December 20, 2024 Best of Simply Money Podcast
Market Panic: How One Chart Shook Investments
On this week’s Best of Simply Money podcast, Amy and Steve delve into how one crucial chart can significantly impact the stock market and your 401k. In a lively discussion with Allworth advisor Bob Sponseller, they explore the emotional rollercoaster investors face during volatile market days and emphasize the importance of limited 401k checks to maintain peace of mind.
The episode highlights recent market movements driven by Federal Reserve announcements, focusing on their "dot plot" and unexpected comments that triggered investor reactions. Listeners will gain insight into the market's adjustment to updated interest rate expectations and the impact of strategic investor behavior.
Amy, Steve, and Bob underscore the importance of diversification, cautioning against over-reliance on a single stock, no matter how promising it appears. They offer practical advice for protecting your investments from sudden market swings influenced by leadership statements from major companies such as Microsoft and NVIDIA.
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Transcript
Amy: Tonight, how one chart in just a few words can impact an entire stock market and certainly your 401(k). You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. I have a confession. I did something yesterday that I don't normally do. I checked my 401(k) in the morning. I don't normally check it regularly.
Steve: Sure.
Amy: I checked it in the morning, and then I checked it again last night.
Steve: Why did you do that?
Amy: Because it was, like, I'm looking at the markets, I'm looking at the markets, and I just, you know, I don't know. I just wanted to see the actual numbers in front of me. I hope no one else did that. Bob Sponseller, also joining us tonight with his perspective. But yesterday was just one of those days in the markets where I would say, don't check your 401(k) multiple times. It just hurts.
Bob: Well, Amy, just to put things in perspective, did you also check your 401(k) on November 15th, let's just say?
Amy: Good perspective. Yeah.
Bob: Because that's where the market closed yesterday, exactly at the same place it was at, November 15th.
Amy: Okay.
Bob: And that was one week after the election. And correct me if I'm wrong, but nobody was panicking on November 15th. So there's no reason to panic today.
Steve: Yeah, that's a good point. I mean, we've had entire segments about studies that show the benefits of checking your 401(k) balance, you know, once or twice a year.
Amy: Yeah, not twice a day like I did.
Steve: Yeah. The less you check your balances, the more often you're going to see up in green numbers, which, you know, if you're checking it every day, you can give yourself ulcers and lose sleep at night, because we are going to see days like yesterday. And what happened? The dot plot came out. Now, we told you the Federal Reserve, obviously, they lowered interest rates by a quarter of a point. That was to be expected.
Amy: It was already priced into the market. There was no concern there.
Steve: Yeah. But the dot plot, what that does is it's a summary of what the different voting members of the Fed think will happen with future rate cuts, specifically in 2025. And when that came out, investors panicked a little bit.
Amy: Yeah. Well, yeah, more than a little bit. I mean, we don't see...I guess we're not used to, right? We just kind of come out of this period of such little volatility. I mean, we said earlier this year, you know, over the course of the past two years, swings of more than 1%, 2%. They were non-existent. So we really got used to still waters. And then, you know, investors panicked yesterday.
Bob: Yeah. And remember, the market's been up almost 30% per year for the last two years. So, you know.
Amy: So we're spoiled.
Bob: We're spoiled. And there's always going to be some profit taking, you know, after a great couple of years like this. But in my opinion, what really moved the market and what usually moves the market in the short term is adjusted expectations. Everybody expected what the news was going to be. We've talked about it for a couple of weeks. Everybody was expecting the quarter point drop, and that's exactly what we got. So people might be wondering, "Well, wow, why did the market sell off, you know, 2%, 3% yesterday, whatever?" It's because the market was also expecting possibly four rate cuts going into next year.
Steve: Exactly.
Bob: And our Federal Reserve chairman said, "Wait, hold on a minute here. We got to make sure we control inflation, so only expect two rate cuts next year." That is an adjusted expectation. And you know, that's why the market moved short term yesterday.
Steve: Yeah, I mean, that's a really good point. It came out as something that was rather unexpected. There's going to need to be a pause, which what that shows is that there's a risk of inflation being stickier than originally thought and potentially even go back up. Now, I don't think that's going to be the case here as far as going back up. But it does show that there is a little bit of awareness that maybe further decreases will have to pause more than what had been anticipated.
Amy: I also think this is further evidence of something that we've been seeing for a while now, which is that the Fed and the markets or investors, if you will, aren't necessarily on the same page. I mean, Jerome Powell has learned the lesson the hard way. Not only am I going to tell you what I'm doing today, I'm going to try to project forward so that no one is caught off guard next steps that are coming up, right? I mean, coming into 2024, he kept saying, "You're probably not going to see the rate cuts that you're wanting to see this year." We think inflation will be stickier than maybe expected. And you still had markets pricing in more cuts this year than we actually got. This is kind of a carry forward to next year of the same sort of mindset.
Bob: Yeah. And I would say another reason for the adjustment in the Fedspeak yesterday, and you and Steve have touched upon this for a couple of weeks now, there is some uncertainty with the new administration coming in in January, particularly around tariffs and other potential policies.
Steve: Deportations.
Bob: Yeah. So if you're the Federal Reserve, I think you're sitting back and saying, "Let's see what happens." We don't know what certain policies are going to be. So we're going to pump the brakes on rate cuts and expected rate cuts. And let's just see how we settle into a new presidential administration.
Amy: You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. As we continue to digest what the markets have been digesting, right? News not only that the Federal Reserve has lowered interest rates by a quarter of point, but also that the dot plot, which is the voting members of the Fed, kind of putting onto a chart where they think interest rates are going to next year, and they're not going to go maybe as low as markets had previously priced in one chart, that dot plot. And that is what markets reacted to yesterday. But sometimes it's not just a chart. Sometimes it can be an offhanded comment by someone that you never would have thought. And all of a sudden, you're looking at your 401(k). What happened? Well, some dude opened his mouth and he said something.
Steve: Yeah, this is kind of remarkable, actually, because we've talked about Nvidia and it being kind of the darling of the S&P 500 and how much of a pull it's had on the overall price of the index. And there's always worry in the back of our minds because we've talked for years about not being over-saturated in one stock and what weird things can have an effect on the price of a stock. And this is an example of one of them. Right now, Nvidia is in the news because of what one of its leaders said, not because of what one of its leaders said but actually one of the leaders of its biggest customers said.
Amy: Yes. So this is Microsoft, right? And, you know, Microsoft has been kind of one of the biggest consumers of Nvidia's chips. And so their CEO kind of said in a recent interview that they bought all over the place. They bought up so many Nvidia chips that they have reserves. I don't even know. I'm picturing, like, towers and towers.
Steve: Towers of chips.
Amy: I don't even know, towers of chips sitting around. And it's like, "Well, we stockpiled chips. So if you thought we will continue to buy them or consume them at the same rate that we've been in the past, well, we might just kind of sit on our stash for a while and use up all these towers full of chips before we need to buy more." That was the comment.
Steve: Yeah, it was, "I am not chip supply constrained." That's what did it, those few words.
Amy: Sit with it for a second, "I am not chip supply constrained." And that moved markets.
Steve: Isn't that amazing?
Bob: Well, in terms of actual practical advice here, I think this is a great time to just reiterate some points that we continually make on this show, and that's the importance of diversifying your portfolio, not putting all your eggs in one basket. You know, I took a look at Nvidia stock, I mean, look, Nvidia was trading at an all-time high on November 21st, and it's actually been trending slightly down ever since. Okay? Again, a lot of profit-taking and tech stocks going into the end of the year. But if you look going forward, you know, their projected earnings growth is 48% moving forward. Their projected sales growth is still 94%. It's trading in a P/E ratio of under 30. So I guarantee you that most growth institutional fund managers still love Nvidia. Because if you've got earnings growth above your price-earnings ratio, that's value. Okay?
That being said, Nvidia in any of these high-growth stocks, to Steve's point, if somebody makes a whisper about any change in that potential growth, that stock can fall and fall quickly and sometimes fall by a lot. So you know, there's some people out there that, instead of keeping their emergency fund loaded up, might be using Nvidia stock as their emergency fund because it's been up so much over the last three, four, or five years. And you always have to have an exit point on stocks like this, and you always have to know why you own it and what your exit point is on the downside. And unfortunately, that's where a lot of people get burned.
Amy: I just think this is an excellent example of you find that one stock, right, whatever it is, Nvidia, Microsoft, you know, Amazon years ago, and it's like, what could possibly go wrong, right? What could possibly go wrong? Nobody saw Microsoft doing this interview, making this one comment with just a few words. But the ripple effects of it, right, on your single position, if you're concentrated in that one stock, it takes a nose dive based on one person's interview.
Bob: Yeah. And don't forget, there are always market participants on the other side of these trades. And I'm not implying that this happened in this case, but there are people that are shorting Nvidia. You know, they want to profit from this stock going down.
Steve: So you heard it here first, the CEO of Microsoft is shorting Nvidia.
Bob: No, no.
Steve: Direct from Bob.
Bob: But I'm just telling you that there's people that will go on these media programs and the terminology is talk their book.
Steve: Yeah, that's a good point. And you know, you never know what could catch you off guard as far as owning an individual stock is concerned. But at the same time, it's also a lesson in only owning, for example, the S&P 500 because I've had folks in my office, like, sitting down and asking, why am I not just invested in the S&P 500? The investments that I have in my 401(k), they haven't done as good as the S&P 500, for example. And it's actually the answer is lack of diversification, because Nvidia has major pull on the performance of the S&P 500 in itself. So I would take it beyond, you know, not just owning one single stock, but not owning one single index either, because in a situation like this, that can have a major effect on your overall assets.
Bob: Absolutely.
Amy: I also think a major takeaway from this is, you know, the headlines are always the Dow, right? Dow plummeting. Dow way down. The Dow is 30 stocks, you know, and if you are reading in the headlines, Dow plummeting, pick your adjective, pick your verb there, but it makes you freak out and think, "Maybe I should do something different with my investments." Please educate yourself on exactly what the Dow is versus the overall market. And even if, you know, the markets are way down, that Dow, you know, the number of points that it's down really freaks people out. What percentage is it Dow, right? That's the perspective that you need to be looking at. And even I'm going to say, you know, without a doubt, yesterday was a really bad day for the market. Should you change your overall long-term financial plan because of it? Absolutely not.
Here's the Allworth advice. A diversified portfolio that takes into account long-term goals and has been stress tested for worst-case scenario, that is usually what succeeds. Coming up next, a crackdown on hidden fees and how to stop the bank of mom and dad from becoming a permanent fixture in your life. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. Coming up next, we're answering your questions about Roth IRAs, annuities, taxes, and a whole lot more. Okay. I have been victimized by this before. Checked into a hotel, they gave me the online price, and then, like, the bill comes when you're checking out, and you're like, "What? It's how much?" There's like this fee and the local tax and da da da da. And, you know, you didn't know, but you got, like, one thing of free ice water while you were here, so we're going to charge you $75 a day for that, right? Now, there are some new protections, right, that could be coming out from the U.S. Federal Trade Commission that will crack down on that.
Steve: I always felt like this was a legal bait and switch, is what it is. You know, come here, you're going to pay this low price. Never mind. Here's the actual high price. But the U.S. Federal Trade Commission did pass a rule on Tuesday requiring ticket sellers, hotels, vacation rental sites to disclose total prices. This includes any kind of fees upfront and actually prohibits them from concealing any kind of add-on charges until the last minute, which we all have fallen victim to.
Amy: I feel like this is, like, duh.
Steve: Yeah.
Amy: You know what I'm saying? Like, duh, this should have been here all along. It shouldn't be that difficult to figure out what you're actually going to pay for something.
Bob: Yeah. And politicians on both sides of the aisle are wrangling and arguing and, you know, threatening the real. And, like, I agree with you, Amy. I don't care whether there's an R or D in front of your name. I think everybody can agree. Whether you're buying financial advice, a loaf of bread, or a concert ticket, just tell me what it costs and don't hide fee. I mean, that's just basic common sense to me. So I'm all for it.
Amy: Yeah. I was buying tickets or looking at buying tickets, I can't even remember, for something a couple of months ago. So I was on SeatGeek and StubHub and ticket, you know, kind of back and forth, back and forth. Some of them, it's like, "Why do I need to toggle something for you to give me the actual price that I'm paying? Can't you just tell me that?" But on some of the sites, it's hidden 17 layers below what you're actually looking at to be able to put that filter on to figure out what you're actually going to pay.
Steve: I think it's kind of interesting. The FTC actually estimates, I don't know how they came up with these numbers, but U.S. consumers would save 53 million hours per year.
Amy: Because they called me.
Steve: Yeah, there you go.
Amy: I spend 53 million hours.
Steve: You're the one that actually did all the digging. But there has been efforts in the past of similar rules. But you know, a judge in Texas blocked the rule that would cap credit card late fees, and you know, appeals court in New Orleans blocked a requirement that airlines disclose baggage. So obviously, businesses are fighting against this. But yeah, I think anybody, it doesn't matter if there's an R and D in front of your name. We can all agree that, you know, just tell us what we need to pay to get the thing or the service that we're paying for.
Amy: You know, a lot of what we do is helping people figure out, are we on the right track for retirement? Can we retire well? Is our plan working? And one of the largest things that I see derailing that plan is love. Now, that sounds like a really weird thing, but I'm talking about putting your kids ahead of your own retirement. We jokingly refer to this on the show as the bank of mom and dad. But I actually have this conversation day in and day out in my office, and I simply say, "This is great. Everything looks great on paper. Is the bank of mom and dad officially open still or is it closed? Because if it's still open, it can derail absolutely everything that we have in this plan." If your kids are still coming out to you with hands outstretched, and sometimes it's just one offer, right, something that came from out of left field that they weren't expecting, but oftentimes, we're still paying for cell phone bills and we're still paying for car payments and car insurance and whatever that is for your adult children.
Steve: Yeah, obviously, we all have experience with this. You know, there's anecdotal information and then there's a study. U.S. Bank put out a survey, 2,500 adults, it was released earlier this year, and it shows that 53% of Gen X parents are worried that their children might need financial support well into adulthood. When we look at all generations, it's a little lower, about 4 in 10.
Bob: Yeah. I think this comes back to the word communication and expectations. You know, as you'll hear me say a million times when I'm on this show, I'm a firm believer that all human beings respond to incentives. And I don't care whether your kid is 9, 19, or 29. They can smell blood in the water. They can tell when the bank of mom and dad is open or closed. And a lot of them will take full advantage of that. So I go back to you give a person a fish, you've fed them for a day, you teach them how to fish, you've fed them for the rest of your life. This is our job as parents, to teach, equip our kids to be financially self-sufficient. And even if we have the means to be able to help them and bail them out of a short-term problem, it's not always in their best interest to do that. Oftentimes, it's not in their best interest. They got to learn how to sink or swim and figure out problems on their own.
Amy: Here's the dollars and cents of it, because there's a savings.com survey that found that, hey, for those of you who are continuing to offer financial support to your adult kids, it's, on average, about $1,400 a month. You run those numbers in your head, $1,400 a month. What would that mean if that money was socked away and invested in your retirement? And the answer is it's a game-changer. It's a game-changer for a lot of parents.
Steve: You know, when you sit down and you build a financial plan, it can be eye-opening to understand how long your money will last, ideally, longer than you do. But if you come down and you sit with a financial advisor and you see that maybe you're not saving enough today because you're spending money on older children, for example, that they understand that the bank of mom and dad is still open, it can be valuable to show them and sit down and have that conversation that says, "Look, if I'm not able to save for my own retirement, eventually, I'm going to be living in your house."
Amy: On your couch.
Steve: Yeah, on your couch.
Amy: Yes.
Steve: When you have your family, your children, you're going to be part of the sandwich generation, meaning, you're taking care of children and parents at the same time because your parents sacrificed too much for you.
Amy: Make that point and I guarantee that outstretched hand will go back into their pocket, "You know, I'll figure it out."
Steve: Yeah. Mom and dad, why don't you maybe save that money for your own retirement?
Amy: "You take care of you right now. I'll figure out how to take care of me," right? And, Bob, to your point, it's a conversation. Me doing this for you means I will not have this later, and here's how that will impact you. Here's the Allworth advice, the best support you can provide, teaching your adult children how to thrive without relying on the bank of mom and dad. Coming up next, 'tis the season for financial crimes. We are opening the Simply Money scam tracker to help you protect yourself. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. I am not a last-minute holiday shopper because it gives me anxiety. But Steve, however, is very much a last-minute shopper. And I know you are not alone in the malls on Christmas Eve. So joining us tonight is Jocile Ehrlich, the president and CEO of the Cincinnati Better Business Bureau, with some tips for those of you who are, in fact, Christmas procrastinators.
Jocile: Absolutely. I know there's not a lot of time left. And, Steve, you're not alone. I will be at the mall right there with you.
Steve: Thank you. Thank you. I appreciate that.
Jocile: Don't shop based on price alone. For people who bought something and lost money to scammers, price was the top motivating factor. And remember that old saying, "If it sounds too good to be true, it probably is," it really applies in this instance. Now, another thing, be careful about purchasing those popular products or toys that are really, really hot right now. Scammers know what's hot. They're going to advertise those items at ridiculously low prices. Again, do your homework on the seller and never buy off a social media ad. Always go directly to the company's website to confirm the facts, the prices, all the details.
If possible, always pay with a credit card. You're going to be less likely to lose money than if you pay with a debit card or if you pay through one of those payment apps. And if you're buying a physical gift card, run your finger over the barcode on the back to make sure that it's not a sticker. Scammers can put their own barcode stickers over the top of that real barcode. So when you check out, you're going to be adding money to the scammer's account rather than the gift card. And if the packaging is ripped or wrinkled, it may have been tampered with. So select another gift card that looks pristine and untouched.
When it comes to online gift cards, pass on those too-good-to-be-true deals. If a third-party website or a social ad promises really good discounts, it's probably a front to steal your credit card information. It's always best to buy electronic gift cards directly from the retailer.
Steve: Now my palms are sweaty. I did. I waited to go shopping. And now you got me worried about all these scams. I know that there are some others you wanted to talk about, something called the out-of-stock scam. What is it?
Jocile: Yes. People are making purchases through those social media ads, which I just told you not to do, and they're finding this out-of-stock scam. And this is what is happening. You go to the ad, you find the product online, you click on the link, and you check out. And once your card is charged, you're going to get an email or a text saying that the product is out of stock and that they're going to refund your money. Yeah, you wait for the refund to post to your account, but it never does. Then when you try to contact this online shop, no one responds to you.
One shopper told us that the order went through, the money was taken out of her account. After a week or more, her order never shipped. The order got canceled saying that the size ordered was out of stock, that the money was never returned to her account. The truth is the product likely never existed in the first place, and scammers hope you're never going to notice the fact that you didn't get refund in all the hustle and bustle of the season. But again, if you used your credit card, you should be able to contest the charge and get your money back.
Amy: Which is a great point, Jocile, right? Credit card versus debit card. You know, there's additional protections on those credit cards. You know, if there's one trend I have seen through the years, as you have been telling us and warning us about these scams, there's always kind of a sense of urgency so that the person doesn't necessarily have the time to take a deep breath and think, "Wait a second, is what they're saying...does it make sense?" When you're waiting to the last minute to shop for holiday gifts or there's a certain hot one thing that you have to get and it's in high demand, that sense of urgency, it's already there, which really then sets the stage beautifully for these scammers, right?
Jocile: Oh, it absolutely does. And adding to that is all the craziness around the holidays, the parties that you are so distracted right now. This is the prime time for scammers to hit, and you don't even realize it until well after the fact in too many cases. That's why you and I are here to share this information with your listeners to prevent anything from happening as best we can and as best they can.
Steve: What about for folks making charitable donations? I thought I saw something that there could be risk tied to that in certain situations where we also need to be diligent.
Jocile: It's not exactly that at all. With so many things going on, as I said, it might be easy to miss a fraudulent credit card charge on your account, especially if it appears to be going to a charity. Now, this particular scam, somehow the scammer is getting your credit card information. Maybe they got it in a data breach or they bought it from a hacker or they bought it from another scammer who had you on a hit list. They check to see if the card is valid by making a small donation to a charity, that that's going to show up on your credit card statement. When the charges go through unnoticed, the scammer then uses your card to make bigger purchases or even cash advances.
So this is another warning. Check your credit card statements regularly, and especially at this time of year, because your credit card is probably a little bit longer than it normally is. It's easy to not spot these things. Normally, you look for big amounts on your credit card statement, but look for those smaller amounts too to make sure that they are things that you actually purchased or donated to.
Amy: Listening to you, Jocile, I was thinking, you know, a smart thing for them to put on there would also be just Amazon, because there's so many people making purchases on our Amazon account right now. If there were charges on there that said Amazon, even as closely as I look at that credit card statement, I don't know that I would notice it. So, man, you know, this is a month in which you need to be looking at that with a fine-tooth comb. I think these are great reminders, you know. And for many people, it's okay. We've spent and spent and spent, you know, let's take a deep breath and then start looking forward to 2025. If you want to have a happy, healthy, scam-free 2025, what New Year's resolutions do you need to be making now to set yourself up well for that?
Jocile: Four quick ones, we've talked about them throughout the year. Be careful with your emails. Scammers can make emails look like they're coming from real companies or from the government, even from the BBB. Never click on links or attachments from emails that you didn't expect. Number two, protect your money. Never send cash to someone that you haven't met in person. Scammers love to pressure you into quick money transfers using prepaid cards or payment apps. These payments can't be traced. And once the money is gone, it's gone for good. As you said, Amy, take a deep breath and think things through before sending any money.
Protect your accounts. We talk about this every year, this time of year, especially. Create strong, unique passwords for each of your accounts. I know that sounds like a hassle, but your money, your personal information, you cannot risk it. It makes it harder for hackers to break into multiple accounts if one account is compromised. And make sure you turn on two-factor authentication. It is offered by almost every online site out there. It's like adding a second set of eyes to your digital front door, making it much harder for scammers to get in. And consider a password manager for even more security. And finally, stay up to date on the latest scams. Check out bbb.org/scamtips periodically. The more you know, the better you can protect yourself.
Amy: Great reminders, as always, on how to protect yourself, both this holiday season and into 2025, from our good friend Jocile Ehrlich from the Cincinnati Better Business Bureau. Do not let scammers be the Grinch that stole your Christmas. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. Do you have a financial question you need a little help with? We've got a way you can figure it out. There's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question, and it's coming straight to us. Speaking of those questions, we've had a number of them emailed to us this week. The first one from Hannah in Highland Heights. Here's her question. "From what I understand, I make too much to save in a Roth IRA. So, am I just out of luck here and unable to take advantage of this taxpayer growth?"
Steve: No. First of all, congratulations. Nice job. I think that's wonderful.
Amy: Right. Good problem to have.
Steve: But this is also a great question because diversifying your future tax liability through Roth contributions is a fantastic option. Now, there's ability to save maybe in your 401(k) plan. If your 401(k) offers Roth contributions, then that's a good place to go because the income limitations are not the same, and how much you can save is much higher than in a Roth IRA. If you're already maxing your 401(k), this is where we would look at a Roth backdoor conversion. So you need to sit down and talk to an advisor or a CPA before you map this out because there are stipulations and there are ways to get this wrong and create tax headaches. But what you do logistically is you contribute after-tax dollars to a traditional IRA and then you convert that to a Roth IRA. So you're not actually contributing to the Roth, you're doing a conversion.
Amy: It just is like a little stop at a traditional IRA and the rate of that Roth IRA.
Steve: Exactly. And then in the event that your employer offers some kind of an after-tax spillover feature, you could always even open the door up to what's called a mega Roth backdoor conversion. I did not make that name up. That is what it is really called. This is where you contribute after-tax, non-deductible, non-Roth to your 401(k) and then convert it to Roth after the fact. I love having this conversation with high earners that are, you know, smack dab in the middle of their accumulation phase of retirement because it really is a great option. So just because you make too much right now doesn't mean Roth is shut off. It just means you got to almost play a little game to make it happen sometimes.
Amy: All right. Roy is up next from Ludlow with a really great question, 54 years old. "Should I be worried about Social Security going broke before I even retire and can claim it?"
Bob: Well, worry is always a pretty strong word. I mean, we can pick whatever word we want to use. But I think everybody should at least be aware of the fact that, you know, let's just face it, the Social Security "trust fund" is empty. It's been spent. So, you know, this is a pay-as-you-go system, and it always will be from here going forward. So one piece of advice here, and this is something that I do with clients that come in to see me when we're doing retirement planning, if folks are worried about that or even if I bring it up, because there's no guarantee that the benefit that's on your statement that you're going to get at age 67 is going to be there. There could be means testing. They could move the retirement age out.
So one thing you can do as you're doing some planning yourself or with your fiduciary advisor is run different scenarios. What if the benefit gets kicked out to age 70 or 72 from 67? How does that impact my plan? What if the benefits get reduced by 25%? How does that impact my plan? So I think the key is, like we always talk about, control what you could control, look at different scenarios, and if you really are concerned about it, well, you can make adjustments in your own personal savings to fund the shortfall yourself, so to speak, so that you're not in your 80s and worry of running out of money.
Amy: Yeah, this is a political hot potato, and we've had members of Congress on this show several times. I have been very direct in asking this question, and they have not been direct in their response. They don't want to touch it.
Steve: You don't say.
Bob: To your point, Amy, and I can remember when President Bush took office, and he brought up the possibility of, hey, we need to take a look at Social Security. And politicians on both sides of the aisle went absolutely ballistic for about a week and a half. And to my knowledge, that's the last time we've ever heard about it. They don't want to touch it.
Amy: They're going to kick the can.
Steve: We'll hear about it in 2032. That's when they're going to start working on it.
Amy: Yeah, on December 31st of that year.
Steve: Yeah, on the 11th hour.
Amy: It's a political hot potato. Whatever they do is going to upset some part of the population, right? But something has to be done. It has to be addressed. I like your point. Let's plan for any possibility that we can think of and make sure that we're still going to be okay. All right. Next question from Roy or from Kevin in Harrison. "I saw that annuities are going to be available now in 401(k)s. Is this something you would recommend?"
Steve: I mean, it might on an individual basis after building a financial plan with somebody, but this is a new rule that's been opened up. We talked about it earlier this year when it was first made known that this will be happening. But ultimately, it's going to give you a little bit of added transparency into the potential for using a portion of your 401(k) to purchase annuities. The benefit here is that the fees are going to be a lot lower, because when you purchase an annuity on your own, there's not the buying power of a larger pool of money within a 401(k) to help bring those internal fees down. I know there are some in the industry that sell annuities, that work in life insurance, that are a little bit bothered by the fact that there is going to be a cheaper option available to them within these 401(k) plans. Obviously, if you're a commissioned sales rep, that can present some challenges. But in certain situations, I may recommend it, but it's going to be on an individual basis.
Amy: Let me ask you this though, for what kind of investor would you think this is a good option for?
Steve: Somebody that is... Oftentimes, you're going to be confused. You're not educated in the market, so you think that everything is at great risk if you invest.
Amy: Very risk-averse kind of investors. Yes.
Steve: Very risk-averse is the answer, but you also need to step back and educate to see if that's even the case. A little bit of a convoluted answer, but the short of it is a very, very risk-averse investor.
Amy: Sienna from Montgomery has this question. "I just inherited a 401(k) from my father. He recently passed." We're really sorry to hear about that. "But how do I deal with taxes?"
Bob: Yeah, Sienna, this is a great question and one that really ties into the need and the opportunity to do some proactive financial planning, which is what we talk about all the time and a good fiduciary advisor can do for you. And what I mean by that is take a look at what your income sources are expected to be. And under the new rules for people inheriting IRAs and 401(k) plans, those accounts are going to have to be emptied out over a 10-year period following the death of your father, in this case. But the opportunity is if you're just about to retire and your income is about to drop significantly, you may want to empty that out over a two- to three-year period because you can take that income at a very low tax bracket.
Amy: Great answer. You have less than two weeks to either use it or lose it. What are we talking about? We'll get into that next. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. Do you have a flexible spending account? And if so, how many dollars are left in that account? And will you lose it if you don't use it by the end of the year? You need to know the answer to these questions.
Steve: Yeah, I mean, we're running out of time here, but if you can find a way to schedule some kind of a preventative care appointment, your annual physical, a dental cleaning, whatever it might be, what we're trying to do is advocate for you to spend these dollars, because most of the time, it's a use it or lose it with your flexible spending account dollars. That's where you put money in on a pre-tax basis. You got a deductible, which is, you got a deduction, that is, which is great. But if you don't use it, then those are lost dollars.
Bob: Well, we were talking with a colleague earlier today who's in a situation where he's caring for his elderly mother, and he brought up a great point. He was shocked at the number of items that you can purchase that do qualify as an FSA-eligible purchase. So it might be a little late to schedule a doctor's appointment, Steve, but you know, things like first aid kits, thermometers, sunscreen, contact solution, all that kind of stuff that everybody needs might be a great time to take a quick trip to Costco and stock up, avoid the traffic, but use up your HSA on things you know you're going to use by the end of the year.
Amy: And then I think the question moving forward is, does this make sense for me, right? FSAs are great if you have, you know, more significant healthcare needs that you know that you can count on. But for someone who's like, "Oh, I'm just going to throw a few thousand dollars into this account and hope I use it." Steve Hruby's never made a financial mistake in his life. I've made every one that you possibly can, which is why I do the show, because I want to make sure you learn from my mistakes. I had an FSA at one point.
Steve: And I just want to lead by example.
Amy: Yeah, right, sure. I was the person who was at Walgreens at 11:30 that night with a cartful of Band-Aids and contact solutions.
Steve: Sweating, all frantic, and trying to figure out what you can buy.
Amy: Yes, literally throwing stuff into the cart so that I didn't lose those dollars. Was it the smartest way looking back to use them? No. And I often get people in my office now when I'm talking about health savings accounts who are like, "Well, no, because don't I lose those dollars?" Understand these are both accounts that have tax advantages that can be used for health care, but the health savings account, you can...it doesn't ever expire. There's no deadline on it. If you don't use it, it just stays in that account. And if it's invested, it's going to continue to grow. It becomes a great resource for retirement.
Thanks for listening tonight. We hope you're going to tune in tomorrow. We're talking about investors' biggest fears about 2025. Should you be worried, too? You've been listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
Steve: Sure.
Amy: I checked it in the morning, and then I checked it again last night.
Steve: Why did you do that?
Amy: Because it was, like, I'm looking at the markets, I'm looking at the markets, and I just, you know, I don't know. I just wanted to see the actual numbers in front of me. I hope no one else did that. Bob Sponseller, also joining us tonight with his perspective. But yesterday was just one of those days in the markets where I would say, don't check your 401(k) multiple times. It just hurts.
Bob: Well, Amy, just to put things in perspective, did you also check your 401(k) on November 15th, let's just say?
Amy: Good perspective. Yeah.
Bob: Because that's where the market closed yesterday, exactly at the same place it was at, November 15th.
Amy: Okay.
Bob: And that was one week after the election. And correct me if I'm wrong, but nobody was panicking on November 15th. So there's no reason to panic today.
Steve: Yeah, that's a good point. I mean, we've had entire segments about studies that show the benefits of checking your 401(k) balance, you know, once or twice a year.
Amy: Yeah, not twice a day like I did.
Steve: Yeah. The less you check your balances, the more often you're going to see up in green numbers, which, you know, if you're checking it every day, you can give yourself ulcers and lose sleep at night, because we are going to see days like yesterday. And what happened? The dot plot came out. Now, we told you the Federal Reserve, obviously, they lowered interest rates by a quarter of a point. That was to be expected.
Amy: It was already priced into the market. There was no concern there.
Steve: Yeah. But the dot plot, what that does is it's a summary of what the different voting members of the Fed think will happen with future rate cuts, specifically in 2025. And when that came out, investors panicked a little bit.
Amy: Yeah. Well, yeah, more than a little bit. I mean, we don't see...I guess we're not used to, right? We just kind of come out of this period of such little volatility. I mean, we said earlier this year, you know, over the course of the past two years, swings of more than 1%, 2%. They were non-existent. So we really got used to still waters. And then, you know, investors panicked yesterday.
Bob: Yeah. And remember, the market's been up almost 30% per year for the last two years. So, you know.
Amy: So we're spoiled.
Bob: We're spoiled. And there's always going to be some profit taking, you know, after a great couple of years like this. But in my opinion, what really moved the market and what usually moves the market in the short term is adjusted expectations. Everybody expected what the news was going to be. We've talked about it for a couple of weeks. Everybody was expecting the quarter point drop, and that's exactly what we got. So people might be wondering, "Well, wow, why did the market sell off, you know, 2%, 3% yesterday, whatever?" It's because the market was also expecting possibly four rate cuts going into next year.
Steve: Exactly.
Bob: And our Federal Reserve chairman said, "Wait, hold on a minute here. We got to make sure we control inflation, so only expect two rate cuts next year." That is an adjusted expectation. And you know, that's why the market moved short term yesterday.
Steve: Yeah, I mean, that's a really good point. It came out as something that was rather unexpected. There's going to need to be a pause, which what that shows is that there's a risk of inflation being stickier than originally thought and potentially even go back up. Now, I don't think that's going to be the case here as far as going back up. But it does show that there is a little bit of awareness that maybe further decreases will have to pause more than what had been anticipated.
Amy: I also think this is further evidence of something that we've been seeing for a while now, which is that the Fed and the markets or investors, if you will, aren't necessarily on the same page. I mean, Jerome Powell has learned the lesson the hard way. Not only am I going to tell you what I'm doing today, I'm going to try to project forward so that no one is caught off guard next steps that are coming up, right? I mean, coming into 2024, he kept saying, "You're probably not going to see the rate cuts that you're wanting to see this year." We think inflation will be stickier than maybe expected. And you still had markets pricing in more cuts this year than we actually got. This is kind of a carry forward to next year of the same sort of mindset.
Bob: Yeah. And I would say another reason for the adjustment in the Fedspeak yesterday, and you and Steve have touched upon this for a couple of weeks now, there is some uncertainty with the new administration coming in in January, particularly around tariffs and other potential policies.
Steve: Deportations.
Bob: Yeah. So if you're the Federal Reserve, I think you're sitting back and saying, "Let's see what happens." We don't know what certain policies are going to be. So we're going to pump the brakes on rate cuts and expected rate cuts. And let's just see how we settle into a new presidential administration.
Amy: You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. As we continue to digest what the markets have been digesting, right? News not only that the Federal Reserve has lowered interest rates by a quarter of point, but also that the dot plot, which is the voting members of the Fed, kind of putting onto a chart where they think interest rates are going to next year, and they're not going to go maybe as low as markets had previously priced in one chart, that dot plot. And that is what markets reacted to yesterday. But sometimes it's not just a chart. Sometimes it can be an offhanded comment by someone that you never would have thought. And all of a sudden, you're looking at your 401(k). What happened? Well, some dude opened his mouth and he said something.
Steve: Yeah, this is kind of remarkable, actually, because we've talked about Nvidia and it being kind of the darling of the S&P 500 and how much of a pull it's had on the overall price of the index. And there's always worry in the back of our minds because we've talked for years about not being over-saturated in one stock and what weird things can have an effect on the price of a stock. And this is an example of one of them. Right now, Nvidia is in the news because of what one of its leaders said, not because of what one of its leaders said but actually one of the leaders of its biggest customers said.
Amy: Yes. So this is Microsoft, right? And, you know, Microsoft has been kind of one of the biggest consumers of Nvidia's chips. And so their CEO kind of said in a recent interview that they bought all over the place. They bought up so many Nvidia chips that they have reserves. I don't even know. I'm picturing, like, towers and towers.
Steve: Towers of chips.
Amy: I don't even know, towers of chips sitting around. And it's like, "Well, we stockpiled chips. So if you thought we will continue to buy them or consume them at the same rate that we've been in the past, well, we might just kind of sit on our stash for a while and use up all these towers full of chips before we need to buy more." That was the comment.
Steve: Yeah, it was, "I am not chip supply constrained." That's what did it, those few words.
Amy: Sit with it for a second, "I am not chip supply constrained." And that moved markets.
Steve: Isn't that amazing?
Bob: Well, in terms of actual practical advice here, I think this is a great time to just reiterate some points that we continually make on this show, and that's the importance of diversifying your portfolio, not putting all your eggs in one basket. You know, I took a look at Nvidia stock, I mean, look, Nvidia was trading at an all-time high on November 21st, and it's actually been trending slightly down ever since. Okay? Again, a lot of profit-taking and tech stocks going into the end of the year. But if you look going forward, you know, their projected earnings growth is 48% moving forward. Their projected sales growth is still 94%. It's trading in a P/E ratio of under 30. So I guarantee you that most growth institutional fund managers still love Nvidia. Because if you've got earnings growth above your price-earnings ratio, that's value. Okay?
That being said, Nvidia in any of these high-growth stocks, to Steve's point, if somebody makes a whisper about any change in that potential growth, that stock can fall and fall quickly and sometimes fall by a lot. So you know, there's some people out there that, instead of keeping their emergency fund loaded up, might be using Nvidia stock as their emergency fund because it's been up so much over the last three, four, or five years. And you always have to have an exit point on stocks like this, and you always have to know why you own it and what your exit point is on the downside. And unfortunately, that's where a lot of people get burned.
Amy: I just think this is an excellent example of you find that one stock, right, whatever it is, Nvidia, Microsoft, you know, Amazon years ago, and it's like, what could possibly go wrong, right? What could possibly go wrong? Nobody saw Microsoft doing this interview, making this one comment with just a few words. But the ripple effects of it, right, on your single position, if you're concentrated in that one stock, it takes a nose dive based on one person's interview.
Bob: Yeah. And don't forget, there are always market participants on the other side of these trades. And I'm not implying that this happened in this case, but there are people that are shorting Nvidia. You know, they want to profit from this stock going down.
Steve: So you heard it here first, the CEO of Microsoft is shorting Nvidia.
Bob: No, no.
Steve: Direct from Bob.
Bob: But I'm just telling you that there's people that will go on these media programs and the terminology is talk their book.
Steve: Yeah, that's a good point. And you know, you never know what could catch you off guard as far as owning an individual stock is concerned. But at the same time, it's also a lesson in only owning, for example, the S&P 500 because I've had folks in my office, like, sitting down and asking, why am I not just invested in the S&P 500? The investments that I have in my 401(k), they haven't done as good as the S&P 500, for example. And it's actually the answer is lack of diversification, because Nvidia has major pull on the performance of the S&P 500 in itself. So I would take it beyond, you know, not just owning one single stock, but not owning one single index either, because in a situation like this, that can have a major effect on your overall assets.
Bob: Absolutely.
Amy: I also think a major takeaway from this is, you know, the headlines are always the Dow, right? Dow plummeting. Dow way down. The Dow is 30 stocks, you know, and if you are reading in the headlines, Dow plummeting, pick your adjective, pick your verb there, but it makes you freak out and think, "Maybe I should do something different with my investments." Please educate yourself on exactly what the Dow is versus the overall market. And even if, you know, the markets are way down, that Dow, you know, the number of points that it's down really freaks people out. What percentage is it Dow, right? That's the perspective that you need to be looking at. And even I'm going to say, you know, without a doubt, yesterday was a really bad day for the market. Should you change your overall long-term financial plan because of it? Absolutely not.
Here's the Allworth advice. A diversified portfolio that takes into account long-term goals and has been stress tested for worst-case scenario, that is usually what succeeds. Coming up next, a crackdown on hidden fees and how to stop the bank of mom and dad from becoming a permanent fixture in your life. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. Coming up next, we're answering your questions about Roth IRAs, annuities, taxes, and a whole lot more. Okay. I have been victimized by this before. Checked into a hotel, they gave me the online price, and then, like, the bill comes when you're checking out, and you're like, "What? It's how much?" There's like this fee and the local tax and da da da da. And, you know, you didn't know, but you got, like, one thing of free ice water while you were here, so we're going to charge you $75 a day for that, right? Now, there are some new protections, right, that could be coming out from the U.S. Federal Trade Commission that will crack down on that.
Steve: I always felt like this was a legal bait and switch, is what it is. You know, come here, you're going to pay this low price. Never mind. Here's the actual high price. But the U.S. Federal Trade Commission did pass a rule on Tuesday requiring ticket sellers, hotels, vacation rental sites to disclose total prices. This includes any kind of fees upfront and actually prohibits them from concealing any kind of add-on charges until the last minute, which we all have fallen victim to.
Amy: I feel like this is, like, duh.
Steve: Yeah.
Amy: You know what I'm saying? Like, duh, this should have been here all along. It shouldn't be that difficult to figure out what you're actually going to pay for something.
Bob: Yeah. And politicians on both sides of the aisle are wrangling and arguing and, you know, threatening the real. And, like, I agree with you, Amy. I don't care whether there's an R or D in front of your name. I think everybody can agree. Whether you're buying financial advice, a loaf of bread, or a concert ticket, just tell me what it costs and don't hide fee. I mean, that's just basic common sense to me. So I'm all for it.
Amy: Yeah. I was buying tickets or looking at buying tickets, I can't even remember, for something a couple of months ago. So I was on SeatGeek and StubHub and ticket, you know, kind of back and forth, back and forth. Some of them, it's like, "Why do I need to toggle something for you to give me the actual price that I'm paying? Can't you just tell me that?" But on some of the sites, it's hidden 17 layers below what you're actually looking at to be able to put that filter on to figure out what you're actually going to pay.
Steve: I think it's kind of interesting. The FTC actually estimates, I don't know how they came up with these numbers, but U.S. consumers would save 53 million hours per year.
Amy: Because they called me.
Steve: Yeah, there you go.
Amy: I spend 53 million hours.
Steve: You're the one that actually did all the digging. But there has been efforts in the past of similar rules. But you know, a judge in Texas blocked the rule that would cap credit card late fees, and you know, appeals court in New Orleans blocked a requirement that airlines disclose baggage. So obviously, businesses are fighting against this. But yeah, I think anybody, it doesn't matter if there's an R and D in front of your name. We can all agree that, you know, just tell us what we need to pay to get the thing or the service that we're paying for.
Amy: You know, a lot of what we do is helping people figure out, are we on the right track for retirement? Can we retire well? Is our plan working? And one of the largest things that I see derailing that plan is love. Now, that sounds like a really weird thing, but I'm talking about putting your kids ahead of your own retirement. We jokingly refer to this on the show as the bank of mom and dad. But I actually have this conversation day in and day out in my office, and I simply say, "This is great. Everything looks great on paper. Is the bank of mom and dad officially open still or is it closed? Because if it's still open, it can derail absolutely everything that we have in this plan." If your kids are still coming out to you with hands outstretched, and sometimes it's just one offer, right, something that came from out of left field that they weren't expecting, but oftentimes, we're still paying for cell phone bills and we're still paying for car payments and car insurance and whatever that is for your adult children.
Steve: Yeah, obviously, we all have experience with this. You know, there's anecdotal information and then there's a study. U.S. Bank put out a survey, 2,500 adults, it was released earlier this year, and it shows that 53% of Gen X parents are worried that their children might need financial support well into adulthood. When we look at all generations, it's a little lower, about 4 in 10.
Bob: Yeah. I think this comes back to the word communication and expectations. You know, as you'll hear me say a million times when I'm on this show, I'm a firm believer that all human beings respond to incentives. And I don't care whether your kid is 9, 19, or 29. They can smell blood in the water. They can tell when the bank of mom and dad is open or closed. And a lot of them will take full advantage of that. So I go back to you give a person a fish, you've fed them for a day, you teach them how to fish, you've fed them for the rest of your life. This is our job as parents, to teach, equip our kids to be financially self-sufficient. And even if we have the means to be able to help them and bail them out of a short-term problem, it's not always in their best interest to do that. Oftentimes, it's not in their best interest. They got to learn how to sink or swim and figure out problems on their own.
Amy: Here's the dollars and cents of it, because there's a savings.com survey that found that, hey, for those of you who are continuing to offer financial support to your adult kids, it's, on average, about $1,400 a month. You run those numbers in your head, $1,400 a month. What would that mean if that money was socked away and invested in your retirement? And the answer is it's a game-changer. It's a game-changer for a lot of parents.
Steve: You know, when you sit down and you build a financial plan, it can be eye-opening to understand how long your money will last, ideally, longer than you do. But if you come down and you sit with a financial advisor and you see that maybe you're not saving enough today because you're spending money on older children, for example, that they understand that the bank of mom and dad is still open, it can be valuable to show them and sit down and have that conversation that says, "Look, if I'm not able to save for my own retirement, eventually, I'm going to be living in your house."
Amy: On your couch.
Steve: Yeah, on your couch.
Amy: Yes.
Steve: When you have your family, your children, you're going to be part of the sandwich generation, meaning, you're taking care of children and parents at the same time because your parents sacrificed too much for you.
Amy: Make that point and I guarantee that outstretched hand will go back into their pocket, "You know, I'll figure it out."
Steve: Yeah. Mom and dad, why don't you maybe save that money for your own retirement?
Amy: "You take care of you right now. I'll figure out how to take care of me," right? And, Bob, to your point, it's a conversation. Me doing this for you means I will not have this later, and here's how that will impact you. Here's the Allworth advice, the best support you can provide, teaching your adult children how to thrive without relying on the bank of mom and dad. Coming up next, 'tis the season for financial crimes. We are opening the Simply Money scam tracker to help you protect yourself. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. I am not a last-minute holiday shopper because it gives me anxiety. But Steve, however, is very much a last-minute shopper. And I know you are not alone in the malls on Christmas Eve. So joining us tonight is Jocile Ehrlich, the president and CEO of the Cincinnati Better Business Bureau, with some tips for those of you who are, in fact, Christmas procrastinators.
Jocile: Absolutely. I know there's not a lot of time left. And, Steve, you're not alone. I will be at the mall right there with you.
Steve: Thank you. Thank you. I appreciate that.
Jocile: Don't shop based on price alone. For people who bought something and lost money to scammers, price was the top motivating factor. And remember that old saying, "If it sounds too good to be true, it probably is," it really applies in this instance. Now, another thing, be careful about purchasing those popular products or toys that are really, really hot right now. Scammers know what's hot. They're going to advertise those items at ridiculously low prices. Again, do your homework on the seller and never buy off a social media ad. Always go directly to the company's website to confirm the facts, the prices, all the details.
If possible, always pay with a credit card. You're going to be less likely to lose money than if you pay with a debit card or if you pay through one of those payment apps. And if you're buying a physical gift card, run your finger over the barcode on the back to make sure that it's not a sticker. Scammers can put their own barcode stickers over the top of that real barcode. So when you check out, you're going to be adding money to the scammer's account rather than the gift card. And if the packaging is ripped or wrinkled, it may have been tampered with. So select another gift card that looks pristine and untouched.
When it comes to online gift cards, pass on those too-good-to-be-true deals. If a third-party website or a social ad promises really good discounts, it's probably a front to steal your credit card information. It's always best to buy electronic gift cards directly from the retailer.
Steve: Now my palms are sweaty. I did. I waited to go shopping. And now you got me worried about all these scams. I know that there are some others you wanted to talk about, something called the out-of-stock scam. What is it?
Jocile: Yes. People are making purchases through those social media ads, which I just told you not to do, and they're finding this out-of-stock scam. And this is what is happening. You go to the ad, you find the product online, you click on the link, and you check out. And once your card is charged, you're going to get an email or a text saying that the product is out of stock and that they're going to refund your money. Yeah, you wait for the refund to post to your account, but it never does. Then when you try to contact this online shop, no one responds to you.
One shopper told us that the order went through, the money was taken out of her account. After a week or more, her order never shipped. The order got canceled saying that the size ordered was out of stock, that the money was never returned to her account. The truth is the product likely never existed in the first place, and scammers hope you're never going to notice the fact that you didn't get refund in all the hustle and bustle of the season. But again, if you used your credit card, you should be able to contest the charge and get your money back.
Amy: Which is a great point, Jocile, right? Credit card versus debit card. You know, there's additional protections on those credit cards. You know, if there's one trend I have seen through the years, as you have been telling us and warning us about these scams, there's always kind of a sense of urgency so that the person doesn't necessarily have the time to take a deep breath and think, "Wait a second, is what they're saying...does it make sense?" When you're waiting to the last minute to shop for holiday gifts or there's a certain hot one thing that you have to get and it's in high demand, that sense of urgency, it's already there, which really then sets the stage beautifully for these scammers, right?
Jocile: Oh, it absolutely does. And adding to that is all the craziness around the holidays, the parties that you are so distracted right now. This is the prime time for scammers to hit, and you don't even realize it until well after the fact in too many cases. That's why you and I are here to share this information with your listeners to prevent anything from happening as best we can and as best they can.
Steve: What about for folks making charitable donations? I thought I saw something that there could be risk tied to that in certain situations where we also need to be diligent.
Jocile: It's not exactly that at all. With so many things going on, as I said, it might be easy to miss a fraudulent credit card charge on your account, especially if it appears to be going to a charity. Now, this particular scam, somehow the scammer is getting your credit card information. Maybe they got it in a data breach or they bought it from a hacker or they bought it from another scammer who had you on a hit list. They check to see if the card is valid by making a small donation to a charity, that that's going to show up on your credit card statement. When the charges go through unnoticed, the scammer then uses your card to make bigger purchases or even cash advances.
So this is another warning. Check your credit card statements regularly, and especially at this time of year, because your credit card is probably a little bit longer than it normally is. It's easy to not spot these things. Normally, you look for big amounts on your credit card statement, but look for those smaller amounts too to make sure that they are things that you actually purchased or donated to.
Amy: Listening to you, Jocile, I was thinking, you know, a smart thing for them to put on there would also be just Amazon, because there's so many people making purchases on our Amazon account right now. If there were charges on there that said Amazon, even as closely as I look at that credit card statement, I don't know that I would notice it. So, man, you know, this is a month in which you need to be looking at that with a fine-tooth comb. I think these are great reminders, you know. And for many people, it's okay. We've spent and spent and spent, you know, let's take a deep breath and then start looking forward to 2025. If you want to have a happy, healthy, scam-free 2025, what New Year's resolutions do you need to be making now to set yourself up well for that?
Jocile: Four quick ones, we've talked about them throughout the year. Be careful with your emails. Scammers can make emails look like they're coming from real companies or from the government, even from the BBB. Never click on links or attachments from emails that you didn't expect. Number two, protect your money. Never send cash to someone that you haven't met in person. Scammers love to pressure you into quick money transfers using prepaid cards or payment apps. These payments can't be traced. And once the money is gone, it's gone for good. As you said, Amy, take a deep breath and think things through before sending any money.
Protect your accounts. We talk about this every year, this time of year, especially. Create strong, unique passwords for each of your accounts. I know that sounds like a hassle, but your money, your personal information, you cannot risk it. It makes it harder for hackers to break into multiple accounts if one account is compromised. And make sure you turn on two-factor authentication. It is offered by almost every online site out there. It's like adding a second set of eyes to your digital front door, making it much harder for scammers to get in. And consider a password manager for even more security. And finally, stay up to date on the latest scams. Check out bbb.org/scamtips periodically. The more you know, the better you can protect yourself.
Amy: Great reminders, as always, on how to protect yourself, both this holiday season and into 2025, from our good friend Jocile Ehrlich from the Cincinnati Better Business Bureau. Do not let scammers be the Grinch that stole your Christmas. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. Do you have a financial question you need a little help with? We've got a way you can figure it out. There's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question, and it's coming straight to us. Speaking of those questions, we've had a number of them emailed to us this week. The first one from Hannah in Highland Heights. Here's her question. "From what I understand, I make too much to save in a Roth IRA. So, am I just out of luck here and unable to take advantage of this taxpayer growth?"
Steve: No. First of all, congratulations. Nice job. I think that's wonderful.
Amy: Right. Good problem to have.
Steve: But this is also a great question because diversifying your future tax liability through Roth contributions is a fantastic option. Now, there's ability to save maybe in your 401(k) plan. If your 401(k) offers Roth contributions, then that's a good place to go because the income limitations are not the same, and how much you can save is much higher than in a Roth IRA. If you're already maxing your 401(k), this is where we would look at a Roth backdoor conversion. So you need to sit down and talk to an advisor or a CPA before you map this out because there are stipulations and there are ways to get this wrong and create tax headaches. But what you do logistically is you contribute after-tax dollars to a traditional IRA and then you convert that to a Roth IRA. So you're not actually contributing to the Roth, you're doing a conversion.
Amy: It just is like a little stop at a traditional IRA and the rate of that Roth IRA.
Steve: Exactly. And then in the event that your employer offers some kind of an after-tax spillover feature, you could always even open the door up to what's called a mega Roth backdoor conversion. I did not make that name up. That is what it is really called. This is where you contribute after-tax, non-deductible, non-Roth to your 401(k) and then convert it to Roth after the fact. I love having this conversation with high earners that are, you know, smack dab in the middle of their accumulation phase of retirement because it really is a great option. So just because you make too much right now doesn't mean Roth is shut off. It just means you got to almost play a little game to make it happen sometimes.
Amy: All right. Roy is up next from Ludlow with a really great question, 54 years old. "Should I be worried about Social Security going broke before I even retire and can claim it?"
Bob: Well, worry is always a pretty strong word. I mean, we can pick whatever word we want to use. But I think everybody should at least be aware of the fact that, you know, let's just face it, the Social Security "trust fund" is empty. It's been spent. So, you know, this is a pay-as-you-go system, and it always will be from here going forward. So one piece of advice here, and this is something that I do with clients that come in to see me when we're doing retirement planning, if folks are worried about that or even if I bring it up, because there's no guarantee that the benefit that's on your statement that you're going to get at age 67 is going to be there. There could be means testing. They could move the retirement age out.
So one thing you can do as you're doing some planning yourself or with your fiduciary advisor is run different scenarios. What if the benefit gets kicked out to age 70 or 72 from 67? How does that impact my plan? What if the benefits get reduced by 25%? How does that impact my plan? So I think the key is, like we always talk about, control what you could control, look at different scenarios, and if you really are concerned about it, well, you can make adjustments in your own personal savings to fund the shortfall yourself, so to speak, so that you're not in your 80s and worry of running out of money.
Amy: Yeah, this is a political hot potato, and we've had members of Congress on this show several times. I have been very direct in asking this question, and they have not been direct in their response. They don't want to touch it.
Steve: You don't say.
Bob: To your point, Amy, and I can remember when President Bush took office, and he brought up the possibility of, hey, we need to take a look at Social Security. And politicians on both sides of the aisle went absolutely ballistic for about a week and a half. And to my knowledge, that's the last time we've ever heard about it. They don't want to touch it.
Amy: They're going to kick the can.
Steve: We'll hear about it in 2032. That's when they're going to start working on it.
Amy: Yeah, on December 31st of that year.
Steve: Yeah, on the 11th hour.
Amy: It's a political hot potato. Whatever they do is going to upset some part of the population, right? But something has to be done. It has to be addressed. I like your point. Let's plan for any possibility that we can think of and make sure that we're still going to be okay. All right. Next question from Roy or from Kevin in Harrison. "I saw that annuities are going to be available now in 401(k)s. Is this something you would recommend?"
Steve: I mean, it might on an individual basis after building a financial plan with somebody, but this is a new rule that's been opened up. We talked about it earlier this year when it was first made known that this will be happening. But ultimately, it's going to give you a little bit of added transparency into the potential for using a portion of your 401(k) to purchase annuities. The benefit here is that the fees are going to be a lot lower, because when you purchase an annuity on your own, there's not the buying power of a larger pool of money within a 401(k) to help bring those internal fees down. I know there are some in the industry that sell annuities, that work in life insurance, that are a little bit bothered by the fact that there is going to be a cheaper option available to them within these 401(k) plans. Obviously, if you're a commissioned sales rep, that can present some challenges. But in certain situations, I may recommend it, but it's going to be on an individual basis.
Amy: Let me ask you this though, for what kind of investor would you think this is a good option for?
Steve: Somebody that is... Oftentimes, you're going to be confused. You're not educated in the market, so you think that everything is at great risk if you invest.
Amy: Very risk-averse kind of investors. Yes.
Steve: Very risk-averse is the answer, but you also need to step back and educate to see if that's even the case. A little bit of a convoluted answer, but the short of it is a very, very risk-averse investor.
Amy: Sienna from Montgomery has this question. "I just inherited a 401(k) from my father. He recently passed." We're really sorry to hear about that. "But how do I deal with taxes?"
Bob: Yeah, Sienna, this is a great question and one that really ties into the need and the opportunity to do some proactive financial planning, which is what we talk about all the time and a good fiduciary advisor can do for you. And what I mean by that is take a look at what your income sources are expected to be. And under the new rules for people inheriting IRAs and 401(k) plans, those accounts are going to have to be emptied out over a 10-year period following the death of your father, in this case. But the opportunity is if you're just about to retire and your income is about to drop significantly, you may want to empty that out over a two- to three-year period because you can take that income at a very low tax bracket.
Amy: Great answer. You have less than two weeks to either use it or lose it. What are we talking about? We'll get into that next. You're listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. Do you have a flexible spending account? And if so, how many dollars are left in that account? And will you lose it if you don't use it by the end of the year? You need to know the answer to these questions.
Steve: Yeah, I mean, we're running out of time here, but if you can find a way to schedule some kind of a preventative care appointment, your annual physical, a dental cleaning, whatever it might be, what we're trying to do is advocate for you to spend these dollars, because most of the time, it's a use it or lose it with your flexible spending account dollars. That's where you put money in on a pre-tax basis. You got a deductible, which is, you got a deduction, that is, which is great. But if you don't use it, then those are lost dollars.
Bob: Well, we were talking with a colleague earlier today who's in a situation where he's caring for his elderly mother, and he brought up a great point. He was shocked at the number of items that you can purchase that do qualify as an FSA-eligible purchase. So it might be a little late to schedule a doctor's appointment, Steve, but you know, things like first aid kits, thermometers, sunscreen, contact solution, all that kind of stuff that everybody needs might be a great time to take a quick trip to Costco and stock up, avoid the traffic, but use up your HSA on things you know you're going to use by the end of the year.
Amy: And then I think the question moving forward is, does this make sense for me, right? FSAs are great if you have, you know, more significant healthcare needs that you know that you can count on. But for someone who's like, "Oh, I'm just going to throw a few thousand dollars into this account and hope I use it." Steve Hruby's never made a financial mistake in his life. I've made every one that you possibly can, which is why I do the show, because I want to make sure you learn from my mistakes. I had an FSA at one point.
Steve: And I just want to lead by example.
Amy: Yeah, right, sure. I was the person who was at Walgreens at 11:30 that night with a cartful of Band-Aids and contact solutions.
Steve: Sweating, all frantic, and trying to figure out what you can buy.
Amy: Yes, literally throwing stuff into the cart so that I didn't lose those dollars. Was it the smartest way looking back to use them? No. And I often get people in my office now when I'm talking about health savings accounts who are like, "Well, no, because don't I lose those dollars?" Understand these are both accounts that have tax advantages that can be used for health care, but the health savings account, you can...it doesn't ever expire. There's no deadline on it. If you don't use it, it just stays in that account. And if it's invested, it's going to continue to grow. It becomes a great resource for retirement.
Thanks for listening tonight. We hope you're going to tune in tomorrow. We're talking about investors' biggest fears about 2025. Should you be worried, too? You've been listening to "Simply Money," presented by Allworth Financial, here on 55KRC, THE Talk Station.
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