Steve S.: Tonight, for the 10th time in about a year, the Fed has indeed raised interest rates. You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. So, Hruby, everybody thought the Federal Reserve would vote to raise interest rates another quarter of a percent, and they surprised absolutely nobody by raising rates a quarter of a percent.

Steve H.: Yeah. You hit the nail on the head there, Steve. Interest rates, highest level in 16 years, though. So, since 2007, we have not had the target rate of 5% to 5.25%, which is where we fall after today.

Steve S.: Yeah. By the way, if you wanna sound like you really know what you're doing about interest rates, just start using the phrase "basis points."

Steve H.: Basis points. Yeah, [crosstalk 00:00:48]

Steve S.: And if you really wanna sound smart, "bips." There are 100, and I know you know this, but there are 100 basis points in a percent. So, when you hear people say, "Hey, they raised 'em 25 basis points." Yeah, quarter percent.

Steve H.: There's also 100 bips.

Steve S.: There you go. There you go.

Steve H.: Yeah. Those are the same.

Steve S.: So, that was no big surprise, and markets prefer no surprises, so there wasn't any big swings right off the bat on either the announcement or Powell's statement. But, you know, that's what we wait for. It's not the statement that he makes that's scripted and, you know, you kinda know it's gonna be real milquetoast, and no big surprises other than, okay, how much are we raising interest rates? It's the press conference after. And he's learned his lesson. He doesn't really go off script. He kept his answers to the questions pretty straightforward, but there were some interesting things that he said.

Steve H.: Yeah. When Fed Chair Powell speaks, the markets listen. We've had entire segments where we've talked about the word choices and the verbiage that the Fed chooses to use.

Steve S.: Oh, and when he first started doing these press conferences, you could just... You knew when he opened his mouth, because that's when the market would just start going down, down, down, because he would say things that probably were truthful, probably honest, but markets don't always wanna hear that.

Steve H.: I couldn't imagine the pressure. My palms would be so sweaty if I was up there having to think about every tiny little word that I say, because the markets will tremble. You know, they did come out and say some things today, you know, should inflation and jobs data come in higher than expected, they're kinda setting the table that, you know, they are prepared to do more if greater monetary policy is warranted.

Steve S.: Which you would want them to do, right?

Steve H.: Exactly. I mean...

Steve S.: I don't want 'em to raise rates forever, but if the data's showing inflation is getting bad, I would expect them to make a change in their expectation and their process. You know, I think that's pretty reasonable. Yeah, here's how crazy it gets where they're examining what he says. Did you know they actually, some guy out there put artificial intelligence language models into his speech to determine whether or not he was being more hawkish, which means raise rates, or dovish, which means drop rates.

Steve H.: Did it come back dovish?

Steve S.: It actually came back hawkish...

Steve H.: Did it really?

Steve S.: ...but every economist I listened to, I read, and my own opinion is he's kinda dovish, because he did say... Sometimes it's what he doesn't say, and there was no language, either in his statement or the comments afterward, indicating more hikes. Now, he didn't say, "I'm pausing," which was the big expectation is, all right, they're gonna do this quarter percent and then take a break. But he didn't say, "I'm gonna pause." He said, "We made no determination today about pausing. That will be at the next meeting in June."

Steve H.: Yeah. I mean, just like last time that we talked about this, it was, instead of saying "inflation has eased," it was "inflation remains elevated." So I guess I could see where AI might come up with a hawkish perspective from, you know, language like that. What about banks? He said that banks are resilient.

Steve S.: He did, but did you notice how... And this is the big concern, is are there more banks that are ready to fail? He said, you know, he would've preferred if a regional bank took over First Republic. Instead, obviously, it was J.P. Morgan, which is the country's biggest bank...

Steve H.: The big bank.

Steve S.: ...got bigger, you know, through it. He would've preferred a regional bank taking it over, but he kept his hands clean. The chair of the Federal Reserve said the FDIC is doing its job. In other words, he said, "That's their business. That has nothing to do with this press conference." I thought that was kinda interesting. It's like, "All right, guys. You do what you do. I'll do what I do."

Steve H.: I mean, that is interesting because, you know, tremors in the financial system, it's made banks more reluctant to loan right now. And a side effect of that is that it curbs demand, and it almost creates a situation where it's mimicking increasing interest rates.

Steve S.: No question. No question.

Steve H.: So, it could be a snowball effect if things get out of control. But, you know, we talked about this on Monday with Chief Investment Officer Andy Stout, when he was on the show. That's a question I hit him with, and I've hit him with it every time I've talked to him on the show is, you know, what's going on with banks?

Steve S.: Well, and he didn't... Keep in mind, Powell never said we're out of the woods. And matter of fact, he kinda threw the San Francisco Fed a little bit under the bus. I don't know if you saw this, but he was asked about the banking system, "Is it still a concern, or do you still worry about the solvency of some banks?" And he did, Powell said, "Yeah, banking conditions have broadly improved." But then he said, "But we did have a February 14th presentation made to the Federal Reserve that did mention the Silicon Valley Bank and their issues, and they didn't seem to think it was a big problem at the time." That tells me he threw the San Francisco Fed under the bus, because he just said, "You guys missed it. That bank wound up going insolvent, and that was a big deal." So, it tells me that they know that they got a black eye out of this deal, and I hope they don't let it happen again.

You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about the announcements that came from Federal Reserve Chairman Jerome Powell today. He also had some interesting comments about labor markets.

Steve H.: Yeah. You know, while I have it in my mind, Steve, I gotta bring it back to banks here. You know, it's such a hot topic right now, and you're talking about Silicon Valley Bank, and we need...

Steve S.: First Republic.

Steve H.: Yeah, First Republic. And Credit Suisse you didn't mention. I feel like we need to talk about that for a moment here, because those banks were very poorly run.

Steve S.: They were. Yeah.

Steve H.: That's no secret here. That's why Andy Stout agrees with, you know, the statement that banks are resilient, because, you know, some of these small regional banks that went under, they had, you know, depositors had a bank run on the cash because those depositors, for SVB, those were tech companies. When interest rates rise, they weren't getting the same type of cash flow that they had been historically, so they're like, "Oh, my god. We need some cash." And then Silicon Valley Bank had these long-duration bonds that were... It was a greedy approach, and when interest rates went up, those bonds tanked.

Steve S.: Well, I think the bottom line is any bank can potentially have a problem beneath the waves that maybe their depositors aren't aware of. And are there gonna be others? Well, maybe. You know, maybe somebody out there has a big portfolio of commercial real estate that's running the banking department, or maybe big mortgages, like did First Republic. You know, but when Powell says he considers conditions broadly improved in the banking sector, that tells me they've done their analysis, so, you know, let's keep our fingers crossed on that.

Steve H.: Yeah. And they have other ways to help the banks too. Banks can borrow from the Fed, using their bonds as collateral, and they've used that to inject cash into their own balance sheet. So, that's something that's certainly helping the banks. Labor markets. That's... Go ahead.

Steve S.: Labor markets. And here's why I wanted to talk about labor markets, because the Fed started raising rates aggressively because of inflation. It was getting outta hand. Well, when you have wage inflation, when companies have to start paying their employees higher salaries, give 'em large increases because they need to keep 'em, whatever the reason is, stuff costs more and the employees say, "I'm going somewhere else unless you raise my paycheck," that kind of becomes a self-fulfilling prophecy. That helps inflation, in the industry, we call it "anchor." It makes inflation tougher and tougher to bring down. And the comments that Powell made, I thought were pretty interesting. He said labor is now in better balance, we're getting better participation, and the wage gains are actually slowing. That's good news.

Steve H.: Yeah, they need the wage gains to slow so that there's not as much money in the markets. When there's not as much money in the markets, demand goes down and inflation goes down.

Steve S.: Exactly. Yeah.

Steve H.: So, you know, that, you bring that up, and I see that as more of a dovish perspective.

Steve S.: No question. Yeah. When the labor numbers start improving, to help bring down inflation, because that was one of my biggest surprises from today's statement.

Steve H.: Yeah, that's been a sticking point. That's been an issue that the Fed has been dealing with. And then, remember, they don't always have all the information in front of them, and there's a lag time for the decisions that they make for how long it's gonna take before these effects actually are felt in the economy.

Steve S.: So, I know you've gotten questions. I've gotten several questions just today. So, what do you think? Are we heading into a recession? That was discussed today, and then Chairman Powell kinda surprised me that he thinks we're doing okay.

Steve H.: Yeah. I mean, he's gonna say that. That's the goal, though, of all this, is to slow the economy. Technically, there can be a soft landing. That is possible, and of course, that's what they're aiming for, but it's a natural part of the business cycle. Recessions happen.

Steve S.: It is, but does it have to happen now? Now, I got started in the business in 1981, and I saw the tail end of massive, rapid increases in interest rates under Paul Volcker, and he raised rates so aggressively that it knocked us into not just one, but two back-to-back recessions.

Steve H.: Yeah, rapid-fire, double-dip recessions.

Steve S.: Yeah. So, I think that's everybody's big fear, that's been around a while, is okay, are these hikes gonna put us into a really deep recession and make the current cutbacks and layoffs look like child's play? And what Jerome Powell said was he expects GDP will grow modestly this year, which, you know, everybody in attendance is agreeing, "Well, that sounds like he doesn't think we're gonna be in a recession." If they can pull off hiking interest rates as aggressively as they did, and we do not go into a recession, they nailed it.

Steve H.: Yeah. You know, I would be a little surprised, unfortunately. But, you know, you're right. They will have nailed it if that's what happens.

Steve S.: We'll see. And that's why today's press conference, like all of the conferences with the Federal Reserve, are always gonna say, "But if the data changes, our opinion will change." Here's the Allworth advice. If you have a long-term financial plan, congratulations. You've been weathering stormy seas, and it's gonna pay off. Coming up next, a lesson on exchange-traded funds. 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, just subscribe to get our daily podcast. You can listen the very next morning while you're commuting, at the gym, whatever you happen to be doing. And if you think you've got some friends that could use some advice, tell them too. Just search for "Simply Money" on the iHeart app or wherever you get your podcasts. Straight ahead, we're answering questions about Roth conversions, 401(k) contributions, and more. It's our "Ask The Advisor" segment, again, that's coming up. You know, Hruby, it seems like maybe we can watch Reds games on Bally Sports a little bit longer for the time being.

Steve H.: Yeah, at least for the time being.

Steve S.: Yeah, some good news.

Steve H.: Kind of, I guess, right?

Steve S.: Yeah.

Steve H.: John Ourand of Courier, which is a sister publication for the Sports Business Journal, reported that Diamond Sports has paid the Reds. That's what we were waiting on.

Steve S.: Well, and that's surprising to me.

Steve H.: It is.

Steve S.: I kinda wrote them off, because Diamond Sports is the parent company of Sinclair Broadcasting, that runs Bally Sports of Ohio. So, when I turn on the Reds, I was watching the Reds last night, and I'm thinking to myself, "Wonder how much longer I can watch the Reds, because they didn't get paid?" And it's a $50 million, maybe $60 million contract. And the parent company of Bally Sports Ohio, they filed Chapter 11, and when that happens, you just figure, okay, it's toast.

Steve H.: Yeah. That's kinda what I thought. I mean, Diamond, they missed their payment that was due on April 18th, and they were given a 15-day grace period, which ended today. And they had just made their payment. So, you know, for the time being, we get to watch 'em. Major League Baseball did stand ready to take over the Red TV Broadcast. That's kinda what we hypothesized when...

Steve S.: Yeah, but I was wondering, would I have to pay extra for that then? Probably.

Steve H.: Yeah, I know, right? But, you know, it's, this payment has happened. There's still future payments that need to happen too.

Steve S.: So, I'm guessing, if it's a quarterly payment, that buys us three months.

Steve H.: Yes.

Steve S.: And I hesitate to ask where the Reds may be in three months, but they're kinda surprising me right now. They're competitive. I watched last night's game. I mean, they're actually playing some halfway decent baseball.

Steve H.: I mean, I like going to the ball game no matter how good the team is performing. I just like the environment. I like being out there. I like the foods. It's a good experience. Where I watch it on TV, I guess, isn't the most important thing, but, you know, we get it for a little bit longer right now.

Steve S.: Good news, at least, for another, what sounds like three months.

Steve H.: Three months.

Steve S.: And it's good because I think we've got the best-announcing team in the country. I mean, you know, the pre-game show, post-game show. I've never seen anything like it. All right. So, tonight, we wanna touch on a topic that I know confuses the heck out of a lot of people, but, you know, we talk about it all the time. We're talking about exchange-traded funds, or ETFs. They've been around a while, but I don't think a lot of people really understand what they are.

Steve H.: I mean, it's not that dissimilar from a mutual fund, but we're gonna talk about some of those differences today. Because at the highest level, an ETF is just a bucket of securities that trades on exchange just like a stock. So, you can trade it any time the markets are open, between 9:30 a.m. and 4:00 p.m. Eastern. It trades just like a stock.

Steve S.: And most people don't realize, if you wanna buy or sell a mutual fund, you don't buy it when you call it in during the day. It doesn't actually get calculated for the value and traded until after the market closes.

Steve H.: Yeah, until 4:00 p.m. That's the price that you get. You don't know what it will be, because it settles at 4:00 p.m.

Steve S.: Okay. So, let's talk a little bit about what is an exchange-traded fund, or an ETF. I'll tell you what sold me on the concept, and I'm going back a good 10, 15 years. I don't think they're more than about 20, 25 years old, but mutual funds, they work. A mutual fund is a basket of either stocks or bonds, or combination of securities. Well, let's just say stocks. So, in a mutual fund, you know you get a whole bunch of different stocks. So, if you're investing $1,000 dollars, instead of getting just shares of Proctor & Gamble as an example, you might have Proctor & Gamble and 200 others, in a mutual fund. So, it's very diversified, which is a good thing. On top of that, you've got a fund manager that's deciding, "Okay, I wanna sell this stock and buy something different." They're actively-managed. Most exchange-traded funds are not actively-managed.

Steve H.: This is a key difference. So, what that means is a lot of these exchange-traded funds, they're passively-managed, and they just look to mirror an index, like the S&P 500, for example, which represents the 500 largest U.S. companies. It doesn't take a genius to copy off of an index. So, the expenses are very low, and that's good for investors because we don't need to pay a ton to hold an ETF. The expense ratios are very low.

Steve S.: And it's not just a little bit of difference. I mean, a lot of stock mutual funds have internal expenses roughly around 1%. So, in other words, if you got 9%, no, the fund actually made 10%, they just gave you 9% and kept that 1%.

Steve H.: They just skim off the top.

Steve S.: Yeah, exactly. And with an exchange-traded fund, it's not that uncommon to see internal expenses, like, 0.06%. I mean, next to nothing, because really all they're doing is, it's kind of a bookkeeping role, you know? You send in money and they split it among the... If you use the example of the Standard and Poor's 500, it's the same 500 stocks today that it was 20 years ago, that it will be 20 years from now. Or it could be large-cap growth stocks. But the point is, on an exchange-traded fund, they don't buy and sell. It's the same basket of stocks. You know exactly what you're getting. And that really came into play in 2008. That's when I made the switch, because, in 2008, a lot of what you thought were conservative mutual funds, that bought large, dividend-paying U.S. stocks, a lot of 'em took bets in growth in tech. And you didn't know about it...

Steve H.: And whoops.

Steve S.: ...till after the fact, and they got crushed. And you're, "Why did I lose so much money in a conservative fund?" Because they didn't have the holdings you thought they did. They changed them, and they took a bet that maybe you didn't agree with at all. In an exchange-traded fund, you know exactly what you get.

Steve H.: Yeah. I mean, as far as the managed portfolios that we use at Allworth, it's heavily invested in exchange-traded funds for that reason. It gives us lots of control, and it flows through as lower expense to investors.

Steve S.: You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about what is an exchange-traded fund? Okay. We talked about the advantages. Low expenses, knowing exactly what the holdings are. There's gotta be some negatives.

Steve H.: I mean, technically, there are ETFs... This is a stretch though, Steve, because I don't see...

Steve S.: What's that?

Steve H.: ...too many negatives in ETFs, especially when you're comparing it to mutual funds. Technically, there are actively-managed ETFs that can have a higher expense ratio. It's not just passive ETFs that exist. There are active as well. So, you need to be cautious of that. That's where a fund manager is still making decisions and making changes sometimes. But it still trades on the open market between 9:30 and 4:00 p.m., when the markets are open.

Steve S.: Yeah. And they're few and far between. I didn't see actively-traded ETFs until just a few years ago. And my opinion is, if you want an actively-traded ETF, why don't you just buy a mutual fund? I mean, that's kinda what it is, you know?

Steve H.: Yeah. Some of the expenses are still lower, though.

Steve S.: Yeah. And so, an ETF is basically, it's an index strategy. It's an index fund. If you want large-cap growth, large-cap value, mid-cap growth, bonds, whatever the case is, you can find an exchange-traded fund, and the holdings will remain the same for as long as you hold it, in almost every case. Here's the Allworth advice. Talk to a qualified financial advisor to see what role ETFs should play in your portfolio. Coming up next, how to know whether a financial advisor will protect your money from fraud, and what you should do yourself. 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. So, when people hire a financial advisor, they're taking a big step because in a lot of cases, they're handing over their life savings. It's a big deal. So, obviously, you wanna make sure that your money doesn't disappear. And we're not talking about stock market losses. I mean, all you have to do, Hruby, is go back to Bernie Madoff. I mean, that's the nth degree of a bad example. So, what do investors need to do to protect themselves and feel comfortable that this guy who they're signing over their life savings to isn't gonna take the money and run?

Steve H.: I would start with working with a credentialed fiduciary financial advisor, because there is a lot that we need to do to stay current within the industry. Cybersecurity is always on the forefront. We undergo thorough background checks, quarterly attestations. There's ongoing education.

Steve S.: And you got through all that?

Steve H.: I did.

Steve S.: I'm shocked.

Steve H.: You know, so did you. We both did. Isn't that something?

Steve S.: Yeah.

Steve H.: So, cybersecurity is an important thing to talk about here, and that's something that's always on the forefront of our minds as fiduciary advisors.

Steve S.: And I'm gonna take a step back and even look at a bigger picture, because, to me, the first thing you wanna do is make sure you don't write a check to the individual. You write a check to the custodian. You know, big ones like TD Ameritrade, Fidelity, Schwab, you know, big companies. Because if you write that check to the custodian, to the bank that actually holds the securities, holds the funds in the account, you are automatically protected. And look for that SIPC little logo, because that stands for Securities Investors Protection Corporation. But that's fairly limited on the amount of coverage that you get through SIPC.

Steve H.: Yeah. What is that amount again? It's...

Steve S.: Half a million dollars for securities.

Steve H.: [crosstalk 00:21:40] million, $500,000.

Steve S.: Yeah, a quarter million for cash, which, you know, if you've got a 401(k) over 40 years, that doesn't cut it. So, then you take a hard look at, okay, what other coverage does the custodian have? And they all have extra coverage, because obviously half a million isn't enough. I just looked at, I googled TD Ameritrade, and they've got an extra $149.5 million of coverage for loss due to theft or fraud. That covers my 401(k). $150 million makes me feel... I'm right close, but...

Steve H.: Yeah, we'll see. By the time I retire, that might be a problem. Who knows? No. It's, I think Fidelity even said, or claimed that it was unlimited.

Steve S.: Unlimited. Yeah. I think I saw that also.

Steve H.: Unlimited? So, that's something to pay attention to.

Steve S.: That's a big protection.

Steve H.: Yeah, it is. And I do wanna bring it back to what Steve said. There are individuals out there that might say, "Yeah, you can write me the check." That's not the case when you're working with a credentialed fiduciary advisor. There's usually a custodian involved. That's why Steve brought up TD, Schwab, Fidelity, because those are some of the big ones. So, what about the advisor's firm? What should they be doing?

Steve S.: Well, you know, I think one of the things you wanna take a hard look at with the firm is, "Okay, are they using a custodian?" And secondly, when you have access to your account, and most websites give you access to your account through their website, if they're not using two-step authentication, I would not be comfortable using it. I mean, I want a text with a separate code, so that if somebody happened to get my account number, I know I've got my phone, and I'm gonna get notification. No, that's not me.

Steve H.: Two-factor authentication is one of those things where sometimes people will grumble, "Oh, I don't wanna do this. I don't wanna deal with that."

Steve S.: "How many of these passwords do I have to remember?"

Steve H.: What is worse? Checking your text messages to enter in a code or losing your portfolio?

Steve S.: Exactly.

Steve H.: I'm a huge advocate of multifactor authentication. This one might be worth asking your advisor too. The company itself should be blocking access to certain unsecured websites. While I'm at work on my work computer, there's tons of websites that I can't go to.

Steve S.: Yeah. I saw you really frustrated the other day.

Steve H.: Yeah, I know. I can't look at my Facebook while I'm at work. No, it is important though, because bad actors can use those websites to infiltrate secure systems. So, it could be worth asking the question of your advisor if they block certain websites.

Steve S.: You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach along with Steve Hruby, and we're talking about how you can protect yourself from losses. All right. Not market losses. You can't protect yourself there if you're involved in investing. But how about theft or fraud? And, you know, I've had a couple of people, unfortunately, that have been subject of fraud. I mean, the bad guys out there, they're getting better and better every single day, it seems. One of the things that I think makes a whole lot of sense to do is pay attention to what you're posting on social media. Okay?

Steve H.: Those questionnaires that, where people tag you and it's all fun and games, you know, where did you go to high school? What was your first car? What was the name of your prom date?

Steve S.: Yeah. It's dangerous.

Steve H.: It's asking you for security questions that you oftentimes answer for financial institutions' websites, like your bank or like your advisor.

Steve S.: Yeah. Or here's a picture at Grandma Smith's house in her backyard. Okay. They just got your mother's maiden name. You know, things like that. You've gotta watch out for... And that's on you. That's your responsibility.

Steve H.: It is. Same thing with your passwords. No more password1234, Steve. You know, you can't do that.

Steve S.: I promise to change it.

Steve H.: You promise to change it?

Steve S.: Yeah. No, actually, we're going into, I think it's 12 or 16-character passwords, because the more letters and numbers and combinations of letters and numbers and special characters, tougher it is to break. And, you know, they're getting good at breaking this stuff.

Steve H.: Yeah. So, a combination of numbers, uppercase, lowercase, unique symbols. There's people out there that recommend telling a story. Some kind of a long and personal story. One for me, let's see. I'm sad that I started balding in my 30s, but happy that I still look good. How about that? I could make that a password.

Steve S.: It's a lie.

Steve H.: It's a lie.

Steve S.: Anyway. No. But in all seriousness, you know, there's also a human factor that goes into this. And here's what I mean by that. So, okay. You've got a situation where, as a broker, as an investment advisor, as a CFP, you get an email from a client, "Hey, I'm on vacation. I'm in Tortuga." And you know this client is in Tortuga, okay? And he says, "I'm gonna need some money wired down to my bank down here, because I'm spending way more than I thought." What keeps a bad actor from having seen, on that individual's Facebook that they're vacationing, and emailing, you know, one of the firms that they think he may be dealing with? This is where the human factor comes in. Most firms require a verbal confirmation from the client. I do this all the time. "Hey, saw that you need some money. Just need to know that that was you that sent me the email." "What email?" Okay? Or...

Steve H.: Yeah. Exactly.

Steve S.: "...Of course, it was me. Who else would send that?" And you'd be surprised. You know? Once you get humans involved, and this gets back to knowing your customer, knowing, you know, the individual and what they're doing, if your advisor isn't going through these steps, take a hard look at what the security precautions are in there, protecting you and your money. Again, if money got taken out, you're protected against loss due to theft or fraud. That would be theft and fraud right there, but still, you don't wanna go through that hassle.

Steve H.: Yeah, I mean, I agree. It's just like with multifactor authentication. Maybe it's a little bit annoying. Folks that I work with, they email me and ask for a distribution, I pick up the phone and I call 'em.

Steve S.: Absolutely. Yeah.

Steve H.: Every time. I need that verbal confirmation. So, how about some changes with technology, in the not-so-distant future, biometric, things like that?

Steve S.: Yeah, I think you should always use biometrics instead of a password.

Steve H.: Yeah. Facial recognition, finger print.

Steve S.: That much safer. Yeah. Here's the Allworth advice. It takes a village to keep your money safe from criminals, but it needs to start with you. Coming up next, you've got questions, we've got answers. We'll ask the advisor, coming up. 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 got a summer trip coming up? Why you might want to wait to book your hotel. That's coming up. So, if you've got a financial question you would like for us to answer, there's a red button that you can click while you're listening to the show on the iHeart app. Just record your question. It goes straight to us. We'd love to hear from you. First up, Deborah in Villa Hills says, "I hear all the time about the age sweet spot for doing Roth conversions, but when should you not do a Roth conversion, and why?" Good question.

Steve H.: It is a good question. And first and foremost, what comes to mind for me is if you're making a very high income and you're close to retirement. Because what happens when you do a Roth conversion is you take your pre-tax assets, you pay taxes on those dollars, in existing IRA or a 401(k), you can do that in some of these 401(k) plans, and you move it into Roth dollars. So, that's a tax event the year that you make that transition. But moving forward, you get tax-free gains on those assets, and it removes it from RMD consideration.

Steve S.: Yeah, but do you wanna do that taxable event? Do you wanna do a Roth conversion when you're making lots of money?

Steve H.: No.

Steve S.: No. No.

Steve H.: Hands down. No, no, no.

Steve S.: Usually, I see it make sense when the person retires. So, let's say you retired December 31st of 2022. January 1st of 2023 is where you might wanna consider it, because if you were making $80,000, $100,000 in a relatively high tax bracket, and you drop down to just social security, maybe a little bit of income off of your investments, lower tax bracket, yeah, that's when I would do the Roth conversion, because, like you said, it's a taxable event. The other kicker is you gotta wait five years for those earnings to come out tax-free.

Steve H.: Yeah, that's true. There's a timeframe there.

Steve S.: Yeah, yeah. So, if you're gonna be hitting up that Roth IRA in the very near term, yeah, you get your initial amount that you converted tax-free, because you paid tax on that. But the earnings, which is where, really, you get the compounding over time, for that to be tax-free, it's a five-year hold.

Steve H.: Yeah. I mean, this is one of those things where you certainly need to sit down and talk to a credentialed financial advisor. Probably run it past a CPA too, because there are other moving parts. If you do a Roth conversion when you're collecting Medicare, your income goes too high, your Medicare premium can go up.

Steve S.: Yeah, exactly. You gotta be careful. Yeah.

Steve H.: Yeah. So, there's a lot of moving parts here, and the answer is, when you should not do it? When you are still working, for the most part, especially if your income is high.

Steve S.: Exactly. So, just because somebody ran a seminar saying everybody in that room should do a Roth conversion, no, not everybody should. Talk to your accountant and talk to your advisor. Okay. Jerry in Deer Park, "I currently have my 401(k) contributions going into four funds, 25% in each one. But there's a lot of other choices on the menu. Am I diversified enough?"

Steve H.: I mean, that's a loaded question from Jerry because it really depends on the funds that he's in.

Steve S.: He might be in four large company stock funds, with the same holdings...

Steve H.: Exactly. You know...

Steve S.: ...for all intents and purposes.

Steve H.: ...you wanna have a mix of stocks, bonds, maybe a sprinkle of cash in there. And when we're talking about stocks, that's just not all the S&P 500. That's large-cap, mid-cap, small-cap, international.

Steve S.: International.

Steve H.: International securities, they don't correlate necessarily what's going on with domestic stock. Sometimes they perform better, sometimes they perform worse. It's an important part of diversification. I've also seen something with folks that I've worked with before that had tiered target-date retirement funds, like 2025, 2030, 2035. Just wanna put it out there, Jerry, just in case. If that's what you're doing, you use one of those or none of 'em, or, preferably none of 'em if your 401(k) gives you more options. But yeah, it's a loaded question, and a good one.

Steve S.: And if you can't do it yourself, find an advisor that will run all of your choices, to find out which ones have the best track records, and also how to mix them so it's within your risk tolerance. If you already have an advisor, Jerry, they should be more than happy to help you do that.

You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're answering your questions. And John in Loveland is asking, "My financial advisor is really good at explaining things to me, but it takes an arm and a leg to get him to even respond to my calls for help. I know he has other clients, but I have needs too. Is there a better way to approach this?"

Steve H.: John, your needs are more important than your financial advisor's needs. That's what I would say. Time for a new advisor if you can't get in touch with them.

Steve S.: Yeah, exactly. I mean, what I'm wondering is, okay, you know, what's the reason behind this? Is he a commission advisor? If he's a commission advisor, there's no legal reason he even has to return your call, but he sure should. If, again, we keep pounding away at fiduciary, if he's a fiduciary, and charges a fee for service, they've got an obligation to get back to you. And if he's not, ask for the manager.

Steve H.: Yeah, fiduciary puts your best interest ahead of their own, is what I should say, and that's what I was gonna point out. A commission advisor, maybe they already made their money off you.

Steve S.: Okay. Jimmy in Greenhills, "My advisor has me in a 70/30 target-date fund in my 401(k). I'm 44 years old. I thought target-date funds aren't for everyone." Good question.

Steve H.: Oh, I like this. It kinda goes along with Jerry in Deer Park. So, Jimmy in Greenhills, if your advisor put you in a target-date retirement fund...

Steve S.: He's not doing a lot of advice.

Steve H.: Yeah. I question their ability to do their job, because the folks that I work with, a lot of the times, the way we're paid as fee-based fiduciaries is it's fees taken direct, so out of accounts that we're managing, such as a retail account, like an IRA or a brokerage account. We can't necessarily manage a 401(k) the same way, and we're also limited in the investment choices that your employer gives us to pick and choose from. But you better believe that as a fiduciary, it's important for us to make sure that your 401(k) investments align with your overall financial plan. And candidly, a target-date retirement fund versus some of the other potential index funds that are available inside your 401(k), they might be able to bring down the internal expenses by making a custom portfolio for you inside of that 401(k).

Steve S.: Yeah. The bottom line is, target-date funds, in my view, they're okay if you don't wanna do the work and you don't wanna hire anybody to do the work, are better than nothing. But there's, almost, in every case, better investment choices out there. And just so you know, if it's 70/30 today, 70% stocks, 30% bonds, by the time you're ready to retire, it may be 10% stock, 90% bonds.

Steve H.: Yeah, it gets safer the older you get.

Steve S.: Yeah. That's the idea. Which is fine sometimes, but if you were 10% stock, 90% bonds going into 2022, when bonds got absolutely crushed, and you thought they were protecting you, yeah, that's a little bit of an issue. I'm not sure it was a real good choice for you. Coming up next, would you wait until the week you travel to book your hotel? It could be worth it. Details 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. You know, a summer vacation sounds great right about now, especially warmer weather, but that can mean a lot of advanced planning, except for one part. You know, you're gonna book your flights way ahead of time to make sure you've got a flight. But the hotel, you might just wanna wait.

Steve H.: You might. I don't know. According to Skyscanner, you can save more than 20% if you wait to book your hotel until a few days before you leave. Too much courage for me.

Steve S.: All right. You've got a youngster at home. Would you risk having your family not have a hotel before you leave?

Steve H.: Not a chance. I'm also a financial planner, Steve, so I plan ahead for this type of thing. I set aside vacation money, so that I can book the type of trip that I want to have. If you need to save 20% on just the room and board portion of your trip, then maybe you need to save a little bit more or plan ahead a little bit more. Not that this couldn't work for those that want to get out there on a whim, and have some fun for a long weekend.

Steve S.: But, you know, those thousand-dollar-a-night hotels that you like to stay at, that's $200.

Steve H.: $200, that's nothing Steve.

Steve S.: To you, maybe.

Steve H.: No, I wish I could stay in places like that.

Steve S.: Exactly.

Steve H.: NerdWallet says that if you book 15 days before you travel, you can save 13%. So, you know, it can add up, depending on the types of hotels you're staying in, but that's, it's an important part of a vacation.

Steve S.: You know, this is where old guys like me, whose kids are grown and gone, this is where we get away with murder, because I have actually, and I usually do this on road trips, but I have actually, "Okay, we need a place? I'm not gonna worry. Let's see how far we get if we're driving, or let's just show up." And I've walked into hotels and whatever the price is, if they've got a room, I always shake my head and I just say, "You know, yeah, that's not a bad price, but I really don't want anything that's over..." and I'll set a price lower. And about half the time, they say, "Well, we can do that."

Steve H.: Really? You negotiate with hotels...

Steve S.: Always.

Steve H.: ...on the fly?

Steve S.: I negotiate with everything. It's fun. It's a game.

Steve H.: I do too, but that's not something I've even thought of.

Steve S.: Oh, yeah.

Steve H.: You haven't taught me much, but you taught me something just now, Steve.

Steve S.: Now, the problem with that is the number I used to set was $89.

Steve H.: Yeah. Good luck.

Steve S.: And that's not gonna get you much of a hotel. My wife has fixed that. She said, "There's nobody in this whole city that will give you a room for that price. And if they do, I'm not staying there."

Steve H.: I know, right?

Steve S.: So, we have changed those numbers a little bit, but sure, why not? You know?

Steve H.: Yeah. I mean, honestly, I've done that before, BC, before children. You know, my wife and I, we used to live out in New York, and we got sick of the big city. And anytime we had a long weekend, we would head north and we would do these road trips around New England. You go into those areas, there's enough places, especially if you're in the off season, when it's -20 degrees, I've done that before. That was fun, heading up into New Hampshire when there's nobody there. I've done it. So, it can work.

Steve S.: I wouldn't do it for a family vacation.

Steve H.: No.

Steve S.: No. Not at all. I actually, I usually find the best deals when you bundle them with the airfare. Some of those deals are pretty darn good. Here's the Allworth advice. Maybe a better plan is to book a hotel that you can cancel in advance. Then you can keep looking around for a better deal, or see if prices go down where you plan to stay.

Hey, thanks for listening. And tune in tomorrow. We'll be back. And we're gonna talk about all the reasons to think carefully about where you're gonna retire. You've been listening to "Simply Money," presented by Allworth Financial on 55KRC, THE Talk Station.