AI Stocks: What Investors Need to Know Now
On this week’s Best of Simply Money podcast, Amy and Allworth advisor Bob Sponseller delve into the whirlwind world of AI stocks and the unpredictability they bring to the investment landscape. With discussions around the emerging Chinese AI company DeepSeek and its potential market disruption, they explore the volatility affecting major tech giants like NVIDIA and Broadcom. Amy and Bob also navigate through the intricacies of financial predictions and their implications on your future.
Then, they dive into the pressing issue of including private equity options in 401(k) plans. They weigh the pros and cons, emphasizing the need for financial literacy and understanding the risks involved.
Finally, they tackle the emotional and financial hurdles of divorce. Sharing personal experiences and professional advice, they guide listeners on managing assets, avoiding emotional financial decisions, and building a secure financial foundation for the future.
Download and rate our podcast here.
Amy: Tonight, predictions about AI stock winners and what, if anything, those predictions should mean to you. A push for what some would call a risky investment in your 401(k). And of course, we've got a lot more to get to. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. What could possibly go wrong with tech stocks or AI? I feel like that's a question maybe that a lot of investors have asked themselves over the past year or two. If you have asked yourself that, it's probably because you've forgotten history because you can easily say what could go wrong and we say something can come out from out of the blue and it has.
Bob: Yeah. And Amy, I'm getting questions from office staff about this whole DeepSeek situation from yesterday. So...
Amy: It's a talker.
Bob: ...if everybody's out there talking about it, we better get into it here and just at least cover it for a few minutes. So, let's just cut to the chase and just a brief recap. Yesterday, this Chinese-based AI model software developer called DeepSeek out of China came out with news that, hey, they had developed this whole new AI model with only about $6 million of investment capital required. This supposedly could rival all the best models that we have here based in America where these big tech companies, Microsoft, Amazon, Google have spent hundreds of millions...
Amy: Nvidia.
Bob: ...of dollars buying Nvidia chips and other high-market ships. So, that has moved all the discussion into a rather chaotic chaos for the last 24 hours. What's going to happen here to stocks like Nvidia, Broadcom, these high-end producers of these sophisticated chips? Will that really crush their demand for those chips and as a result, suppress their stock prices?
Amy: I think it's so easy as an investor to fall in love with a company or a sector and then say, "You know what, I've done all the research. I see the future of this. What could possibly go wrong?" I often use the example of Amazon to say, "Hey, Amazon started out as an online book company and then it has been such a disruptor going into other sectors and absolutely turning things upside down." I was really worried a few years ago for Kroger when Amazon bought Whole Foods. Kroger did a fantastic job, staying nimble, making some smart decisions to navigate itself through that. What I think is really interesting about this DeepSeek situation is, when I use the example of Amazon, it's this big behemoth moving into a new space. Here is a small, nimble, never heard of a company before. I mean, literally, DeepSeek was on nobody's radar a week ago. It wasn't even on the radar...
Bob: Until...
Amy: ...on Friday.
Bob: ...5.15 yesterday morning.
Amy: Yes, exactly. All of a sudden, this tiny little company with a very small investment that we're aware of to this point has come in and just been a huge disruptor. Now, listen, is DeepSeek a long-term disruptor? I don't know. But there was certainly some disruption yesterday in volatility in the markets. And so I think this is such a great example to all of us and a reminder of, there have been so many articles written about Nvidia and the future of AI and how it's going to change everything we do and what that's going to mean for investors long term. And I'm not saying any of those courses of conversation are off the table, but this is a great reminder that anything can come from LeFion at absolutely any time and that's exactly what we saw.
Bob: Excellent points. And just to put some of this in perspective and hopefully calm everybody down a little bit. There's a lot of developments that are going to come out and a lot of news that's going to come out here over the next days, weeks, and months. So, a couple of things just to remember. As we all know, the S&P 500 has been up very nicely, the last couple of years, but these magnificent 7 stocks that we always talk about, they make up 33% of the market cap of the S&P 500, these big tech stocks. So...
Amy: They're magnificent until they're not so magnificent anymore.
Bob: Yeah. And over the next couple of weeks, all of these big tech stock companies are going to be reporting fourth-quarter earnings and more importantly, and this is always more importantly, their estimates for the next quarter or the next two quarters. In my opinion, the earnings call that we want to keep an eye on if we're trying to just get a big picture look on where this might be headed in the short to intermediate term here is Microsoft. They announced earnings after the close on Wednesday. They're slated to spend over $95 billion in capital budget on AI infrastructure and everything. That earnings call is going to be interesting because that's a very well-run company, very intelligent people at the helm, and they're going to get a ton of questions on that investor call. And I think we'll really have a better idea of what the landscape looks like for some of these big tech stocks after Wednesday's Microsoft call.
Amy: It was just last week that a company called Wedbush Securities, and they sort of billed themselves as one of the nation's leading wealth management brokerage firms, advisory firms. They, of course, released their list of like, "Hey, this is what we're keeping an eye on, the top 10 AI stocks." And they said, "Hey, these will be winners. What could go wrong, right?" Just fast forward a few days and it's like Eons, right? As far as how much can change in one particular industry from all this research that a firm can do like, "Oh wait, I know that company. That sounds good. Maybe I should go all in on their predictions." And we'll get into their predictions a little bit more, but take it all with a grain of salt. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. What is going on in the tech sector with AI stocks? A little bit of volatility is what we're seeing, even as some major companies are making major predictions about where AI is moving in the future.
Bob: Yeah, and you brought up that Wedbush article and it's really easy to play Monday morning quarterback and kind of laugh at these things. And we have the luxury of reading this stuff after the fact, but the list of stocks that you mention and it's all the ones we've heard of, Nvidia, Tesla, Google, Apple, Microsoft, Salesforce, they were expecting, "Oh, these stocks are going to be up another 25% in 2025." Well, Nvidia fell by almost 18% yesterday. So, got a little catching up to do.
Amy: Yeah, and I think as they make their predictions, and I just want to dig into these because they can use really strong language. They're always going to push into fear and greed to try to make you feel like you should probably make some changes based on their predictions. And one of the things that they're saying is technology is eating the world. I mean, how is that for some phrasing right there? And they're saying, "Listen, this is going to minimize human intervention. Everything's going to be powered by AI." And then they're also saying we're going to watch technology prices plummet.
Bob: Yeah. And then on the flip side of that, literally another article says, "Hey, we're going to need more of everything. We're going to need more human capital. We're going to need energy, water, skills, data centers, more resources, more tech growth." Yeah, depending on which article you read, you know, it's...
Amy: Sometimes they're opposing viewpoints on the same page, like on the same website. You're like, "Wait a second. Have you guys even talked to each other? Like, you're writing these strongly opposing opinions about the same company, the same sector, the same kind of investment." It's enough to make your head spin as an investor.
Bob: Well, and unfortunately, look, it's a business model. I mean, they're selling eyeballs. They're trying to get eyeballs on the web. People got to fill up airtime on cable news. It's just talk, talk, talk, talk, talk, blah, blah, blah, blah, blah. And no one's really making sense of everything. And to your point, Amy, be careful what you read and more importantly, be careful on what you act upon in the short term. We talk about recency biased all the time. One of the worst things you can do is look at yesterday's winners and then over-allocate to that sector or that particular stock and then find yourself with a very steep correction and more investment risk than you ever really signed up to take on in the first place.
Amy: I don't know why this was so eye-opening to me over the summer. And maybe it was just like it's everything that I've always known, but one person summed it up in one statement. We were with friends. We were on Lake Norris hanging out. And there is just one of our dear, dear friends who's probably about 5, 10 years away from retirement. And he was making this conversation about he's kind of in this financial services field. And people who are in this field often think like, "I'm in this day in and day out. I can figure out the way to short this and the fastest way to get there," or whatever. And he said, "I have seen so many people around me, colleagues and friends, try to make this big bet, try to figure out what the next big thing is and make insane amounts of money all at one time." And he said, "For every major step forward, then there's a major step backward coming on the heels of that." And he said, "I have been the tortoise the whole time, like just slow and steady, diversified, not taking huge risks." And he said, "I'm going to have one heck of a retirement."
Bob: That's great. And it's almost like getting on WebMD and spending three hours reading about doing your own heart surgery. You can learn enough to be dangerous. Find a really good doctor that you've been referred to and let him or her do their job. Somebody that does it every day and can advise you and has had good outcomes for years and years like your friend has.
Amy: Yeah. And I think if you are someone and this is a know yourself, like take a good long look at yourself in the mirror kind of situation. If you are someone who is swayed by either headlines or what someone else is saying at a party about an investment that you need to get into, get yourself an advisor that you can trust, and make sure it's an advisor that builds a financial plan that is asking you what your long term goals are. And so that when you're coming to them saying, "Oh, I heard this thing about this company," or "I read this headline," or, "I read this article," they're going to kind of gut check you.
Bob: Well, and...
Amy: And say, "Hey, does that hold up for your financial plan?" No, probably not, right?
Bob: ...what you're really saying, Amy, is find an advisor who is in fact truly a fiduciary.
Amy: Yes.
Bob: Somebody that's only going to make recommendations that they feel are in your best interest. That is so vital.
Amy: Yeah. Here's the Allworth Advice. Financial predictions, man, they are proof that you can be wrong for a living and still have a job. But your job is to make sure that you are taking care of your long-term financial goals. Coming up next, the fight to include an investment option in your 401(k) that may or may not be a great idea for you. We're going to get into that. 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 and Amy Wagner along with Bob Sponseller. If you can't listen to our show every night, you don't have to miss a thing we're talking about. We have a daily podcast for you. Just search Simply Money. It's right there on the iHeart app or wherever you get your podcast. Coming up at 6.43, the financial considerations you've got to think about if your marriage is not working anymore. I personally have been through this. We're going to walk you through that. I am a huge proponent of choice. I think more choices.
Bob: Freedom is good, Amy.
Amy: Exactly. More choices are always better, except sometimes.
Bob: Well, and with freedom comes the responsibility to learn and make good choices.
Amy: Yep. And there are some new options potentially coming to a 401(k) near you. And the reason why I say more choice is good, except maybe not, is that option could be private equity. And I have some concerns.
Bob: I have some as well. So, if I get on too much of a rant here, Amy, this is where you might have to grab me by the scruff of the neck and call me down. But...
Amy: I am putting my seatbelt on for the ride of your rant. You go for it.
Bob: All right. Well, with the incoming Trump administration, and this is not a political comment, there's just, there's a new movement on foot to allow private equity funds into 401(k) plans. And let's just be very transparent about this. All financial firms are in business to make money. And let's face it, over the last 30 years with the disappearance of defined benefit pension plans and the emergence of 401(k) plans, everybody's responsible for their own retirement planning.
Amy: Yeah. It's on you.
Bob: And everybody wants a bite at the apple here to get their funds on these 401(k) platforms. And to me, this kind of feels like letting the fox into the hen house, so to speak. A lot of these private equity funds have extremely high fees. They have lockup terms that are not favorable to investors. People don't understand what's in them. And there are lobbying groups now saying, "Hey, let us into these 401(k) plans." This is not the first time this has happened. The U.S. Department of Labor issued two letters, you know, going back into 2020 and again in 2021, saying they were looking at it, but financial education must be considered. And I almost laugh at that. But go ahead, Amy.
Amy: It just is mind-boggling to me that in the same menu of options as a target date fund, you could also have private equity. You know, and going back to kind of the Labor Department's sort of response to these, you know, they issued a statement and stressed, "Hey, listen, if we're going to put these in people's 401(k), there has to be education requirements along with this. We're not endorsing it. We're not recommending it." But I think if I have said this once on the show, I've said it a million times. Most people spend more time planning your summer vacation or your spring break than you do understanding your 401(k). So, if suddenly you have the option of private equity fund in your 401(k), I think a lot of people are going to, "Well, that sounds sexy. I've heard about that. I've read about it. I don't know much about it, but it sounds like a great investment." And my concern is people jumping in, not understanding the large fees or the large risks associated.
Bob: Yeah. And we came across a study that was put out last year that said, you know, 8 in 10, 401(k) plan participants said they'd like to have access to these things. But then 51% of those surveys say they didn't understand the benefits and they don't understand how they work at all. And then the person that put the survey together said, "Hey, the average retail investor does not know even what private equity is. You know, philosophically, if you expand the menu of offerings, it's a benefit, but the details matter." And that leads me to my little rant/story. You know, Amy, I used to be the 401(k) advisor for 5 or 6 pretty large 401(k) plans, employee sizes ranging from 50 to 500 employees, okay?
Amy: Big sizes.
Bob: And I know those that are listening to this show that work for companies that have 401(k) plans will relate to what I'm about to say. Usually, these companies have their annual meeting where they call in HR and in one meeting, they talk about all the changes to their comp plan. They call in the medical benefits people to talk about changes to their healthcare benefits. And then they call in Bob, the 401(k) guy, and say, "Hey, you've got 37 minutes to cover the 401(k) plan. We want you to talk about tax law changes, investment allocation, cure cancer, cure world hunger, talk about private, you know, and...
Amy: You've got 37 minutes to talk.
Bob: ...you've got 37 minutes because we're shipping these 50 people out and then bringing the next 50 people in." And it used to make me sad because people would just stare at me like, "Can you help me with this?" And most people get no guidance other than that just quick and dirty 30-minute meeting. And then they're left to navigate this whole thing on their own. It's not a good situation. So, I've always felt like the Department of Labor is either willfully blind or they know what's really going on and just feel powerless to do anything about it because of the strong lobbies, the lobbying from some of these financial firms.
Amy: Do I have a problem with private equity as investment? Absolutely not. No, I do not. As long as you're going into it with eyes wide open, you know, there are rules about certain kinds of investments, private placements, right? Things that, you know, you have to be a certain level of...
Bob: Accredited investor.
Amy: ...an investor. Yeah, exactly. And you have to have a certain amount of assets and there's certain boxes that have to be checked along those lines. I have zero problem, right? If we know you've got money that you can lose and it's not going to be catastrophic to you and that you have a level of understanding of exactly the risk that you're taking in the average 401(k) investor, right? And we've seen so many stats from Fidelity, Vanguard, you name it. You know, the average person has a couple of $100,000 in their 401(k). And by the way, there's also a retirement crisis in our country because people are getting to retirement and they don't have enough. This scares me.
Bob: Yeah. And back to the whole freedom theme. And we don't want to come across as talking down to people that aren't millionaires, you know, implying that they're less intelligent than anyone else. That's not the point that we're making.
Amy: No.
Bob: The point we're making is that the more complex these investment vehicles become, the more critical it is that you've got somebody that can actually explain it to you in words you can understand so that you can make the best decision for your situation. And unfortunately, a lot of our lower-income, younger friends are not getting that kind of advice and they're left to fend for themselves. And sometimes that can pose problems.
Amy: Well, you know, I'm also worried about this younger generation. I was having dinner with a friend recently. And he has a family friend who is in the financial world who's getting ready to graduate. And he was saying, "Listen, like he's only interested in working for private equity because it's such a buzzword and it sounds so sexy and exciting as a career." And I'm thinking, "Well, of course it does."
Bob: It was like investment banking in the '80s.
Amy: Yes. Exactly.
Bob: When I was at Miami University, everybody wanted to get hired by Goldman Sachs...
Amy: So, if it's...
Bob: ...and drive a BMW.
Amy: ...the hot new career, is it also going to be the hot new investment and does it make sense for everyone? And are we fully educated on what we're talking about here? Here's the Allworth advice. Please contact a fiduciary financial advisor if you're thinking whether something like this, right? Like, private equity, like an alt investment makes sense in your portfolio. Coming up next, dream vacations and budgets with one of our favorite guests. You're listening to "Simply Money" presented by Allworth Financial here in 55KRC, The Talk Station. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. What's your dream vacation? And then what's the reality check of your actual budget? Joining us tonight, our good friend, Al Riddick from Game Time Budgeting. Al, no one is more responsible with budgeting than you, but I also know you and your wife like to take some pretty nice trips. So, how do you let that happen and also check all the other boxes financially?
Al Riddick: So, Amy, I have to tell you a very quick story. So, my wife and I, when we turned 50, well, even before turning 50, I was like, "Babe, what's on your mind so far as our 50th birthday celebration?" And you should have seen the look on her face. Her eyes got extremely wide and this big old Kool-Aid smile came on her face. And she said, "I don't know, but it's going to be big, right?" So, long story short.
Amy: I like your wife. I've said that before on the show, but I really like her.
Al Riddick: She actually trusted me to plan a two-week vacation. Amy, we spent one week in Dubai and then we spent the second week in Maldives. And I have to tell you, we were able to scratch off quite a few things on our bucket list. First of all, I'd always wanted to ride on a double-decker airplane. So, we did that. We also visited Burj Khalifa, which is the largest building in the world. It's in Dubai. The view from the top was actually, it was just spectacular. My wife, she always wanted to see, like, the world's largest choreographed water fountain. So, we saw that at the Dubai Mall. And in Maldives, we've always wanted to stay in one of those over-the-water villas. So, we were able...
Amy: Yes, me too.
Al Riddick: ...to do that as well. And let me tell you, Amy, on a scale of 1 to 10, it was like 1,000.
Amy: So, you're never going to be able to retire because you took the trip of your life, right?
Al Riddick: However, you know me, Amy. When I knew that that vacation was going to cost quite a bit of money, I started putting extra money away in our vacation account. So, even before the plane left, the trip was already paid for in full.
Amy: Of course.
Al Riddick: But I got to tell you about a financial mistake, Amy. So, keep in mind, we're on this two-week vacation. So, we're in a constant state of euphoria, right? So, we're hanging out at the Dubai Mall and all of a sudden we're like, "Let's have some lunch." So, we selected this restaurant. Keep in mind, all of the prices are in Durhams, which is the unit of currency in the UAE. So, we have a fabulous lunch. Then the bill comes. Guess what, Amy? The bill for that freaking lunch was about $200.
Amy: Yikes.
Al Riddick: But the cool part, after getting over the shock of that, I was like, "You know what? This is a reminder of what happens when you let emotions make your financial decisions." And it had been probably a decade since I had experienced that. So, even though we spent a ton of money for lunch, it was actually just a good reminder of how we always need to use math when we're making financial decisions.
Bob: All right, hey, Al, I've got to ask. I mean, just listening to you describe that trip, first of all, I want to ask, can I bring my wife and go on vacation with you guys? Because you sound like a lot of fun. But...
Al Riddick: Of course, as long as you pay for your half of the bill.
Bob: Well, I'll make sure to do the exchange rate before we get lunch because I can't afford a $400 lunch, Al.
Al Riddick: No, it was about $200, sir.
Bob: I'm saying if the 4 of us are there, it's $400. But anyway...
Al Riddick: Well, that is true.
Bob: ...I'm curious, just listening to you talk, you sound like you're filled with a lot of emotion and a lot of great stuff. Who's the planner in your family, you and your wife? Who actually does the budgeting and figuring all this out?
Al Riddick: So, we actually do the budget together, believe it or not, Bob. However, when it comes to the person who's actually entering data into the software that manages the budget, I'm the person that does that. When you look at my wife and I as a couple, she is a little less inclined for that type of detail work as it's related to money. But I don't mind, because that's something that gives me a thrill. I know it sounds weird, but I typically get excited over financial stuff, so I don't mind doing that. Bob, you don't know this about me, sir, but every month my wife and I sit down and we have a budget meeting every month, and we give every dollar of income flowing through our household an assignment. So, we have a pretty good system that we've created over the years. And at the end of the day, all of the decisions that we make with money, it's 50-50. Of course, I say what I need to say, she says what she needs to say, but we always come up with an agreement that is mutually beneficial for each of us.
Bob: That sounds perfect. It sounds like you guys are a great team, and I mean that sincerely. So, Al, looking back on this big vacation to Dubai, what would you say is one experience that you learned as you're teaching us and our listeners? What's one or two things that you learned from that whole thing that if you could do it all over again, you'd do a little bit differently?
Al Riddick: So, obviously the lunch that I just discussed, but I have to tell you, Bob, because my wife and I, we've trained ourselves to be a certain way with money. Even before taking the trip, I had already done, like, price estimates about what it's going to cost to fly in a certain seat on a certain airline, what it's going to cost to be at those fancy little over-the-water villas and all of that stuff. So, I had already had an idea of what the budgeted spending should be. And even before taking the trip, like, I said earlier, I just started funneling more money toward our vacation account to make sure that when we came back from vacation, there was not going to be, like, this humongous credit card bill waiting for us. So, when it comes to making big dream vacation decisions, you definitely have to count the cost and make sure that your money aligns with the experience that you're trying to have. And for us, everything that we wanted to do, we did it because the money allowed us to not live outside the boundaries. Does that make sense?
Bob: Totally.
Amy: It does, Al. And quickly, we've got about a minute left, but I want to ask, how much in advance did you guys decide on this? And then what kind of sacrifices, are there a couple of decisions that you made in order to make this happen?
Al Riddick: So, for us, now don't let this alarm you, I started asking my wife about this trip a year in advance because I had a hunch that it was going to be very expensive. I won't tell you...
Amy: After you price tagged it.
Al Riddick: what we spent, Amy, but it was a lot of money. But I just started funneling money away. And because we're very good about living well below our means, it really wasn't that difficult of a challenge because the goal had been set. And both my wife and I, we're the type of people, once you tell us the goal and if it means something to us, failure is not an option.
Amy: I love that. I love that about you. For anyone listening, listen, if you have a bucket list trip or this big sort of feels like pie in the sky money goal and you think you can never get there, you absolutely can. Al, and I love how you've laid this out. You have the conversation, you have it well in advance and then you make the plan. What is it going to take to get there? You do the research. What's it really going to cost? And then you just make the sacrifices along the way to make it happen. Great advice, as always, from our good friend, Al Riddick. You're listening to "Simply Money" presented by Alworth Financial here on 55KRC, The Talk Station. You're listening to "Simply Money" presented by Alworth Financial. I'm Amy Wagner along with Bob's Sponseller. Best-laid plans.
I don't think anyone has ever walked down the aisle on their wedding day with all of the hopes and dreams associated with it, thinking, "One day I'm going to divorce this person and we're going to divide all of our assets and start anew." Yet, as someone who has been there and done that, it happens. It happens to all of us. Bob, even though you've never been through a divorce, I know you have advised many clients through this situation. I personally have been there. And one of the things I think I am most grateful for is that as emotional of a time as that was, that I have the strong financial background that I do, that allowed me to not make emotional decisions during that time that I couldn't recover from later, because I just knew, right? I could take a non-emotional observation of where I was because I knew better. Many people aren't in that situation and thank goodness, hopefully, they have an advisor who can help them navigate through really, really choppy waters.
Bob: Yeah, the whole topic of finances is emotional enough. And then you layer on top of that the simultaneous ending of the most important relationship in your life. That's a tough time, really a tough time to navigate. So, Amy, walk us through some of the things. You have been through it and you did a great job navigating through it. Walk us through some of the things that we need to be watching out for and be proactive about.
Amy: I think first of all, you've got to step back and take full stock of your financial picture. I know a lot of couples, there's one person who knows a lot more about this than the other. I've done workshops specifically for women and had many of them come up to me afterwards and saying, "Hey, I'm going through a divorce right now. I want to meet with you. I have no idea even what our financial picture is."
Bob: All right, and on the flip side of that, thankfully I haven't had a lot of these situations with clients, but I've had some and I've even had a couple where the person that's more well-versed in finances, and it's usually the guy that's trying to play all the games, they'll call up and say, "Hey, can we move this, Bob? And can we move that?" You know, they're trying to move assets around. And I'm like, "No, we are not doing that. And even if you try to do that, it's all going to come out in the wash anyway. So, let's just not go there."
Amy: Yeah. So, I think stepping back and figuring out what kind of retirement assets do we have? What do we have in checking accounts, in saving accounts? I actually had a client come in a few weeks ago, really just a few years away from retirement. And now on the cusp of a divorce, we had a financial plan for the both of them. And I said, "Okay, let me do another plan for just you. And let's look at what your options are and how we're going to make different decisions, probably moving forward based on this new situation." So, you start with the fact-gathering process, right? Take the emotion out of it. Just get the facts, as much information as you possibly can. I think another major next step is separating, starting with bank accounts, right? And credit cards.
And this is a conversation too of, hey, you know, if we've had a couple of credit cards that have been open for a really long time, each of us maybe takes one so that we're not hurting our credit history here. But, again, it's a very unemotional look at, how do we separate this and do the least amount of damage possible? And I also want to throw one other major consideration into this. And I've seen this play out far too many times. We fight over the house. We fight over the house because it's emotional, right? It's an emotional time anyway. And then we're looking back at the house where we raised our children and we have all the memories. And I think you each have to look at this and say, "Can we still afford this house? Maybe on one person's salary versus the two that we had coming in before."
Bob: Yeah. And correct me if I'm wrong on this, Amy. But I've seen this, especially in cases where each party, you know, that's going to enter this divorce has, you know, completely separate legal counsel. It becomes a game and it can become trench warfare here. You know, the attorneys want to win. And they will cause the divorcing spouses to do and say things to one another that they would have never done or never said, if not for an attorney trying to "win." And you brought it up. Emotion is the key way they try to leverage, you know, in the home and all that. So, it is just critical to not only have a good attorney, but have a good financial advisor to say, "Hey, even if you think you're going to win, are these really assets that you want to come out with? Can you afford them? How is this all going to impact your long-term financial situation after the divorce proceeding is over?"
Amy: You know, and I've seen a major mistake being made many two times where you can on paper write, "These assets are worth the same amount." So, this is fair, right? Well, no, maybe not necessarily because maybe one of you can't afford the house anymore or maybe, you know, the growth opportunity in those investment and retirement accounts is actually worth more than your car is right now that's going to depreciate. So, you want another set of eyes on your situation. And I've got several clients again going through this. And I keep saying, "Hey, listen, like I am in your corner and I'm advocating for you. And I want you to think through maybe this in a different way than you've thought about it before." Here's the Allworth advice. Divorce is a really, really difficult chapter, but it's also an opportunity that you can build maybe a new financial foundation. I think the key is to make sure you're not making bad decisions during that time that are going to affect you into the future. Coming up next time for some Wagner wisdom. You're listening to "Simply Money" presented by Allworth Financial here in 55 KRC, The Talk Station. Oh, how I love this music. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. Obviously, I'm going to impart some major Wagner wisdom right now based on that lead-in.
Bob: Bring it, Amy. Bring it. Teach us.
Amy: I was thinking about this when I was falling asleep last night. I didn't necessarily notice it in the moment, but I've recently kind of had a trend of clients that I've been talking to who have kind of asked the same question. And that is, "Hey, how do I rank compared to other people? The assets that I have, the money that we have, whatever stage I am in my life, am I in the upper half of your clients? Am I in the middle?" And I think it's so interesting because we are so programmed to want to know how we stack up to other people. And listen, I get that. I am as competitive as anyone out there. You tell me I'm in the bottom half and by next year I'm going to be in your top half. It doesn't matter what we're talking about. But I want to remind anyone who has ever felt that way or thought that way that when it comes to your money and retirement plan, if that's how you're looking at it, you're missing it altogether. It's not about where you are and compared to anyone else. It's about how you spend and how much money you have saved and what kind of retirement income you're going to have. I have seen people who have millions of dollars have major issues in retirement because they also spent millions of dollars, right? And so understanding that really success in retirement looks like how much am I going to need to live whatever kind of retirement life I want to and then what's it take to get me there?
Bob: Yeah. In other words, and I agree with you, Amy, it all comes down to, and this is what I tell people, at the end of the day, what's really the only thing that's important is, are you on track to live a rich and meaningful life as defined by what's most important to you? And if you can answer that question, yes, it doesn't matter what anyone else is doing. Here's the...
Amy: You're at the nail on the high.
Bob: ...end of the story.
Amy: What does rich and meaningful look like to you? I have had so many different people in my office and I can tell you everyone's version of what that looks like is different. The question is not, how do we stack up against the numbers that everyone else has? It is, am I on track to live my version of rich and meaningful? And so it starts with defining what that looks like for you and then figuring out, okay, what does it take to get there? It doesn't matter what anyone else has. Thanks for listening tonight. You've been listening to "Simply Money" presented by Allworth Financial here on 55KRC, The Talk Station.
Bob: Yeah. And Amy, I'm getting questions from office staff about this whole DeepSeek situation from yesterday. So...
Amy: It's a talker.
Bob: ...if everybody's out there talking about it, we better get into it here and just at least cover it for a few minutes. So, let's just cut to the chase and just a brief recap. Yesterday, this Chinese-based AI model software developer called DeepSeek out of China came out with news that, hey, they had developed this whole new AI model with only about $6 million of investment capital required. This supposedly could rival all the best models that we have here based in America where these big tech companies, Microsoft, Amazon, Google have spent hundreds of millions...
Amy: Nvidia.
Bob: ...of dollars buying Nvidia chips and other high-market ships. So, that has moved all the discussion into a rather chaotic chaos for the last 24 hours. What's going to happen here to stocks like Nvidia, Broadcom, these high-end producers of these sophisticated chips? Will that really crush their demand for those chips and as a result, suppress their stock prices?
Amy: I think it's so easy as an investor to fall in love with a company or a sector and then say, "You know what, I've done all the research. I see the future of this. What could possibly go wrong?" I often use the example of Amazon to say, "Hey, Amazon started out as an online book company and then it has been such a disruptor going into other sectors and absolutely turning things upside down." I was really worried a few years ago for Kroger when Amazon bought Whole Foods. Kroger did a fantastic job, staying nimble, making some smart decisions to navigate itself through that. What I think is really interesting about this DeepSeek situation is, when I use the example of Amazon, it's this big behemoth moving into a new space. Here is a small, nimble, never heard of a company before. I mean, literally, DeepSeek was on nobody's radar a week ago. It wasn't even on the radar...
Bob: Until...
Amy: ...on Friday.
Bob: ...5.15 yesterday morning.
Amy: Yes, exactly. All of a sudden, this tiny little company with a very small investment that we're aware of to this point has come in and just been a huge disruptor. Now, listen, is DeepSeek a long-term disruptor? I don't know. But there was certainly some disruption yesterday in volatility in the markets. And so I think this is such a great example to all of us and a reminder of, there have been so many articles written about Nvidia and the future of AI and how it's going to change everything we do and what that's going to mean for investors long term. And I'm not saying any of those courses of conversation are off the table, but this is a great reminder that anything can come from LeFion at absolutely any time and that's exactly what we saw.
Bob: Excellent points. And just to put some of this in perspective and hopefully calm everybody down a little bit. There's a lot of developments that are going to come out and a lot of news that's going to come out here over the next days, weeks, and months. So, a couple of things just to remember. As we all know, the S&P 500 has been up very nicely, the last couple of years, but these magnificent 7 stocks that we always talk about, they make up 33% of the market cap of the S&P 500, these big tech stocks. So...
Amy: They're magnificent until they're not so magnificent anymore.
Bob: Yeah. And over the next couple of weeks, all of these big tech stock companies are going to be reporting fourth-quarter earnings and more importantly, and this is always more importantly, their estimates for the next quarter or the next two quarters. In my opinion, the earnings call that we want to keep an eye on if we're trying to just get a big picture look on where this might be headed in the short to intermediate term here is Microsoft. They announced earnings after the close on Wednesday. They're slated to spend over $95 billion in capital budget on AI infrastructure and everything. That earnings call is going to be interesting because that's a very well-run company, very intelligent people at the helm, and they're going to get a ton of questions on that investor call. And I think we'll really have a better idea of what the landscape looks like for some of these big tech stocks after Wednesday's Microsoft call.
Amy: It was just last week that a company called Wedbush Securities, and they sort of billed themselves as one of the nation's leading wealth management brokerage firms, advisory firms. They, of course, released their list of like, "Hey, this is what we're keeping an eye on, the top 10 AI stocks." And they said, "Hey, these will be winners. What could go wrong, right?" Just fast forward a few days and it's like Eons, right? As far as how much can change in one particular industry from all this research that a firm can do like, "Oh wait, I know that company. That sounds good. Maybe I should go all in on their predictions." And we'll get into their predictions a little bit more, but take it all with a grain of salt. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. What is going on in the tech sector with AI stocks? A little bit of volatility is what we're seeing, even as some major companies are making major predictions about where AI is moving in the future.
Bob: Yeah, and you brought up that Wedbush article and it's really easy to play Monday morning quarterback and kind of laugh at these things. And we have the luxury of reading this stuff after the fact, but the list of stocks that you mention and it's all the ones we've heard of, Nvidia, Tesla, Google, Apple, Microsoft, Salesforce, they were expecting, "Oh, these stocks are going to be up another 25% in 2025." Well, Nvidia fell by almost 18% yesterday. So, got a little catching up to do.
Amy: Yeah, and I think as they make their predictions, and I just want to dig into these because they can use really strong language. They're always going to push into fear and greed to try to make you feel like you should probably make some changes based on their predictions. And one of the things that they're saying is technology is eating the world. I mean, how is that for some phrasing right there? And they're saying, "Listen, this is going to minimize human intervention. Everything's going to be powered by AI." And then they're also saying we're going to watch technology prices plummet.
Bob: Yeah. And then on the flip side of that, literally another article says, "Hey, we're going to need more of everything. We're going to need more human capital. We're going to need energy, water, skills, data centers, more resources, more tech growth." Yeah, depending on which article you read, you know, it's...
Amy: Sometimes they're opposing viewpoints on the same page, like on the same website. You're like, "Wait a second. Have you guys even talked to each other? Like, you're writing these strongly opposing opinions about the same company, the same sector, the same kind of investment." It's enough to make your head spin as an investor.
Bob: Well, and unfortunately, look, it's a business model. I mean, they're selling eyeballs. They're trying to get eyeballs on the web. People got to fill up airtime on cable news. It's just talk, talk, talk, talk, talk, blah, blah, blah, blah, blah. And no one's really making sense of everything. And to your point, Amy, be careful what you read and more importantly, be careful on what you act upon in the short term. We talk about recency biased all the time. One of the worst things you can do is look at yesterday's winners and then over-allocate to that sector or that particular stock and then find yourself with a very steep correction and more investment risk than you ever really signed up to take on in the first place.
Amy: I don't know why this was so eye-opening to me over the summer. And maybe it was just like it's everything that I've always known, but one person summed it up in one statement. We were with friends. We were on Lake Norris hanging out. And there is just one of our dear, dear friends who's probably about 5, 10 years away from retirement. And he was making this conversation about he's kind of in this financial services field. And people who are in this field often think like, "I'm in this day in and day out. I can figure out the way to short this and the fastest way to get there," or whatever. And he said, "I have seen so many people around me, colleagues and friends, try to make this big bet, try to figure out what the next big thing is and make insane amounts of money all at one time." And he said, "For every major step forward, then there's a major step backward coming on the heels of that." And he said, "I have been the tortoise the whole time, like just slow and steady, diversified, not taking huge risks." And he said, "I'm going to have one heck of a retirement."
Bob: That's great. And it's almost like getting on WebMD and spending three hours reading about doing your own heart surgery. You can learn enough to be dangerous. Find a really good doctor that you've been referred to and let him or her do their job. Somebody that does it every day and can advise you and has had good outcomes for years and years like your friend has.
Amy: Yeah. And I think if you are someone and this is a know yourself, like take a good long look at yourself in the mirror kind of situation. If you are someone who is swayed by either headlines or what someone else is saying at a party about an investment that you need to get into, get yourself an advisor that you can trust, and make sure it's an advisor that builds a financial plan that is asking you what your long term goals are. And so that when you're coming to them saying, "Oh, I heard this thing about this company," or "I read this headline," or, "I read this article," they're going to kind of gut check you.
Bob: Well, and...
Amy: And say, "Hey, does that hold up for your financial plan?" No, probably not, right?
Bob: ...what you're really saying, Amy, is find an advisor who is in fact truly a fiduciary.
Amy: Yes.
Bob: Somebody that's only going to make recommendations that they feel are in your best interest. That is so vital.
Amy: Yeah. Here's the Allworth Advice. Financial predictions, man, they are proof that you can be wrong for a living and still have a job. But your job is to make sure that you are taking care of your long-term financial goals. Coming up next, the fight to include an investment option in your 401(k) that may or may not be a great idea for you. We're going to get into that. 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 and Amy Wagner along with Bob Sponseller. If you can't listen to our show every night, you don't have to miss a thing we're talking about. We have a daily podcast for you. Just search Simply Money. It's right there on the iHeart app or wherever you get your podcast. Coming up at 6.43, the financial considerations you've got to think about if your marriage is not working anymore. I personally have been through this. We're going to walk you through that. I am a huge proponent of choice. I think more choices.
Bob: Freedom is good, Amy.
Amy: Exactly. More choices are always better, except sometimes.
Bob: Well, and with freedom comes the responsibility to learn and make good choices.
Amy: Yep. And there are some new options potentially coming to a 401(k) near you. And the reason why I say more choice is good, except maybe not, is that option could be private equity. And I have some concerns.
Bob: I have some as well. So, if I get on too much of a rant here, Amy, this is where you might have to grab me by the scruff of the neck and call me down. But...
Amy: I am putting my seatbelt on for the ride of your rant. You go for it.
Bob: All right. Well, with the incoming Trump administration, and this is not a political comment, there's just, there's a new movement on foot to allow private equity funds into 401(k) plans. And let's just be very transparent about this. All financial firms are in business to make money. And let's face it, over the last 30 years with the disappearance of defined benefit pension plans and the emergence of 401(k) plans, everybody's responsible for their own retirement planning.
Amy: Yeah. It's on you.
Bob: And everybody wants a bite at the apple here to get their funds on these 401(k) platforms. And to me, this kind of feels like letting the fox into the hen house, so to speak. A lot of these private equity funds have extremely high fees. They have lockup terms that are not favorable to investors. People don't understand what's in them. And there are lobbying groups now saying, "Hey, let us into these 401(k) plans." This is not the first time this has happened. The U.S. Department of Labor issued two letters, you know, going back into 2020 and again in 2021, saying they were looking at it, but financial education must be considered. And I almost laugh at that. But go ahead, Amy.
Amy: It just is mind-boggling to me that in the same menu of options as a target date fund, you could also have private equity. You know, and going back to kind of the Labor Department's sort of response to these, you know, they issued a statement and stressed, "Hey, listen, if we're going to put these in people's 401(k), there has to be education requirements along with this. We're not endorsing it. We're not recommending it." But I think if I have said this once on the show, I've said it a million times. Most people spend more time planning your summer vacation or your spring break than you do understanding your 401(k). So, if suddenly you have the option of private equity fund in your 401(k), I think a lot of people are going to, "Well, that sounds sexy. I've heard about that. I've read about it. I don't know much about it, but it sounds like a great investment." And my concern is people jumping in, not understanding the large fees or the large risks associated.
Bob: Yeah. And we came across a study that was put out last year that said, you know, 8 in 10, 401(k) plan participants said they'd like to have access to these things. But then 51% of those surveys say they didn't understand the benefits and they don't understand how they work at all. And then the person that put the survey together said, "Hey, the average retail investor does not know even what private equity is. You know, philosophically, if you expand the menu of offerings, it's a benefit, but the details matter." And that leads me to my little rant/story. You know, Amy, I used to be the 401(k) advisor for 5 or 6 pretty large 401(k) plans, employee sizes ranging from 50 to 500 employees, okay?
Amy: Big sizes.
Bob: And I know those that are listening to this show that work for companies that have 401(k) plans will relate to what I'm about to say. Usually, these companies have their annual meeting where they call in HR and in one meeting, they talk about all the changes to their comp plan. They call in the medical benefits people to talk about changes to their healthcare benefits. And then they call in Bob, the 401(k) guy, and say, "Hey, you've got 37 minutes to cover the 401(k) plan. We want you to talk about tax law changes, investment allocation, cure cancer, cure world hunger, talk about private, you know, and...
Amy: You've got 37 minutes to talk.
Bob: ...you've got 37 minutes because we're shipping these 50 people out and then bringing the next 50 people in." And it used to make me sad because people would just stare at me like, "Can you help me with this?" And most people get no guidance other than that just quick and dirty 30-minute meeting. And then they're left to navigate this whole thing on their own. It's not a good situation. So, I've always felt like the Department of Labor is either willfully blind or they know what's really going on and just feel powerless to do anything about it because of the strong lobbies, the lobbying from some of these financial firms.
Amy: Do I have a problem with private equity as investment? Absolutely not. No, I do not. As long as you're going into it with eyes wide open, you know, there are rules about certain kinds of investments, private placements, right? Things that, you know, you have to be a certain level of...
Bob: Accredited investor.
Amy: ...an investor. Yeah, exactly. And you have to have a certain amount of assets and there's certain boxes that have to be checked along those lines. I have zero problem, right? If we know you've got money that you can lose and it's not going to be catastrophic to you and that you have a level of understanding of exactly the risk that you're taking in the average 401(k) investor, right? And we've seen so many stats from Fidelity, Vanguard, you name it. You know, the average person has a couple of $100,000 in their 401(k). And by the way, there's also a retirement crisis in our country because people are getting to retirement and they don't have enough. This scares me.
Bob: Yeah. And back to the whole freedom theme. And we don't want to come across as talking down to people that aren't millionaires, you know, implying that they're less intelligent than anyone else. That's not the point that we're making.
Amy: No.
Bob: The point we're making is that the more complex these investment vehicles become, the more critical it is that you've got somebody that can actually explain it to you in words you can understand so that you can make the best decision for your situation. And unfortunately, a lot of our lower-income, younger friends are not getting that kind of advice and they're left to fend for themselves. And sometimes that can pose problems.
Amy: Well, you know, I'm also worried about this younger generation. I was having dinner with a friend recently. And he has a family friend who is in the financial world who's getting ready to graduate. And he was saying, "Listen, like he's only interested in working for private equity because it's such a buzzword and it sounds so sexy and exciting as a career." And I'm thinking, "Well, of course it does."
Bob: It was like investment banking in the '80s.
Amy: Yes. Exactly.
Bob: When I was at Miami University, everybody wanted to get hired by Goldman Sachs...
Amy: So, if it's...
Bob: ...and drive a BMW.
Amy: ...the hot new career, is it also going to be the hot new investment and does it make sense for everyone? And are we fully educated on what we're talking about here? Here's the Allworth advice. Please contact a fiduciary financial advisor if you're thinking whether something like this, right? Like, private equity, like an alt investment makes sense in your portfolio. Coming up next, dream vacations and budgets with one of our favorite guests. You're listening to "Simply Money" presented by Allworth Financial here in 55KRC, The Talk Station. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. What's your dream vacation? And then what's the reality check of your actual budget? Joining us tonight, our good friend, Al Riddick from Game Time Budgeting. Al, no one is more responsible with budgeting than you, but I also know you and your wife like to take some pretty nice trips. So, how do you let that happen and also check all the other boxes financially?
Al Riddick: So, Amy, I have to tell you a very quick story. So, my wife and I, when we turned 50, well, even before turning 50, I was like, "Babe, what's on your mind so far as our 50th birthday celebration?" And you should have seen the look on her face. Her eyes got extremely wide and this big old Kool-Aid smile came on her face. And she said, "I don't know, but it's going to be big, right?" So, long story short.
Amy: I like your wife. I've said that before on the show, but I really like her.
Al Riddick: She actually trusted me to plan a two-week vacation. Amy, we spent one week in Dubai and then we spent the second week in Maldives. And I have to tell you, we were able to scratch off quite a few things on our bucket list. First of all, I'd always wanted to ride on a double-decker airplane. So, we did that. We also visited Burj Khalifa, which is the largest building in the world. It's in Dubai. The view from the top was actually, it was just spectacular. My wife, she always wanted to see, like, the world's largest choreographed water fountain. So, we saw that at the Dubai Mall. And in Maldives, we've always wanted to stay in one of those over-the-water villas. So, we were able...
Amy: Yes, me too.
Al Riddick: ...to do that as well. And let me tell you, Amy, on a scale of 1 to 10, it was like 1,000.
Amy: So, you're never going to be able to retire because you took the trip of your life, right?
Al Riddick: However, you know me, Amy. When I knew that that vacation was going to cost quite a bit of money, I started putting extra money away in our vacation account. So, even before the plane left, the trip was already paid for in full.
Amy: Of course.
Al Riddick: But I got to tell you about a financial mistake, Amy. So, keep in mind, we're on this two-week vacation. So, we're in a constant state of euphoria, right? So, we're hanging out at the Dubai Mall and all of a sudden we're like, "Let's have some lunch." So, we selected this restaurant. Keep in mind, all of the prices are in Durhams, which is the unit of currency in the UAE. So, we have a fabulous lunch. Then the bill comes. Guess what, Amy? The bill for that freaking lunch was about $200.
Amy: Yikes.
Al Riddick: But the cool part, after getting over the shock of that, I was like, "You know what? This is a reminder of what happens when you let emotions make your financial decisions." And it had been probably a decade since I had experienced that. So, even though we spent a ton of money for lunch, it was actually just a good reminder of how we always need to use math when we're making financial decisions.
Bob: All right, hey, Al, I've got to ask. I mean, just listening to you describe that trip, first of all, I want to ask, can I bring my wife and go on vacation with you guys? Because you sound like a lot of fun. But...
Al Riddick: Of course, as long as you pay for your half of the bill.
Bob: Well, I'll make sure to do the exchange rate before we get lunch because I can't afford a $400 lunch, Al.
Al Riddick: No, it was about $200, sir.
Bob: I'm saying if the 4 of us are there, it's $400. But anyway...
Al Riddick: Well, that is true.
Bob: ...I'm curious, just listening to you talk, you sound like you're filled with a lot of emotion and a lot of great stuff. Who's the planner in your family, you and your wife? Who actually does the budgeting and figuring all this out?
Al Riddick: So, we actually do the budget together, believe it or not, Bob. However, when it comes to the person who's actually entering data into the software that manages the budget, I'm the person that does that. When you look at my wife and I as a couple, she is a little less inclined for that type of detail work as it's related to money. But I don't mind, because that's something that gives me a thrill. I know it sounds weird, but I typically get excited over financial stuff, so I don't mind doing that. Bob, you don't know this about me, sir, but every month my wife and I sit down and we have a budget meeting every month, and we give every dollar of income flowing through our household an assignment. So, we have a pretty good system that we've created over the years. And at the end of the day, all of the decisions that we make with money, it's 50-50. Of course, I say what I need to say, she says what she needs to say, but we always come up with an agreement that is mutually beneficial for each of us.
Bob: That sounds perfect. It sounds like you guys are a great team, and I mean that sincerely. So, Al, looking back on this big vacation to Dubai, what would you say is one experience that you learned as you're teaching us and our listeners? What's one or two things that you learned from that whole thing that if you could do it all over again, you'd do a little bit differently?
Al Riddick: So, obviously the lunch that I just discussed, but I have to tell you, Bob, because my wife and I, we've trained ourselves to be a certain way with money. Even before taking the trip, I had already done, like, price estimates about what it's going to cost to fly in a certain seat on a certain airline, what it's going to cost to be at those fancy little over-the-water villas and all of that stuff. So, I had already had an idea of what the budgeted spending should be. And even before taking the trip, like, I said earlier, I just started funneling more money toward our vacation account to make sure that when we came back from vacation, there was not going to be, like, this humongous credit card bill waiting for us. So, when it comes to making big dream vacation decisions, you definitely have to count the cost and make sure that your money aligns with the experience that you're trying to have. And for us, everything that we wanted to do, we did it because the money allowed us to not live outside the boundaries. Does that make sense?
Bob: Totally.
Amy: It does, Al. And quickly, we've got about a minute left, but I want to ask, how much in advance did you guys decide on this? And then what kind of sacrifices, are there a couple of decisions that you made in order to make this happen?
Al Riddick: So, for us, now don't let this alarm you, I started asking my wife about this trip a year in advance because I had a hunch that it was going to be very expensive. I won't tell you...
Amy: After you price tagged it.
Al Riddick: what we spent, Amy, but it was a lot of money. But I just started funneling money away. And because we're very good about living well below our means, it really wasn't that difficult of a challenge because the goal had been set. And both my wife and I, we're the type of people, once you tell us the goal and if it means something to us, failure is not an option.
Amy: I love that. I love that about you. For anyone listening, listen, if you have a bucket list trip or this big sort of feels like pie in the sky money goal and you think you can never get there, you absolutely can. Al, and I love how you've laid this out. You have the conversation, you have it well in advance and then you make the plan. What is it going to take to get there? You do the research. What's it really going to cost? And then you just make the sacrifices along the way to make it happen. Great advice, as always, from our good friend, Al Riddick. You're listening to "Simply Money" presented by Alworth Financial here on 55KRC, The Talk Station. You're listening to "Simply Money" presented by Alworth Financial. I'm Amy Wagner along with Bob's Sponseller. Best-laid plans.
I don't think anyone has ever walked down the aisle on their wedding day with all of the hopes and dreams associated with it, thinking, "One day I'm going to divorce this person and we're going to divide all of our assets and start anew." Yet, as someone who has been there and done that, it happens. It happens to all of us. Bob, even though you've never been through a divorce, I know you have advised many clients through this situation. I personally have been there. And one of the things I think I am most grateful for is that as emotional of a time as that was, that I have the strong financial background that I do, that allowed me to not make emotional decisions during that time that I couldn't recover from later, because I just knew, right? I could take a non-emotional observation of where I was because I knew better. Many people aren't in that situation and thank goodness, hopefully, they have an advisor who can help them navigate through really, really choppy waters.
Bob: Yeah, the whole topic of finances is emotional enough. And then you layer on top of that the simultaneous ending of the most important relationship in your life. That's a tough time, really a tough time to navigate. So, Amy, walk us through some of the things. You have been through it and you did a great job navigating through it. Walk us through some of the things that we need to be watching out for and be proactive about.
Amy: I think first of all, you've got to step back and take full stock of your financial picture. I know a lot of couples, there's one person who knows a lot more about this than the other. I've done workshops specifically for women and had many of them come up to me afterwards and saying, "Hey, I'm going through a divorce right now. I want to meet with you. I have no idea even what our financial picture is."
Bob: All right, and on the flip side of that, thankfully I haven't had a lot of these situations with clients, but I've had some and I've even had a couple where the person that's more well-versed in finances, and it's usually the guy that's trying to play all the games, they'll call up and say, "Hey, can we move this, Bob? And can we move that?" You know, they're trying to move assets around. And I'm like, "No, we are not doing that. And even if you try to do that, it's all going to come out in the wash anyway. So, let's just not go there."
Amy: Yeah. So, I think stepping back and figuring out what kind of retirement assets do we have? What do we have in checking accounts, in saving accounts? I actually had a client come in a few weeks ago, really just a few years away from retirement. And now on the cusp of a divorce, we had a financial plan for the both of them. And I said, "Okay, let me do another plan for just you. And let's look at what your options are and how we're going to make different decisions, probably moving forward based on this new situation." So, you start with the fact-gathering process, right? Take the emotion out of it. Just get the facts, as much information as you possibly can. I think another major next step is separating, starting with bank accounts, right? And credit cards.
And this is a conversation too of, hey, you know, if we've had a couple of credit cards that have been open for a really long time, each of us maybe takes one so that we're not hurting our credit history here. But, again, it's a very unemotional look at, how do we separate this and do the least amount of damage possible? And I also want to throw one other major consideration into this. And I've seen this play out far too many times. We fight over the house. We fight over the house because it's emotional, right? It's an emotional time anyway. And then we're looking back at the house where we raised our children and we have all the memories. And I think you each have to look at this and say, "Can we still afford this house? Maybe on one person's salary versus the two that we had coming in before."
Bob: Yeah. And correct me if I'm wrong on this, Amy. But I've seen this, especially in cases where each party, you know, that's going to enter this divorce has, you know, completely separate legal counsel. It becomes a game and it can become trench warfare here. You know, the attorneys want to win. And they will cause the divorcing spouses to do and say things to one another that they would have never done or never said, if not for an attorney trying to "win." And you brought it up. Emotion is the key way they try to leverage, you know, in the home and all that. So, it is just critical to not only have a good attorney, but have a good financial advisor to say, "Hey, even if you think you're going to win, are these really assets that you want to come out with? Can you afford them? How is this all going to impact your long-term financial situation after the divorce proceeding is over?"
Amy: You know, and I've seen a major mistake being made many two times where you can on paper write, "These assets are worth the same amount." So, this is fair, right? Well, no, maybe not necessarily because maybe one of you can't afford the house anymore or maybe, you know, the growth opportunity in those investment and retirement accounts is actually worth more than your car is right now that's going to depreciate. So, you want another set of eyes on your situation. And I've got several clients again going through this. And I keep saying, "Hey, listen, like I am in your corner and I'm advocating for you. And I want you to think through maybe this in a different way than you've thought about it before." Here's the Allworth advice. Divorce is a really, really difficult chapter, but it's also an opportunity that you can build maybe a new financial foundation. I think the key is to make sure you're not making bad decisions during that time that are going to affect you into the future. Coming up next time for some Wagner wisdom. You're listening to "Simply Money" presented by Allworth Financial here in 55 KRC, The Talk Station. Oh, how I love this music. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. Obviously, I'm going to impart some major Wagner wisdom right now based on that lead-in.
Bob: Bring it, Amy. Bring it. Teach us.
Amy: I was thinking about this when I was falling asleep last night. I didn't necessarily notice it in the moment, but I've recently kind of had a trend of clients that I've been talking to who have kind of asked the same question. And that is, "Hey, how do I rank compared to other people? The assets that I have, the money that we have, whatever stage I am in my life, am I in the upper half of your clients? Am I in the middle?" And I think it's so interesting because we are so programmed to want to know how we stack up to other people. And listen, I get that. I am as competitive as anyone out there. You tell me I'm in the bottom half and by next year I'm going to be in your top half. It doesn't matter what we're talking about. But I want to remind anyone who has ever felt that way or thought that way that when it comes to your money and retirement plan, if that's how you're looking at it, you're missing it altogether. It's not about where you are and compared to anyone else. It's about how you spend and how much money you have saved and what kind of retirement income you're going to have. I have seen people who have millions of dollars have major issues in retirement because they also spent millions of dollars, right? And so understanding that really success in retirement looks like how much am I going to need to live whatever kind of retirement life I want to and then what's it take to get me there?
Bob: Yeah. In other words, and I agree with you, Amy, it all comes down to, and this is what I tell people, at the end of the day, what's really the only thing that's important is, are you on track to live a rich and meaningful life as defined by what's most important to you? And if you can answer that question, yes, it doesn't matter what anyone else is doing. Here's the...
Amy: You're at the nail on the high.
Bob: ...end of the story.
Amy: What does rich and meaningful look like to you? I have had so many different people in my office and I can tell you everyone's version of what that looks like is different. The question is not, how do we stack up against the numbers that everyone else has? It is, am I on track to live my version of rich and meaningful? And so it starts with defining what that looks like for you and then figuring out, okay, what does it take to get there? It doesn't matter what anyone else has. Thanks for listening tonight. You've been listening to "Simply Money" presented by Allworth Financial here on 55KRC, The Talk Station.