Fed Holds Rates Steady, Bearish Predictions Miss the Mark, and How to Stay Ready for a Recession
On this week’s Best of Simply Money podcast, Amy and Bob break down the Fed’s decision to hold interest rates steady—and what it really means for your money. They push back on the latest bearish market predictions and explain why they might not matter. Plus, is a recession looming? Hear which risk indicators they’re watching and how smart investors can prepare without panicking.
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Amy: Tonight, the Fed stays put. Our recession scorecard is in. So what does that mean? And you are asking the advisor a lot of great questions. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller.
For the first time since President Trump filed to fire Federal Reserve Chair Jerome Powell, and then, of course, walked back on that, the Fed met and have announced what they are gonna do with interest rates this time around, and what they are doing is nothing.
Bob, I cannot even begin to recall how many times I have said over the past few years, this is not a job I would want. This is a tightrope walking over flames with lions jumping at you, kind of a job, right? Getting it right with political pressure, with outside pressure, with a whole lot going on. And essentially, what the Federal Reserve decided today is based on all the information that we have right now, we're just gonna keep interest rates where they are. We're not gonna lower things yet. And I think, you know, there's a lot of information they're taking in to make that decision.
Bob: I think that's a very prudent decision by the Fed, and it's been widely telegraphed that they were probably gonna do nothing. And I think for good reason, and we've talked about this a lot on this show, there's a lot of things out there we just don't know yet. I mean, we have a lot of unresolved issues with regard to trade policy.
And I know the Fed, you know, the president has gone on social media and gone on publicly and made comments and, you know, walked them back. And it's just all the way the president likes to communicate. I think, again, we try to stick with facts and data on this show. And I think the data suggests that it's a prudent decision to just sit back and wait a little bit longer.
Amy: Yeah. And what you also have to keep in mind is going back to the post-pandemic, right, inflationary environment that we had, the Fed very outwardly said, hey, we think this is transitory. We think this is a very short-term thing. It's gonna play itself out. There are supply chain issues. People are returning to work. And then that came to really kind of bite them later on. And that inflation was nothing but transitory.
And there was widespread criticism. From economists, from really kind of across the board that they waited too long to start to hike interest rates in order to try to bring inflation down. So, you know, another piece of this decision-making process is, okay, we waited too long before to hike things. And again, they're relying on a lot of data, but tariffs are potentially inflationary. You drop interest rates and then we have inflation and you've got a whole other problem.
Bob: Yeah. And I think part of what is perhaps making President Trump go public with some of his comments is we need to remember the European Central Bank has already cut interest rates seven times already in 2025. That's been a nice little jolt to their economy and their stock market. You know, we've talked about how stocks in Europe are up for the year. Well, you drop interest rates seven time, that's gonna juice your stock market a little bit. And I'm sure the president would like to see the same thing happen in the United States. Hence, you know, some of his comments on, hey, let's go, let's cut, let's cut. And we'll see what happens here.
I think our chief investment officer, Andy Stout, has talked about, you know, as recently as Monday on this show, Amy, I think the odds right now are probably 60% to 70%, you know, in odds of a rate cut in June, possibly three or four rate cuts throughout the balance of this year. Andy said he'd probably be a little surprised if we do get four rate cuts later this year. But again, we got tax policy that needs to be figured out. We've got trade policy that needs to be resolved. I can totally understand why the Fed just decided to just sit on this, you know, this month and wait and see how the data shakes out.
Amy: Yeah. But to your point, right, the European Central Bank has cut rates seven times already this year. This move today, or I guess lack thereof, kind of extended the pause that started in January after we had kind of that series of rate cuts over the past couple of years. So right now, interest rates kind of remain the same at 4.25% to 4.5%. Let's talk about where the benefits are for that for you as an investor. We are in a period of time where you can actually make a little bit of money on money that's in the sidelines. And if for as long as this period continues where we're not cutting interest rates, as an investor, you can still take advantage of that.
Bob: You could still take advantage of it. But, you know, regardless of what interest rates are, Amy, and I'm not telling you anything you don't know. I mean, there's really usually a very little spread when you net it out for taxes between what you can get in short-term instruments like CDs, treasuries, high-yield money market accounts, and on an after-tax basis, comparing that to inflation. You know, you get a little bit of a positive spread, but not much. And I think that's still where we are today. You can get, you know, roughly 4%, no risk, pretty liquid money today. And that's attractive to people emotionally. But we got to remember that with inflation hovering in the high 2% to 3%, you know, when you net that 4% out for taxes, you're really not gaining any purchasing power. You're just treading water, so to speak.
Amy: Yeah. Keeping up with inflation.
Bob: Yeah. The only way to really grow net worth and grow purchasing power is to be investing in something that is going to grow. But yeah, while we're waiting for all this to shake out, to your point, for emergency funds and short-term liquidity needs, 4% is still a nice place to hang out for a while. And folks should be taking advantage of that if they're sitting with money in bank accounts where the banks are only giving you one to one and a half. Still a good time to shop around and make sure you're getting treated fairly with your short-term cash.
Amy: Yeah, for money that belongs on the sidelines, right? It is in your emergency fund. You're gonna make more than historically you were able to when just a few years ago, and I remember this, you were making point 0.00006% or whatever it was by having your money parked in a savings account. Now you can make a little more on the money, again, that belongs on the sidelines.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. No major changes from the Federal Reserve, our nation's central bank today. And we also have new research looking at money managers and how they are feeling and maybe their outlook on the markets and where they'll be moving in the future.
Bob: Yeah. And I'll just say this right up front, the information we're gonna share right now, I would say, is borderline useless, but we're gonna share it with you just to give you a heads up of what you're hearing on the evening news or when you're driving around in your car. Over 30% of all respondents on a recent survey of where the market's going over the next 12 months, a predictive survey is saying they're bearish on the market for the remainder of 2025 or the next 12 months. That is the highest percentage of bearishness since 1997.
Amy, I'll tell you, as somebody who's been in this business for a long time, when you get this much bearishness among so-called money professionals, that's really a good time to buy because these people are usually wrong.
Amy: Well, and on the flip side, right, the money managers who are bullish are at their historically low levels. The question I think you have to ask yourself as a long-term investor who is looking at this research or hearing about it is what does this mean to me? And Bob has already answered that. Like, take it with a grain of salt. These people make predictions all the time, whether it's in research and in a questionnaire that's solicited of them or whether they're putting opinions out there in headlines. And we have seen so much, right?
When you're paying really close attention, when it's your job to pay really close attention to these financial headlines, you start to see a pattern. And that pattern is craziness. It is chaos. It is, you know, last year when we had a banner year in the stock market, there were still money managers going into 2024 and through 2024 that were calling for the largest recession we've seen in years. The sky is falling. All these things. This one tiny thing that we're seeing in the market right now is pointing toward utter failure of the American economy. All of those things have been said in the headlines by people just like the ones who were participating in the poll, and they were all wrong.
Bob: Well, Amy, you had a very long career in the media industry, so you know how this game works. If somebody is willing to come on television or the radio with some outlandish prediction, you know, if you're in the media business, you're like, hey, put them on. You know, it's gonna cause some excitement. People will listen to them. And even if they're wrong, which they are most of the time, it makes for great headlines and makes for an interesting story.
When you look at this recent survey, you got pessimists, you got optimists, and the range, if you look at the survey, you know, some are saying a 4% to 7% increase from recent levels. Some are seeing a 7% to 10% decline from here, and a little over 40% of all respondents of money managers to this recent survey describe themselves as neutral, meaning they're not willing to make any bets either way. And honestly, I think that's the responsible way to play this.
Amy: Well, they don't have a crystal ball. I mean, you might as well flip a coin at this point.
Bob: And they're willing to admit it. That's good. Yeah.
Amy: Exactly. I don't know where things are gonna go in the future, but I'm gonna stand strong on fundamentals, right? And I think that's a really smart place to be as an investor. You know, and keep in mind, this research changes. I mean, you could ask the same question of the same people a month from now and it could be drastically different. What doesn't change is research that shows, hey, these people are trying to manage funds in a way that's going to beat the market, right? The underlying index that they're trying to beat. And here's the deal, 73% of active managers underperform their benchmarks in any given year. Three out of four of them can't even hit the benchmark, whether it's the S&P 500, whatever it is. After five years, 95%, almost 96% of active managers missed the mark. And after 15 years, nobody's doing it.
Bob: And you just drove home the main point that we wanna get across to folks today, Amy. Seventy-three percent over one year, 95.5% over five years, and nobody over a 15-year time period at professional money managers outperform the index. That's the message right there, Amy. You nailed it.
Amy: Yeah, they don't have a tarot card that's telling them the right thing.
Bob: No.
Amy: They don't have a magic eight ball. There's nothing that's giving them the answers, because if there was, they'd be beating these markets year after year after year. And they are not. Here's the Allworth advice. Please ignore predictions. Don't try and time the market. Stick with your diversified long-term plan that doesn't rely on someone picking winners. As a longtime Kentucky resident, it's like trying to pick the winner of the Kentucky Derby. Can't be done consistently year over year.
Coming up next, how we determine recession risk and maybe how you should be thinking about it. 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 Bob Sponseller. If you cannot listen to our show every night, you do not have to miss anything we're talking about because we cover a lot here. We've got a daily podcast for you. Just search Simply Money. It's right there on the iHeart app or wherever you get your podcast.
Coming up at 6:43, you've got a lot of questions right now about taxes, how to really be diversified, and a lot more. We're gonna get to those in just a few minutes. There is a lot of chatter right now, and honestly, a lot of the time in headlines about the possibility of a recession. And right now, Bob, more people are, of course, talking about it because we have the U.S. economy contracting. We got this data in the past few days and said, Hey, the U.S. economy contracted in the first quarter of this year. Oftentimes, kind of in the headlines, it's thrown around that a recession is defined as two consecutive quarters of negative gross domestic product. So if we've got one, are we heading in this direction? And so, you know, I think when we throw out that word recession, we do not throw it out lightly. Because this is something that scares a lot of investors.
Bob: Well, in that R word, that recession word will be talked about and has been talked about in the media. So, you know, people sit up in their chair and take notice of that. I mean, recessions are generally not good. But, you know, we had Andy Stout, our chief investment officer, on the show on Monday, and he dug a little deeper on how we might have some revisions to those numbers and then really what those numbers mean with, you know, imports being brought forward for the last quarter. But more importantly, Andy Stout, our chief investment officer, and I know other well-known responsible economists, they look at a lot of things other than just GDP numbers.
And I know with Andy, he has a little scorecard he uses that is populated with all kinds of indicators. And there are 10 different indicators. And the thing that I like is he boils this down to red, yellow, and green. You know, he dumps it down so people like me can even understand it, Amy. And it does a great job. And right now, only 4 of his 10 recession indicators are blinking red. So that shows us that we've got a mild risk of a recession, but nothing to panic about right now.
Amy: I think it's important to understand as an investor. Again, we kind of joke around it, but nobody has a crystal ball. So if anyone's trying to make a prediction of what's gonna happen in 2026 or 2027 in the stock market, it's craziness. But there is something called a leading economic indicator. And this is something where, hey, if you start to see a trend in these numbers in a particular direction, it might signal something bigger over the course of the next six months, right?
So Andy has compiled a list of those, 10 of them that, hey, if they were all pointing in the same direction at the same time, you might wanna raise the flag a little bit and say, okay, we could be heading into a recession now. Now, I would say also, kind of a disclaimer that I'll put out there at the same time is just because even if we thought there might be a recession coming as a long-term investor, I would say you don't need to change anything about your plan. Your financial plan should count for times like that. But to your point, 4 out of 10 are signaling maybe some potential issues. That's pretty normal territory for what we see.
Bob: That's what I was just gonna say. I mean, we rarely get a 10 out of 10, hey, all the lights are green. Pack up the truck and pile the stocks because we're going up 50% in the next 12 months. There's always things out there on the horizon. But, you know, Andy looks at things like the broad economy, interest rates, housing costs, employment numbers, consumer sentiment. You know, I mentioned on the show yesterday, my little Bob indicator, for whatever it's worth, you know, I look at interest rates, employment, inflation, and earnings.
You know, there are things that if you have access to the data, you know, like Andy and his team have, you can look under the hood in very detailed ways and look at trends on how various parts of this economy are moving. And I think to the point you just made, Amy, by the time the media catches up and gives us this official declaration of a recession, 9 times out of 10, the recession is already over and we're recovering.
Amy: Yeah. You know, and it's like kind of what should you do with this information, right? Sometimes if I get a nervous investor in my office, I will bring up Andy's scorecard and I will say, listen, these are all the things that we are keeping a really close eye here on at Allworth. You know, and I think another thing you have to keep in mind, too, is, you know, if one of these particular indicators is triggered, right, it moves to red, what you also have to keep in mind is, is there a pattern of this over time? Because some months and certain data will be flagged and then it kind of moves on and goes back to normal. So I think this is a way of saying, hey, this is one way that you can maybe look at things, but I don't even know.
Bob: You just made an excellent point, really excellent point, because what do we hear about all the time in the financial media? Revisions. GDP numbers get revised, employment numbers get revised. There are revisions all the time. Those revisions don't make the headlines. What makes the headlines is that GDP announcement...
Amy: Initial umber.
Bob: ...that inflation number, that employment report. And then what gets lost in the shuffle are the revisions. And that's why, you know, to the point I think you're making, you can't just react or shouldn't just react to the headline numbers. Excellent point.
Amy: But if you have concerns about maybe where the stock market or the economy might be heading, there are things you can be doing. And I would say, hey, these actually apply to you 100% of the time, right? And that is making sure that you're, you know, you're properly diversified, and I think in a year like we're having in 2025, where we are seeing some market volatility, you are really bearing out the fruits of being really diversified.
You know, you mentioned earlier in the show, Bob, that European markets are doing really well right now. You know, for those who are concentrated only in the U.S., you're seeing a lot more volatility than maybe you were if you were truly diversified. We have a global economy. So diversification is also a key piece of this and an asset allocation, right? Maybe when you were in your 30s, you were 100% in the stock market. But if you are in your 60s or 70s now, it might make sense to have that stock market exposure dialed back a bit, especially if you are living off of those investments at this point, right?
So kind of putting your finger on your pulse right now as an investor and saying, "Is this the right way for me to be invested?" These are not only good things to keep in mind. If all 10 leading economic indicators were pointing toward red, but any point in time as a long-term investor, you've got a long-term financial plan, but it's good to kind of reassess where you are as an investor and see if anything has changed.
Here's the Allworth advice. The next time you get bombarded, you hear that word, our word, recession, remember, you've got a financial plan and you stick with that plan as a long-term investor. Coming up next, will warmer weather mean it's time to buy or sell your home? Our real estate expert is the next with some answers for you. You're listening to "Simply Money" presented by Allworth Financial here on 55KRC, THE Talk Station.
Bob: You're listening to "Simply Money" presented by Allworth Financial. I'm Bob Sponseller, flying solo today with our real estate expert, Michelle Sloan, owner of RE/MAX Time.
Michelle, spring is in the air and that can only mean one thing. A lot of things going on in the real estate market. Bring us up to speed with what you're seeing out there, Michelle.
Michelle: You know what, Bob, I don't wanna use the word crazy because I think that is overused, but it has been extremely busy. Let's put it that way. You know, in the world of real estate, I think when May 1st hit this year, I really had the sense that the people who are ready to put their home on the market and sell, that was the date that they all targeted in their calendar. They had it circled with big bold letters.
And over the course of the last seven days, we've had 710 new listings on the market in the Cincinnati multiple listing service. And we've had quite a number of those just in the last seven days already go pending. So we are seeing a lot of activity. A lot of buyers are getting involved. It's exciting for me because, you know, we wait for this time of year. This is our Superbowl. We wait for this time of year all year long for us to be so busy that we have no time to eat. And it's a good thing. We're really blessed.
Bob: So does this mean you're missing out on a big real estate sale because you're talking to me right now?
Michelle: I might. No, absolutely not. No, I think we got a couple of minutes. That's not gonna be a big deal. You know, one of the things that's...it is really spurring all of this activity is we have a pent-up demand for sellers. Sellers have been sitting in their homes since COVID thinking, okay, we've done all of the updates. This home just doesn't fit our needs anymore. And so with that, it's time to sell. But where do we go?
A lot of new home sellers have decided to build a home maybe or move out of the area, downsize. Since there are more and more homes going on the market, people are just...they're ready to go. And that is...it's a very, very exciting time. It's also a very nervous time for people because everything that's happening politically has everybody just a little bit of caution in the air, but at the same time, everybody's ready to make a move this year. So 2025 is the year of the move, in my opinion.
Bob: Got it. Well, interest rates really haven't moved much at all, Michelle. And I know, you know, being someone who's lived in Cincinnati my whole life, to your point, you know, spring is just that seasonal time, it seems like, in greater Cincinnati where everybody knows that spring is kind of real estate season. Is the reason everybody's so busy right now and listings are up and all that, is it just because of that pent-up demand, people have just been waiting and waiting and waiting and fixing up their home, and at some point, people just need to make a move based on what they've wanted to do for four or five years now. Is that really what's going on?
Michelle: I think so, Bob. I think that that is...it's just people are, they're sick and tired of staying in the same home. You know, it used to be, 20 years ago, when I got into this business, people would move every five to seven years. Now there are so many people who have lived in their home for 10, 12, 15, 20 years. And of course, in Cincinnati, if you live on the West side, you've probably been in your home since you were a baby. We're still not seeing a lot of activity on the West side, but that's just normal. But it is fun. It is fun.
We're seeing the mortgage rates, the 30-year fixed on average right now is around 6.8 to 6.81, 6.79, something like that in the high sixes, 15-year rate mortgage, just a normal conventional loan, right around 6.03, something like that. Again, it all depends on your credit score and your financials. But the one thing that is good news about those, it's not a big change over the last couple of months. But if we go back a year ago, last year's rates were at 7.22, so they were over 7%. And again, I think that over 7% is a threshold for a lot of buyers that they really...buyers are concerned that I can't get what I want in that price range if I'm looking at the rates. So if we stay under six for the foreseeable future, I think we're in really good shape.
Bob: All right. Well, you mentioned inventory is on the rise. Listings are on the rise. Does this mean we're back into this multiple offer situation where homes are starting to sell well above listing price? Are we back in that environment like we were back in the COVID days?
Michelle: We are. Absolutely. So I had a listing in the Mason area last week. We had eight offers in the first 48 hours. Now, the one thing is I think that sellers and sellers' agents are doing is trying to put a little bit of, I don't know, distance or time to give people an opportunity to make a decision. So my seller decided I want to at least give 48 hours, which doesn't sound like a lot of time, but I want to be able to give buyers the opportunity to come see my home. And a seller can do that. The seller does not have to take the very first offer that comes in the door. The seller is in control. And if you have a strong real estate agent, you have to understand that the seller is in control and that first offer may not be the best.
And so we had, on that particular property, we had eight offers and many, all of them, all eight offers were over list price. And so then we have to, as we're looking through each one of these offers, we have to determine, well, if it's $5,000, or $10,000, or $15,000 over list price, is it going to appraise? That's a question we have to ask. Is the buyer willing to pay more than the home is worth during the appraisal process? And that's the case. That's what we ended up accepting an offer where the sales price was higher than the list price. And the buyer was able to waive the appraisal, meaning they're gonna pay any amount up into the sales price that we agreed upon.
So that gives you, if you're a buyer and you have that kind of financial wherewithal to be able to afford that, then you're in the driver's seat as well. So it really depends on where you are. But you're looking at eight offers. We did not end up taking the highest offer because we wanted to guarantee that it was going to actually close at the price that we agreed to when we negotiated at the very beginning of the process.
Bob: So does that mean, Michelle, you're kind of sitting back with those eight offers in hand and you're kind of playing the role a little bit of a financial underwriter. You're trying to figure out, depending on whether this purchase is gonna require a loan or whether it's a cash offer, you're sitting back saying, what's the probability these people even being able to follow through and actually complete this purchase? Am I correct?
Michelle: Absolutely. Absolutely. So there are so many factors. It's not just the price. If I get a price $50,000 higher than list price, that doesn't necessarily mean that you're going to get... And some agents and some buyers are like, well, why didn't you pick mine? Wasn't mine the highest price? Well, on paper, it may be the highest price, but is it really? Are we gonna have to renegotiate? And are we gonna have to fight you tooth and nail throughout the whole process?
And the other factor that we have to look at is inspections. And I would never tell one of my clients don't get an inspection. I think 99% or 90% maybe of the buyers out there today will do inspections for information only. And if something absolutely serious, structural, mechanical is wrong with that home, then you have the opportunity to either get out of the contract or renegotiate at that point. But you have to be savvy and understand, as a buyer, you need to be ready with all your barrels blazing.
Bob: All great reasons to work with a seasoned real estate professional like our good friend, Michelle Sloan, owner of RE/MAX Time. Great stuff, Michelle, as always. Thanks for making time for us. You've been listening to "Simply Money" presented by Allworth Financial on 55KRC, THE Talk Station.
Amy: You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. Do you have a financial question you and your spouse do not agree on or just kind of keeping you up at night? What should I do about this? Well, there's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question, it's coming straight to us. Let's get straight to your questions now. First one comes from Sandra in Kenwood.
Sandra: How do I make sure my portfolio is tax-optimized in retirement if tax rates increase in the future?
Bob: Well, there's a few things you could do, Sandra. One thing, regardless of what tax rates are, for your non-IRA, non-401K accounts, you should be tax-optimizing that account at all times through regular tax loss harvesting. We've got a program that does that here at Allworth. I know other advisory firms have something similar. Some of them do. Making sure that non-IRA account is as tax-efficient as possible is a good thing to do.
The other thing, if tax rates increase, then it's a time to reevaluate, depending on what your tax rate or tax bracket is, whether tax-free or municipal bonds make sense, that whole calculus changes, depending on what tax rates are in the future. So those are just a couple of things without knowing your specific situation that you might be looking at. Roth conversions might be a third.
Amy: Yeah. I'm glad you brought up Roth conversions because, Sandra, what I find of the retirees, the investors that are retiring now, is you got the memo loud and clear that you have to save, and you put a lot of money into your 401K. The problem is many people your age who are retiring now didn't get the memo about putting money into a Roth, so you have a lot of assets oftentimes in tax-deferred accounts. And so if you're worried that your tax rate could go up in the future, then you'll be paying more money when you pull the money out of those accounts.
If you are retiring right now, likely, you could find yourself in a lower tax bracket when your salary is no longer coming in, and you can take advantage of the years between now and the year when Uncle Sam says, okay, RMD time, you've got to start pulling money into that account and doing Roth conversions if they make sense for you. This may not be a do-it-yourself proposition. It might be smart to partner with a financial pro, a tax planner, a tax professional, but it could make sense to look into this now if you are someone who finds yourself in a boat, which is a very large boat, I find, for people who are retiring around now.
Bob: Well, and Amy, I poke fun at you and Jess sometimes about health savings accounts because I know how passionate you are about them, and for good reason, but I think with Sandra's question here, if tax rates increase, that's just yet another reason to take full advantage of that health savings account. That's really gonna help you out down the road. I wanna make sure we throw that in.
Amy: Yeah, no, I'm glad you brought that up. I actually had a couple in my office yesterday, late 40s, and I was like, next open enrollment, you need to look into a high-deductible health care plan because it's time to take advantage of [crosstalk 00:32:49].
Bob: And you threatened to show up for the enrollment meeting if they didn't promise you they'd do it, right?
Amy: I said, "Hey, what date does HR reach out?" I might be hanging out in your office on that particular day just to make sure we don't miss this opportunity. All right, let's get to Jim's question now in White Oak.
Jim: Am I overthinking diversification or is there a point where adding more investments actually hurts performance?
Amy: I would say there's a sweet spot here. Bob, I don't know if you agree or not, but we like to be truly diversified. Mentioned earlier in the show, we're bearing the fruits of that as investors now, if we are widely diversified. And by that, I mean, you've got small-cap companies, you've got large-cap companies, you've got companies focused on growth and companies that are more value. And then not only you're invested here in the U.S. in your own backyard, but globally, right?
Global markets seem to be doing well. And I had someone in my office who's a very kind of technical thinker, engineer. And he was like, "How do you be thoroughly diversified across everything?" And at some point, I think you can get to spread out. But I think it's a sweet spot situation. It's a balancing act. And it's important sometimes to work with a fiduciary to figure out what that looks like for you.
Bob: I agree with you totally. Sometimes people wanna be diversified by buying 11 different large-cap growth funds and they think they're diversified because they have 11 positions showing up on their statement. That's not diversification. Diversification is exactly what you just talked about, Amy. Make sure you've got all your non-correlated asset classes in the portfolio. You already nailed it.
Amy: All right. Let's get to Bob's question in Union.
Bob: How do you tailor asset allocation for someone who's comfortable but not ultra wealthy?
Bob: Bob, I'd answer your question this way. I don't think it matters whether you're comfortable or ultra wealthy. The important thing here is tailoring an asset allocation strategy for your specific financial plan. When I put together a plan for clients, I'm looking at basically three things. What are your ongoing sources of income apart from your portfolio? What do you plan to spend every month or every year? And then what is your asset base or investment portfolio look like? And then what is your risk tolerance?
So four things. I mentioned three. It's four. You combine all those four things together and you can usually arrive at a pretty good asset allocation strategy that can allow someone to meet all their long-term financial goals while being able to sleep at night because they're not tethered to cable news worrying about every jot and tittle of the stock market six times a day.
Amy: Yeah. The sleep factor is a huge thing, right? How do you eat well and sleep well in retirement? What is that exact mark for you? But also, if you have a couple of pensions in your household and social security and you may not even need those assets, it's a slightly different conversation than, hey, we're gonna retire in a year and a half and we'll be pulling from those assets to live off of. So all of that has to be taken into consideration, but not necessarily how much you've saved.
Coming up next, a major money reason why Cincinnati is such a great place to live. 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 Bob Sponseller. So many things to love about living here in Cincinnati. And as someone who has grown up here, Bob, I know you're from here too. Cincinnati has almost had this, like, Renaissance over the past, I don't know, decade or so where you look at any kind of poll across the country about cool places to visit, places for a long weekend, whatever.
Cincinnati is always at the top of the list now. We've got a lot of cool places to visit. We've got this thriving food scene. We've got so much to do around downtown. But also, you could do some of those things in really big cities like New York, or Chicago, or somewhere else, but you're also going to pay more for that. And one of the beautiful things about living around here is it's incredibly affordable.
Bob: Yeah. We came across a survey recently done by LendingTree. That's a company I think a lot of people have heard of, and they measured affordability of major cities across the country. And in 25 of 100 cities they looked at, average monthly spending on basic expenses exceeds monthly income for a family of three that is earning $100,000 a year. That was kind of their benchmark household income of $100,000 a year.
San Jose, California, tops that list with average monthly expenses of a little over $10,500. Amy, my first reaction to this report is only in California and maybe Washington, DC, can we pretend to spend more than we have coming in each month and pretend that that's a sustainable situation for the long term? Kind of crazy.
Amy: Well, when you think about too $100,000, that six-figure salary for many people was the benchmark, right? If I can make that much money, I have made it. And if you are living in a part of the country where you can't even make ends meet with $100,000, do not sign me up for living there because I have no interest in that. I was born and raised around here. I am used to Midwest sensibilities, Midwest spending, Midwest costs.
Bob: Yeah. The only thing I would add is if we could get a little bit better weather between January and April.
Amy: May now. Yeah.
Bob: And maybe if our football team and baseball team could win a few more games, Amy, Cincinnati would pretty much be heaven on earth to me.
Amy: Well, we'll get that memo to our local sports teams to see if they can get on board. But yeah, that same list that looked at how expensive cities are also, of course, had Cincinnati in the top 10 for relatively affordable household earning of $100,000. You can live really well on that around here.
Thanks for listening. Tune in tomorrow. We're talking about how target date funds just got riskier. You've been listening to "Simply Money" and presented by Allworth Financial here on 55KRC, THE Talk Station.
For the first time since President Trump filed to fire Federal Reserve Chair Jerome Powell, and then, of course, walked back on that, the Fed met and have announced what they are gonna do with interest rates this time around, and what they are doing is nothing.
Bob, I cannot even begin to recall how many times I have said over the past few years, this is not a job I would want. This is a tightrope walking over flames with lions jumping at you, kind of a job, right? Getting it right with political pressure, with outside pressure, with a whole lot going on. And essentially, what the Federal Reserve decided today is based on all the information that we have right now, we're just gonna keep interest rates where they are. We're not gonna lower things yet. And I think, you know, there's a lot of information they're taking in to make that decision.
Bob: I think that's a very prudent decision by the Fed, and it's been widely telegraphed that they were probably gonna do nothing. And I think for good reason, and we've talked about this a lot on this show, there's a lot of things out there we just don't know yet. I mean, we have a lot of unresolved issues with regard to trade policy.
And I know the Fed, you know, the president has gone on social media and gone on publicly and made comments and, you know, walked them back. And it's just all the way the president likes to communicate. I think, again, we try to stick with facts and data on this show. And I think the data suggests that it's a prudent decision to just sit back and wait a little bit longer.
Amy: Yeah. And what you also have to keep in mind is going back to the post-pandemic, right, inflationary environment that we had, the Fed very outwardly said, hey, we think this is transitory. We think this is a very short-term thing. It's gonna play itself out. There are supply chain issues. People are returning to work. And then that came to really kind of bite them later on. And that inflation was nothing but transitory.
And there was widespread criticism. From economists, from really kind of across the board that they waited too long to start to hike interest rates in order to try to bring inflation down. So, you know, another piece of this decision-making process is, okay, we waited too long before to hike things. And again, they're relying on a lot of data, but tariffs are potentially inflationary. You drop interest rates and then we have inflation and you've got a whole other problem.
Bob: Yeah. And I think part of what is perhaps making President Trump go public with some of his comments is we need to remember the European Central Bank has already cut interest rates seven times already in 2025. That's been a nice little jolt to their economy and their stock market. You know, we've talked about how stocks in Europe are up for the year. Well, you drop interest rates seven time, that's gonna juice your stock market a little bit. And I'm sure the president would like to see the same thing happen in the United States. Hence, you know, some of his comments on, hey, let's go, let's cut, let's cut. And we'll see what happens here.
I think our chief investment officer, Andy Stout, has talked about, you know, as recently as Monday on this show, Amy, I think the odds right now are probably 60% to 70%, you know, in odds of a rate cut in June, possibly three or four rate cuts throughout the balance of this year. Andy said he'd probably be a little surprised if we do get four rate cuts later this year. But again, we got tax policy that needs to be figured out. We've got trade policy that needs to be resolved. I can totally understand why the Fed just decided to just sit on this, you know, this month and wait and see how the data shakes out.
Amy: Yeah. But to your point, right, the European Central Bank has cut rates seven times already this year. This move today, or I guess lack thereof, kind of extended the pause that started in January after we had kind of that series of rate cuts over the past couple of years. So right now, interest rates kind of remain the same at 4.25% to 4.5%. Let's talk about where the benefits are for that for you as an investor. We are in a period of time where you can actually make a little bit of money on money that's in the sidelines. And if for as long as this period continues where we're not cutting interest rates, as an investor, you can still take advantage of that.
Bob: You could still take advantage of it. But, you know, regardless of what interest rates are, Amy, and I'm not telling you anything you don't know. I mean, there's really usually a very little spread when you net it out for taxes between what you can get in short-term instruments like CDs, treasuries, high-yield money market accounts, and on an after-tax basis, comparing that to inflation. You know, you get a little bit of a positive spread, but not much. And I think that's still where we are today. You can get, you know, roughly 4%, no risk, pretty liquid money today. And that's attractive to people emotionally. But we got to remember that with inflation hovering in the high 2% to 3%, you know, when you net that 4% out for taxes, you're really not gaining any purchasing power. You're just treading water, so to speak.
Amy: Yeah. Keeping up with inflation.
Bob: Yeah. The only way to really grow net worth and grow purchasing power is to be investing in something that is going to grow. But yeah, while we're waiting for all this to shake out, to your point, for emergency funds and short-term liquidity needs, 4% is still a nice place to hang out for a while. And folks should be taking advantage of that if they're sitting with money in bank accounts where the banks are only giving you one to one and a half. Still a good time to shop around and make sure you're getting treated fairly with your short-term cash.
Amy: Yeah, for money that belongs on the sidelines, right? It is in your emergency fund. You're gonna make more than historically you were able to when just a few years ago, and I remember this, you were making point 0.00006% or whatever it was by having your money parked in a savings account. Now you can make a little more on the money, again, that belongs on the sidelines.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. No major changes from the Federal Reserve, our nation's central bank today. And we also have new research looking at money managers and how they are feeling and maybe their outlook on the markets and where they'll be moving in the future.
Bob: Yeah. And I'll just say this right up front, the information we're gonna share right now, I would say, is borderline useless, but we're gonna share it with you just to give you a heads up of what you're hearing on the evening news or when you're driving around in your car. Over 30% of all respondents on a recent survey of where the market's going over the next 12 months, a predictive survey is saying they're bearish on the market for the remainder of 2025 or the next 12 months. That is the highest percentage of bearishness since 1997.
Amy, I'll tell you, as somebody who's been in this business for a long time, when you get this much bearishness among so-called money professionals, that's really a good time to buy because these people are usually wrong.
Amy: Well, and on the flip side, right, the money managers who are bullish are at their historically low levels. The question I think you have to ask yourself as a long-term investor who is looking at this research or hearing about it is what does this mean to me? And Bob has already answered that. Like, take it with a grain of salt. These people make predictions all the time, whether it's in research and in a questionnaire that's solicited of them or whether they're putting opinions out there in headlines. And we have seen so much, right?
When you're paying really close attention, when it's your job to pay really close attention to these financial headlines, you start to see a pattern. And that pattern is craziness. It is chaos. It is, you know, last year when we had a banner year in the stock market, there were still money managers going into 2024 and through 2024 that were calling for the largest recession we've seen in years. The sky is falling. All these things. This one tiny thing that we're seeing in the market right now is pointing toward utter failure of the American economy. All of those things have been said in the headlines by people just like the ones who were participating in the poll, and they were all wrong.
Bob: Well, Amy, you had a very long career in the media industry, so you know how this game works. If somebody is willing to come on television or the radio with some outlandish prediction, you know, if you're in the media business, you're like, hey, put them on. You know, it's gonna cause some excitement. People will listen to them. And even if they're wrong, which they are most of the time, it makes for great headlines and makes for an interesting story.
When you look at this recent survey, you got pessimists, you got optimists, and the range, if you look at the survey, you know, some are saying a 4% to 7% increase from recent levels. Some are seeing a 7% to 10% decline from here, and a little over 40% of all respondents of money managers to this recent survey describe themselves as neutral, meaning they're not willing to make any bets either way. And honestly, I think that's the responsible way to play this.
Amy: Well, they don't have a crystal ball. I mean, you might as well flip a coin at this point.
Bob: And they're willing to admit it. That's good. Yeah.
Amy: Exactly. I don't know where things are gonna go in the future, but I'm gonna stand strong on fundamentals, right? And I think that's a really smart place to be as an investor. You know, and keep in mind, this research changes. I mean, you could ask the same question of the same people a month from now and it could be drastically different. What doesn't change is research that shows, hey, these people are trying to manage funds in a way that's going to beat the market, right? The underlying index that they're trying to beat. And here's the deal, 73% of active managers underperform their benchmarks in any given year. Three out of four of them can't even hit the benchmark, whether it's the S&P 500, whatever it is. After five years, 95%, almost 96% of active managers missed the mark. And after 15 years, nobody's doing it.
Bob: And you just drove home the main point that we wanna get across to folks today, Amy. Seventy-three percent over one year, 95.5% over five years, and nobody over a 15-year time period at professional money managers outperform the index. That's the message right there, Amy. You nailed it.
Amy: Yeah, they don't have a tarot card that's telling them the right thing.
Bob: No.
Amy: They don't have a magic eight ball. There's nothing that's giving them the answers, because if there was, they'd be beating these markets year after year after year. And they are not. Here's the Allworth advice. Please ignore predictions. Don't try and time the market. Stick with your diversified long-term plan that doesn't rely on someone picking winners. As a longtime Kentucky resident, it's like trying to pick the winner of the Kentucky Derby. Can't be done consistently year over year.
Coming up next, how we determine recession risk and maybe how you should be thinking about it. 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 Bob Sponseller. If you cannot listen to our show every night, you do not have to miss anything we're talking about because we cover a lot here. We've got a daily podcast for you. Just search Simply Money. It's right there on the iHeart app or wherever you get your podcast.
Coming up at 6:43, you've got a lot of questions right now about taxes, how to really be diversified, and a lot more. We're gonna get to those in just a few minutes. There is a lot of chatter right now, and honestly, a lot of the time in headlines about the possibility of a recession. And right now, Bob, more people are, of course, talking about it because we have the U.S. economy contracting. We got this data in the past few days and said, Hey, the U.S. economy contracted in the first quarter of this year. Oftentimes, kind of in the headlines, it's thrown around that a recession is defined as two consecutive quarters of negative gross domestic product. So if we've got one, are we heading in this direction? And so, you know, I think when we throw out that word recession, we do not throw it out lightly. Because this is something that scares a lot of investors.
Bob: Well, in that R word, that recession word will be talked about and has been talked about in the media. So, you know, people sit up in their chair and take notice of that. I mean, recessions are generally not good. But, you know, we had Andy Stout, our chief investment officer, on the show on Monday, and he dug a little deeper on how we might have some revisions to those numbers and then really what those numbers mean with, you know, imports being brought forward for the last quarter. But more importantly, Andy Stout, our chief investment officer, and I know other well-known responsible economists, they look at a lot of things other than just GDP numbers.
And I know with Andy, he has a little scorecard he uses that is populated with all kinds of indicators. And there are 10 different indicators. And the thing that I like is he boils this down to red, yellow, and green. You know, he dumps it down so people like me can even understand it, Amy. And it does a great job. And right now, only 4 of his 10 recession indicators are blinking red. So that shows us that we've got a mild risk of a recession, but nothing to panic about right now.
Amy: I think it's important to understand as an investor. Again, we kind of joke around it, but nobody has a crystal ball. So if anyone's trying to make a prediction of what's gonna happen in 2026 or 2027 in the stock market, it's craziness. But there is something called a leading economic indicator. And this is something where, hey, if you start to see a trend in these numbers in a particular direction, it might signal something bigger over the course of the next six months, right?
So Andy has compiled a list of those, 10 of them that, hey, if they were all pointing in the same direction at the same time, you might wanna raise the flag a little bit and say, okay, we could be heading into a recession now. Now, I would say also, kind of a disclaimer that I'll put out there at the same time is just because even if we thought there might be a recession coming as a long-term investor, I would say you don't need to change anything about your plan. Your financial plan should count for times like that. But to your point, 4 out of 10 are signaling maybe some potential issues. That's pretty normal territory for what we see.
Bob: That's what I was just gonna say. I mean, we rarely get a 10 out of 10, hey, all the lights are green. Pack up the truck and pile the stocks because we're going up 50% in the next 12 months. There's always things out there on the horizon. But, you know, Andy looks at things like the broad economy, interest rates, housing costs, employment numbers, consumer sentiment. You know, I mentioned on the show yesterday, my little Bob indicator, for whatever it's worth, you know, I look at interest rates, employment, inflation, and earnings.
You know, there are things that if you have access to the data, you know, like Andy and his team have, you can look under the hood in very detailed ways and look at trends on how various parts of this economy are moving. And I think to the point you just made, Amy, by the time the media catches up and gives us this official declaration of a recession, 9 times out of 10, the recession is already over and we're recovering.
Amy: Yeah. You know, and it's like kind of what should you do with this information, right? Sometimes if I get a nervous investor in my office, I will bring up Andy's scorecard and I will say, listen, these are all the things that we are keeping a really close eye here on at Allworth. You know, and I think another thing you have to keep in mind, too, is, you know, if one of these particular indicators is triggered, right, it moves to red, what you also have to keep in mind is, is there a pattern of this over time? Because some months and certain data will be flagged and then it kind of moves on and goes back to normal. So I think this is a way of saying, hey, this is one way that you can maybe look at things, but I don't even know.
Bob: You just made an excellent point, really excellent point, because what do we hear about all the time in the financial media? Revisions. GDP numbers get revised, employment numbers get revised. There are revisions all the time. Those revisions don't make the headlines. What makes the headlines is that GDP announcement...
Amy: Initial umber.
Bob: ...that inflation number, that employment report. And then what gets lost in the shuffle are the revisions. And that's why, you know, to the point I think you're making, you can't just react or shouldn't just react to the headline numbers. Excellent point.
Amy: But if you have concerns about maybe where the stock market or the economy might be heading, there are things you can be doing. And I would say, hey, these actually apply to you 100% of the time, right? And that is making sure that you're, you know, you're properly diversified, and I think in a year like we're having in 2025, where we are seeing some market volatility, you are really bearing out the fruits of being really diversified.
You know, you mentioned earlier in the show, Bob, that European markets are doing really well right now. You know, for those who are concentrated only in the U.S., you're seeing a lot more volatility than maybe you were if you were truly diversified. We have a global economy. So diversification is also a key piece of this and an asset allocation, right? Maybe when you were in your 30s, you were 100% in the stock market. But if you are in your 60s or 70s now, it might make sense to have that stock market exposure dialed back a bit, especially if you are living off of those investments at this point, right?
So kind of putting your finger on your pulse right now as an investor and saying, "Is this the right way for me to be invested?" These are not only good things to keep in mind. If all 10 leading economic indicators were pointing toward red, but any point in time as a long-term investor, you've got a long-term financial plan, but it's good to kind of reassess where you are as an investor and see if anything has changed.
Here's the Allworth advice. The next time you get bombarded, you hear that word, our word, recession, remember, you've got a financial plan and you stick with that plan as a long-term investor. Coming up next, will warmer weather mean it's time to buy or sell your home? Our real estate expert is the next with some answers for you. You're listening to "Simply Money" presented by Allworth Financial here on 55KRC, THE Talk Station.
Bob: You're listening to "Simply Money" presented by Allworth Financial. I'm Bob Sponseller, flying solo today with our real estate expert, Michelle Sloan, owner of RE/MAX Time.
Michelle, spring is in the air and that can only mean one thing. A lot of things going on in the real estate market. Bring us up to speed with what you're seeing out there, Michelle.
Michelle: You know what, Bob, I don't wanna use the word crazy because I think that is overused, but it has been extremely busy. Let's put it that way. You know, in the world of real estate, I think when May 1st hit this year, I really had the sense that the people who are ready to put their home on the market and sell, that was the date that they all targeted in their calendar. They had it circled with big bold letters.
And over the course of the last seven days, we've had 710 new listings on the market in the Cincinnati multiple listing service. And we've had quite a number of those just in the last seven days already go pending. So we are seeing a lot of activity. A lot of buyers are getting involved. It's exciting for me because, you know, we wait for this time of year. This is our Superbowl. We wait for this time of year all year long for us to be so busy that we have no time to eat. And it's a good thing. We're really blessed.
Bob: So does this mean you're missing out on a big real estate sale because you're talking to me right now?
Michelle: I might. No, absolutely not. No, I think we got a couple of minutes. That's not gonna be a big deal. You know, one of the things that's...it is really spurring all of this activity is we have a pent-up demand for sellers. Sellers have been sitting in their homes since COVID thinking, okay, we've done all of the updates. This home just doesn't fit our needs anymore. And so with that, it's time to sell. But where do we go?
A lot of new home sellers have decided to build a home maybe or move out of the area, downsize. Since there are more and more homes going on the market, people are just...they're ready to go. And that is...it's a very, very exciting time. It's also a very nervous time for people because everything that's happening politically has everybody just a little bit of caution in the air, but at the same time, everybody's ready to make a move this year. So 2025 is the year of the move, in my opinion.
Bob: Got it. Well, interest rates really haven't moved much at all, Michelle. And I know, you know, being someone who's lived in Cincinnati my whole life, to your point, you know, spring is just that seasonal time, it seems like, in greater Cincinnati where everybody knows that spring is kind of real estate season. Is the reason everybody's so busy right now and listings are up and all that, is it just because of that pent-up demand, people have just been waiting and waiting and waiting and fixing up their home, and at some point, people just need to make a move based on what they've wanted to do for four or five years now. Is that really what's going on?
Michelle: I think so, Bob. I think that that is...it's just people are, they're sick and tired of staying in the same home. You know, it used to be, 20 years ago, when I got into this business, people would move every five to seven years. Now there are so many people who have lived in their home for 10, 12, 15, 20 years. And of course, in Cincinnati, if you live on the West side, you've probably been in your home since you were a baby. We're still not seeing a lot of activity on the West side, but that's just normal. But it is fun. It is fun.
We're seeing the mortgage rates, the 30-year fixed on average right now is around 6.8 to 6.81, 6.79, something like that in the high sixes, 15-year rate mortgage, just a normal conventional loan, right around 6.03, something like that. Again, it all depends on your credit score and your financials. But the one thing that is good news about those, it's not a big change over the last couple of months. But if we go back a year ago, last year's rates were at 7.22, so they were over 7%. And again, I think that over 7% is a threshold for a lot of buyers that they really...buyers are concerned that I can't get what I want in that price range if I'm looking at the rates. So if we stay under six for the foreseeable future, I think we're in really good shape.
Bob: All right. Well, you mentioned inventory is on the rise. Listings are on the rise. Does this mean we're back into this multiple offer situation where homes are starting to sell well above listing price? Are we back in that environment like we were back in the COVID days?
Michelle: We are. Absolutely. So I had a listing in the Mason area last week. We had eight offers in the first 48 hours. Now, the one thing is I think that sellers and sellers' agents are doing is trying to put a little bit of, I don't know, distance or time to give people an opportunity to make a decision. So my seller decided I want to at least give 48 hours, which doesn't sound like a lot of time, but I want to be able to give buyers the opportunity to come see my home. And a seller can do that. The seller does not have to take the very first offer that comes in the door. The seller is in control. And if you have a strong real estate agent, you have to understand that the seller is in control and that first offer may not be the best.
And so we had, on that particular property, we had eight offers and many, all of them, all eight offers were over list price. And so then we have to, as we're looking through each one of these offers, we have to determine, well, if it's $5,000, or $10,000, or $15,000 over list price, is it going to appraise? That's a question we have to ask. Is the buyer willing to pay more than the home is worth during the appraisal process? And that's the case. That's what we ended up accepting an offer where the sales price was higher than the list price. And the buyer was able to waive the appraisal, meaning they're gonna pay any amount up into the sales price that we agreed upon.
So that gives you, if you're a buyer and you have that kind of financial wherewithal to be able to afford that, then you're in the driver's seat as well. So it really depends on where you are. But you're looking at eight offers. We did not end up taking the highest offer because we wanted to guarantee that it was going to actually close at the price that we agreed to when we negotiated at the very beginning of the process.
Bob: So does that mean, Michelle, you're kind of sitting back with those eight offers in hand and you're kind of playing the role a little bit of a financial underwriter. You're trying to figure out, depending on whether this purchase is gonna require a loan or whether it's a cash offer, you're sitting back saying, what's the probability these people even being able to follow through and actually complete this purchase? Am I correct?
Michelle: Absolutely. Absolutely. So there are so many factors. It's not just the price. If I get a price $50,000 higher than list price, that doesn't necessarily mean that you're going to get... And some agents and some buyers are like, well, why didn't you pick mine? Wasn't mine the highest price? Well, on paper, it may be the highest price, but is it really? Are we gonna have to renegotiate? And are we gonna have to fight you tooth and nail throughout the whole process?
And the other factor that we have to look at is inspections. And I would never tell one of my clients don't get an inspection. I think 99% or 90% maybe of the buyers out there today will do inspections for information only. And if something absolutely serious, structural, mechanical is wrong with that home, then you have the opportunity to either get out of the contract or renegotiate at that point. But you have to be savvy and understand, as a buyer, you need to be ready with all your barrels blazing.
Bob: All great reasons to work with a seasoned real estate professional like our good friend, Michelle Sloan, owner of RE/MAX Time. Great stuff, Michelle, as always. Thanks for making time for us. You've been listening to "Simply Money" presented by Allworth Financial on 55KRC, THE Talk Station.
Amy: You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Bob Sponseller. Do you have a financial question you and your spouse do not agree on or just kind of keeping you up at night? What should I do about this? Well, there's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question, it's coming straight to us. Let's get straight to your questions now. First one comes from Sandra in Kenwood.
Sandra: How do I make sure my portfolio is tax-optimized in retirement if tax rates increase in the future?
Bob: Well, there's a few things you could do, Sandra. One thing, regardless of what tax rates are, for your non-IRA, non-401K accounts, you should be tax-optimizing that account at all times through regular tax loss harvesting. We've got a program that does that here at Allworth. I know other advisory firms have something similar. Some of them do. Making sure that non-IRA account is as tax-efficient as possible is a good thing to do.
The other thing, if tax rates increase, then it's a time to reevaluate, depending on what your tax rate or tax bracket is, whether tax-free or municipal bonds make sense, that whole calculus changes, depending on what tax rates are in the future. So those are just a couple of things without knowing your specific situation that you might be looking at. Roth conversions might be a third.
Amy: Yeah. I'm glad you brought up Roth conversions because, Sandra, what I find of the retirees, the investors that are retiring now, is you got the memo loud and clear that you have to save, and you put a lot of money into your 401K. The problem is many people your age who are retiring now didn't get the memo about putting money into a Roth, so you have a lot of assets oftentimes in tax-deferred accounts. And so if you're worried that your tax rate could go up in the future, then you'll be paying more money when you pull the money out of those accounts.
If you are retiring right now, likely, you could find yourself in a lower tax bracket when your salary is no longer coming in, and you can take advantage of the years between now and the year when Uncle Sam says, okay, RMD time, you've got to start pulling money into that account and doing Roth conversions if they make sense for you. This may not be a do-it-yourself proposition. It might be smart to partner with a financial pro, a tax planner, a tax professional, but it could make sense to look into this now if you are someone who finds yourself in a boat, which is a very large boat, I find, for people who are retiring around now.
Bob: Well, and Amy, I poke fun at you and Jess sometimes about health savings accounts because I know how passionate you are about them, and for good reason, but I think with Sandra's question here, if tax rates increase, that's just yet another reason to take full advantage of that health savings account. That's really gonna help you out down the road. I wanna make sure we throw that in.
Amy: Yeah, no, I'm glad you brought that up. I actually had a couple in my office yesterday, late 40s, and I was like, next open enrollment, you need to look into a high-deductible health care plan because it's time to take advantage of [crosstalk 00:32:49].
Bob: And you threatened to show up for the enrollment meeting if they didn't promise you they'd do it, right?
Amy: I said, "Hey, what date does HR reach out?" I might be hanging out in your office on that particular day just to make sure we don't miss this opportunity. All right, let's get to Jim's question now in White Oak.
Jim: Am I overthinking diversification or is there a point where adding more investments actually hurts performance?
Amy: I would say there's a sweet spot here. Bob, I don't know if you agree or not, but we like to be truly diversified. Mentioned earlier in the show, we're bearing the fruits of that as investors now, if we are widely diversified. And by that, I mean, you've got small-cap companies, you've got large-cap companies, you've got companies focused on growth and companies that are more value. And then not only you're invested here in the U.S. in your own backyard, but globally, right?
Global markets seem to be doing well. And I had someone in my office who's a very kind of technical thinker, engineer. And he was like, "How do you be thoroughly diversified across everything?" And at some point, I think you can get to spread out. But I think it's a sweet spot situation. It's a balancing act. And it's important sometimes to work with a fiduciary to figure out what that looks like for you.
Bob: I agree with you totally. Sometimes people wanna be diversified by buying 11 different large-cap growth funds and they think they're diversified because they have 11 positions showing up on their statement. That's not diversification. Diversification is exactly what you just talked about, Amy. Make sure you've got all your non-correlated asset classes in the portfolio. You already nailed it.
Amy: All right. Let's get to Bob's question in Union.
Bob: How do you tailor asset allocation for someone who's comfortable but not ultra wealthy?
Bob: Bob, I'd answer your question this way. I don't think it matters whether you're comfortable or ultra wealthy. The important thing here is tailoring an asset allocation strategy for your specific financial plan. When I put together a plan for clients, I'm looking at basically three things. What are your ongoing sources of income apart from your portfolio? What do you plan to spend every month or every year? And then what is your asset base or investment portfolio look like? And then what is your risk tolerance?
So four things. I mentioned three. It's four. You combine all those four things together and you can usually arrive at a pretty good asset allocation strategy that can allow someone to meet all their long-term financial goals while being able to sleep at night because they're not tethered to cable news worrying about every jot and tittle of the stock market six times a day.
Amy: Yeah. The sleep factor is a huge thing, right? How do you eat well and sleep well in retirement? What is that exact mark for you? But also, if you have a couple of pensions in your household and social security and you may not even need those assets, it's a slightly different conversation than, hey, we're gonna retire in a year and a half and we'll be pulling from those assets to live off of. So all of that has to be taken into consideration, but not necessarily how much you've saved.
Coming up next, a major money reason why Cincinnati is such a great place to live. 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 Bob Sponseller. So many things to love about living here in Cincinnati. And as someone who has grown up here, Bob, I know you're from here too. Cincinnati has almost had this, like, Renaissance over the past, I don't know, decade or so where you look at any kind of poll across the country about cool places to visit, places for a long weekend, whatever.
Cincinnati is always at the top of the list now. We've got a lot of cool places to visit. We've got this thriving food scene. We've got so much to do around downtown. But also, you could do some of those things in really big cities like New York, or Chicago, or somewhere else, but you're also going to pay more for that. And one of the beautiful things about living around here is it's incredibly affordable.
Bob: Yeah. We came across a survey recently done by LendingTree. That's a company I think a lot of people have heard of, and they measured affordability of major cities across the country. And in 25 of 100 cities they looked at, average monthly spending on basic expenses exceeds monthly income for a family of three that is earning $100,000 a year. That was kind of their benchmark household income of $100,000 a year.
San Jose, California, tops that list with average monthly expenses of a little over $10,500. Amy, my first reaction to this report is only in California and maybe Washington, DC, can we pretend to spend more than we have coming in each month and pretend that that's a sustainable situation for the long term? Kind of crazy.
Amy: Well, when you think about too $100,000, that six-figure salary for many people was the benchmark, right? If I can make that much money, I have made it. And if you are living in a part of the country where you can't even make ends meet with $100,000, do not sign me up for living there because I have no interest in that. I was born and raised around here. I am used to Midwest sensibilities, Midwest spending, Midwest costs.
Bob: Yeah. The only thing I would add is if we could get a little bit better weather between January and April.
Amy: May now. Yeah.
Bob: And maybe if our football team and baseball team could win a few more games, Amy, Cincinnati would pretty much be heaven on earth to me.
Amy: Well, we'll get that memo to our local sports teams to see if they can get on board. But yeah, that same list that looked at how expensive cities are also, of course, had Cincinnati in the top 10 for relatively affordable household earning of $100,000. You can live really well on that around here.
Thanks for listening. Tune in tomorrow. We're talking about how target date funds just got riskier. You've been listening to "Simply Money" and presented by Allworth Financial here on 55KRC, THE Talk Station.