market pullback. Do you remember that meeting, Brian?
Brian: Oh, absolutely. And that's a fairly common topic these days, of just the idea of, the helping people figure out, you know, that thing you took a big swing at and won, that sometimes can be the worst thing that can happen to somebody, because it leads them to believe that this is how it works, and it's not just an anomaly, and don't wanna do it again. And [crosstalk 00:09:51] get trapped in...
Bob: And I remember asking him, I'm like, hey, if you were sitting on cash today, how much of these three stocks that you've owned for the last 20 years would you buy today. Today. With cash? And then, [crosstalk 00:10:04] a blank stare and a non-answer is what we got back. [crosstalk 00:10:09]
Brian: Yep. And the other part of all this is the taxes. People get hung up, when we have a windfall like this, people get hung up on the taxes. And "I can't sell this. I can't pay capital gains. Heaven forbid." Well, then it's not an asset. Then now you've got a piece of artwork sitting in the living room, that you have bound yourself to give to your kids, except the value of it's gonna go up and down. It may have ballooned today, but it could be gone tomorrow, and that's a loss we could take simply because we don't wanna deal with the taxes on it. So that's why we always say, don't let the tax tail wag the dog, because those gains can go away tomorrow. Taxes are a part of life. Taxes are, in a roundabout way, some people aren't gonna like this, but in a roundabout way, they're a good thing. They're unavoidable, right? If you want taxes to go away, start voting differently, very differently. And, but at the same time, they're always there, and it indicates that you had some kind of a gain. So, be open to the idea that maybe that windfall that I got, or that giant pile of stock that I inherited, that's another common situation when we have an overweight somewhere, people inherit something from grandma and grandpa, and they wanna keep it for, you know, for sentimental purposes. And my thought there is, I can't imagine that your loved ones who have passed on wanted you to sit on shareholder calls, and look at balance sheets, and do nothing with this asset other than understand it and learn about it. They gave it to you for your financial success. It's okay. Figure out some kind of chunk of it to hang on to for those sentimental reasons. Usually not a bad company. Around here, it's Procter and Gamble. This happens all the time. But then the rest of it, remember, they wanted you to have financial stability. That's why they gave it to you. Take advantage of it that way. It's not all an heirloom.
Bob: Well, speaking of gains racking up and going away quickly, we're gonna get SpaceX earnings, and that'll determine kind of what this stock is really valued at. And I think the interesting thing, too, is we're gonna get some announcements of kind of a staggered lockup period on this stock. You don't need to go back any further than a month to see that stock come out of the IPO, ramp up to over $225 a share, and now it's trading for half that amount. So, this stuff can come and go quickly if you're not staying diversified, and staying responsible in your allocation. Here's the Allworth advice. Build your financial plan around diversification and discipline, not the hottest investment of the moment. Well, more wealthy investors are putting money into private markets, real estate, gold, even crypto, and is that classic 60/40 portfolio dead? We're gonna discuss next where alternatives belong and where they absolutely don't in your portfolio. 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're unable to listen to "Simply Money" live every night, subscribe and get our daily podcasts. Just search "Simply Money" on the iHeart app, or wherever you find your favorite podcasts.
What should you do when required IRA withdrawals create taxes you don't need or want? And on the flip side of that, when can Roth conversions backfire? And is it ever too late to start talking openly about money with your family? We'll dig into all of those listener questions, straight ahead. If you've been paying attention to Wall Street lately, you've probably noticed that more people are talking about private equity, private credit, infrastructure, real estate, gold, basically anything that isn't just stocks and bonds. And now there's some actual data to back this up, Brian, how people are actually discussing and moving their money around into alternative asset classes.
Brian: Right. We have the Bank of America private bank survey to thank for this information. They asked roughly 1400 investors, these are of course people who are already banking with Bank of America, who had at least $3 million in assets, just kind of how they think about things, and where their focuses are. And what they found's pretty fascinating. So, about two-thirds of wealthier millennials and Gen Z investors say that they don't believe stocks and bonds alone can generate above average returns anymore. But that's not too shocking, because that's the younger generations who are currently investing, and we're talking about the wealthier among them, so, they came across that money somehow. They've got at least a little bit of experience. But it's not just those younger investors saying these things. So, more than half of Gen X also agreed, according to this survey. Ten years ago, alternatives were viewed as something that only institutions and billionaire families did. And that wasn't really a perception, that was reality, because financial institutions were not equipped, and the rules were not equipped to allow this to happen anyway. These are more aggressive investments, a lot of moving parts, and, in the past, we've had a more regulatory environment. Some of those walls have come down, so it's a little easier to get into these things, and they're becoming more mainstream among affluent investors of any age. So, now, before anybody hears me saying, "Hey, dump all your stuff in private equity," that's not at all what we're saying here, right, Bob?
Bob: Yeah. I think what's going on here is we went through, you know, people remember 2022, and, you know, again, that's coming out of the COVID situation, where the Fed raised rates seven times that year, and bonds just took an absolute beating that year, and I think people are still remembering that. The stock and bond market, one of those rare years where they both went down at the same time, and bonds have somewhat been kinda dead money ever since. I mean, year to date, right now, Brian, the Bloomberg aggregate bond index is down about three-quarters of 1%. So, we've got pesky inflation. That 10-year treasury has now eclipsed 4.7%. People are not making any money in bonds right now, especially after inflation and taxes, so they're naturally gonna look elsewhere. And, at times, people will get a little impatient, and move too much of their money, too quick, into some of these other asset classes, forgetting that these asset classes can come with some illiquidity, higher fees, and you certainly do not eliminate volatility when you get into some of these things, and...but, people are looking for alternatives that are not correlated with the stock market.
I think the other thing causing people to look at these alternative asset classes is, you and I have talked about this topic for well over a year now, just the concentration of those largest six or seven stocks in the S&P 500, in terms of market cap, that's got people looking elsewhere as well, because I think people just know inherently there's gotta be some ways for me to get some return here without being overly concentrated in MAG7 tech stocks, and also protect myself in a down market as well. So, everything feels good right now, because we haven't had a whole lot of volatility to speak of since 2022, but I think people that have been invested for a long time realize that it's not a matter of if, it's a matter of when we're gonna see some renewed volatility again, and people are just looking in different places. I think it's natural to do that. My caution is do it responsibly, and make sure you know what you're getting into. Oftentimes, a good fiduciary advisor is gonna be able to help you walk through what some of these alternatives are, and just make sure you don't get into something you didn't really understand, and then will regret buying down the road.
Brian: Yeah, and something that's occurring to me as we talk through this, is I've had conversations with clients wanting to diversify. And we do use these tools, right? Has to be the right situation. There are certain qualifications that an individual, the investor has to have, and there's lots of rules and things to be followed, but those really aren't that hard to accomplish. That said, there's still a psychological aspect to this. People have to understand they're getting into something different. Some people are not comfortable with something beyond an investment that has a ticker symbol that they can look at morning, noon, and night, and see what's going on. And I think that's when, you know, we talk, anytime you hear the word "private," one of the reasons that those are kinda known as less volatile is because they are not publicly-traded. It's in the word itself. Publicly-traded means it's out there on an exchange, and I can run in there and I can buy it now and sell it 2 minutes later, then buy it again 10 minutes later. Private means it's not that liquid. That also means it's not priced all day, every day. So, the market could be getting hammered. You're not gonna necessarily see the value of your private equity-purchased bakery or veterinarians clinic down the road, because that's just not how it works. So, that makes it look more stable over time. Now, I think these are great tools for people to start learning about. Whether you pull the trigger is a different question, but great things to start learning about, if you're in a position to carve out some of your assets for a little bit of a different flavor in your portfolio.
Bob: Yeah, just one more side comment on all that. I believe I heard yesterday our government has tried to re-paper or roll over about $10 trillion in government debt right now, and they're running into competition from these AI hyperscalers. A lot of these companies are issuing debt rather than stock, hoping that they don't have to dilute the shares of their company. So, there's a lot of money out there needing to be financed, and I think that's what's pushing these bond yields up here in the short term. Here's the Allworth advice. Don't invest in alternatives just because they're different. Invest in them only if they solve a problem your traditional portfolio cannot. Coming up next, our senior estate planning expert is in, to help you ensure your legacy is clearly defined. 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 senior estate planning specialist, Paul Schwartz. Paul, we're gonna talk about a topic that's been in the headlines here recently. Over $80 trillion is expected to change hands over the next couple of decades, from generation to generation, and you're gonna walk us through some top-line bullet points here, so we can all ask ourselves, are we prepared personally to usher in, shepherd in this large wealth transfer to our heirs?
Paul: Thanks. Yeah. There's a couple things that are really important with the money flow. Obviously, on the back end, it's making sure that they have all their estate planning documents in place, in order to transfer that wealth, and transfer it as intended. And then on the front end, it's a lot of money coming down to their children. So, I think there's a couple things, really, to look at, and the first is probably educating kids early about the importance of the transfer of that money, and what it means to them. And then I think, on the second hand, it's about communication, and it's about communication on possibly the amount that they're gonna receive, but at what time do you communicate that to the kids? And so, I think it's different with every family, depending on the maturity of the kids, and there are some kids that are very mature at age 21. There are also some kids that really don't mature until about age 30. So, with every family, it just kinda depends. It depends on that family's situation.
Brian: Paul, what kind of structures can you put in place? So, let's say I've got one of those kids that really just doesn't quite get it, and we're still waiting for them, but I'm worried that I'm not gonna be able to call the shots and control things to protect them from themselves. What are the things and strategies that come to mind that you would put in place?
Paul: Well, I'll give you an example. So, I had a client in the past, that actually gifted $1 million to her grandson, and he spent it within the first three months of receiving it. So, at that point we talked about...
Brian: Oh, yeah, I gotta ask, I think we gotta hear sort of the detail behind that. Where'd that money go? Tell me about the train wreck.
Paul: Well, one of it was buying a Porsche for a girlfriend.
Brian: There it is.
Paul: The other one, a few of the other things were just kind of just partying and living it up and traveling.
Brian: Oh, okay. Sounds like a fun guy to hang out with, maybe once a year or so.
Paul: Yeah. So, we talked to grandma about what we could do in that situation. And there's a lot of different things you can do. You can hold the money in trust for his lifetime. But what we decided to do was kind of create an annuity, an annuity of 1% the first year, 2% the second year. And we went up to 4% the next five years. And so we were holding the money for the next 30 years, so basically, he wouldn't blow it in the first year, like we thought he might.
Brian: So, who is in control of the decision-making? I know the answer to this, but I want our listeners to hear it from you. Who am I hiring to make those decisions, and how does that relationship work?
Paul: So, you're hiring a trustee. The trustee is gonna control the money. And so it could be somebody that you trust, whether it's a family member. It could be a corporate trustee. But it's gonna be somebody that understands the situation, and is going to follow the intent of the grantor, the person who created the trust. And I will tell you, that's another thing. I have seen cases where a sibling was the trustee for, like, a brother or sister. And I would tell you that is not always the greatest idea, because it creates a lot of acrimony and things within the family. It just creates some bad relationships within the family. And what I've seen in that situation is that person will decline to serve as the trustee, and then usually, they'll find a corporate trustee, somebody that's done this professionally, to handle the money for them.
Bob: All right. Hey, Paul, you mentioned communication, education, and that leads to the whole topic of family meetings, just to kind of outline for your heirs what the estate plan is, how it's all gonna work. In other words, get the family in one room together, and talk about all this. I'm curious, have you ever participated in any of these family meetings on behalf of families, and can you share with us when those meetings work well, and when they tend to not work very well?
Paul: Yes, I have participated, and we've also had some of the advisors participate in those meetings. Sometimes we have CPAs participate in those meetings. Sometimes it's the attorneys. And it's just kind of up to the family on who they want to participate in the meetings. But usually the meetings occur sometime after, maybe if the kids have gone to college, maybe when they hit about 23 to 25 years old. And so, I think the professionals are in there sometimes to scare the kids straight, basically, and just kind of explain the responsibility behind the money. And you don't have to go into numbers, in terms of the money, but it's just kind of saying that, you know, we had a family business, talk about the family business, talk about the history of the family business, talk about the inherited money, how it's gone down generations, and just keep talking about the responsibility. The last thing you want is to raise an entitled kid. So, that is the goal, is to not raise an entitled kid.
Bob: But by the time you get to that meeting, when the kids are in their early 20s, like you say, and out of college, that work's already been done, positively or negatively, right? I mean, it all comes down to how you raise your kids before they even get to their early 20s, am I right?
Paul: You're exactly right.
Brian: Bob, did you buy Carrie a Porsche? I just wanna know. Is that how you clouded her judgment?
Bob: No, that was her boyfriend prior to me. I got the benefit of driving the Porsche and marrying her. So I won a...
Brian: Winning.
Bob: Yeah. All right. We're gonna have to leave it there, Paul. Thanks so much for your time 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 answer? 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 there, and as always, it will come straight to us. All right, Brian. Laura in Blue Ash says, "We're retired, we don't need all of our IRA withdrawals, and we hate paying taxes just to reinvest the money. Are we missing a better strategy?"
Brian: Well, maybe. There's some moving parts to this question. So, you say you're retired. We don't know the age. So, at some point, you know, and I'm gonna assume you're over 73, because you're saying you don't need all of our IRA withdrawals, so I'm assuming you are being forced to take withdrawals, via the required minimum distributions, because if you're taking withdrawals and you don't need them, that's like hitting yourself in the hand with a hammer and wondering why it hurts. Stop doing it. But anyway. So, yeah, assuming that we have a situation where you are required minimum distribution eligible, you have to take out that minimum. By the way, the way that's calculated, for those of you thinking about it, take the 12/31 end of the year balance from the prior year, and multiply it by roughly 4% to 5%. That's what you have to take out. Right? There's a much more complicated IRS equation, of course, but that'll give you a ballpark idea. That's not the tax. That's the dollar amount you have to take out. So, if you've got a million dollars in an IRA, probably have to take out $40,000, $50,000. That's gonna be taxed. Let's pretend you're in the 20% bracket, so you might owe $10,000 to the feds, and then whatever to whatever state you're in. So, that's how it works, what we're shooting at.
Don't have a choice about it at RMD age. That's what the R stands for. It is indeed required. The IRS wants their money, because those dollars have been sheltered, a lot of times, for 40, 50 years, and it's time to pay the piper. But that said, the first and easiest thing that I always look for is someone already making charitable contributions. If you're writing checks to churches or charitable groups or whatever, out of your other assets, then stop doing that. Use your required minimum distribution as what's called a qualified charitable distribution, or QCD. You can start doing this, actually, at age 70 and a half, even before you are required to take that RMD. But what you can do is you can give up to $105,000 this year. That's the total you can do. It can be more than your RMD if you really want. It of course is not taxed as income, because you're giving it to a charity. That shouldn't be too shocking. But also, this is the bigger deal, and we do talk, every time QCD comes up, we hit this topic. It also doesn't even show up in your other income, right? So, it's not pushing you into higher brackets. That might be the only place in the tax code where you can actually get away with that, creating income that doesn't actually push your other income higher. So, that's a great idea there.
Now, you did say that, for those of you who might not be in this situation, and you're a little earlier but you're worried about it, you should be looking at Roth conversions, right? That can be beneficial, to pull some taxation forward, to keep you in lower brackets ongoing, as opposed to a really, really, really, really low bracket now, and a really, really, really high bracket later. So, lots of moving parts there, but that's where you need a fiduciary advisor or a CPA to help you understand that. Bill. Bill from nowhere. Bill didn't tell us where he's from. It just says Bill. Bill says, "Every article I read says Roth conversions are a great idea, but nobody mentions when they're a bad idea." That's an interesting point, Bob. So, when, is he saying, he's asking, "How do I know when I should leave money in traditional IRA versus put it into the Roth?" Is the Roth the right move for everybody, Bob?
Bob: Absolutely not, Bill. Great question, and I'll just tell you, you know, Brian and I, almost in every meeting when people come in, it seems like I think, because of the amount of media stories out there on Roth conversions, everybody wants to talk about Roth conversions, and have us tell them if they should do those or not. We always run the numbers. We always run different scenarios. And Brian, correct me if you disagree here, but in most cases, we don't even do, we talk about it, but we don't end up doing the Roth conversions. Why? Because it's not in the best interest of the client. When you should just stick with a traditional IRA? If you're in a pretty low tax bracket, and Bill, a lot of people are living off of the income from their IRAs, and that's not a bad thing. People need income, and if you're in a 10%, 12%, 15% bracket, there's no reason to just juice up your taxes right now by writing a huge check to the IRS, just to do a Roth conversion. So that's when, if you're in a low bracket, just stick with what you're doing.
Another idea on when not to do this big conversion is if you don't think your tax rate's ever gonna go up appreciably, even with RMDs. And that's where running those numbers can kinda illustrate that in advance. Where a lot of people do wanna do the Roth conversions is basically they wanna pay those taxes now, in a low bracket, if they know their kids are gonna be in a very high tax bracket, and they will inherit a large tax problem with RMDs, and now to a 10-year period with which to dispense of that IRA to boot. So, it all comes down to your family situation, your and your wife's income situation. Always look at Roth conversions as an option, but I'll tell you, in most cases, people end up not doing them of any great magnitude, because they result in writing a pretty big check to the IRS now, and it's usually not in most people's best interest to do that. Time for one more. Susan in Fort Thomas has a great question, Brian. "Our family has never talked openly about money. Is it too late to start having those conversations in our 70s?"
Brian: No, I don't think it's ever too late, of course. I mean, more communication is better, in my experience. So, this might be the most important time to start, to begin with, you know, because at this age, if you're in your 70s, your kids are probably in their 50s, and they're starting to hear from their peers about estate messes that other families are leaving behind because they didn't have these conversations. So, no. I think it's a great time to be open-mouth, and matter of fact, I would, I'd almost always defer toward, let's be more communicative than less, so that at least some information is out there as opposed to no information. I think that's a much smoother transition, when, once you're gone and have no way to control it anymore.
Bob: Coming up next, I've got my two cents on if and when it makes sense to consider interviewing a new financial advisor. 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, feel free to jump in here, but sometimes we do get asked, hey, we've had the same financial advisor for 10, 20, 25, maybe even 30 years. How do you know whether you're staying put with that advisor just because, well, they've been our advisor for a long time, and when does it make sense to start maybe interviewing an alternative advisor? I've got a couple thoughts on that. The number-one thing with an advisor, and we're talking about hopefully a fiduciary advisor, is trust. Do you trust that person personally? And do you trust their role in the firm that they're with as a fiduciary? Because if the answer to that question is yes, 9 times out of 10, you shouldn't think about changing, because if that person's been with you for a long time, you've developed that relationship, and you've got a deep trust with that person, 9 times out of 10, you're gonna be well-served. I'll talk about when it doesn't make sense to make a change, and that's if advisors are trying to get in your head, trying to compete on investment returns. Because I'll tell you, as somebody who's been in this business now for over 35 years, a lot of people talk about return, and the advisors that like to compete on investment return, most of them, first of all, have little to no idea on how to even generate an investment return, or an outsized return, over what a good, responsible, allocated portfolio will do, because most people don't know how to market-time, shouldn't market-time, and the markets are gonna do what they're gonna do. So, that's usually when people are starting to look around, because they're maybe impatient, or disenfranchised a little bit with their investment return over the short term, and that's the wrong time to think about changing advisors.
Now, when should you be looking at maybe another advisor? If your advisor's not actively talking to you about tax planning and tax management of your overall financial plan and portfolio, and coordinating those things with your CPA, in other words, if they're just turning a complete blind eye to the whole topic of tax planning, that person is just, in my opinion, not keeping up with the times, keeping up with the opportunities that are out there, and that's where you really are missing an opportunity to add value through getting good advice. Any thoughts along those lines, Brian?
Brian: Yeah, I think a lot of people get hung up on, like you said, on performance. Performance is extremely important. At the end of the day, if you're not growing my money, what are you really doing for me? But you're gonna find it very, very, very difficult to talk to independent advisors and ask them what their performance has been, because most of the time, they're simply not allowed to report it that way, because if you're going to report performance, you have to have a standardized approach. And there's a system out there called GIPS, G-I-P-S. That's what's used. If you are GIPS-certified, then that means you've been audited by an outside firm, you have a number of years of all these different things, and, more importantly, it means you have a product. It means everybody gets the same thing. When you're approaching this from an independent financial planning standpoint, and customizing every last little bit of a plan, that's not a product that can be submitted for GIPS approval, because it's just not something that is intended to be compared side-to-side, side-by-side with a bunch of other things. At the end of the day, your portfolio is gonna generally follow what the market does. If it doesn't, then make sure you understand exactly what you own. That's not necessarily a bad thing, but it could zig when the market zags, and that can work for you, as well as against you, as often as not.
Bob: Great point, Brian. Thanks for listening tonight. You've been listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE talk station.
Brian: Tiny bubbles in my wine. Remember that song by Don Ho? Are you old enough to remember that song, Bob?
Bob: Oh, I remember it. I don't sing it as well as you do, so [crosstalk 00:01:17].
Brian: Let's do rounds. You take that second verse, then.
Bob: No. No, no, no. No. We're not gonna go there. Let's stick to the script here. Talk about the stock market, Brian. Nobody wants to hear us sing. I guarantee you that.
Brian: That is the script. This is what Jason gave us, and I like it because it's talking about what we're experiencing. Bubbles, but tiny ones. So, we're used to those big bubbles. Think back to the year 2000. When the tech bubble burst, it took everything with it. 2008, the housing bubble fell apart, and took everything with it. Banks got in trouble. Credit markets froze. Really nobody was spared. And I remember you and I were both working in this industry. We didn't know each other back then, but definitely was a very long period of our careers, that we'll never forget. But nowadays, it seems like everything's a bubble, right? We always talk about bubbles. I think you and I have been talking about bubbles on these microphones since we started doing this together. Sometimes it's crypto, or it's special-purpose acquisition companies, or SPACs. Those kind of came and went. Cannabis, clean energy, or meme stocks, they explode higher and higher, until they implode, and then the rest of the market just keeps moving along. And that's what we're seeing now with AI. Now, AI, I think, has a little more staying power as something that has industrial use, versus these other things, which really are more speculative in nature, so, [crosstalk 00:02:35]
Bob: Brian, I know you've been a huge fan of SPACs, especially SPACs concentrated in Dogecoins. Were you able to diversify out of those large, rather large positions in your personal account before those declined in value?
Brian: Now, Bob, you know very well you're lying through your teeth. I couldn't even remember what the acronym stood for, if you heard me stumble through that a second ago. But not a big thing for my portfolio, really. I'm a slow-and-steady-wins-the-race kind of a guy. I believed a long time ago that... I learned my lesson with one of the original internet companies, company called CMGI. I put a thousand bucks in it in college, and sold it six months later for two thousand dollars. Doubled my money in six months. By today's standards, that's a glacial pace. But I declared myself Warren Buffett, and decided that I was gonna be this great stock trader. Had I held that thousand bucks through about the year 2000, it would have been worth a quarter million dollars because that was part of the bubble we're talking about. Had I held it a little longer than that, it would have been worth nothing, because the company went away after that bubble burst. That's when I learned that this isn't the right way to go about investing and financial planning. It's much more about figuring out what level of risk you can handle for each part of your portfolio, and then handle accordingly, rather than swinging for the fences during every at bat.
Now, why are we seeing these tiny bubbles, Bob? So, the market has become a little better at isolating risk, right? Everything is about growth nowadays. It's been a very long time. Every now and then, somebody will come to me and say, hey, I wanna buy some good big old blue chips, and live off the dividends. The people who still think that way haven't really paid much attention to what the market cares about. Dividends do not generate the kind of income that they used to on a percentage basis, because companies and the leaders of these publicly-traded companies are very well aware that a dividend is simply not as sexy to attract shareholders as it used to be. It's about a growth story. So that gives us all these tiny little growth stories, hiding everywhere, right? So, 3D printing, stocks in China, volatility stuff. There was a company called ARK, A-R-K, innovation, that was popular for a long time, because they were heavily overweight in this stuff. Crypto SPACs, like we said. Now we're talking about AI infrastructure. Some of those investments lost 80%, 90%, even 95%, Bob. And that's devastating if you own them. But if you had a diversified portfolio, it's a tiny headline under the bigger headlines.
Bob: What we're really talking about here is the risk of being over-concentrated in any specific sector of the market. This is not a prediction that hyperscalers, for AI, hyperscalers are gonna lose 95 percent. What we're saying is that we are seeing more volatility, because, when folks get more focused on growth, earnings growth, rather than dividend yield and some of the other things you just mentioned, the minute that...you know, stocks can get price to perfection almost, and we're seeing some of that right now, and the minute some of that growth, earnings growth, starts to decline at all, you can see these stocks pull back 10%, 15%, 20% in a hurry, and that's really what we've seen go on this year so far. So, it's just a reminder to not hitch too big of a wagon to any one sector of the market. You know, make sure you're managing an overall portfolio designed to do what you need your money to do, and when, to avoid unnecessary volatility in your portfolio. That's really the message here. And we've seen this play out so far in 2026.
Brian: That's right. And this isn't new, right? It's just, technology feels new and sexy and scary to your more conservative investors, but we've always had some kind of thing, some kind of catalyst that drives the market, right? In the 19th century, it was railroads. Just the idea of taking something from one side of the country and getting it to the other, without having to put it on a wagon and drag it across with horses, or oxen, or whatever they used back then. And that gave birth to the Sears catalog, right? Back in the day, the Sears catalog was the Amazon of the 19th century world, and it was positively mind-boggling to people out in the Great Plains and further that they could order things from a catalog, and it would actually show up on their doorstep weeks later. Now, we get annoyed if Amazon tells us it's gonna be here today and then we get that message, which I don't think I've ever successfully gotten the same-day delivery. I always get the message that it's actually coming tomorrow. And that bothers me. But at the same time, that's just where we are now.
After that, the automotive revolution, right. People move to cars. And then, of course, the internet. AI is certainly gonna...it will change and is changing America. But along the way, plenty of investors lost fortunes investing in railroads. Some of those railroads that you remember from the Monopoly board game don't exist anymore. Internet companies, of course, like the one I was talking about, those disappear. Being right about technology in general isn't enough. You gotta figure out which players are gonna be the right ones. You have to be right about the valuation. That means you have to understand the business concepts that they're pursuing. How likely are they to be successful? How much risk are they taking? What are they not telling you? What's hiding in the balance sheet, right? There's always things that are future headlines, that we just simply haven't heard about yet. So, Amazon survived, went from being a very unprofitable bookstore to what it has become now. But most of those dot-com companies didn't. The internet absolutely did change the world. But if you were on the wrong side of it, or you paid too much for those things, you spent years digging themselves out, if you've recovered at all.
Bob: And this is where responsible financial planning really becomes a conversation, a non-emotional conversation, between yourself, and, if you have one, a good fiduciary advisor. And I'll give you an example. Brian, I think this is a meeting you and I did two or three weeks ago. We had somebody come in that had highly concentrated positions, and these were in an IRA. So, they could liquidate these positions with really no tax consequences whatsoever. But, you know, it was one of these spreadsheet guys, and he opens up the meeting talking about his accumulated 1400% return in these stocks. And, you know, I looked at him and I'm like, does that really matter? How have these stocks done over the last two, three, five years? And, how would you react if they dropped by 20% over the next year and a half? And you get this deer-in-the-headlights look back. People wanna stare at these huge gains they've had in their portfolio in individual stocks and ETFs, and sometimes it's hard to get people to just do the responsible thing, you know, not pay a ton of taxes, but responsibly trim and rebalance some of these positions, so that they don't get an unpleasant surprise if and when we do get a market pullback. Do you remember that meeting, Brian?
Brian: Oh, absolutely. And that's a fairly common topic these days, of just the idea of, the helping people figure out, you know, that thing you took a big swing at and won, that sometimes can be the worst thing that can happen to somebody, because it leads them to believe that this is how it works, and it's not just an anomaly, and don't wanna do it again. And [crosstalk 00:09:51] get trapped in...
Bob: And I remember asking him, I'm like, hey, if you were sitting on cash today, how much of these three stocks that you've owned for the last 20 years would you buy today. Today. With cash? And then, [crosstalk 00:10:04] a blank stare and a non-answer is what we got back. [crosstalk 00:10:09]
Brian: Yep. And the other part of all this is the taxes. People get hung up, when we have a windfall like this, people get hung up on the taxes. And "I can't sell this. I can't pay capital gains. Heaven forbid." Well, then it's not an asset. Then now you've got a piece of artwork sitting in the living room, that you have bound yourself to give to your kids, except the value of it's gonna go up and down. It may have ballooned today, but it could be gone tomorrow, and that's a loss we could take simply because we don't wanna deal with the taxes on it. So that's why we always say, don't let the tax tail wag the dog, because those gains can go away tomorrow. Taxes are a part of life. Taxes are, in a roundabout way, some people aren't gonna like this, but in a roundabout way, they're a good thing. They're unavoidable, right? If you want taxes to go away, start voting differently, very differently. And, but at the same time, they're always there, and it indicates that you had some kind of a gain. So, be open to the idea that maybe that windfall that I got, or that giant pile of stock that I inherited, that's another common situation when we have an overweight somewhere, people inherit something from grandma and grandpa, and they wanna keep it for, you know, for sentimental purposes. And my thought there is, I can't imagine that your loved ones who have passed on wanted you to sit on shareholder calls, and look at balance sheets, and do nothing with this asset other than understand it and learn about it. They gave it to you for your financial success. It's okay. Figure out some kind of chunk of it to hang on to for those sentimental reasons. Usually not a bad company. Around here, it's Procter and Gamble. This happens all the time. But then the rest of it, remember, they wanted you to have financial stability. That's why they gave it to you. Take advantage of it that way. It's not all an heirloom.
Bob: Well, speaking of gains racking up and going away quickly, we're gonna get SpaceX earnings, and that'll determine kind of what this stock is really valued at. And I think the interesting thing, too, is we're gonna get some announcements of kind of a staggered lockup period on this stock. You don't need to go back any further than a month to see that stock come out of the IPO, ramp up to over $225 a share, and now it's trading for half that amount. So, this stuff can come and go quickly if you're not staying diversified, and staying responsible in your allocation. Here's the Allworth advice. Build your financial plan around diversification and discipline, not the hottest investment of the moment. Well, more wealthy investors are putting money into private markets, real estate, gold, even crypto, and is that classic 60/40 portfolio dead? We're gonna discuss next where alternatives belong and where they absolutely don't in your portfolio. 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're unable to listen to "Simply Money" live every night, subscribe and get our daily podcasts. Just search "Simply Money" on the iHeart app, or wherever you find your favorite podcasts.
What should you do when required IRA withdrawals create taxes you don't need or want? And on the flip side of that, when can Roth conversions backfire? And is it ever too late to start talking openly about money with your family? We'll dig into all of those listener questions, straight ahead. If you've been paying attention to Wall Street lately, you've probably noticed that more people are talking about private equity, private credit, infrastructure, real estate, gold, basically anything that isn't just stocks and bonds. And now there's some actual data to back this up, Brian, how people are actually discussing and moving their money around into alternative asset classes.
Brian: Right. We have the Bank of America private bank survey to thank for this information. They asked roughly 1400 investors, these are of course people who are already banking with Bank of America, who had at least $3 million in assets, just kind of how they think about things, and where their focuses are. And what they found's pretty fascinating. So, about two-thirds of wealthier millennials and Gen Z investors say that they don't believe stocks and bonds alone can generate above average returns anymore. But that's not too shocking, because that's the younger generations who are currently investing, and we're talking about the wealthier among them, so, they came across that money somehow. They've got at least a little bit of experience. But it's not just those younger investors saying these things. So, more than half of Gen X also agreed, according to this survey. Ten years ago, alternatives were viewed as something that only institutions and billionaire families did. And that wasn't really a perception, that was reality, because financial institutions were not equipped, and the rules were not equipped to allow this to happen anyway. These are more aggressive investments, a lot of moving parts, and, in the past, we've had a more regulatory environment. Some of those walls have come down, so it's a little easier to get into these things, and they're becoming more mainstream among affluent investors of any age. So, now, before anybody hears me saying, "Hey, dump all your stuff in private equity," that's not at all what we're saying here, right, Bob?
Bob: Yeah. I think what's going on here is we went through, you know, people remember 2022, and, you know, again, that's coming out of the COVID situation, where the Fed raised rates seven times that year, and bonds just took an absolute beating that year, and I think people are still remembering that. The stock and bond market, one of those rare years where they both went down at the same time, and bonds have somewhat been kinda dead money ever since. I mean, year to date, right now, Brian, the Bloomberg aggregate bond index is down about three-quarters of 1%. So, we've got pesky inflation. That 10-year treasury has now eclipsed 4.7%. People are not making any money in bonds right now, especially after inflation and taxes, so they're naturally gonna look elsewhere. And, at times, people will get a little impatient, and move too much of their money, too quick, into some of these other asset classes, forgetting that these asset classes can come with some illiquidity, higher fees, and you certainly do not eliminate volatility when you get into some of these things, and...but, people are looking for alternatives that are not correlated with the stock market.
I think the other thing causing people to look at these alternative asset classes is, you and I have talked about this topic for well over a year now, just the concentration of those largest six or seven stocks in the S&P 500, in terms of market cap, that's got people looking elsewhere as well, because I think people just know inherently there's gotta be some ways for me to get some return here without being overly concentrated in MAG7 tech stocks, and also protect myself in a down market as well. So, everything feels good right now, because we haven't had a whole lot of volatility to speak of since 2022, but I think people that have been invested for a long time realize that it's not a matter of if, it's a matter of when we're gonna see some renewed volatility again, and people are just looking in different places. I think it's natural to do that. My caution is do it responsibly, and make sure you know what you're getting into. Oftentimes, a good fiduciary advisor is gonna be able to help you walk through what some of these alternatives are, and just make sure you don't get into something you didn't really understand, and then will regret buying down the road.
Brian: Yeah, and something that's occurring to me as we talk through this, is I've had conversations with clients wanting to diversify. And we do use these tools, right? Has to be the right situation. There are certain qualifications that an individual, the investor has to have, and there's lots of rules and things to be followed, but those really aren't that hard to accomplish. That said, there's still a psychological aspect to this. People have to understand they're getting into something different. Some people are not comfortable with something beyond an investment that has a ticker symbol that they can look at morning, noon, and night, and see what's going on. And I think that's when, you know, we talk, anytime you hear the word "private," one of the reasons that those are kinda known as less volatile is because they are not publicly-traded. It's in the word itself. Publicly-traded means it's out there on an exchange, and I can run in there and I can buy it now and sell it 2 minutes later, then buy it again 10 minutes later. Private means it's not that liquid. That also means it's not priced all day, every day. So, the market could be getting hammered. You're not gonna necessarily see the value of your private equity-purchased bakery or veterinarians clinic down the road, because that's just not how it works. So, that makes it look more stable over time. Now, I think these are great tools for people to start learning about. Whether you pull the trigger is a different question, but great things to start learning about, if you're in a position to carve out some of your assets for a little bit of a different flavor in your portfolio.
Bob: Yeah, just one more side comment on all that. I believe I heard yesterday our government has tried to re-paper or roll over about $10 trillion in government debt right now, and they're running into competition from these AI hyperscalers. A lot of these companies are issuing debt rather than stock, hoping that they don't have to dilute the shares of their company. So, there's a lot of money out there needing to be financed, and I think that's what's pushing these bond yields up here in the short term. Here's the Allworth advice. Don't invest in alternatives just because they're different. Invest in them only if they solve a problem your traditional portfolio cannot. Coming up next, our senior estate planning expert is in, to help you ensure your legacy is clearly defined. 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 senior estate planning specialist, Paul Schwartz. Paul, we're gonna talk about a topic that's been in the headlines here recently. Over $80 trillion is expected to change hands over the next couple of decades, from generation to generation, and you're gonna walk us through some top-line bullet points here, so we can all ask ourselves, are we prepared personally to usher in, shepherd in this large wealth transfer to our heirs?
Paul: Thanks. Yeah. There's a couple things that are really important with the money flow. Obviously, on the back end, it's making sure that they have all their estate planning documents in place, in order to transfer that wealth, and transfer it as intended. And then on the front end, it's a lot of money coming down to their children. So, I think there's a couple things, really, to look at, and the first is probably educating kids early about the importance of the transfer of that money, and what it means to them. And then I think, on the second hand, it's about communication, and it's about communication on possibly the amount that they're gonna receive, but at what time do you communicate that to the kids? And so, I think it's different with every family, depending on the maturity of the kids, and there are some kids that are very mature at age 21. There are also some kids that really don't mature until about age 30. So, with every family, it just kinda depends. It depends on that family's situation.
Brian: Paul, what kind of structures can you put in place? So, let's say I've got one of those kids that really just doesn't quite get it, and we're still waiting for them, but I'm worried that I'm not gonna be able to call the shots and control things to protect them from themselves. What are the things and strategies that come to mind that you would put in place?
Paul: Well, I'll give you an example. So, I had a client in the past, that actually gifted $1 million to her grandson, and he spent it within the first three months of receiving it. So, at that point we talked about...
Brian: Oh, yeah, I gotta ask, I think we gotta hear sort of the detail behind that. Where'd that money go? Tell me about the train wreck.
Paul: Well, one of it was buying a Porsche for a girlfriend.
Brian: There it is.
Paul: The other one, a few of the other things were just kind of just partying and living it up and traveling.
Brian: Oh, okay. Sounds like a fun guy to hang out with, maybe once a year or so.
Paul: Yeah. So, we talked to grandma about what we could do in that situation. And there's a lot of different things you can do. You can hold the money in trust for his lifetime. But what we decided to do was kind of create an annuity, an annuity of 1% the first year, 2% the second year. And we went up to 4% the next five years. And so we were holding the money for the next 30 years, so basically, he wouldn't blow it in the first year, like we thought he might.
Brian: So, who is in control of the decision-making? I know the answer to this, but I want our listeners to hear it from you. Who am I hiring to make those decisions, and how does that relationship work?
Paul: So, you're hiring a trustee. The trustee is gonna control the money. And so it could be somebody that you trust, whether it's a family member. It could be a corporate trustee. But it's gonna be somebody that understands the situation, and is going to follow the intent of the grantor, the person who created the trust. And I will tell you, that's another thing. I have seen cases where a sibling was the trustee for, like, a brother or sister. And I would tell you that is not always the greatest idea, because it creates a lot of acrimony and things within the family. It just creates some bad relationships within the family. And what I've seen in that situation is that person will decline to serve as the trustee, and then usually, they'll find a corporate trustee, somebody that's done this professionally, to handle the money for them.
Bob: All right. Hey, Paul, you mentioned communication, education, and that leads to the whole topic of family meetings, just to kind of outline for your heirs what the estate plan is, how it's all gonna work. In other words, get the family in one room together, and talk about all this. I'm curious, have you ever participated in any of these family meetings on behalf of families, and can you share with us when those meetings work well, and when they tend to not work very well?
Paul: Yes, I have participated, and we've also had some of the advisors participate in those meetings. Sometimes we have CPAs participate in those meetings. Sometimes it's the attorneys. And it's just kind of up to the family on who they want to participate in the meetings. But usually the meetings occur sometime after, maybe if the kids have gone to college, maybe when they hit about 23 to 25 years old. And so, I think the professionals are in there sometimes to scare the kids straight, basically, and just kind of explain the responsibility behind the money. And you don't have to go into numbers, in terms of the money, but it's just kind of saying that, you know, we had a family business, talk about the family business, talk about the history of the family business, talk about the inherited money, how it's gone down generations, and just keep talking about the responsibility. The last thing you want is to raise an entitled kid. So, that is the goal, is to not raise an entitled kid.
Bob: But by the time you get to that meeting, when the kids are in their early 20s, like you say, and out of college, that work's already been done, positively or negatively, right? I mean, it all comes down to how you raise your kids before they even get to their early 20s, am I right?
Paul: You're exactly right.
Brian: Bob, did you buy Carrie a Porsche? I just wanna know. Is that how you clouded her judgment?
Bob: No, that was her boyfriend prior to me. I got the benefit of driving the Porsche and marrying her. So I won a...
Brian: Winning.
Bob: Yeah. All right. We're gonna have to leave it there, Paul. Thanks so much for your time 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 answer? 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 there, and as always, it will come straight to us. All right, Brian. Laura in Blue Ash says, "We're retired, we don't need all of our IRA withdrawals, and we hate paying taxes just to reinvest the money. Are we missing a better strategy?"
Brian: Well, maybe. There's some moving parts to this question. So, you say you're retired. We don't know the age. So, at some point, you know, and I'm gonna assume you're over 73, because you're saying you don't need all of our IRA withdrawals, so I'm assuming you are being forced to take withdrawals, via the required minimum distributions, because if you're taking withdrawals and you don't need them, that's like hitting yourself in the hand with a hammer and wondering why it hurts. Stop doing it. But anyway. So, yeah, assuming that we have a situation where you are required minimum distribution eligible, you have to take out that minimum. By the way, the way that's calculated, for those of you thinking about it, take the 12/31 end of the year balance from the prior year, and multiply it by roughly 4% to 5%. That's what you have to take out. Right? There's a much more complicated IRS equation, of course, but that'll give you a ballpark idea. That's not the tax. That's the dollar amount you have to take out. So, if you've got a million dollars in an IRA, probably have to take out $40,000, $50,000. That's gonna be taxed. Let's pretend you're in the 20% bracket, so you might owe $10,000 to the feds, and then whatever to whatever state you're in. So, that's how it works, what we're shooting at.
Don't have a choice about it at RMD age. That's what the R stands for. It is indeed required. The IRS wants their money, because those dollars have been sheltered, a lot of times, for 40, 50 years, and it's time to pay the piper. But that said, the first and easiest thing that I always look for is someone already making charitable contributions. If you're writing checks to churches or charitable groups or whatever, out of your other assets, then stop doing that. Use your required minimum distribution as what's called a qualified charitable distribution, or QCD. You can start doing this, actually, at age 70 and a half, even before you are required to take that RMD. But what you can do is you can give up to $105,000 this year. That's the total you can do. It can be more than your RMD if you really want. It of course is not taxed as income, because you're giving it to a charity. That shouldn't be too shocking. But also, this is the bigger deal, and we do talk, every time QCD comes up, we hit this topic. It also doesn't even show up in your other income, right? So, it's not pushing you into higher brackets. That might be the only place in the tax code where you can actually get away with that, creating income that doesn't actually push your other income higher. So, that's a great idea there.
Now, you did say that, for those of you who might not be in this situation, and you're a little earlier but you're worried about it, you should be looking at Roth conversions, right? That can be beneficial, to pull some taxation forward, to keep you in lower brackets ongoing, as opposed to a really, really, really, really low bracket now, and a really, really, really high bracket later. So, lots of moving parts there, but that's where you need a fiduciary advisor or a CPA to help you understand that. Bill. Bill from nowhere. Bill didn't tell us where he's from. It just says Bill. Bill says, "Every article I read says Roth conversions are a great idea, but nobody mentions when they're a bad idea." That's an interesting point, Bob. So, when, is he saying, he's asking, "How do I know when I should leave money in traditional IRA versus put it into the Roth?" Is the Roth the right move for everybody, Bob?
Bob: Absolutely not, Bill. Great question, and I'll just tell you, you know, Brian and I, almost in every meeting when people come in, it seems like I think, because of the amount of media stories out there on Roth conversions, everybody wants to talk about Roth conversions, and have us tell them if they should do those or not. We always run the numbers. We always run different scenarios. And Brian, correct me if you disagree here, but in most cases, we don't even do, we talk about it, but we don't end up doing the Roth conversions. Why? Because it's not in the best interest of the client. When you should just stick with a traditional IRA? If you're in a pretty low tax bracket, and Bill, a lot of people are living off of the income from their IRAs, and that's not a bad thing. People need income, and if you're in a 10%, 12%, 15% bracket, there's no reason to just juice up your taxes right now by writing a huge check to the IRS, just to do a Roth conversion. So that's when, if you're in a low bracket, just stick with what you're doing.
Another idea on when not to do this big conversion is if you don't think your tax rate's ever gonna go up appreciably, even with RMDs. And that's where running those numbers can kinda illustrate that in advance. Where a lot of people do wanna do the Roth conversions is basically they wanna pay those taxes now, in a low bracket, if they know their kids are gonna be in a very high tax bracket, and they will inherit a large tax problem with RMDs, and now to a 10-year period with which to dispense of that IRA to boot. So, it all comes down to your family situation, your and your wife's income situation. Always look at Roth conversions as an option, but I'll tell you, in most cases, people end up not doing them of any great magnitude, because they result in writing a pretty big check to the IRS now, and it's usually not in most people's best interest to do that. Time for one more. Susan in Fort Thomas has a great question, Brian. "Our family has never talked openly about money. Is it too late to start having those conversations in our 70s?"
Brian: No, I don't think it's ever too late, of course. I mean, more communication is better, in my experience. So, this might be the most important time to start, to begin with, you know, because at this age, if you're in your 70s, your kids are probably in their 50s, and they're starting to hear from their peers about estate messes that other families are leaving behind because they didn't have these conversations. So, no. I think it's a great time to be open-mouth, and matter of fact, I would, I'd almost always defer toward, let's be more communicative than less, so that at least some information is out there as opposed to no information. I think that's a much smoother transition, when, once you're gone and have no way to control it anymore.
Bob: Coming up next, I've got my two cents on if and when it makes sense to consider interviewing a new financial advisor. 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, feel free to jump in here, but sometimes we do get asked, hey, we've had the same financial advisor for 10, 20, 25, maybe even 30 years. How do you know whether you're staying put with that advisor just because, well, they've been our advisor for a long time, and when does it make sense to start maybe interviewing an alternative advisor? I've got a couple thoughts on that. The number-one thing with an advisor, and we're talking about hopefully a fiduciary advisor, is trust. Do you trust that person personally? And do you trust their role in the firm that they're with as a fiduciary? Because if the answer to that question is yes, 9 times out of 10, you shouldn't think about changing, because if that person's been with you for a long time, you've developed that relationship, and you've got a deep trust with that person, 9 times out of 10, you're gonna be well-served. I'll talk about when it doesn't make sense to make a change, and that's if advisors are trying to get in your head, trying to compete on investment returns. Because I'll tell you, as somebody who's been in this business now for over 35 years, a lot of people talk about return, and the advisors that like to compete on investment return, most of them, first of all, have little to no idea on how to even generate an investment return, or an outsized return, over what a good, responsible, allocated portfolio will do, because most people don't know how to market-time, shouldn't market-time, and the markets are gonna do what they're gonna do. So, that's usually when people are starting to look around, because they're maybe impatient, or disenfranchised a little bit with their investment return over the short term, and that's the wrong time to think about changing advisors.
Now, when should you be looking at maybe another advisor? If your advisor's not actively talking to you about tax planning and tax management of your overall financial plan and portfolio, and coordinating those things with your CPA, in other words, if they're just turning a complete blind eye to the whole topic of tax planning, that person is just, in my opinion, not keeping up with the times, keeping up with the opportunities that are out there, and that's where you really are missing an opportunity to add value through getting good advice. Any thoughts along those lines, Brian?
Brian: Yeah, I think a lot of people get hung up on, like you said, on performance. Performance is extremely important. At the end of the day, if you're not growing my money, what are you really doing for me? But you're gonna find it very, very, very difficult to talk to independent advisors and ask them what their performance has been, because most of the time, they're simply not allowed to report it that way, because if you're going to report performance, you have to have a standardized approach. And there's a system out there called GIPS, G-I-P-S. That's what's used. If you are GIPS-certified, then that means you've been audited by an outside firm, you have a number of years of all these different things, and, more importantly, it means you have a product. It means everybody gets the same thing. When you're approaching this from an independent financial planning standpoint, and customizing every last little bit of a plan, that's not a product that can be submitted for GIPS approval, because it's just not something that is intended to be compared side-to-side, side-by-side with a bunch of other things. At the end of the day, your portfolio is gonna generally follow what the market does. If it doesn't, then make sure you understand exactly what you own. That's not necessarily a bad thing, but it could zig when the market zags, and that can work for you, as well as against you, as often as not.
Bob: Great point, Brian. Thanks for listening tonight. You've been listening to "Simply Money," presented by Allworth Financial, on 55KRC, THE talk station.
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