Amy: Tonight, the Fed sits tight, how to decide how to invest your 401(k), and will you really work as long as you think you can? You're listening to "Simply Money" presented by All Worth Financial. I'm Amy Wagner, along with Steve Hruby. I have said this many times over the past couple of years, I will reiterate it today. If someone came to me and said, "Amy, we would like to offer you a position on the Federal Reserve," I would say, "Take that job and shove it. Thanks, but no thanks."

Steve: Not a chance.

Amy: It is a lot of pressure, a lot of spotlight, a lot of stress. And today, of course, the Federal Reserve back in the spotlight with a real dilemma on their hands.

Steve: Yeah, they sure do. I mean, of course, they're going to stand pat. I think that doesn't surprise anybody that that's what happens.

Amy: Zero surprise.

Steve: Inflation is remaining sticky. The economy is still growing. So they do have a challenge here to get inflation down to its 2% target. We are not there at this point. So it's a matter of digesting the new data. They've said this all along. They have a lot of information to look at to decide what they're going to do or what they're not going to do in this case. And that information takes a long time to come out. There's delayed details about different aspects of the economy that sway the decisions that they make. So as you said, I'm in the same boat. For $1 million a year, I probably wouldn't do that job. There is so much responsibility. And if you get it wrong, look at Paul Volcker in the early '80s. [crosstalk 00:01:36].

Amy: You go down in the history books as being, like, the loser that tanked the economy.

Steve: Tanked it twice, double-dip recession. So, you know, Paul has been saying all along that they want to learn from the mistakes of the past. And we have yet to see what's going to happen as far as the economy is concerned in the near and intermediate term. But for now, standing pat and kind of playing that continued wait-and-see game as new information comes out.

Amy: Yeah. Standing pat, leaving interest rates right where they are about 5.25 to 5.5%, taking that wait-and-see approach, you know, we're five months in, but, you know, you look back to the end of last year and economists were predicting we would see up to seven interest rate cuts this year. It's amazing what a difference just a few months' worth of economic data can make.

Now you've got people saying, "I don't know, will we see cuts at all this year?" Some projecting definitely not until the fourth quarter of this year. And I just think, yeah, it's a really sticky place. We've said this many times. The Federal Reserve is walking a tightrope here, trying to bring inflation down while also not completely blowing up the economy, slowing things down, and throwing us into a recession. And to this point, I will say, they have been really clear about the fact that we're not going to rush into anything. And apparently, they're not.

Steve: And that's fine, too. I mean, coming into the year thinking that they're going to decrease interest rates seven, eight times, whatever, and then it being a surprise and having, you know, maybe one decrease, that's okay because that means that they are looking at the information that they need to look at to make these very important decisions. Now, obviously there are impacts on keeping interest rates higher for longer on the positive side. We've been coaching this for quite some time to our listeners and personally to the folks that I work with about taking advantage of some of the benefits of a high-interest rate environment, most notably getting your cash to work.

Amy: Yeah. Interestingly, though, the frustrating thing about the way that these interest rates is when we saw them start to rise in the beginning, banks were really, really slow in adapting these higher interest rates. It took them forever to sort of creep up to the point where, "Oh, gosh, I'm actually making some money in these CDs or in my savings account."

Well, now the interesting thing is several people who I've talked to recently who've put money into a sort of higher interest rate bearing accounts are saying, "Wait a second. We're getting emails saying, we're going to start paying less and we're going to pull back on what we're paying on this account yet the Federal Reserve isn't moving in this direction yet." So banks are anticipating what isn't yet happening. It doesn't seem fair. But yes, this is absolutely the silver lining in all of this. This is what you can take advantage of.

Steve: It's funny the way that happens, because when interest rates started to rise, what went up first was the cost of your debt, taking on a new loan, credit card debt, mortgage, whatever that might be, got more expensive more quickly. Things that benefited the banks got more expensive faster than things that benefited the consumer, which was...

Amy: Funny how that works.

Steve: Yeah. But at the same time, this isn't just high-yield savings accounts that you can capitalize on. There are CDs and treasuries that come with certain terms. So you could look at that. And if you have a pile of cash on the sidelines and you have an intermediate-term goal six months or a year from now, maybe explore locking that in at this point before banks start reducing interest rates in anticipation of the Fed doing just that.

Amy: Yeah. So that's the good side, right, the silver lining in this. But also on Main Street, the negative side is for those of you who have credit card debt, you're carrying credit card debt, you're hoping that interest rate goes down, it's likely not going to do that anytime soon. For anyone who wants to buy or sell a home this year, hoping that mortgage rates are going to come down, well, likely not.

We probably will never see sub-3% mortgage rates. I think that might be locked forever in the history books at this point. We'll see. But I think so many people, so many of us are still adjusting to 7%, 6%. It sounds so high. So that's going to keep buyers and sellers on the sidelines, which is really going to continue to sort of lock up the real estate market. So just kind of a lot of things working against us during this time. And then also though, you've got large companies in United States that are waiting and waiting for it to be cheaper for them to borrow money, and that's also not happening right now.

Steve: No, it's not. So the question comes, and we've been asking this for quite some time as well. Will we have a soft landing? Is that even an option? Is that possible? Are we headed for a recession? We've been reading predictions for quite some time as well. There was a famous headline back in October of 2022 that Bloomberg put out warning that the forecast for a U.S. recession within a year hits 100% in a blow to Biden. Obviously, this proved incorrect. Now there were some recessions globally. Germany, the United Kingdom, they did slide into recessions, but not the United States.

Amy: You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby as we look at the Fed's latest decision, which was to do nothing, and what it means to you and also digesting some of the headlines that we've seen over the past couple of years, you know, these sort of doom and gloom predictions of, you know, 100% chance of a recession that did not happen last year in the question of, could we still pull off a soft landing?

The first time we ever uttered those words in relation to the situation that we're in now, it seemed insanely far-fetched that we could ever pull this off. And then over the course of 2023, it seemed to look more and more like a, you know, potential. And now you've got an economist saying, "Hey, I think there's a 50% chance that we will still have a soft landing." And a soft landing just simply meaning we can bring inflation down while also not having our economy go into a recession, right?

Everyone worried about losing their jobs. You've had this huge tightening. We thought that was going to happen. And it's just been really interesting how resilient the American economy has been. People are still spending money. People aren't necessarily worried about losing their jobs. And American companies seem to be doing pretty well sort of despite what is, you know, coming up against them with these interest rates. And so all of those things point to some health. But there's also been some economic data coming in recently that shows sort of cracks in that sort of super solid foundation.

Steve: Yeah, I think a lot of that has to do with the fact that inflation is proving to be a little bit stickier than many had anticipated. The first quarter of 2024, not as rosy as many were thinking it would be when we looked at the economic data transitioning into the new year. You'd mentioned that it's a 50-50 shot according to one person. This is at the Wharton School in the University of Pennsylvania.

Amy: Good point.

Steve: A gentleman there said that, "Yeah, maybe a 50-50 shot of a soft landing." From there, there was also...he said a 15% chance of a no-landing scenario and a 35% chance of your typical recession. At the end of the day, you know, these experts, so-called experts, they're going to make their predictions. And what I would say is, do we even need to do anything with this information? And the answer is a big old resounding no.

Amy: Well, and one of the things that I love that we do on the show, and I think it provides such great value and perspective is to look at some of these headlines and absolutely blow holes in them. Who else is looking back on predictions that someone made a year ago and saying, "Hey, did this scare you then?" Because look, 0% of it ended up being true. There was absolutely no truth. Yet for those who get scared, who panic, who pull their money out of the market, you missed out.

If you were to pull your money out of the market at the beginning of 2023 because of this prediction of an absolute recession, 100% prediction of a recession, you would have missed the insane upside that we've seen over the past year or so. Now, we've certainly seen more volatility here in early 2024, but it just makes the point again and again, it's not timing the market. It really is time in the market.

Steve: Yeah, I want to make that clear because we're talking about some of these unexpected events and cracks in the economy. And some of that can be spooky, especially if you're reading headlines out there that reiterate that maybe we are going to slide into a recession because the Fed messed something up or there's a black swan event like war in the Mideast.

There's always something to be afraid of. But at the end of the day, 55% of the time, the markets in a one-year period are up. Correction, 55% of every day they're up. In a one-year period, 79% chance they're up. Three-year period, 90% chance they're up. So when we try to time the market based on information about the economy, that is a huge mistake. The best days happen during bear markets. So what I'm trying to say here is even if some expert at Wharton School, the University of Pennsylvania says there's a 50-50 chance of a recession, it doesn't matter at the end of the day as long as you stick to your financial plan.

Amy: And there will be a recession, whether it happens this year or next year or five years down the road, we don't know. But we do know that it's actually a very healthy part of the American economy. It is a cycle. Is it a part that we like? Nope. I mean, no one enjoys those downtimes, but when you understand they're sort of part of it, then it makes it much more easier to navigate that.

Here's the Allworth advice. Inflation, interest rates, predictions, man, they are just part of economic cycles. Do not panic when you are bombarded with some of the negative information. Coming up next, we're taking a look at whether you will really work as long as you think you will and how all of that could impact your retirement plans. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. If you can't catch our show every night, you don't have to miss the thing that we talk about. We've got a daily podcast for you. Just search "Simply Money." It's right there on the iHeart app or wherever you got your podcasts.

Coming up on 643, we're taking a deep dive into your 401(k). And here's a question for you. Have you taken a deep dive into your 401(k)? Do you know what you're invested in? We're going to talk about that. You know, when it comes to Social Security and those who are living on Social Security or that makes up a big part of your income in retirement, any news about COLAs? Cost-of-living adjustments are a really big deal.

Steve: Yeah. And what we're looking at here is as inflation drops, that is one of the main measures that's used by the Social Security administration to determine what that cost-of-living adjustment is. And while it's too soon to predict the exact number, COLA's, they're based on third-quarter inflation data. And with current projections, some experts are saying that the cost of living for this time, for Social Security could be as low as about 1.75%.

Amy: It happens. And I also want to provide some perspective in the fact that I've seen several years where it's 0, 0%. And I think the frustrating thing about this is then you look at when Medicare premiums go up and usually whatever you get, it's like what the government giveth, it also taketh away.

Steve: It's a wash anyways.

Amy: Gives it to you with one hand and says, "Here's your cost-of-living adjustments. This should..."

Steve: Pay us more.

Amy: "You know, yeah, this should make monthly, you know, bills much easier. Oh, by the way, speaking of monthly bills, here's your Medicare bill and it's going to cost more." Please, please, please don't put yourself in a situation backed into a corner where cost-of-living adjustments are so crucial to you because every dime of that Social Security just matters to you. Understand that this program, when it was set up in the 1930s, it was only set up to keep you from living on the streets. You don't want to be destitute in your later years. So it was set up to only replace 40% of your income while you're working.

Steve: Exactly.

Amy: So it's good to kind of have this on your radar to understand how COLA works. Just please, please, please do not live and die by it. When we build a financial plan, one of the things that we look at is when you want to stop working. The problem is many people will say, "I'm never going to stop working. And that's my financial plan." It just doesn't usually work out that way for you.

Steve: It's surprising how often we really do hear that from folks that we work with. I'm just going to work forever. I would be bored. I can't do it.

Amy: I love my job.

Steve: I need to spend my time. Yeah, I love my job. I love the social aspect of it. I love having purpose. There's a lot of reasons why somebody may want to keep working. Other times it's maybe because they didn't plan accordingly. Life threw them some curve balls and they didn't save enough or something happened that affected their savings. Ultimately, there is a new study that showed that 28% of workers say they expected to retire at 65, which is up from 23% from a year ago. However, the gap between how workers envision the timing of retirement and the reality for these retirees is pretty wide.

Amy: I think what we end up seeing is, there's all kinds of research on this, study after study shows that the average American worker actually ends up retiring at 62. So you can tell us I'm going to work to 65 or many people, as you said, have said, "I'm just going to keep working in my 70s. My retirement plan is actually to never retire." And you think that's 100% within your control. And I think that's just really interesting. I met with someone yesterday who said, "I have worked at the same job for 38 years and have absolutely loved it. And over the past couple of years, all of a sudden, something changed. You know, there's just some minor changes at work, some shifts. I'm not feeling the same way about it anymore and I'm done." Okay. Well, luckily, this person had also saved for retirement.

Steve: Yeah, that's very good.

Amy: If they had not, the entire way that they feel about their job would have changed, but they would have zero ability to do anything about it and retire when they want to do. And I think just beyond that, you know, you can't control if you get a diagnosis that means you can't work anymore or someone that you love gets a diagnosis that means you need to stay home and take care of them or your boss decides, "We're done with you," right?

I mean, you never know when you leave work on a Friday, you could be coming into a pink slip on Monday. I hate to say that, but it happens more often than you would think. So you often don't have control over this. And I don't want to mean to stress anyone out, but I just want to give you the facts so that you can plan for them.

Steve: Yeah. Planning accordingly is very important here because when it comes to retirement planning, maybe it should be called financial freedom planning, the point where you reach an area in your life where you just don't have to work anymore because you may not have a decision in the matter. Like you said, it could be external factors, could be internal, could be health, could be a change to the job. There are many things that can throw us a curveball to the point where we're just not able to work anymore. In fact, the same study we're talking about said that 75% of retirees expect to pay for their retirement via work to some capacity, but only 30% have actually done so. That's a big gap.

Amy: Yeah. So maybe you're thinking, "Well, the job that I have right now is stressful or I don't love my boss, so I'm going to leave it. But then I'm going to get another job. I'm at least going to work part-time. I'm at least going to have some benefits through it." And then it just doesn't work out that way, which is again, if that does work out, great. Maybe that's icing on the cake for you. Maybe that's extra money.

A guy stopped me a few weeks ago and said, "Well, I retired, but I have this sort of job on the side of landscaping and it pays for my Bangles tickets." Great. That works out well for you. He didn't say, "This job actually keeps us paying our bills and we're hardly scraping by." He planned for retirement. The extra job is just fun money that he uses for something that he really enjoys. That can absolutely work out.

But there is a disconnect so many times between your current self and being able to picture what you will need or want in the future. If you are 47 years old right now or 55 years old or even 60 or 30, doesn't matter, it's really hard to say, "I'm really healthy right now. So, you know, saving for healthcare and retirement seems dumb because I'm just going to be healthy." Or, "I love my job and it's so fulfilling and there's never going to be a day when I don't love it. So I'm just not going to plan for retirement because I'm going to work forever." You're completely, like, discounting what could happen in the future and only able to look at where you are today. And that's a bias, I think, that many people deal with. They just don't realize it.

Steve: Well, I think Steve Sprovach is a good example of this. He had heart issues. He had major heart surgery and it lit up a fire underneath him to say, "Maybe I do want to pull the trigger on retirement." He'd been helping people for what, 40 years, transition into retirement at 60, 62 years old. And then he reached that point and had some health issues and said, "You know, I'm not going to keep working. It is time for me." So things change. Your perspective changes, your perspective on life, your ability to continue working. So banking on the fact that you're going to be able to work forever is not a retirement plan.

Amy: And here's something else that people get wrong. Over half of those surveyed said when they got to retirement, they spent more than they thought they would. So this is why you got to have a plan. It has to be realistic. And then if you continue to work beyond that, again, icing on the cake, here's the Allworth advice, make sure you have that robust emergency fund and a plan in place because you just never know when the unexpected could happen.

Coming up next, what to consider if you're thinking about moving to a new city. You're listening to "Simply Money" presented by Allworth Financial here on 55KRC THE Talk Station. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner. We talk to people all the time about how to retire, how to retire well. And as we sit down across the table from many people asking them what their hopes and dreams for in retirement, a lot of them talk about vacation homes. They talk about retirement homes.

Joining us tonight with her perspective on this from a real estate standpoint is our real estate expert, Michelle Sloan. Of course, you can catch her show, "Sloan Sells Homes," here on 55KRC every Sunday afternoon. She's the owner of RE/MAX Time. For many, many people, Michelle, this is a dream. But from a practical standpoint, how do we make this happen? What do they need to be thinking through?

Michelle: There are so many things that you want to consider before. You may have a dream of moving to Florida, let's say. But do you really know what's happening in the Florida market? Maybe you want to go to Arizona. Most of us in Cincinnati...

Amy: Somewhere warmer.

Michelle: ...Northern Kentucky, we want to go someplace where it's warm all the time, or maybe have a vacation home that we can go to in the January, February, March time frame and get away from the cold. But then again, if you own a property somewhere else and you're living in two locations, there are an awful lot of things to consider unless you have boatloads of money and you just don't care if you're going to lose money on that prospect.

Amy: I think about friends of my parents who years ago, they love golf, they wanted to spend those colder months here in Florida. They went all in on a golf community in Florida, bought a property down there. Didn't necessarily really think through all the hurricane insurance. So it cost a little more than they thought, but they were all in. Then they realized, "Gosh, the upkeep and we're not here is a lot. And it's really expensive." What they ultimately ended up doing was I think they actually sold it for a loss and then ended up renting something for the couple of months that they wanted to be down there. So it wasn't a devastating financial decision for them, but it was not the best thing. So I think going into this with eyes wide open is absolutely critical.

Michelle: It absolutely is. Because you may think and you may hear me talk about, "Oh, the market in Cincinnati is crazy. Multiple offers, more than list price sales, and very, very little inventory." But that's not the same all around the country. And so that's where it is really, really smart to do your homework or at the very least, talk to someone who is an expert in the area where you want to go. And so that's really the key.

The other thing that you want to think about, okay, you love to golf. How much is the initiation to golf? And I'm sure that you've talked to many, many people because an initiation into a golf club in Florida can cost $60,000 or more. And it's like, "Okay, you're going to buy that then you're going to buy your house, and then you're probably going to have really high HOA fees. And then you're going to have insurance." And insurance in Florida specifically has more than doubled over the last couple of years because the weather and hurricanes.

Anywhere that is coastal right now is struggling just a bit. So purchasing a home at a high, high price on the coast right now, you really want to think about it because can you afford, like you said, the upkeep if you're not there 24/7? Is it rentable? Who's going to look after it? Do you have to hire a property management company? Are you going to make enough? Do you want other people to live in your house? Oh, my gosh. People are pigs. At least they can be. And do you want just random people living in your home and you're not anywhere near it to sort of police it? So there's so many things to think about.

Amy: Well, it's funny. I actually was just in Florida. My daughter's a senior in high school, a bunch of us moms and Grace's friends all went to Florida, rented a lovely house in the Destin area. I guess there was a group of college boys who had been in the house before us. It took multiple cleaning crews hours later. And lots of things in the house were broken. We didn't pay for that. So the people who own the property had to shell out the money to cover these things or maybe they'd charge them more, I don't know, but you don't have control over who's going to be renting that house if that's what you're going to do with it and rely on that as a stream of income for it.

Michelle: Correct. And in some homeowners association communities, you cannot rent, like, a...

Amy: Not allowed.

Michelle: ...weekly or whatever. And that's another thing. If you're planning to rent, one community that Scott and I looked at, you could only rent two times throughout the six month...or one time the six-month period or something like that. And it had to be a month-long lease, meaning somebody was going to stay in the home and it wasn't going to be real transient.

And so again, if you're thinking about doing something like that and you're like, "Oh, man, I could have other people pay my mortgage," which is always a great thing in theory, but then you do have to understand it's going to cost you more in insurance because you're not living in the home. It's going to be costing you more in hiring people to manage the property. So you have to really consider your lifestyle and how often you're going to be there.

Even people who buy properties like on Lake Cumberland or someplace that's not quite as far away, but you're not there every single weekend, most likely, if it's a second home or a vacation home. So you just really have to think about that and talk to you, Amy, your financial planner, because there's a lot to consider. And while I always believe that investing in real estate is one of the best investments that you can ever make in your life, it can also be a bit of an albatross. It can hurt you as well.

Amy: Right. There's great stories with great outcomes and there's also terrible ones. And I think the difference between the two is the planning and the research that goes into them. I mean, you were just mentioning, Michelle, that while here in the greater Cincinnati area, there's a ton of competition, you and I have talked about this before.

One of my favorite pastimes is just looking at property in the Florida area. I just really hate winters around here. And you can look at it and you can see it is coming down. And while that can be really exciting, it is coming down for a reason. People are selling and getting out of Florida for a reason. And do you then jump into that market and completely overlook why everyone else is leaving and then maybe try to sell that house in a couple of years and no one wants it?

Michelle: Correct. And that could be really a financial loss. And we've seen it happen. The world of real estate, stocks, everything that we own that is worth money, there's ebbs and flows. There are highs and there's lows. And so you, again, want to try to time the market as much as possible. But I'm finding almost 20% of our population is 65 or older. So I talk to so many people who are ready to downsize, right-size, but they want to be close to family, but they want to enjoy their life. There's a lot of decisions to make and it doesn't hurt to talk to someone like myself as a real estate expert, talk to someone like you, who's the financial expert, and then figure out what's right for you because it is different for everybody.

Amy: Michelle, the people who get it right, who end up buying a vacation home or retirement home, moving to a new city, whatever that looks like, that feel like it was a good decision, could you give us a couple of things that you think that they do right that makes it turn out well for them in the end?

Michelle: I think that's a really good question because I have seen some people who just absolutely love the fact that they can have a home base, let's just say here in Cincinnati. So you have a home base here and you have a home base someplace else and they can come back and forth and they have the freedom to have a place to land and they don't have to live or get a hotel room or live with their children or grandchildren or something like that and be sort of put out because as adults, we all like our own space.

Amy: Sure.

Michelle: So I've seen so many people who have just absolutely relished the fact that they love where they are, they love their neighbors there, they love this area, they love their family here, and although, here's the thing that I'm also seeing, is more and more people are selling the main property here and just getting something smaller like a condo that they wouldn't have to maintain nearly as much and then getting a single-family home in Florida or Arizona, or wherever.

So it just depends on what you want, where you want to be. And guess what? It's usually not permanent. So if you decide, "Okay, I'm going to make this bold move." Number one, I like to tell people maybe you want to rent for six months and make sure you like it there because so many people have moved to different areas are like, "Oh, this isn't what I thought." You can't have vacation every day. It's like Christmas every day. You can't do it.

Amy: Do your research first, right?

Michelle: Exactly.

Amy: Great advice from Michelle Sloan, our real estate expert. You're listening to "Simply Money" presented by Allworth Financial here on 55KRC, THE Talk Station. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. You have a financial question that you just can't figure out on your own, there's a red button you can click on while you're listening to the show right there on the iHeart app. Record your question. It's coming straight to us and straight ahead.

Should you buy a home or rent a home when you get older? We're going to run the numbers for you. We'll tell you about here in Cincinnati versus other places in the country. I see this all the time, Steve, and it makes me want to pull my hair out. Most of us, you've got to look yourself in the mirror on this one and admit it if it's true for you, most people spend more time planning your summer vacation than you ever do looking at your 401(k), knowing what you're getting in a company match, knowing what you're really invested in. My problem with that is, for most of us, our 401(k) is the number one thing that we're using to be able to retire. You plan that vacation, it lasts a week. You plan that retirement, it lasts decades.

Steve: That's pretty remarkable.

Amy: It is remarkable.

Steve: The thing is, admittedly, planning a vacation can be fun. That's the thing. I'll give people that as an excuse, but it's not good enough.

Amy: But retirement can be fun, too.

Steve: Exactly. Exactly.

Amy: Should be fun.

Steve: What's that?

Amy: It should be fun. That's the whole point.

Steve: It should be fun. Absolutely. When it comes to their 401(k)s, and I've seen this over the course of my career as well, people will start a job. This is prior to working with me because fiduciary financial planners, myself, others in the industry, when we're helping clients with investment strategies, we should be helping with all of it. But for individuals that have gone at it alone, they'll look at the lineup in their 401(k), they'll say, "All right, these ones in the last 5 and 10 years, they've done the best. So that's the ones I'm choosing. Boom, done. That's it."

Amy: Let me give you an example of why that may not work, especially right now. You're starting a new job. They give you the 401(k) information. You're looking at returns. I'm going to pick the ones that have done the best over the past year. Likely, those funds are going to be super tech-heavy.

We've talked on the show a lot about the Magnificent 7, these just dominating stocks and companies in the U.S. economy, Meta, Amazon, Nvidia, Tesla, these major huge companies. Well, great. They've done well over the past year. Some of them are showing signs, though, of not doing so great. And you're completely not diversified. You're all in on tech. And we've seen many, many times going all in on one sector can really backfire. Now, you're not going to know that when you're picking these stocks based on returns. But if you were to dig a little deeper, that's exactly what you would be doing.

Steve: Yeah. And it's really remarkable how that can completely derail your investment strategy because there's this chart that Andy Stout, chief investment officer of Allworth Financial, has put together called the Asset Allocation Quilt. And it shows all the different sub-asset classes and how they perform in any given year. And you'd mentioned tech, tech being really wonderful performer recently. That's not always going to be the case.

There are some outliers where they'll be the best performer. Like REITs, for example, in a given year might be the best performer in one year and then the worst in the next. So you could position yourself to lose a lot of money in your 401(k) if you don't appropriately build your strategy. So I'm talking about what research are you looking at to determine which funds your employer gives you to pick and choose from to narrow down which funds may be the best ones. Are we looking at the underlying fees? Are we looking at things like Morningstar ratings? Once you have your finger on the pulse of the research that you're actually going to look at to narrow down the choices, what investments are you selecting to fulfill your tolerance for risk to build your asset allocation? Is it 60-40? Is it 80-20? Is it 70-30? There's a lot of moving parts that come into picking and choosing your investments.

Amy: Well, you just mentioned risk tolerance, and I think that's where you start. But I think for many people who aren't working with a fiduciary financial advisor, it's not where you start. You start by looking at the returns on the most recent year or five years. But the risk tolerance is kind of your Goldilocks factor, right? How much risk can you take on? How much exposure to the stock market can you take on and still be able to sleep well at night?

Once you figure that out, and we have sort of a 10-question survey that we run the investors that we work with through to help them figure out what that number is. Okay, and then once we figure out that number, then we can look at what are the best investments that are really well-suited for your risk tolerance. And then you can slice it and dice it a thousand different ways, stocks versus bond, emerging markets versus U.S. companies, small caps versus large caps.

I mean, there's different sort of ways to look at this. And I think you've got to consider all of those things if you're going to be truly diversified. Now, it can sound overwhelming, but this is where you're either going to need to do the research yourself or find someone that you can partner with that can help you figure this out. But sort of blindly, willy-nilly filling this thing out and hoping, like, when a wing and a prayer that it's going to get you to retirement is not the answer.

Steve: It's not that often that I advocate for a target date retirement fund, but this is a potential solution. That's when you choose the fund that your employer gives you based on an assumed timeframe after retirement because at least it is a form of active management. So if you don't have a process in mind that's going to help you research, choose the right investments, build your asset allocation, and rebalance periodically, then maybe that's a solution for you if not working with a fiduciary financial planner.

Amy: Here's the Alworth advice. Make sure you're doing everything you can to maximize that 401(k). In many cases, it's the number one thing you have getting you to retirement. Coming up, is renting the cheaper option as you get older and maybe want to downsize? We're going to take a look at that next. You're listening to "Simply Money" presented by Allworth Financial here on 55KRC THE Talk Station.

You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. I don't think a lot of people really think about this. Many people will say, "Oh, I'm going to downsize when I get to retirement or we're going to move somewhere else closer to grandkids or closer to the beach or somewhere where the weather's warmer." But part of that conversation doesn't revolve around when we get there, does it make more sense to buy something or to rent it?

Steve: Well, a new bank rate analysis shows that renting is more cost-effective than buying a home across most major U.S. cities here in the nation. And that is remarkable. It's actually the gap is 37% more to buy than it is to rent on a monthly basis on average.

Amy: And keep in mind the cost of renting is insanely high right now.

Steve: Yeah, that too.

Amy: Okay. So here in Cincinnati, the typical monthly rent, $1,500. And then the typical monthly mortgage payment is about $1,860. It costs about 24% more to buy here in Cincinnati instead of renting, which is interesting. It's actually one of the 10 smallest gaps when they looked at the 50 largest metro areas, smallest gap between the cost to rent and the cost to buy. So here the difference may not be as monumental. Certain other places, though, there can be a huge difference.

Steve: Yeah, in Miami, Fort Lauderdale. So for those of us that want to snowbird at some point, 55% difference. And in Orlando, it's a little bit cheaper at 33%, Phoenix, 50% more to buy than it is to rent. Now, I will say that about 80% of Americans say that owning a home is part of the American dream. So that is where footing the bill to actually own could be worth it if you plan accordingly. I think that's a trend that you hear if you listen to the show, planning accordingly. If you plan to move somewhere like, let's say, San Francisco, how about this one? Hundred-and-eighty percent more to own than it is to rent, 180%.

Amy: Yikes. This is why I will never live in the Bay area or honestly anywhere on the West Coast. You look at the cost of mortgage out there and it is just insane. Listen, we talk to so many people who at least talk about or consider a move in their later years, whether part of it is downsizing or moving somewhere else. We're not saying this should be the overall deciding factor, but we think this is a piece of information that should be considered as you're figuring out what makes the most sense for you. Thanks for listening tonight. We hope you're going to tune in tomorrow. We're talking about how to overcome just the biggest fears about retirement, what we want you to know. You've been listening to "Simply Money" presented by Allworth Financial here on 55KRC. We are THE Talk Station.