Steve S.: Tonight, the Fed makes its big decision about interest rates. You're listening to "Simply Money" presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. You know, Steve, for the past year, all eyes have been on the Fed on the days they announced whether they raise interest rates. But earlier today, this time around, it was pretty hard to predict what they were gonna do because of all the turmoil in the banking industry. As a matter of fact, people were talking about the Fed might even pause and not raise interest rates at all. No big surprises today from the Fed.

Steve H.: Yeah. Prior to some of the issues that we've experienced in banks in the last couple of weeks, there was potential talk of a half point.

Steve S.: I heard a half-point.

Steve H.: Yeah, I did.

Steve S.: Exactly.

Steve H.: And then as soon as that happens, they pulled back a little bit. So, what you said, no surprise? I was expecting 25 basis points, and that's exactly what we got today.

Steve S.: Yeah, 25 basis points is a quarter of a percent. Surprise to no one. I think, Steve, that they had to raise rates because inflation, it's not gone.

Steve H.: No, it's not.

Steve S.: But the reason that the Federal Reserve backed off of quarter, possibly half a percent increase is this banking crisis. I mean, this is a big deal, and it's not that inflation has gone away. But keep in mind, one of their main mandates is to make sure the banking system runs smoothly, that there's confidence in the banking segment. And there hasn't been a lot of confidence over the past couple of weeks.

Steve H.: No, there hasn't. And on the flip side, there's also the goal of bringing down inflation. And that's exactly why they've been working to slow the economy by raising interest rates. So, it's that fine balancing act.

Steve S.: Right. But today, the banking problem is screaming at them right now and screaming very loudly. Inflation, yeah. Inflation tomorrow, they're gonna worry about tomorrow but not today.

Steve H.: That's correct.

Steve S.: I think that's a lesson out of this. Okay. So, the Fed raises interest rates a quarter of a percent, pretty much in line with the vast majority of expectations. So, that brings the overall, they call it the terminal rate. But basically, how far they've raised the interest rates that they control, up to four and three quarters to 5% now.

Steve H.: Correct.

Steve S.: Okay, keep in mind, one year ago, it was only one year ago that rate was about zero.

Steve H.: Yeah, it's moving fast. This has moved quickly.

Steve S.: This has been a lot in one year. Now, what I also noticed is the dot plot. And for people who don't follow this stuff like you and I, there are 18 members of the Federal Reserve, and they post a little chart where there are 18 dots, and they're anonymous. That's what every individual member of the Federal Reserve, what they put down is where they think interest rates will go. And there were no changes from the last dot plot in December?

Steve H.: No, there weren't. Again, that is anonymous.

Steve S.: It is anonymous. But that's good news, isn't it?

Steve H.: It is. Ten of 18. What I looked at and what I saw today is 10 of 18 from the Fed policymakers expect maybe one more increase before end of year.

Steve S.: Yeah, exactly.

Steve H.: That's what they're saying at this point. And then looking at rate cuts in 2024 and 2025.

Steve S.: Yeah, and I wanna talk about that a little bit because that's important. So, bottom line, quarter percent rate increase today, probably one more rate increase, very likely next month. They're not gonna wait real long on that, I don't think.

Steve H.: No.

Steve S.: I did notice something in the statement that was issued, and this is how closely people have to look at this sort of thing. The Federal Reserve said, "Additional firming is appropriate." Translating that, yeah, another rate increase, more rate increases. That is slightly different from what they said last month when they said, "Ongoing increases are warranted."

Steve H.: Yes. We've had entire segments.

Steve S.: I know.

Steve H.: ...analyzing, looking at how different economy.

Steve S.: Grammar is important, English is important, yeah.

Steve H.: They have actually stepping analyzed the word...

Steve S.: I know.

Steve H.: ...choices that Chairman Powell uses. And you said it yourself, ongoing increase, that has been used in every single Fed meeting since March of 2022. Ongoing increase. They got rid of that this time.

Steve S.: And analysts, economists, they're looking at that slight little change and they're saying, "Wow, the Fed's backing off." And I'm kind of with them on that because now they're talking about one more rate increase, not two, or three, or indefinite until they get inflation under control. That's good news.

Steve H.: They leave a little bit of wiggle room.

Steve S.: They always do.

Steve H.: Because some words that they changed, instead of saying inflation has eased, they said inflation remains elevated. So, on the flip side of what you just said, I think that leaves the door open for another increase.

Steve S.: But they have to acknowledge inflation is up a little bit.

Steve H.: Just up a little, sounds that way.

Steve S.: Because inflation has been up a little bit more than expected. So, inflation has not gone. Banking crisis, I'm not gonna say is averted, but they made a lot of effort today to say, "There's nothing to see here, the banking system is safe." You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about today's announcement from the Federal Reserve. One-quarter of 1% increase, with likely only one more increase expected this year. So, one thing I wanted to ask you, Steve, is the market has been hoping, and I've heard a lot of people saying, "When does this go the other way? When do rates start to decrease?" And there's a good consensus expecting the Federal Reserve to actually begin reducing interest rates later this year, possibly as many as three times before the end of the year. I didn't see any of that.

Steve H.: Yeah, I mean, that's what the markets are kind of pricing in. That's the information that I'm looking at anyways is further...well, not further, but starting to decrease. Whereas the dot plot, 10 of 18, whether they were hawk-ish or doves on the Federal Reserve Board, they all said that there's potential for another increase, but that they were all in agreement today about the 0.25.

Steve S.: Yeah, but they're not gonna start reducing interest rates this year, at least according to today's announcement. And that's different than what most market analysts are saying. So, that's a little bit of a disappointment. But what I did call out of today's announcement and then Chairman Jerome Powell's comments afterwards, is that the Federal Reserve is marking a reduction in the interest rate, terminal rate, which right now is around 5% or so, dropping that down to 3% by the end of 2025. So, that tells me, okay, if they're not gonna start reducing two or three times later this year, they're certainly gonna be getting to it next year. And that's good news for stock and, in particular, for bond markets. Yeah, I mean, that's why bonds got crushed. What makes bonds go up and down significantly in value?

Steve H.: Interest rate fluctuations.

Steve S.: Exactly. What have we had in the past year?

Steve H.: Quite a few interest rate fluctuations.

Steve S.: A huge increase in interest rates. And it's like a teeter-totter, when interest rates go up, bond values drop. And if you're looking at your 401(k) and you're like most people where you've got a mix of stocks and bonds, yeah, you expect stocks to go down, but bonds usually hold their own. Not last year. So, what we're looking for is, when does the Fed pivot, that's the word that everybody uses, and start reducing interest rates? Maybe we'll see if it's towards the end of this year. The Fed is holding off on making any announcements, but they're comfortable telling us certainly by next year reduction in interest rates. So, that's good news with anybody that has money in bonds.

Steve H.: So, how does this affect banking?

Steve S.: Exactly. And that's what's been screaming at them is, okay, we...

Steve H.: Because that's why they couldn't do that, 100%.

Steve S.: They need to get confidence back in the banking industry. And what they don't wanna see, and this happened in 2008. We were worried about a total financial collapse of the financial system in this country in 2008.

Steve H.: This is not 2008, though.

Steve S.: It's not. But what was happening back then, Lehman Brothers folded and there was something called a credit crunch. And a credit crunch is where there's no money. Money can't move. And the Federal Reserve learned their lesson in 2008, and they wanna avoid that at all costs. And that's why they stepped in and they went into Signature Bank, they went into Silicon Valley Bank, and they insured all the uninsured deposits. And they're doing everything in their power to get that confidence back. Because if there's no confidence in the banking system, you're gonna have some runs on banks. And that's not what they want, and it's not really warranted. Really what I think we've seen lately with the banking crisis is, we've seen mismanagement of a number of banks come to the forefront because they're being stressed with the current credit environment.

Steve H.: We had Chief Investment Officer, Andy Stout, of Allworth Financial. He was on the show on Monday. And, of course, this was a hot topic for what we discussed. Fed has other tools to protect banks, and that's exactly what they're doing right now. But the banks can borrow from the Fed and use their own bonds as collateral as a way to backstop their losses. And that's what they're doing to free up some cash here. So, there isn't this credit crunch that you speak of happened in 2008.

Steve S.: Yeah. And that's important, I think, that they restore confidence in the banking system. And I think today went a long way. When the government says, "Nothing to see here. The banking system is sound." I kind of grin. Because...

Steve H.: Of course, you're gonna.

Steve S.: ...I'm from the government. I'm here to help you. I heard that more than a couple of times. You take that with a grain of salt. But I think, in this case, they really are doing what's necessary to keep the banking system solvent and keep investor confidence, which is, to me, more important in the banking system. And that's why they addressed the banking system and didn't raise rates a 0.5%. Because if they raised rates even higher than expected, why did these banks get in trouble? They took on-demand deposits. Companies putting their money into the money market that they can pull out with zero notice, they can pull out tomorrow. And the banks that got in trouble, were taking that on-demand money that was deposited and buying long-term bonds. And if you have to cash out your investments to get that money back to depositors, when they say, "Hey, give me my money." If you have to sell those bonds at a loss, which is gonna happen when interest rates go up, you got a problem. So, the higher the Federal Reserve would have raised interest rates, the more stress...

Steve H.: The more trouble.

Steve S.: ...that would have put on those banks. So, I think today was a good compromise. That they only raised rates a quarter of a percent, did not shock the markets, and for the banks that are in trouble, didn't make that trouble worse. I didn't think it eliminated the problem, but it certainly didn't exacerbate it. That's the key.

Steve H.: Yeah. I mean, some people, too, are talking. If we're talking about how this could infect the banking industry, some people are talking about potential for increase in regulations. Dodd-Frank is something that came from 2008. Some of those regulations were rolled back in 2018. So, I could see that happening in the near future. But who's to say what Congress or Senate can get done?

Steve S.: Yeah. Hey, and the best news that I heard today, the Fed is looking at 3.3% inflation by year-end. Wouldn't that be nice?

Steve H.: Wouldn't it?

Steve S.: Okay. And they don't just come up with these numbers out of the blue. Here's the Allworth advice. The Fed's decision to fight inflation might have a short-term impact on your portfolio. But always remember, you're in it for the long-term, and history does show growth over time. Coming up next, the costly financial mistake that thousands of people are going to make in the next couple of weeks and how you can avoid it. You're listening to "Simply Money" on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. If you can't listen to "Simply Money" every night, subscribe to get our daily podcast. You can listen the very next morning during your commute, at the gym, wherever you happen to be. And if you think you've got some friends that could use a little bit of our advice, tell them, too. Just search "Simply Money" on the iHeart app or wherever you get your podcast. Straight ahead at 643. We're tackling 529 plans, index funds, and more on our "Ask the Advisor" segment. So, Hruby, businesses, they've got to think when they wanna open up and put a plant or put a headquarters in a new city. One of the biggest things they look for is, does it have a good airport.

Steve H.: How's the airport, yeah?

Steve S.: Can you get in and out of that place? Can we get executives and vendors in and out fairly quickly? And our own airport, CVG, just ranked second best regional airport, not in the country, in North America. Incredible.

Steve H.: I know. Isn't that something?

Steve S.: Yeah.

Steve H.: It doesn't really feel like it when you're traveling sometimes, you don't know when you have it good, I feel like. But good news came out. They are the second-best regional currently. This is according to Skytrax Awards. It's based on survey data that evaluates traveler experience in a bunch of different areas, including check-ins, arrivals, transfers, shopping, security, immigration, all of them across the board.

Steve S.: Nailed it.

Steve H.: And they nailed it. The World Airport Awards, it began in 1999. So, that's when Skytrax launched its first global airport customer survey.

Steve S.: But you know what? We went backwards. We were number one a year ago.

Steve H.: I know.

Steve S.: So, now we're number two, but we try harder.

Steve H.: I actually saw, just this morning that, I don't know which side of the aisle you fall on for Skyline versus Gold Star.

Steve S.: Oh, Skyline.

Steve H.: Well, they're getting rid of the Gold Star, and they're replacing with Skylines.

Steve S.: No kidding.

Steve H.: Maybe they'll be number one again. Maybe that's what it is.

Steve H.: Maybe that's it. But we take this stuff for granted. I'm always talking about when you do any traveling, and not like, I'm a world traveler, but I visit friends, East Coast. I have a kid and grandkids in Arizona, so I'm in and out of a few different airports. Where can you go where you can park your car long-term, 10, 11 bucks a day, get a free shuttle waiting for you as you're getting out of your car to take you immediately right over to the airport? I mean, you don't get that kind of stuff at other airports, and it's pretty darn easy to get in and out of.

Steve H.: Maybe Houston, I guess?

Steve S.: Yeah.

Steve H.: That's what flips back and forth between one and two, Houston and Cincinnati.

Steve S.: Houston Hobby. Yeah, exactly. So, we're not in the category of Dallas-Fort Worth, Atlanta, O'Hare, JFK. This is regional, but still, that's pretty cool.

Steve H.: It is.

Steve S.: Yeah, I'm not shocked and very happy that we're getting a little bit more recognition here in Cincinnati.

Steve H.: I do have to point out, CVG ranked 46 the best airport in the world.

Steve S.: Out of all of them.

Steve H.: Out of all of them.

Steve S.: That's pretty cool.

Steve H.: Down from 38 in 2022. So, maybe the Skyline flip will switch that over.

Steve S.: All right. We're getting into tax time, and a lot of people are making contributions to their IRA before the April tax deadline. So, we're talking about contributions for last year. You can make contributions for 2022 in your IRA right up until the April tax deadline. But you know what? There's something important you should know because a lot of people are making the contributions, but they're missing one important step.

Steve H.: Yeah. A lot of folks that I've worked with, I've come across this over my career, that important step is if they don't make a decision with how that money is invested, it's gonna sit in a deposit sweep. That's not a money market. That is a cash position that does not fluctuate. The value stays at a dollar.

Steve S.: Yeah. And the interest rate really high, I imagine, on that, right?

Steve H.: Yeah, about nothing.

Steve S.: Yeah, exactly. I met with someone that walked into the office, this is a couple of years ago, and they showed me a statement from a very well-known mutual fund company. And I saw $17,000 in an IRA in a money market. So, $17,000 means they made at least 2, probably 4, maybe more contributions and never invested the money. So, over all of those years, that money has been basically sitting there earning almost zero. I mean, literally almost 0% interest. And from their perspective, I don't know, I put the money in an IRA, that's what I'm supposed to do, right?

Steve H.: Exactly.

Steve S.: Missing the step. What should you be doing?

Steve H.: Well, first of all, I wanna point out that Fidelity is one of the largest retirement account custodians. They actually estimated that about 40% of those with an IRA some...

Steve S.: Forty percent. Wow.

Steve H.: Forty, four-zero, 40%. Don't take extra steps to actively invest their funds. So, the next step is actively investing in funds. You have to choose something. Work with a trusted advisor, whatever that might be. You do not want to sit in cash.

Steve S.: Put into something.

Steve H.: If you're sitting in cash, inflation is gonna eat those dollars alive. On average 22 years, the value of the dollar gets about chopped in half.

Steve S.: Okay, well, I call it going broke safely.

Steve H.: Yeah, exactly.

Steve S.: We're in cash, we're getting maybe in your money market you're getting a 0.5%, 1%. But if inflation is 3%, 6%, it's not buying as much. You're going backwards.

Steve H.: No, your purchasing power goes down fast.

Steve S.: You're going backwards, and that's the key. So, if it's a conscious decision, "I don't wanna invest the money right now." Okay, I guess I get that. Just remember to reevaluate every couple of months or so. But if you think, "I sent the check, that's all I'm supposed to do, right?" No, it's not going where you may think it was going, and you may not be earning anything and may not be doing what you expect. I'll tell you another one I found is this time of year, you get a lot of people that are making last-minute contributions for last year's IRA and they forget or just don't bother to put what tax year goes on that check. So, in other words, if you wanna make a contribution in your IRA for 2022, up until tax filing time, you don't write anything.

Steve H.: You have to specify it.

Steve S.: Yeah, because they're going to credit it to this year, most likely, right?

Steve H.: You have to specify it. If you don't, you can be shutting the door on additional contributions from the prior year. Think about all the people that made this mistake during the pandemic, too, and the gains that they missed out on, if they just made that deposit, sat in cash, did nothing, whatever that might have been lack of knowledge, analysis, paralysis, whatever it might be.

Steve S.: Yeah, exactly. You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about IRA contributions before tax filing deadline. So, what are the limits that you can put into your IRA for 2022?

Steve H.: For 2023, it's $6,500, $7,500 for those over the age of 50. For 2022, $500 less.

Steve S.: Okay, so we did get a bump up if you're making contributions for 2023. So, keep in mind, everybody, if you're putting money into your IRA, not just put the money into your IRA, but make sure you go ahead and call that 800 number, call your advisor, and get that money invested because, otherwise, it's going to just sit there in a money market earning next to nothing. Here's the Allworth advice. Make sure you proactively choose how your IRA contribution will be invested. Otherwise, it sits in cash, which could hurt you in the long run. Coming up next, Amy is joining us next to talk about the concerning trend of investors taking over the real estate market. You're listening to "Simply Money" on 55KRC, THE Talk Station.

Amy: You're listening to "Simply Money" brought to you by Allworth Financial, I'm Amy Wagner along with Steve Sprovach. There's been so much talk in the real estate market over the past few years about multiple offers, and how difficult what it is if you're trying to buy a house to really get one. Well, what if you fell in love with the house multiple offers, and one of those people doesn't really wanna live in the home, they're investing in it so that they can rent it out to other people and make money. Yes, this is happening right here in Cincinnati. Joining us tonight to explain what's happening and how it could affect you, of course, our real estate expert Michelle Sloan. You can catch her show right here on 55KRC every Sunday afternoon. Sloan Sells Homes, owner of RE/MAX Time.

Michelle, I've talked to several people who have been in this place, right? They fall in love with a house, they're pre-approved with a bidding war, and it can be incredibly frustrating. But you're telling me you could be bidding against someone who has no interest in living in Villa Hills, or Mason, or Sycamore, you name the area. They're really just interested in investing in the home to make some money off of it.

Michelle: Yeah. Big corporate investors are spending millions and millions of dollars. Some of these investors are not even in this country, but some of them are in California. And they realize the real estate market in Cincinnati is so affordable. Now, we live in this bubble, so we may not think it's so affordable, but if you consider that the average home in Cincinnati is less than $300,000, the average home in California is over a million dollars. And so square footage for square footage, they're thinking, "Oh, my gosh, this is pennies on the dollar." And so investors are buying homes and scooping up homes. And they have been, in this market for the last three, four years, for sure, but buying dozens of homes. There are a few investors from outside of the Ohio area, and Kentucky, and Indiana who are buying dozens and dozens of homes, and then turning them into rentals. And so the face of our neighborhoods are definitely changing. And a lot of our people that would be buyers are being shut out because they are losing against these big corporations.

Amy: So, let's start there. What do buyers need to know about this? Because especially you think about, I don't know, first-time home buyers, they scrape together everything they possibly can for that down payment, and then you're bidding against a cash buyer?

Michelle: It's tough. And that's a conversation that I like to have with my sellers, is like, you have to understand there's a good possibility that you're going to have a family who wants to come live in this home. And in our contracts, it says, "Are you planning to live in the home or are you planning to use it as a rental?" So, that's the first thing. When we get our contract, we're going to look at that. Some sellers are like, "I don't care who buys it as long as the cash is green and I can get it quickly, and they're paying me a fair price." But then there are some sellers who are like, "Michelle, if I get any offers from an institution or an investor who has no plans of living in this home, and they're going to change the face of this neighborhood that I have loved and lived in for 20 years, I have no interest in that. I'd rather sell it to somebody who's going to live in it, have a family, do the things that we would do in a home." So, it's an interesting dilemma. And you don't know as a buyer what the seller is thinking.

So, it really doesn't matter if it's a cash offer. Let's say the house is listed for $300,000, and the cash offer comes in at $300, but you, as a normal person...not normal, a non-institutional person, you plan to live in that home, you're gonna occupy it. You come in at 305, okay, I'm gonna be pushing my seller to look at the 305, even though they need a mortgage, even though they want to go through the process of getting an appraisal and doing inspections, and things like that. Because in the end, Mr. and Mrs. Seller, you're gonna get $5,000 more. And you may have to wait, and we may have a couple of hoops to jump through. Maybe you'll have to do a little bit of...a few repairs or something. But in the end, everybody wins.

So, there are a lot of investors now that are spending more than list price to get homes, but it's usually a formula. For a lot of investors and companies that are buying homes, it's a formula. So, they'll only pay an amount that they know that they can get back with interest, and have just some income based on that rental property. So, for the investors, the mindset is completely different. For buyers, obviously, the mindset is also very different because they're just looking for a place to live. And one other thing, Amy, this is the one thing that just absolutely makes me crazy. Right now, in America, we have a deficit of 4 million homes. We need 6 million homes just to fulfill the need that we have of buyers right now. So, that's what we're looking at for the next... I mean, we're not going to be able to get past that for many years.

Amy: Yeah. So, we have this huge deficit, but we're not only competing against each other to buy these homes. Now, we're competing against institutional investors.

Michelle: Correct. Absolutely. And it's thought that in the next couple of years, by 2030, institutional investors will make up 40% of the U.S. family, single-family homes. So, that's a lot. And there's a lot of concern out there that these institutional investors, these companies, these corporations are gonna be helping tell the tale, really, and making sure that they're forcing pricing and they're making sure that they can do what they need to do to make the money that they're planning to do. So, it's not always good for just the general homeowner.

Amy: Well, you mentioned, and I think this is a really powerful way to look at it, kind of changing the face of our neighborhoods. If I'm moving into a neighborhood or I've, to your point, lived here for 20 years, and now we're moving because the kids have grown up here. When I look around the neighborhood, I see where my kids used to ride their bikes and where they used to go to the park.

Michelle: It's emotional, right?

Amy: Yes, it is. And you feel an investment in that community whether you're staying in it or not. You sell that home to someone who lives in California or Timbuctoo, name the place. They don't care. All they care about is making a profit. So, it doesn't matter who moves into that house to them, or if they cut the grass, or if they keep it up. And I think this is so interesting because it's really, I think, for most of us, when we think about real estate, we think about other people, not investors buying these homes.

Michelle: Exactly. Now, they may be very, very nice people who could not afford that home otherwise. You know, people who are renting, we're not putting people that need to rent for whatever reason down for any reason.

Amy: Not at all.

Michelle: You're right. Sometimes these institutional investors, companies, they don't take care of a property, and renters don't take care of a property as nicely as you would as an owner.

Amy: It's yours. Yes, you're paying the mortgage on them. I think a lot of people end up feeling a little bit differently about that. I wanna ask you, Michelle, 10 years ago, 5 years ago, was this a thing you were seeing?

Michelle: No, not really. It just started with the Great Recession. So, probably about 10 years ago, that's when corporations realized, "Okay, there are extreme opportunities."

Amy: "There's money to be made here."

Michelle: So year after year after year, they've realized that this is an opportunity to make money, and it is changing the face of real estate. There's no question about it. And so we do need more homes to be built, and we need to think about, if you're planning to sell, who do you want to sell to? Is it all about the almighty dollar, or is it about who's going to be living in that home?

Amy: Eye-opening, Michelle, I think, for a lot of people, they probably hadn't heard about this or considered it before. But according to that stats, right, 40% of single-family homes will soon be owned by corporations, not individuals. Making decisions when we're buying and selling these homes about who we're selling to can make a huge difference. Thank you to Michelle Sloan, our real estate expert, as always with such great insight. You can listen to her every Sunday here on 55KRC. You can find her RE/MAX Time. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

Steve S.: You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. Straight ahead. The eternal question, can money buy happiness? We have some new information on that age-old question. So, if you've got a financial question you'd like for us to answer, there's a red button you can click while you're listening to the show on the iHeart app. Just record your question. It does come straight to us, and we do listen to that. Might even put you on the air. Right now, we're gonna go to "Ask the Advisor." Our first question comes from Ronnie and Meredith in Milford. And, Steve, Ronnie and Meredith say they've got a 529 plan set up for their son with about $75,000 in it. So, good for them. They put a lot of weight for their kid to go to college, except he might not end up going to college. What can they do with that money? They wanna know, has it been wasted?

Steve H.: Oh, there are so many options. First, good job. Obviously, setting aside $75,000 for college is a big deal. Don't worry. First of all, it's transferable, a 529. It's easy enough to change the beneficiary on that. Meaning, if there's a sibling...

Steve S.: The parents control it.

Steve H.: Yeah, they do. They do. So, a sibling, a niece, a nephew, a grandchild, even yourself, you can transfer that to yourself and use it for qualified educational expenses.

Steve S.: Yeah, not taxable.

Steve H.: Yeah, not taxable. The tax-free gains is one of the main benefits of the 529. And you don't have to lose it. There's a couple of other things you can do. Those dollars, they don't have to go towards a four-year university. You can use them for two-year community college, trade school, technical, vocational school, certificate program, apprenticeship, the list goes on and on. And then there's changes to Secure Act 2.0.

Steve S.: That's kind of neat. And they're still working out details on it. But you can transfer up to $35,000 into a Roth IRA in your kid's name. There are strings attached to it. Don't just do it. Talk to a tax advisor on that one, because it is a little complicated, but it's an option. So, the bottom line is, no, you did not waste it. If you wanna make sure the kid gets the money, he can still use it for other purposes. If you say, "Hey, we did that for college and we're not happy with you, we're gonna give it to your sister or our niece, or we're just gonna keep the money because I might go to grad school, or I might decide to learn how to weld." Those are all things that you can do with 529.

Steve H.: I heard a story once of somebody that used it to take golf lessons on a cruise ship. So, talk to a tax advisor about that one.

Steve S.: Yeah, I'm sure of that one.

Steve H.: It's not my recommendation, but I've heard of that.

Steve S.: Funny. All right. G.R. in Wyoming says his brother lives out of state, and he and his brother both have the same Medigap plan, "But his costs less than mine. How can this be?" Two identical Medigap plans, one's paying more than the other? What's up with that?

Steve H.: A couple of simple answers. First is, it's standardized plans, but depending on cost of living in the state you live in, they will be a...

Steve S.: A different costs.

Steve H.: Yeah, different costs, different cost of living. Several states, they also use something called a community rating system, which means that there's no difference in premium between whether or not you're male, female, whatever age bracket you're in. They create a level premium across the board, which does drive up that price for everyone else.

Steve S.: Sorry, G.R. Find something else to worry about. Different people pay different rates for the same plan in different states. All right, Joe over in Edgewood, I like this question because it brings up some interesting points. "How many individual stocks is too many before you should just buy an index fund?" Joe's advisor keeps wanting to add more individual stocks with their IRA contributions, and some of the money that they're rolling over from their CD ladder. So, they're going from CDs into individual stocks. When should you get away from individual stocks and buy an index fund?

Steve H.: I mean, there are so many different thought processes on this. In CFA Institute, if you have a large cap portfolio, they say...I've seen different numbers. They say, 15 stocks for a small cap portfolio, 26 stocks, all world 30. I ask why?

Steve S.: That's where I'm at on this. Why is he putting you in individual stocks? Is he earning commissions? In which case I've got a little issue with that. We like fee-based planning. Okay.

Steve H.: Exactly.

Steve S.: Is he making money every time you're buying and selling? That's my question. I guess I would also wanna ask, if one of those companies goes bust, if you've got the proverbial Enron in there, is it gonna matter? Is it gonna be a big deal to you? Probably.

Steve H.: It would be. You'll feel it.

Steve S.: All you need is one stinker. So, I'm not a big fan of individual stocks, especially with IRAs and long-term money. Index funds are boring, but there's a reason they're popular.

Steve H.: Yeah. Why try to beat the market when you can put it in an index fund? It's low cost. It keeps up with the market.

Steve S.: Exactly. Okay, quickly, Steven Cleaves wants to know, "What do I need to consider when deciding whether to take Social Security early or wait until I'm 70?"

Steve H.: Is Steven Cleave still working? If he's still working, then he probably doesn't need to take it. You don't wanna pay taxes on it if you're earning too much money. Cash flow needs, life expectancy. There's a break-even point eventually that happens in your late 70s if you collect later on in life versus early. And I'm a fan of getting as much back as you possibly can from Social Security. So, if you don't need the money, you probably wanna defer it.

Steve S.: Yeah, you might wanna defer it and get a bigger chunk of money. The longer you wait, the more you get. But I think the question is appropriate, are you retired, retired? Because if you're under full retirement age and go back to work, anything over about $21,000 a year is going to hurt you. They're gonna reduce your benefit. Coming up next, a new look at whether money can buy happiness. You're listening to "Simply Money" on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. You know, it's a question, Hruby, that's been debated for years, can money buy happiness? And believe it or not, there's a study out there where they scientifically look at this question.

Steve H.: A couple of studies, actually. Nobel Prize winners Daniel Kehneman and Matthew Killingsworth of the University of Pennsylvania, they re-examined an old study that they themselves did on the issue and concluded with no surprise, generally, more money means happier people.

Steve S.: Imagine that.

Steve H.: I know, right? Who would have thought? It's the easiest study in the world?

Steve S.: But I've seen people that are very well off, and they're miserable.

Steve H.: There's gonna be outliers, of course.

Steve S.: And the number actually works out to about 20% of people. I don't care what you do for them. They're not happy. I mean, it could be clinical depression or something like that, or loss in the family, but some people are never gonna be happy. But for the other 80%, yeah, you have more money, you have less worries, you are happier.

Steve H.: Yeah. Those that disagree with it have never been broke, is what I would say, because money can make some of your problems go away.

Steve S.: But my question is, is this a chicken and the egg situation? Do people with a good attitude, happier people, are they more successful in life? And they really didn't get into that.

Steve H.: No, they didn't. They didn't. The participants in this study, it was self-reported, but what we can say is that the figures rose in a straight line with their income without stopping at any particular income threshold either. So, the happiest 30% were those that earned more than $100,000 per year, and it was a straight line. Happiness went up.

Steve S.: But people that earned $200,000 were twice as happy, $300, 000 three times as happy.

Steve H.: The old study was $75,000 was the magic number that you needed to earn. Yeah. Anything above that was just extra money. The amendment here, of course, to this study is, more money means more happiness.

Steve S.: Shocker.

Steve H.: With those... I know, I can't believe it.

Steve S.: But there's still, and I have a relative that's like this, "As soon as I get that new dream car, I'm gonna be happy. Life is gonna be good." And you know what? I found people that look for material things like that, it doesn't matter because there's always something else you can buy.

Steve H.: That's true.

Steve S.: But when you get away from financial worries, for most people, that's where the arguments come from in a family.

Steve H.: Yeah, financial worries, I think, is the key here. You bring up a good point because if you can't afford to pay your bills and you have credit card interest piling up, that stuff's not gonna happen. If you're making more than $200,000 a year, hopefully. I mean, there are people with lifestyle creep that live above their means, and these are some of the people that are probably outliers here.

Steve S.: Yeah. The overall takeaway is that, and like the old adage says, people generally do become happier as they make more money. And the happiest people tend to enjoy life as they climb the income ladder more than the average person, you and me. Hey, thanks for listening. Tune in tomorrow. We're gonna talk about overconfidence and how it can cost you thousands. You've been listening to "Simply Money," presented by Allworth Financial on 55KRC, THE Talk Station.