Steve S: Tonight, inflation cools some more. And debt ceiling talks? Yep. They go nowhere. You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. Okay, Hruby, let's start with the inflation data from April that came out this morning. No real surprises, but not exactly what we were hoping for.

Steve H: Yeah, I mean, it started out with headline inflation, and that did ease 4.9% in April, which is because of the economy showing signs of cooling.

Steve S: Yeah.

Steve H: We're reaching for that 2% target, so there's still some headway in front of us.

Steve S: Yeah. We got a ways to go, but, you know, it's better than...last summer, it was over 9%.

Steve H: Yeah.

Steve S: So, we've come down a heck of a long way. But, you know, here's the thing that bothers me. Okay, the numbers come out, market goes up drastically, and then goes down. You know, it's almost as if, all right, we wanted to see numbers. All right. These are pretty good, but you know what? As we dive into it more, not quite what we were hoping for. I think investors were really expecting to see even lower numbers, but there's a lag time. I mean, the Federal Reserve, just last week, did another increase of a quarter of a percent. And if it takes six, seven, eight months for an increase in interest rates to work its way through the economy and show up as lower inflation, we got six or eight months to go. I mean, this is not immediate.

Steve H: That's why not seeing it move up will have that positive effect on the markets. That's obviously good-news-is-good-news-type territory. We've been saying good news is bad news for a while. Bad news is good news. And Andy, chief investment officer of Allworth Financial, he ended his segment on Monday this week with saying, you know, with the interest rates potentially...

Steve S: Potentially.

Steve H: ...stopping. Potentially stopping, we may move into territory here where good news is good news once again.

Steve S: Yeah. So, the numbers, here, I mean, here's what it boiled down to. The headline inflation rate, okay, dropped from 5% to 4.9% for last month. That's year over year. Core inflation also dropped. That's where you cut out... And it's not that we don't use gas or eat food. It's just those are real volatile components, and you wanna get rid of, you know, these huge swings, and see what the trend is. And same thing, core dropped a tenth of a percent. Not quite as much as, you know, people were hoping for, but it's still a step in the right direction.

Steve H: Yeah. And again, core inflation, economists see core inflation as a better predictor than headline inflation, because of the volatility of energy and food prices. One of the sticking points though at this point is shelter. So, shelter is extremely expensive right now, and that has an additional lag time on top of it, too, because it takes a while for mortgage applications to process, rental applications sometimes.

Steve S: Exactly.

Steve H: So, that's a sticking point, that there's some optimism that those numbers are gonna continue to fall, just like the rest.

Steve S: I don't see any big surprises. I mean, you wanna talk lag times. If you're gonna sign a lease, and rent an apartment or rent a house, it's generally a one-year lease. So by definition, that's a one-year lag time. So I see that being the last domino to fall, but the dominoes are slowly falling. I don't see a big change in inflation all of a sudden heating up again. It's just not coming down as quickly as the optimists would like it. To me, that's not a problem.

Steve H: No, it's not. Because, again, we're trending in the right direction. Which is why the markets have, you know, seen these bumps, even though it wasn't a big dip in inflation. We're talking a tenth of 1%. It's not trending up. It is trending down.

Steve S: You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby. And, okay, we got the inflation numbers in today, better, but not as good as hoped. Okay. I'll take that. I'll take that as a win. But let's talk about something that's a little bit more serious. The debt ceiling.

Steve H: Yeah. The debt ceiling.

Steve S: And this is something that, you know what? I'm usually the voice that says, "Oh, don't believe everything you hear on cable TV. It's not as bad as some of those guys are saying." This could be bad.

Steve H: It could be. I mean, yesterday, Biden and House Speaker Kevin McCarthy, they did, you know, sit in the White House and have a meeting. And of course, no surprise here, they accomplished absolutely nothing. That's disappointing. Maybe it's because I'm a little younger. I still have that optimism, that hope that they're going...

Steve S: Oh, I'll break that down.

Steve H: Yeah, probably. You know, just being alive for a couple more decades will break that down, I guess. But, you know, we've never defaulted on our debt before.

Steve S: Right. Right.

Steve H: And if we do, it's absolutely catastrophic.

Steve S: Oh, it is.

Steve H: So, all this stuff you're seeing out there, it is correct, to an extent. If. If we default, and I'm hopeful that we're gonna come to an agreement on both sides of the aisle, and they're gonna take action.

Steve S: All right. So, let me give you a hypothetical, okay?

Steve H: Sure.

Steve S: You're married. Okay? And I'm sure your wife is great with money, but let's just say she's got a credit card that's in your name, with a $15,000 credit limit, and she's the only person using that credit card, and she ran it to the max.

Steve H: I don't like this hypothetical, Steve.

Steve S: Hang on. I'm not done yet.

Steve H: Okay.

Steve S: Okay?

Steve H: Does this gets worse?

Steve S: So, she comes to you and says, "Hey, sorry I maxed it out, but there's this $500 pair of shoes that I've gotta have. I need you to call the credit card company and increase the credit limit." Would you say, "Sure. Why not?" Or would you say, "Hey, maybe let's talk about this, and let's talk about do you really need those shoes? Or maybe there's a hundred-dollar pair of shoes that would be better?"

Steve H: Or the shoes you already bought.

Steve S: Okay? This is where we're at, with this country. Okay? And you might only be making the minimum payments. So, okay. The national debt, it's a big number, and once you get into, you know, billions and trillions, I don't think anybody has a real good handle on, okay, is that bad? Is it good? It's just a big number. I have no concept of what $34 trillion is, or whatever the current national debt is. But I'm gonna give you some numbers. And here's why we do have to address...and this is not political. We do have to address the growth in the national debt. The highest... Treat is as a percentage of gross domestic product, okay?

If you take a look at how big the economy is in the United States, okay, the worst we've ever been with national debt was after World War II. Major World War, okay?

Steve H: Which makes sense.

Steve S: Yeah, exactly. So, in 1946, yes, our debt ballooned in this country to 119% of GDP, of gross domestic product. Prior to that, it was normally 30%, 40%. Okay. Politicians got together, the war's over, and let's start bringing the national debt down. And they succeeded over the next 10, 15 years, after World War II, to get the national debt down to 30% to 40% of GDP.

Steve H: That's when you were in high school, right?

Steve S: Don't go there. Don't go there. Okay? So, okay. Even during the Reagan years, when Reagan cut taxes and everybody was saying, "Oh, you know, this is voodoo economics. You can't cut taxes and still expect the national deficit to stay where it is." We were between 30% and 40% of GDP with our national debt. We are back up, not just to 119%, we're back up to about 123%.

Steve H: Which is the worst it's ever been.

Steve S: Yeah. We have never had more national debt as a percentage of the economy as we've got now. And that's why I think you cannot say, "Yeah, don't put this national debt as a hostage. You just have to increase the debt ceiling. Just do it." I think we have to pay attention to, all right, maybe we need to cut spending, or at least cut the growth in spending a little bit, to get the national debt under control. Because it may be outta control.

Steve H: And that's precisely the argument that's happening. House Republicans, they demand deep spending cuts in exchange for raising the debt ceiling. Whereas over the past many administrations, arbitrarily, that debt ceiling has just been raised.

Steve S: They just raised it. Yeah, yeah.

Steve H: So, at some point, with the ratio that Steve's talking about here being higher than it was post-World War II, yeah, I agree that action needs to happen. And I'm still hopeful that it will.

Steve S: And everybody knows, and I'm talking about everybody in Congress knows, it has to be fixed. It has to be accomplished. They cannot afford to let this country to go into default. It's a super high-stakes game of chicken, is what it boils down to. And they're still trying to score political points. Here's the good news out of yesterday. The good news is, they met, they didn't accomplish anything, but they agreed to meet again Friday. And in the meantime, over the next couple of days, staffers are getting together to negotiate.

Steve H: And actually having conversations.

Steve S: Well, at least they're talking, okay? Communication is the first step to solving problems.

Steve H: Yeah. And, you know, I would say, Biden, he did come out and say that, you know, we should expect some additional politics, posturing, gamesmanship.

Steve S: Yeah.

Steve H: I don't like that part at all, because...

Steve S: No. It's still posturing.

Steve H: ...that's what creates the noisy headlines that can be risky to people's entire financial future. So, let's...

Steve S: So, this happened in 2011, and people have forgotten about this, but it happened in 2011. By the way, Joe Biden happened to be the vice president, happened to be right in the middle of the negotiations when we were in the exact same situation. And dynamics were the same. Here's what happened in 2011, okay? The parties that were talking couldn't put a deal together, so the Senate and House, each on their own, negotiated, and they put a deal together and put it on President Obama's desk, and he really didn't have any choice at that point...

Steve H: Nope.

Steve S: ...because we were within 72 hours of a default. And just getting that close to a default, and putting a deal together, just getting that close, caused the first downgrade of U.S. debt in history.

What does that mean? Is that a big deal? Well, it means you pay more interest. It's just like if your credit score is low, if you go out for a mortgage, you're gonna have a higher interest rate you're gonna have to pay. Same thing for this country, and that's what worries me. The other thing that happened is stocks nose-dived as we got closer and closer to the debt ceiling standoff, to being out of time for extraordinary measures, the S&P 500 dropped 19% over the course of a couple weeks. Now, they put the deal together, and it went right back up. But it caused a lot of volatility in investments.

Steve H: So, how should we react?

Steve S: Well, you know, that's the point. If you reacted in 2011, if you just cashed out and said, "Wow, if they're going into default, I need to sit on the sidelines of cash," by the time you decided to get back in, it was probably too late.

Steve H: Exactly.

Steve S: Because when you see a rebound off of a sudden drop, usually it's a sudden rise when whatever the news that didn't go bad caused markets to go back up. You know, that's market timing. And you're gonna miss some of the big swings if you do that.

Steve H: We don't have a crystal ball. We don't know what will happen for sure, other than the fact that...and I've used this thing before, and I'm gonna continue to use it because I like it.

Steve S: What's that?

Steve H: The stock market is like walking up the stairs while playing with a yo-yo. The noise that we hear, the volatility that is on the horizon, it will stay there for the rest of our lives. But if you keep walking up those stairs, you're gonna be better off than where you started. So, when you listen to the noise, and you make an emotional reactions to, and decisions...

Steve S: Yeah. Which sound reasonable. [crosstalk 00:12:19.258] real reasonable at the time.

Steve H: They sound reasonable at the time. There's always...you know, depending on what you're looking at, there's always reasons to sell and not be in the market, be on the sidelines, and wait till things are better. But if you keep looking at those same headlines, things will never appear to be better. So just focus on the long term.

Steve S: This sounds weird, but I think volatility should be your friend. Okay? Especially if you've got some money on the sidelines. If there's a dip in prices, or a substantial downturn in prices, and you've got money that's only, you know, making, you know, piddly amounts of interest at the bank, that is long-term money, that you can invest for more than two or three years, you could always use that to your advantage.

Steve H: Conversely, if you're still saving, if you're still working, and you have your 401(k) and you're putting in contributions from your paycheck, and your employer's matching those contributions, volatility is your friend because it gives you an opportunity to buy low.

Steve S: Here's the Allworth advice. The headlines are really noisy right now. Do not make any financial decisions based on fear. Coming up next, the lessons to learn from the really, really rich, and we're talking about their mistakes. 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. Hey, if you can't listen to "Simply Money" every night, just get our daily podcast. You can listen to it the morning after we air, while you're commuting, at the gym, whatever you're doing. And if you've got some buddies that can use some financial advice, tell them too. Just search "Simply Money" on the iHeart app, or wherever you get your podcasts.

Straight ahead at 6:43, dividend stocks, Roth conversions, more. It's our "Ask the Advisor" segment, coming up. Okay. So, Hruby, we've been talking about crypto an awful lot over the past year. We've warned people not to make it part of their portfolio. Why? Because there's not a lot of regulation, and a whole lot of questions. Now we've got some studies proving so.

Steve H: Yeah. Not a lot of history of success, but a study done by the Pew Research Center. This is based on a poll of about 11,000 U.S. adults, or...

Steve S: Yeah. This is not a small sample size.

Steve H: Yeah. And this is just last quarter. Seventy-five percent of the respondees who say they've heard of cryptocurrency are not confident in the current ways to invest in it, trade with it, or even spend it.

Steve S: Yeah. Yeah. I mean, this is good. By the way, Pew Research Center, that's one of the real ones. This is not one of those, you know, headline, you know, meme-type things. They do some hardcore research, and I was kind of encouraged by this, because there is some real risk in cryptocurrency. And it seems to me the vast majority of people feel the same way.

Steve H: Yeah. I mean, recent revelations, that is, in corporate mismanagement, thinking about FTX. Sammy Boy, your buddy Sam Bankman-Fried, and all of the lawsuits there. A lot of negative publicity. The continued volatility. These are reasons why investors are rightly concerned. And at this point, the study did also show that 17% of U.S. adults say they have invested in cryptocurrency.

Steve S: Okay. And that sounds about right with what I've heard. So, yeah, until there's more regulation, please stay away unless this is money you can absolutely afford to lose. Okay. So, there are people out there, there's the wealthy people, there's the rich, and there's super-rich. I love Groucho Marx's comment, and we're going back a long way on this, but he said, "Oh, yeah. Yeah. Rich people, they're different than me and you. They've got more money."

Steve H: That's a good way to look at it.

Steve S: And we're talking about people... Okay, you can hire an investment advisor. You can, you know, be one of the large clients at a very well-known firm, but the super-rich people, they have something called a family office. That's where basically, you own the firm. Their only reason for existence is to not just invest your money, but to handle your taxes, strategies, your... Everything you need to do with money, that's what they come into work every day for, is to address your needs and your family needs, and no one else.

Steve H: Yeah, the goal is to create multi-generational wealth for these family offices. Oftentimes they have $100 million asset under management minimums. So, these are the extremely wealthy families that partner with these family offices, as they're called. And Goldman Sachs did a study of 166 family offices. More than 90% of these, by the way, were holding over $500 million in assets for their clients. And bluntly, the rest of us can probably do a lot better with a lot less money. These people are making bad decisions.

Steve S: Well, and I think a big thing that some of these people like to do is go to the club, you know, go visit their friends and say, "Hey, I got a guy. And here's what he's doing. Hey, I'm in this hedge fund. I'm in things that average people either don't, can't invest, or have decided not to invest in." And they like being able to say things like that. But you look at some of these hedge funds, and, you know, for the most part, they're not doing that great.

Steve H: Yeah. It makes me wonder if really what some of these ultra-wealthy individuals and families are paying for is bragging rights.

Steve S: Well, yeah. I think there's some truth, yeah.

Steve H: Yeah. It's a talking point about being able to invest in these things that you can't, and even some really speculative stuff out there too, like digital assets, and but beyond cryptocurrencies, what we were just talking about. There's the non-fungible tokens, NFTs, other electric baloney. These family offices are helping these individuals and families invest in these types of strategies.

Steve S: You can get into a whole separate category of investments, again, that most...the average person hasn't been involved in, if you're something called either an accredited or a qualified investor. And back in the old days, that used to be, wow, these are rich people. But, you know, if the definition hasn't changed, it's easier and easier to qualify. So, okay. You know, $300,000 a year for a married couple.

Steve H: Income.

Steve S: Yeah. Of income. Not many people qualify for that, but a million dollars in assets, separate from your house, you know? That's the same number it was at in the '70s. So, you know, what does that mean? Okay. If you're a qualified investor, that has over one of those two, either, you know, $300 grand a year in income, or over a million dollars in investible assets, that means you are now allowed to invest in unregistered securities. These are partnerships. These are things that, you know, don't, they're not traded publicly. They're a completely separate and potentially super-risky asset class. And I think that's where some of these people get tripped up.

Steve H: Yeah. I mean, the flip side to it is, candidly, those investments can perform very well, because you're taking on more risk. Higher risk can mean higher reward. But these hedge funds that a lot of these families are investing in, they returned a total of 17% over the past five years.

Steve S: Yeah. That's total. That's not per year.

Steve H: Yes. So, total. That is not great. And a lot of these family offices that they've been selling stocks during a bear market. Why? If you're investing for the long term, do what the rest of us do. Focus on the long term. Don't sell when the markets are down. You buy low and you sell high. That's the goal.

Steve S: The hare and the tortoise. The tortoise always wins. Here's the Allworth advice. Don't ever compare yourself to what other investors may be doing, because they could be making bigger mistakes than you expect, regardless of how much money they have. Coming up next, the steps to take so you don't have to ever owe anyone any money. You're listening to "Simply Money" on 55KRC, THE Talk Station.

Steve S: Imagine a world where you don't owe anybody money. If you're already there, congratulations. If you aren't, not all debt's the same. And joining us today is Al Riddick. Al is the founder and president of Game Time Budgeting. You know, sometimes we go to the gym to build muscle. He runs a financial fitness company, to build wealth, right here in Cincinnati. Al once had debt in the six figures. That's all gone. Al, welcome. And I've gotta ask you, I mean, that's incredible that you've gone from six figures of debt to zero. What made you make that decision to get rid of your debt? Did you just say enough is enough?

Al: Yes, sir. So, just to keep a long story very brief, my wife and I, throughout our marriage, we reached a point where we decided that we needed to buy our lives back. And in order to do that, of course we had to pay off the people that we owed money to, because whether or not you want to admit it, everybody you owe money to, they own a little piece of you. And that does not feel good. So we sat down together, we put together a game plan where we could pay off the student loans, the car payments, the credit card debt. And we even paid off the house as well. So, as of December 21st of last year, we celebrated 15 years of debt-free living.

Steve H: Hey, congratulations. Nice job.

Steve S: That's incredible.

Al: Thank you.

Steve H: I bet there's some people who would have a difficult time believing there are any downsides to debt-free living. Care to elaborate, Al?

Al: So, for me, one of the first things that I noticed is that you can't...or it's very challenging being as carefree as the average American, right? So, once you discipline your mind to live debt-free, I think you spend a little bit more time thinking about the short-term and long-term effects of your financial decisions, because money is so top-of-mind when you choose to live debt-free. Now, I have another example for you as well. So, when it comes to the excitement of, like, a big-ticket purchase, like a new house or a new car, you don't enjoy that excitement as often. So, as an example, my wife's car, gentlemen, is 23 years old.

Steve S: Nice. How old is your car, Al? That's the question I've got.

Al: And it's still running. I think mine is, like [crosstalk 00:22:41]

Steve S: You get a new one every two years.

Al: [crosstalk 00:22:43] So, before the pandemic hit, we had made a decision that we were gonna replace my wife's car. But after the pandemic, she started working from home, so the car basically just sat there. But the funny thing about debt-free living is this. We had a budget that we had kind of agreed to, years ago, when we decided to make the purchase. But now that amount of money has gone up by $10,000 because my wife kind of increased the amount of money that she wanted to spend. But it's really not that big of a deal because I was kind of anticipating that. But when you choose to live debt-free, that extra $10 grand that we're gonna spend on a car, I think you feel it more, because we're talking the one-payment plan, you know?

Steve S: Yeah.

Steve H: That's interesting.

Steve S: Yeah. Well, you brought up something interesting. You said, "my wife and I." You can't do this in a marriage, just one person committing to it. You've gotta both put your heads together and say, "Here's what we're doing. Are you on board?" And this is a tough process. Did you have any issues when you had these discussions about bearing down and getting rid of the debt?

Al: So, because we've been living debt-free for so long, I know we had issues, but I just don't remember the specific issues. But I can tell you this. Any time you go into a marriage, you have to think about the fact that you're coming to the table, or one spouse is thinking that they are 100% accurate about their thoughts and beliefs as it relates to money. But we forget that the person we're marrying, they may think the same way you do. And obviously, both parties cannot be 100% accurate.

So, my wife and I, through a series of discussions about the way she felt about money, and where we wanted to be eventually where we retired, we came to the conclusion that we just had to create a system with money that worked for each of us, so that we could feel happy about the result, while also sharing in some of the experiences that brought joy to our lives. Does that make any sense?

Steve S: Yeah, it makes a ton of sense.

Steve H: Sure does.

Steve S: You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking with Al Riddick about how to live a debt-free life. And Al's living the dream. You know, it's easy to talk this talk, but Al's lived through it. I've got a family member that I helped a number of years back that got into some debt issues. And what I saw with her was something that I don't think she's by herself. She had no idea of what the balance was on her credit cards. Instead, she only knew what the monthly payment was. Is that a trap a lot of people fall into?

Al: That is a very big trap that a lot of people fall into. And one of the things that I often say is that... Now, this is how I relate to money. I always say, "Count your money, then give every dollar you earn instructions so it will behave," right? Now, what she wasn't doing was actually counting her money, because she did not know how much she owed in full to a particular credit card company. And when you don't know the actual amounts of your debt, it's easy to fool yourself into thinking that you are financially more well-off than what you actually are.

Now, I'm sure both of you guys, you know, obviously you're very familiar with what net worth is, you know? So, a lot of people forget, you know, when it comes to that debt column, it's not just the payment, it's the total amount of money you owe. And when we don't pay attention to that, we can sometimes give ourselves a false sense of reality regarding our financial well-being. So I'm a big, big proponent of counting every dollar, and calculating your net worth at least twice a year, so you can determine whether or not you're winning in this financial game that we're all playing on a day-to-day basis.

Steve H: Yeah, it's great feedback. So, shifting gears a little bit, you know, something that we talk about quite a bit on the "Simply Money" radio show is credit score. You know, many people have been taught that they need some debt to maintain a good credit score. What are your thoughts about that, Al?

Al: Yeah, so this is what's funny about that. It's interesting how most people believe something until you experience something that challenges your belief, right? So, this is what happens in my case. So, I do have a personal credit card and a business credit card, but I pay the balances off every month, right? So, technically, I don't have debt that carries over, so far as a balance from month to month. So, in addition to that, because the house is paid off, my wife and I, we set up, like, a home equity line of credit that we've never used.

But, because we know that a lot of, like, insurance companies, for example, sometimes they look at your credit score to determine your rate, I didn't wanna hurt myself by living debt-free. So, I have two credit cards, home equity line of credit, but I have zero debt, right? But my credit score is still over 800. So, I'm living proof that you don't have to carry over a balance from month to month to have a high credit score. But I do understand when people think they should have to be in a certain amount of debt to have a high credit score, because it's something that you've heard so often.

Steve S: Awesome advice from Al Riddick. Al, founder and president of Game Time Budgeting. 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. Straight ahead, the new tipping trend that has some people, including myself, shaking their heads. So, if you've got a financial question you want us to answer, just hit that red button while you're listening on the iHeart app. Just record your question. It does go straight to us.

Okay. So, let's move on to "Ask the Advisor," and Scott in Montgomery, good question. He wants to know, he says, "I know I need to be careful with Roth conversions because it could land me in a higher tax bracket, but I'm told this could trigger a change to my Medicare too." Hruby, that's something a lot of people forget about.

Steve H: Yeah. You were told correctly. These Roth conversion strategies can be extraordinarily helpful for your long-term financial plan. You are removing those dollars from consideration from required minimum distributions. You're subjecting those dollars to tax-free gains moving forwards.

Steve S: Yeah. But you gotta watch yourself.

Steve H: Yeah. You're leaving that tax-free legacy planning behind for children or grandchildren, but yeah, you gotta watch yourself. Not only can you kick yourself into a higher tax bracket, but if you're single and you earn over $200,000 that year, meaning, let's say you have no income and you convert over $200,000, or you're married and you convert over $250k, there's an additional 0.9% Medicare tax that you gotta pay on those dollars.

Steve S: Well, and also, if you're on Medicare, okay, for the average person, it's, what, about 165 bucks a month to pay for Medicare?

Steve H: That's gonna kick up the premium.

Steve S: Exactly. Your premium can go up. It can go up as high as 560 bucks a month, okay? And it's not like tax brackets, where it's only the last few dollars hit that higher bracket. If you go $1 over the limitation, boom, that's all you need to do. You're paying the higher premium. So, I think the quick answer, Scott, is, talk to your tax advisor before you make a final decision, to make sure you don't unintentionally blow into a whole new Medicare bracket.

Steve H: I've run the numbers in some situations, and it still works. So make sure you're working with a fiduciary financial planner to determine that.

Steve S: Bingo. All right. Pat in Loveland. "Does it make sense to have a majority of my portfolio invested in dividend-producing stocks?" These are generally, you know, a little bit safer. So, you know, maybe you should do it. What do you think?

Steve H: I mean, there's advisors out there that build their whole practice on this approach, because it can create a nice stream of income, tax-favorable.

Steve S: Well, and the argument is, hey, if I can get a 5% or a 6% dividend, that's better than I'm getting on CDs, and maybe the stock goes up to boot. Why wouldn't I do that? Well, it's not that simple.

Steve H: Yeah. I mean, there are risks involved with owning individual securities. When we're investing in a diversified ETF that casts a large net around the entire market, the market's not gonna go away. But technically, an individual security can.

Steve S: Yeah. And even if it's a high-dividend stock, they can go down. I'll give you an example. If you're buying utility socks, yeah. Big, safe companies. Everybody needs electricity, maybe 4% or 5% dividend, but they kind of trade like bonds. And what I mean by that is if interest rates go up, that utility stock or that high-dividend-paying stock may drop not because of what's going on with the company that you own, but because of interest rates in general. So, if you're in a rising interest rate environment, be careful. I'll tell you one other area, and I don't wanna beat this to death, but I know somebody who was all excited because when he came on board, he had a 7% dividend payout on what turned out to be an oil producer, okay?

And he's thinking it's the greatest thing since sliced bread. Well, when I looked into it, the dividends were based on the amount of oil being pulled out of the ground. And when I looked into it a little bit more, they were starting to find it... Yeah. They kind of had a pretty good idea of how many more years were remaining for that oil to last to pull out of the ground. Well, if they can't pull oil out of the ground, they can't keep their dividend.

Steve H: Where's that 7% [crosstalk 00:32:17]

Steve S: And sure enough, that wound up dropping substantially. Obviously, my advice was you might want to think about moving on from this, because that 7% dividend today may not be 7% tomorrow. Okay. Danny in Green Township. "How often should I consider my risk tolerance when I look at my portfolio?" Good question. "Sometimes I feel like a 60/40 stock/bond split is the answer. But other times, I wouldn't mind being more aggressive." He says he's 47 years old. Should you change your ratios of stocks to bonds?

Steve H: I mean, I don't know a lot about Danny other than his age at this point, and his viewpoint that maybe he's more comfortable taking on more risk. But it's important to sit down and identify that sweet spot, because there's your tolerance for risk. The markets are gonna go up and down. When they go down, if you're taking too much risk, you wanna make sure that you're not at a place where you're gonna sell, at a loss. Then there's also the risk that you need to take to meet your financial goals, and how much you can afford to take based on your financial situation.

Being 47, asking the question about maybe being more aggressive. Yeah. I mean, there's nothing wrong with being more than 60/40. A lot of the folks that I work with that are retired have a 60/40 portfolio. You know, I'm close to his age, and I take a lot of risk with my portfolio, because I'm not afraid of the markets. I know they're gonna go up in the long term. Short answer is, it's always a good idea to sit down and address your risk tolerance. Don't just wait until things are on sale to do so.

Steve S: But, you know what I'm hearing out of him is, "Hey, you know, when things are hot, I wanna get riskier. When things are cold, I wanna get less risky."

Steve H: That's a good point, Steve.

Steve S: You know, you shouldn't be thinking that way. I wanna answer this with a point of let's do a financial plan first. Do you need 70% stock? Do you need 80% stock to achieve your goal? Retire, not run outta money. Okay?

Steve H: Yeah. Danny needs to sit down with a financial advisor to have that conversation.

Steve S: Yeah. And he may very well find 50/50 stocks to bonds may float his boat, and supply him with plenty of money for the rest of his life, and you don't have to take on risk. Now, then it becomes voluntary. Okay, but I want to. I don't wanna leave money on the table. Yes. But you know that you don't have to take on more risk than you're comfortable with to achieve your goals. That's an ideal situation, I think. But I don't think you wanna jump around from one mix to another just because of how you feel about the market.

Steve H: You identify your long-term portfolio and stick with it. When you get older, things adjust. If your financial situation changes, you can certainly make adjustments, but don't look at the market and say, "Hey, is now the time to change my risk tolerance?" That's reactive, rather than planning.

Steve S: Yeah. And I could see myself 5, 10 years from now being in a lower risk tolerance, lower mix stocks to bonds as I age. You know, so it's something you want to address, but I don't think every couple of months, by any stretch. Coming up next, has tipping become a form of blackmail? We'll examine that next. 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. Okay, Hruby. So, this is something I definitely wanna talk about, because I've got real strong opinions about that. Just when you thought tipping was out of control, now you got this. You've seen it, I've seen it. Tip screens that are at self-serve locations. No interaction with anybody. Nobody's bringing you a meal. "Oh, just one more question," and they flip the screen. What do you think?

Steve H: That's where I draw the line. That's what I think. And I grew up working in the service industry.

Steve S: We both did.

Steve H: Yeah. Once upon a time, actually, I worked for the New York State Restaurant Association. Like, I've been in restaurants for many years in my lifetime. I, because of that, am a big tipper, when I'm working with an individual, a human being.

Steve S: Exactly.

Steve H: Somebody that's offered a service. Especially, you know, servers, waitresses.

Steve S: They make nothing.

Steve H: They make nothing. They make their money on tips. But when businesses are finding a way to put the onus on employee pay to the consumer, that's a little bit different when it's a...

Steve S: And that's what it boils down to.

Steve H: ...kiosk, a self-service kiosk, where no individual worker is getting that money. That's going to the business's bottom line.

Steve S: Yeah. I saw it last Saturday. I went to the FC Cincinnati game. I love going to FC Cincinnati games. Grab a drink out of a refrigerator, myself. Nobody gets it for me. Walk it over to the register, where somebody's standing behind the register. Okay, I need to pay for this. Pull out my credit card. And, "Oh, one more question." Flip of the screen. And they expect a tip. And I've got strong opinions against doing that, but I folded like a cheap suit. Because there are people in line behind me, you know? You don't wanna feel bad.

Steve H: They're watching, they're judging. Is this guy gonna tip? Should I tip?

Steve S: Exactly. Oh, you're one of those guys that doesn't tip. But they didn't do anything. That's the problem I've got.

Steve H: Yeah, yeah. The self-service, again, that's probably where I'll draw the line. I'm content with the amount of tips that I give when I'm sitting at a restaurant, or I'll even tip... You know, I'll get a bagel. I picked up a bagel on the way into work. And, you know, I give a tip.

Steve S: I give 20% when I eat out. It used to be 15%. Now it's 20%. And a lot of people think it should be closer to 25%. I'm not sure I need to go that high, but I appreciate...because I was a server all four years of college. My wife was. You worked... The best tippers tend to be former servers. Former waiters and waitresses.

Steve H: Exactly. Yeah. Square, they own the technology for the iPad point-of-sale machines. And they say that tip transactions were up 17% year over year at full-service restaurants.

Steve S: But is it going to that person?

Steve H: Exactly. And 16% at quick-service restaurants. And that's back in the fourth quarter of 2022. So, I don't know. I'm comfortable if somebody sees me give no tip at a self-service kiosk, I'm not gonna let that bother me.

Steve S: You don't let that eat away at you?

Steve H: No.

Steve S: All right. Thanks for listening. Tune in tomorrow. We're gonna talk about financial advantages of charitable giving. You've been listening to "Simply Money," presented by Allworth Financial on 55KRC, THE Talk Station.