The Fed Obsession: Are You Falling for the Wrong Financial Headlines?
On this week’s Best of Simply Money podcast, Bob and Brian ask the question every long-term investor should be thinking about right now: while the headlines fixate on the Fed, are we focusing on the wrong thing? Plus, what a major move involving a media company can teach us about handling company stock. And don’t miss answers to your biggest financial questions, from capital gains strategy to whether ETFs really beat mutual funds in a taxable account.
Download and rate our podcast here.
Bob: Tonight, what most Wall Street money managers are probably watching, versus what actually matters to you. Plus, what to do with company stock when speculation hits and we answer, as always, your questions. You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James.
Right now, I'm guessing if you walked into most Wall Street money manager meetings or analyst meetings, you'd hear one thing being talked about over and over right now this week, and that's interest rates. In other words, will the Fed cut in December? What's the latest on inflation? Are wages too hot? Is the labor market cooling too fast? Are we going to get a soft landing or, God forbid, a recession? But here's the truth, what Wall Street's watching has very little to do with what's actually driving your personal, long-term financial success. And that's what Brian and I want to get into tonight because this is important, Brian. Let's walk through a couple of these things.
Brian: Wall Street is always looking for what's going to happen in the next minute, right? That is not how we need to be thinking about our own personal financial planning and financial success.
Bob: Same with the financial media, right?
Brian: Exactly. It's financial pornography. Let's call it what it is. Keeps our attention for a while, and all they're really trying to do at that point is keep your eyeballs glued to the screen in between the commercials. So, let's start with a Wall Street list. So, Fed rate cut timing. This is a big thing right now because we're hearing nonstop noise about whether Chair Powell is going to cut in December or March. Ooh, this is big stuff. But here's the truth. The quarter point move does affect short-term bond prices and it moves algorithmic trading.
But that said, if you're a long-term investor, really, the bigger concern is, how do these interest rates affect my income plan, my bond ladder, my taxes? And more importantly, how does it affect my debt? If I've got debt that's tied to interest rates, then right now, I should be in the mode of maybe looking for opportunities and finding the right entry point to refinance my mortgage, or maybe if I've got credit cards out there that, heaven forbid, I'm paying interest on, then you really ought to be paying attention to that anyway. And a quarter point cut next month is not going to be the pivot point as to whether you should take action. You should be paying attention to these things anyway. And if the time is right to, again, refinance that mortgage, then do it.
Bob: Yeah, and to your point, I mean, look, as a reminder, and I think a lot of people know this but it's worth repeating, I mean, what moves mortgage rates most of the time is the 10-year bond yield, not short-term interest rates. And oftentimes, and we've seen this happen within the last year, Brian, short-term rates have moved, mortgage rates didn't move at all. So, you got to look at the longer term here, like a lot of things we're going to talk about tonight, when making financial decisions.
And the speculation about interest rates, I mean, let's face it, I think that's why small cap stocks have really taken a beating here, relatively speaking, over the last week or so, because they have more debt. A lot of these small companies are borrowing money on a short-term basis. So, depending on the price of that borrowing, that is going to move the needle in terms of how they're planning and those are the type of things that we see impacted by short-term rates to say nothing of money market yields and interest rates you're getting on a bank account. But give us a hypothetical mistake here, Brian, of what could happen to somebody that just listens to all this short-term news, and then makes big, massive moves in their portfolio as a result.
Brian: So, let's take a hypothetical, Darren. So, Darren is 58 years old. And by the way, all these names are fake, but all these stories are based off of war stories that we have, that Bob and I and all the other advisors at Allworth have sitting down talking with people and figuring out how they make decisions. So, anyway, so Darren heard a strategist online say that the Fed's going to cut rates by December. So, his decision was to pull about three quarters of a million dollars out of his long-term portfolio and park it in a money market fund to wait it out. But unfortunately what happens here is rates don't fall as fast as he expected. The market ends up bouncing 9% in the next six months. And Darren misses out on about $67,000 worth of potential growth. And now worse, he's got to decide when to get back in, which adds even more emotional risk.
Timing the market like this... And people don't really refer to it as timing. When we point out that that's what they're doing, what they'll say is, "No, no, no, I'm protecting my assets. I'm not trying to time the market." It's the same thing. Whether it's out of greed or fear, we're still trying to be in at the right time and out at the wrong time. And that is not a recipe for financial success because it's a two-step process.
Darren's next step, he's got to try to time it again. And by the way, he's over one. Now, he's got to decide when he's going to get back in, "Have I missed it? Are we at a peak again?" And he'll do this for years. I have a couple of clients that sat in cash, Bob, from 2008 until they met us in the early 2020s. And we finally put a plan together and taught about market history and helped everybody understand. I haven't had the heart to tell them that they've left literally millions of dollars on the table by sitting out of the market ever since 2008, because they got spooked.
Bob: Yeah, Brian, we all have a few clients like this. And I think you bring up a great point. This emotional risk of being wrong once, and then you just freeze. It's a deer in the headlights, you know, and I think this happens to men way more often than women because men tend to have, we tend to have our ego tied to everything. And it's like, "Man, we were wrong about that move, and I got to make sure I don't do anything until I can be absolutely right about the future direction of the market." And to your point, it's virtually impossible to pull that off in the short term. And that's what can leave people just frozen and not making any money for years and years. And, boy, you miss out.
We talk about missing the best 10 days in the market over a 20, 30 year period. This is where it manifests itself, during these periods where people are just emotionally frozen because they're afraid of being wrong in the next seven days instead of over the next seven years. And it really can cost people a ton of money. All right, let's pivot into trying to guess where inflation is heading next. You want to talk about a fool's game. Get into this one.
Brian: Yeah. So, this is another, you know, these big numbers that we look at all the time. So, Wall Street just devours these CPI and PPI numbers. Those are inflationary numbers, depending on whether you are the consumer or the producer, and also, wage growth numbers. So, we're tearing apart used car prices and housing inflation, just like it's the Zapruder film from the Kennedy assassination. Even a tenth of a percent surprise can send stocks flying or crashing because of the way all these algorithms work and the way program trading happens. Again, only what matters to you...
Bob: But in the short-term, right?
Brian: Of course, yes.
Bob: In the very short-term.
Brian: Absolutely in the short-term. In other words, when the headline comes out, it can be one reaction, and then after lunch, it's another reaction entirely. None of this affects what you, the average consumer, the average person looking for financial stability and making sure you can keep up with inflation and all that kind of stuff, none of that day-to-day stuff matters. Here's what really matters to you, has your spending changed? Have you updated your plan to reflect what your grocery budget, your travel budget, and your health care costs now?
Notice that word, your, that I said over and over again. Do you know what you spend in the first place? And a lot of people simply don't because they've never been forced to have a budget. And I'm not advocating that everybody has to go out there and have a budget and put money in envelopes and stick to it. But it's a good idea just to have a vague idea of what it costs you to be you for a month or for a year, because that will help you understand exactly what you need to have, an emergency fund, that kind of thing for the short-term needs, and then you can leave your medium and long-term assets alone and ignore this day-to-day noise.
Bob: All right. Well, let's take another hypothetical example to this case scenario. We'll take Kathy. She's 63 years old. She sees a hotter-than-expected inflation number and assumes bonds are going to get crushed again. She sells. She goes to cash out of all her intermediate bonds fund holdings in a panic. And lo and behold, the Fed ends up holding steady. Inflation cools the next month. Bond values rebound. They stabilize, not only stabilize, but rebound. But Kathy, she locked in all those losses, making them permanent. And now, she's sitting holding cash, and is frozen emotionally and missing out on steady income she originally wanted from that bond fund. Just another example of really throwing your long-term financial plan and income strategy off, all because of trying to time or predict what's going to happen next, or listening to, as you say, financial pornography in the media.
Brian: And this is just reacting to the headlines that are, but more importantly, reacting to the headlines that might be. She assumed that her bonds were going to get smashed again. And so, she was looking forward to a headline that didn't yet exist. And she wound up in the same problem that Darren has, which is now I'm sitting in cash and, "I'm 0 for 1 on timing, but now I have to do it again because I'm going to have to decide when to get back in there."
So, some other things that tend to throw us for a loop are big tech earnings. So, the big technology companies have been driving the market, of course, for a few decades now. We said this before, we bring this up all the time, there are seven companies out there that make up almost 40% of the S&P 500 right now. So, you know, yes, when NVIDIA and Apple miss earnings by a penny, remember, well, it doesn't matter what they actually earn, it matters how close they get to what the analysts thought they were going to earn, because the analysts are the ones out there with the opinions first, and then the companies have to follow.
Unknown Speaker:
Bob: Yeah, Brian, can you believe that NVIDIA, I mean, who comes out with earnings on Wednesday, they make up almost 8% of the S&P 500 right now, one company. And Wall Street money managers, they trade on that short term news for sure. But for you, the more important question to ask is, "Am I too concentrated in all of those magnificent seven companies?" And if so, don't try to time the market. Take an opportunity when the market's at a high and diversify. Take some money off the table. God forbid you might even have to pay a little bit in taxes. But last time I checked, paying 15% in capital gains taxes by trimming some gains is way better than seeing the whole dollar go down in value because, you know, a stock falls out of bed on a bad earnings announcement.
Again, it's not trying to predict what's going to happen next. It's doing basic, solid financial planning to get yourself out of potential harm's way, you know, ahead of all this potential news and headlines that most of us, I would say, you know, almost all of us, none of us can see this stuff coming in advance. That's why you got to make good decisions based on the fundamentals of your financial plan, not trying to predict what's going to happen next.
Brian: So, another thing that tends to get our attention and drag us in ways we shouldn't necessarily go is the catalyst, right? The occasional thing in the market everybody gets excited about. And right now, of course, that's AI, that's artificial intelligence, and Wall Street is basically in a love affair with it. But that means, when this happens, when we get this excited about one of these catalyst type events, they're not looking at current earnings. The market is pricing in 5 to 10 years of hypothetical future growth, assuming that these headlines are going to stay the way they are. And we're not saying that artificial intelligence isn't real. This is very big. We use it every day and it is going to touch an awful lot of things that everybody uses every day.
But the investment mistake that people make, you know, let's was take another example. So, we have 61-year-old Stacy. She read a couple articles about how great artificial intelligence is. And it's going to be the next great catalyst to create a bunch of money for everybody. So, she takes $300,000 and throws it into one hot artificial intelligence stock, and for "diversification" purposes, a theme based ETF that focuses on artificial intelligence companies. So, initially, that stock jumps for her and she's convinced she's a genius. But then it drops 25% on weak forward guidance, meaning that they didn't bring forward as much in earnings as the analysts thought they were going to. That ETF also, starts to drop down a little bit. So, now, she's sitting in a position where she's got speculative positions and really no plan and no income generation as a person who's about to step into retirement. So, again, real stories from real interactions we've had based off of us reacting in a very human manner to where we think profits can be had.
Bob: Here's the Allworth advice, don't let Wall Street's headlines become your strategy. Focus on what you can control, because that's what leads to real financial freedom. When is the right time to sell company stock? Speculation over a big local company has us posing this question and we'll explain what we're talking about next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Should you mix ETFs and mutual funds in a taxable account? Is your Roth IRA being used the right way? And can a portfolio optimizer really deliver better results? We've got answers that could help you save on taxes, avoid some common pitfalls with your investment plan, and invest with confidence. All of that's coming up straight ahead at 6:43. Well, tonight, the ninth largest publicly traded company in Cincinnati is in the news. And the news is massive TV station owner Sinclair has been in talks with Cincinnati's own EW Scripps company about merging, according to a new regulatory filing. Give us the details, Brian.
Brian: So, EW Scripps has been here for a long time. And Sinclair is based a little bit north of us, is talking about picking them up. Just to kind of set the table here, Sinclair owns Channel 12, and they've bought already $6.3 million shares worth of Scripps, which represents about an 8% share in the company. And Scripps owns Channel 9. So, this will be Channel 9 and Channel 12 being part of the same company. They recently traded from ABC to CBS. They swapped those a few years ago. And I'm not sure I'm ever going to keep that straight in my head. Channel 12 is ABC forever and Channel 9 is CBS in my brain because I'm born and raised here.
Anyway, so, according to this filing, Sinclair is saying that transaction is going to result in Scripps shareholders getting an ownership stake in the combined company that's valued at about three times the Scripps recent stock price. So, in other words, yes, if you're a Scripps shareholder, then they're purporting that you'll get about three times return if this thing goes through. And so, that's what we want to talk about. When is the right time to sell this stock? If you're not married to it and it receives a windfall like that, that might be something you're thinking about. So, here's a little bit of history. In early twenty two, Scripps stock was above 20 bucks a share. Last week, it was below three. So, it's been a bit of a bumpy ride. And of course, it has risen quite a bit since Monday's news. And that's probably leading some of you out there to think they need to pull the trigger if you do own some.
Bob: So, the question everybody asks is, "Should I do something?" And we'll use Scripps as an example. Say, you had a lot of money in Scripps stock when it was above 20, and you did nothing with it because you didn't have to, or maybe because you know, you can't time the market and you said, "Yeah, it'll come back. It'll come back. Long-term holding in my portfolio." Then you watch it continue to drop and drop to where it was last week, you know, at or below $3 a share. But since you had other assets and you didn't need the money, you still did nothing. Perhaps over this time, you periodically ask, "Well, maybe I should sell before it goes down further again, from above $20 to below $3," but you still did nothing because you didn't need the money. That could be a good thing, you know, based on this news we just got, sounds like a smart decision. You know you can't time the market, but now, for the first time in a couple of years, the stock is finally heading in the right direction. There's a lot of attention being given to it. And you might once again ask yourself, "Should I do something with it now?"
Brian, I feel obligated to say here, oftentimes, in our industry, people use market timing like it's a sin or a dirty word or something you should never do. And I vehemently disagree with that. And let me give you an example. If you've got a company like Scripps or any other individual stock, the decision to buy, sell, or hold should be based on your financial plan, not trying to predict what's going to happen to the stock. But be that as it may, you can still put orders around this stock. You can put a bracket order on it saying, "Hey, if it gets to this price on the upside, I'm going to sell it. And if it falls below a certain price on the downside, I've got a stop loss order on it." I mean, it's not that hard to do. Any good financial advisor can set an order structure like that. You're not predicting or timing the market. You're just protecting your investment, so something doesn't fall from $22 a share down to below $3. What say you?
Brian: Yeah. And I think when you talk about market timing in that particular example, I think that's a little bit different because you're not really timing the market. You're kind of timing an individual stock, which the individual stocks move like a flock of birds. They're going to move one direction, and then the other direction, you're not going to be able to predict any of it, versus a diversified portfolio, which is going to be a lot more steady and a lot more predictable. So, I don't think you're talking about, when you say that you're vehemently opposed to the idea that timing the market is a bad idea, I think you're just talking about what an individual stock can do, and you should pay attention to that company and get to know it and protect yourself on the upside and the downside. And I think that's a great idea.
And like you say, it's not hard to do. You just have to be okay with the idea that, "I may not be right. This stock can go to the moon, it can go through the floor. And I would spend some time picturing, what will it feel like? If this stock goes up 25% here in the relative short-term, which is an extremely good return, how will I feel? Will I feel more passionately positive than I will be angry if it drops by 50%?" Because both of those outcomes are very possible with any individual stock over a relatively short period of time. A diversified portfolio, not so much because you've got a little bit of everything doing its own thing on and on. So, you have to think about, "What will I be more passionate about?"
And if you're going to set stop loss orders, like Bob says, break it into chunks. If you've got 500 shares of something, then maybe you have 5 different orders selling 100 shares at a time at various prices. And don't get married to any one of them. Don't get greedy. If it's been on a good run, don't try to squeeze another couple bucks out of it because it may just hit its peak. You can sell a little bit now, and then hang on to another chunk for a better time.
Bob: Yeah. The only point I'm trying to make in this specific example is, the person that sold their Scripps stock at $22 a share, they've moved on. They don't care what's going to happen next with the stock at $3, and hopefully, coming back, they've moved on to something else, and they probably have been making money for several years in a diversified portfolio. So, let's talk about quickly when it does make sense to sell a stock. It's when your financial goals maybe have changed. You need to fund your retirement, pay for college, buy a vacation home, or just shift from growth to income. Again, it's financial planning-based, not prediction-based.
And another example is if the stock no longer fits your strategy. If your portfolio is now overweight in one sector, let's say technology, for example, or if a stock you bought for growth is now stagnant, it might be time to simply trim some and rebalance. Or the fundamentals of the company change. The reason you bought the stock no longer exists or that's changed. Maybe the leadership of the company has changed. Earnings have now become, you know, inconsistently poor or inconsistently good, you know. Or there's a major disruption in the industry. That's a sign it might be time to exit.
Here's the Allworth advice. Sell based on strategy, not speculation. Let your goals, your risk tolerance, and the reason you bought the stock in the first place, not the current headlines, tell you when it's time to walk away. Coming up next, how to actually prepare your kids for a future where AI changes potentially everything about work. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Joined tonight by our career expert, Julie Bauke. And Julie, thanks, as always, for joining us tonight. And you've got a pretty important topic to cover. Real interested in your thoughts. And the topic is, let's face it, giving career advice to kids has never been more difficult. Walk us through what's going on out there in the real world with respect to helping our kids get gainfully employed.
Julie: Now, I had to laugh when I saw that title because my first thought was, as if they listen anyway. I know what I'm doing, and my kids don't listen. One of them does, one of them doesn't. But, yeah, it's...
Brian: And hopefully, they're both listening this morning.
Julie: So, back in the day, it was very easy to say, "Go to college. Something great will be waiting for you. It's the path. It's the firm path to success and to having the life you want." And that is completely smashed at this point. And so, now, as parents have kids in high school, kids thinking about, "What sort of post high school education do I want?" Be it trade school or just something post high school, which pretty much everyone needs, we're at a loss as to how to be helpful in that conversation because that path has completely been smashed. Whether it is just gigantic debt, a job market disconnect between what your kids want to do and what's available, just lack of job search skills. So, it's everything has changed when it comes to this area.
But I think it's an opportunity, because what it's going to allow us to do is allow our kids to be more involved in the conversation. And the challenge here is going to be, as parents, believing that they know themselves, understanding that we may have this dream, they're really great with their hands. It might be the boomer or Gen X response might be, "Oh, great, you could be a mechanical engineer." And I think what we've got to say as an example in that case is, "Or you could be a technician. You could be an HVAC. You could own an HVAC company. You could be an HVAC repair person. You could be in auto repair. You could..." So, to not just pigeonhole your kids into something that feels like a path that felt safe to us is going to be really critical. Because you shouldn't be giving advice that worked decades ago or even a decade ago to today because it's entirely different.
And so, I think the first thing in this is to recognize that the advice that we got that worked for us and worked for many others isn't necessarily as relevant anymore. It's not that it's irrelevant, but it's not as relevant. The kids have more options than they used to, and it's exciting, but it can also be overwhelming. So, I think our role as a parent can be, expose them to as many opportunities, conversations, and places and people as possible, and help them start to discern what sounds interesting, what they might want to learn more about, and then explore all the various education paths and experience paths to get there. Because it's not a one and done anymore. Those days are gone.
Brian: Hey, Julie. So, one of the topics that I wanted to hear from you on, and that's great, I appreciate that update. But with regard to AI, so, that's everywhere, and I kind of feel like, yeah, you can identify some jobs that clearly could be done by AI right now. But I have a feeling that that label is getting slapped on a lot of jobs where, you know, maybe parents are kind of prematurely discouraging their kids. Do you see that happening? Do you find yourself in a position where you got to say, "No, hold on, there are still paths to go do this for a living without AI being a factor," or, yeah. Tell me about that.
Julie: Yeah. So, here's what I think is true. When we hear the phrase, "All these jobs are going to be replaced by AI," I think it's more true to say, almost every job or every job will be affected in some way by AI. And it might just affect the way you do the job. It might not take the job, but it might affect the way you do the job. So, when you look at, what are the things that we know to be true as we look forward? Everyone entering the job market in the job market has to have a comfort level with technology, with learning technology. They have to have really strong people skills, soft skills, listening, communicating, presenting, influencing, working across, working with customers. They have to have those, what we call soft skills. Now, really, those soft skills are becoming the most important.
And so, as you look at how do you prepare your son or daughter for what's next, the three buckets I would focus on is technology. Now, they're digital natives, but not everybody is as comfortable as everybody else. But are they getting exposed to the different ways that technology help us work and live our lives better? And the second is really the soft skills, the communicating, getting along with people. You can be brilliant, but if you're difficult to work with, you're not going to have the career you want. And the third is really an openness to learning, to taking feedback, to getting excited about what else can I learn? What else can I do? Those are the kind of people, and really that applies to us of all ages, the companies are really looking for. Anything that's max of, "I've always done it this way," no matter how old you are, is really going to limit, I would say, your opportunities for growth.
Bob: Julie, when I listen to you talk here, I think I agree with you. I think the whole paradigm here for the last 5, 10, 15, 20 years has been this specialization into certain areas. And what I mean by that is we tell our kids to get a STEM degree. Well, and you mentioned technology. What can tend to happen is people bury themselves behind a computer screen and just work with numbers all day, and they have zero people skills. They've never interacted with a customer. They've never had to critically think and engage in, God forbid, a disagreement with another human being and how to resolve that. That kind of stuff is not going to get solved by AI. You've got to get out there and mix it up in the world. I mean, shoot, even standing behind a cash register at McDonald's for a couple of years when you're in high school, you learn incredible skills that are transferable to any job moving forward. I think we've lost sight of that in society today.
Julie: We absolutely have. We have. It's, we have erred, we have moved over to the side of, "I want my kid to take as many AP classes as possible." And then we send them off to a prestigious college and say, "Okay, they're good now." No, they're not. And I think we see the numbers of how young people are really struggling. They're struggling because they don't know how to navigate this world right now. And it is very challenging. It's easy for us as boomers to say, "Ah, toughen up." But it's bigger than that. And so, what anything you can do to expose your kids to difficult conversations. Don't order their food for them. Don't call their teachers. Don't make them step out and step into uncomfortable situations. And don't get in there with a rag and try to clean up messes. That's the kind of stuff that employers are really struggling with. You might be making yourself feel better in the moment, but you're really hurting your child's chances for career success.
Bob: All right. Good stuff as always, Julie. Thanks again for joining us.
Julie: You're welcome.
Bob: You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. You have a financial question you'd like for us to answer, there is a red button you can click while you're listening to the show. If you're listening on the iHeart app, simply record your question and it will come straight to us. Mark in Loveland leads us off tonight. Brian, he says, "We've held on to a lot of our winners for years, but now, we're worried they'll become "too big to sell". How do you unwind gains without blowing up your tax return, Brian?
Brian: Yeah, that's a very common problem. We're talking about a taxable account here. So, not an IRA, not a Roth, not any kind of retirement plan, just a regular, old brokerage account that spits out of 1099 every year. And so, this is a good problem to have, of course. Mark and his family own some investments that have done well. And obviously, they've gotten to a point where they're just concerned about how to unwind them. So, what we're referring to here is capital gains tax. Capital gains tax isn't as painful and scary as you might be thinking. Nobody wants to pay taxes, but once you get over the idea that that's not ever going to happen, that's not an option, then you can kind of look a little more in depth at this.
So, what you can do here in terms of taking some of this risk off the table, right? We've got big positions in individual stocks. Well, then what you can do is, first of all, make sure you understand what your actual capital gains hit will be. It's possible if you arrange your finances the right way... We don't know much about Mark's situation other than this question, but remember, it's always possible to sell things possibly without having any capital gains at all if your income is relatively low. And this happens for people who maybe have retired, there's no salary anymore, they're living off of savings accounts for a little while before they turn on social security and pensions and things, and they're just in a lower bracket. There can be a window, depending on Mark's age, which we don't know, where he might be able to escape without paying much in capital gains.
Worst case scenario, most people are going to wind up paying a fixed 15%. If you've got over $400,000, $500,000, $1000 in income, then you might sneak up into the 20% bracket. But regardless, most people are going to wind up paying 15% on the gain alone. And remember, we are sitting here in November. You're only six weeks away from another tax year. So, if you do want to back off on a position, you could sell some now, and a month and a half later, sell another chunk, and you now spread that gain into two tax years. And there's always charitable donations. If you are charitably inclined, donate some of those shares. If you are doing things anyway to benefit charities, then don't write them a check, give them shares of the company. Trust me, they know what to do with them. They're going to send you a brochure with their church logo or whatever on it and something called a DTC number, which is how you're going to get those shares to their account. So, you can donate something.
Bob: And you'll be on their mailing list from here to eternity.
Brian: Exactly. They'll love you. But this is for if you're already giving anyway. It's just a more efficient way to do it. You can dodge the gain, not give up some of your cash, and also, reduce your risk at the same time. So, let's move on to Dan and Anderson. Dan says, "Hey, Bob, we've always invested in these broad indices, but I'm starting to wonder if we're missing opportunities in these smaller, less followed areas. How do you know when to go off the beaten path and when to stick to the main road?"
Bob: Well, Dan, a couple of things off the top of my head here, and Brian did a great job of covering this yesterday on the show, I mean, I think where a lot of investors that don't work with a good advisor have been underweighted for years now, I would say, is international stocks. And take a look at how those have done this year. So, don't abandon those broad, large cap U.S. bond or U.S. stock indices. Obviously, those are what have carried the weight here return-wise for decades and decades, and will likely continue to do so.
But if you're talking about other opportunities or just diversifying some of your risk away, I would look at international stocks. I think another area to start to look at, if you have not already, is private equity. Tread lightly in that area. Get with a good, fiduciary advisor who can give you the pros and cons, and do some research on where to venture into private equity. But those are a couple of areas off the proverbial beaten path, as you say, which might make some sense to take a look at here as we close out 2025 and head into 2026. All right, Brian, in Florence says, "We own both ETFs and mutual funds in a taxable account. Is it worth it to switch entirely to ETFs for tax efficiency, or are there hidden trade-offs?" Brian?
Brian: Lots of capital gains tax questions without being specifically named capital gains tax questions. But that's really what we're talking about. So, a mutual fund, these are the kind of things, of course, we've had for a very long time. If you own them outside of a retirement plan, outside an IRA, Roth IRA, 401(k), then they spit out capital gain distributions and dividends and things like that. Those are good things, of course. If I have a capital gain distribution, it means I must have had a capital gain, so we want that. But what happens is, with a mutual fund structure, if that fund decides to sell off a position that it has owned for decades and you've owned that fund for six months, well, congratulations, you get that decade-long gain passed along through to you. That is the capital gain distribution. And this is the time of year that it happens. And there's a lot of people out there nodding their heads because they have PTSD from these capital gain distributions. You don't see it coming. It doesn't necessarily profit you instantly, but it does hit your 1099, meaning you've got to pay taxes on it.
So, the benefit of an exchange-traded fund is it has a different structure. exchange-traded funds have a different way of building themselves where you do not bring on the gain that that fund has had for 30 years. When you purchase an exchange-traded fund, it is created, and all the assets underneath it are purchased at the moment that you purchase it in your account. So, therefore, you don't have that risk.
Anyway, back to Brian's question, Brian probably gets this, and he's saying, "Should I bother switching to all this? And I think the answer is, yes. You've got a sizable enough account. It is definitely worth looking at. Don't go cold turkey, though. You don't want to do this all at once. Remember, as we were saying earlier, you could slowly change this over. Over a 14-month period, you can get into three tax years. So, figure out what your overall gains hit is. Do a little bit now, a little bit anytime in '26, and then a little bit in '27. I do think that exchange Traded Funds are a better way to go for the coming decades than mutual funds, but not so badly that I want you to tear off the Band-Aids. Spread out that tax hit. Quick one for Melissa in Madisonville. She says they've got a Roth IRA, Bob. They haven't touched it in years. Should it be a higher growth-oriented, or higher risk maybe in the Roth to amplify that tax-free growth? What do you think?
Bob: Well, in the spirit of not fixing it if it ain't broken, Melissa, I think you're spot on here. The answer is, yes. Put your higher growth stuff in your Roth. These are probably the last assets you're going to touch if you're a long-term investor. I think you are spot on here. That's exactly what you should be doing with your Roth IRA. Great question. And I think you're already on the right track. Good job, Melissa. Next, I've got my two cents for folks that might be retiring from a company where they own company stock between now and the end of the year. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Tonight, I want to talk to folks that might be retiring between now and the end of the year, especially if you own company stock in your retirement plan. And I'm just going to give you an actual case example with a lady that I have been working with over the last few months. And she just retired from a local company, and has a bunch of company stock in her retirement plan. She makes a good income, had almost her full salary this year because she worked through the middle of November, and is actually getting a fairly large severance check that's also going to be coming in 2025. So, needless to say, she's going to be in a much lower tax bracket in 2026 than she is in 2025.
So, the question came up in our meetings, "What do I do about rolling over my 401(k) plan?" And we were able to take a look at that. And she has some company stock with very low basis in it. So, the concept here for those that don't already know about it is something called net unrealized appreciation, meaning you can pull that company stock. Do not roll it to an IRA. You can move that company stock to a taxable brokerage account, and your only tax liability is you have to pay ordinary income taxes on your basis in that stock, in other words, what you paid for the stock. It's a tremendous opportunity to save on income taxes. However, you still do have to pay the taxes on your cost basis in that stock.
So, this lady was asking me, "Bob, are we ready to do this? Open up the accounts. Get everything rolled over?" And I said, "Nope, we're going to wait till January." She's like, "What?" I said, "Yeah, you're going to be in a very low tax bracket next year. Wouldn't you rather pay taxes on the cost basis that stock in 2026 versus 2025?" Showed her the reasons why with actual tax software, and the light bulb went off. She was worried about getting started and she's like, "Bob, how am I going to pay you? Don't you need to be paid for what you do?" And I'm like, "We're good. You've already made an agreement to come over and work with us. Our job as a fiduciary is wait to move this money over to a time frame that is at your best interest, not ours." Brian, I know you run into situations like this all the time as well.
Brian: All the time. And remember, what you're doing is you're swapping income taxation for capital gains taxation, a much more efficient way to go. Great thing to look at if you have the opportunity in your 401(k).
Bob: Thanks for listening tonight. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
Right now, I'm guessing if you walked into most Wall Street money manager meetings or analyst meetings, you'd hear one thing being talked about over and over right now this week, and that's interest rates. In other words, will the Fed cut in December? What's the latest on inflation? Are wages too hot? Is the labor market cooling too fast? Are we going to get a soft landing or, God forbid, a recession? But here's the truth, what Wall Street's watching has very little to do with what's actually driving your personal, long-term financial success. And that's what Brian and I want to get into tonight because this is important, Brian. Let's walk through a couple of these things.
Brian: Wall Street is always looking for what's going to happen in the next minute, right? That is not how we need to be thinking about our own personal financial planning and financial success.
Bob: Same with the financial media, right?
Brian: Exactly. It's financial pornography. Let's call it what it is. Keeps our attention for a while, and all they're really trying to do at that point is keep your eyeballs glued to the screen in between the commercials. So, let's start with a Wall Street list. So, Fed rate cut timing. This is a big thing right now because we're hearing nonstop noise about whether Chair Powell is going to cut in December or March. Ooh, this is big stuff. But here's the truth. The quarter point move does affect short-term bond prices and it moves algorithmic trading.
But that said, if you're a long-term investor, really, the bigger concern is, how do these interest rates affect my income plan, my bond ladder, my taxes? And more importantly, how does it affect my debt? If I've got debt that's tied to interest rates, then right now, I should be in the mode of maybe looking for opportunities and finding the right entry point to refinance my mortgage, or maybe if I've got credit cards out there that, heaven forbid, I'm paying interest on, then you really ought to be paying attention to that anyway. And a quarter point cut next month is not going to be the pivot point as to whether you should take action. You should be paying attention to these things anyway. And if the time is right to, again, refinance that mortgage, then do it.
Bob: Yeah, and to your point, I mean, look, as a reminder, and I think a lot of people know this but it's worth repeating, I mean, what moves mortgage rates most of the time is the 10-year bond yield, not short-term interest rates. And oftentimes, and we've seen this happen within the last year, Brian, short-term rates have moved, mortgage rates didn't move at all. So, you got to look at the longer term here, like a lot of things we're going to talk about tonight, when making financial decisions.
And the speculation about interest rates, I mean, let's face it, I think that's why small cap stocks have really taken a beating here, relatively speaking, over the last week or so, because they have more debt. A lot of these small companies are borrowing money on a short-term basis. So, depending on the price of that borrowing, that is going to move the needle in terms of how they're planning and those are the type of things that we see impacted by short-term rates to say nothing of money market yields and interest rates you're getting on a bank account. But give us a hypothetical mistake here, Brian, of what could happen to somebody that just listens to all this short-term news, and then makes big, massive moves in their portfolio as a result.
Brian: So, let's take a hypothetical, Darren. So, Darren is 58 years old. And by the way, all these names are fake, but all these stories are based off of war stories that we have, that Bob and I and all the other advisors at Allworth have sitting down talking with people and figuring out how they make decisions. So, anyway, so Darren heard a strategist online say that the Fed's going to cut rates by December. So, his decision was to pull about three quarters of a million dollars out of his long-term portfolio and park it in a money market fund to wait it out. But unfortunately what happens here is rates don't fall as fast as he expected. The market ends up bouncing 9% in the next six months. And Darren misses out on about $67,000 worth of potential growth. And now worse, he's got to decide when to get back in, which adds even more emotional risk.
Timing the market like this... And people don't really refer to it as timing. When we point out that that's what they're doing, what they'll say is, "No, no, no, I'm protecting my assets. I'm not trying to time the market." It's the same thing. Whether it's out of greed or fear, we're still trying to be in at the right time and out at the wrong time. And that is not a recipe for financial success because it's a two-step process.
Darren's next step, he's got to try to time it again. And by the way, he's over one. Now, he's got to decide when he's going to get back in, "Have I missed it? Are we at a peak again?" And he'll do this for years. I have a couple of clients that sat in cash, Bob, from 2008 until they met us in the early 2020s. And we finally put a plan together and taught about market history and helped everybody understand. I haven't had the heart to tell them that they've left literally millions of dollars on the table by sitting out of the market ever since 2008, because they got spooked.
Bob: Yeah, Brian, we all have a few clients like this. And I think you bring up a great point. This emotional risk of being wrong once, and then you just freeze. It's a deer in the headlights, you know, and I think this happens to men way more often than women because men tend to have, we tend to have our ego tied to everything. And it's like, "Man, we were wrong about that move, and I got to make sure I don't do anything until I can be absolutely right about the future direction of the market." And to your point, it's virtually impossible to pull that off in the short term. And that's what can leave people just frozen and not making any money for years and years. And, boy, you miss out.
We talk about missing the best 10 days in the market over a 20, 30 year period. This is where it manifests itself, during these periods where people are just emotionally frozen because they're afraid of being wrong in the next seven days instead of over the next seven years. And it really can cost people a ton of money. All right, let's pivot into trying to guess where inflation is heading next. You want to talk about a fool's game. Get into this one.
Brian: Yeah. So, this is another, you know, these big numbers that we look at all the time. So, Wall Street just devours these CPI and PPI numbers. Those are inflationary numbers, depending on whether you are the consumer or the producer, and also, wage growth numbers. So, we're tearing apart used car prices and housing inflation, just like it's the Zapruder film from the Kennedy assassination. Even a tenth of a percent surprise can send stocks flying or crashing because of the way all these algorithms work and the way program trading happens. Again, only what matters to you...
Bob: But in the short-term, right?
Brian: Of course, yes.
Bob: In the very short-term.
Brian: Absolutely in the short-term. In other words, when the headline comes out, it can be one reaction, and then after lunch, it's another reaction entirely. None of this affects what you, the average consumer, the average person looking for financial stability and making sure you can keep up with inflation and all that kind of stuff, none of that day-to-day stuff matters. Here's what really matters to you, has your spending changed? Have you updated your plan to reflect what your grocery budget, your travel budget, and your health care costs now?
Notice that word, your, that I said over and over again. Do you know what you spend in the first place? And a lot of people simply don't because they've never been forced to have a budget. And I'm not advocating that everybody has to go out there and have a budget and put money in envelopes and stick to it. But it's a good idea just to have a vague idea of what it costs you to be you for a month or for a year, because that will help you understand exactly what you need to have, an emergency fund, that kind of thing for the short-term needs, and then you can leave your medium and long-term assets alone and ignore this day-to-day noise.
Bob: All right. Well, let's take another hypothetical example to this case scenario. We'll take Kathy. She's 63 years old. She sees a hotter-than-expected inflation number and assumes bonds are going to get crushed again. She sells. She goes to cash out of all her intermediate bonds fund holdings in a panic. And lo and behold, the Fed ends up holding steady. Inflation cools the next month. Bond values rebound. They stabilize, not only stabilize, but rebound. But Kathy, she locked in all those losses, making them permanent. And now, she's sitting holding cash, and is frozen emotionally and missing out on steady income she originally wanted from that bond fund. Just another example of really throwing your long-term financial plan and income strategy off, all because of trying to time or predict what's going to happen next, or listening to, as you say, financial pornography in the media.
Brian: And this is just reacting to the headlines that are, but more importantly, reacting to the headlines that might be. She assumed that her bonds were going to get smashed again. And so, she was looking forward to a headline that didn't yet exist. And she wound up in the same problem that Darren has, which is now I'm sitting in cash and, "I'm 0 for 1 on timing, but now I have to do it again because I'm going to have to decide when to get back in there."
So, some other things that tend to throw us for a loop are big tech earnings. So, the big technology companies have been driving the market, of course, for a few decades now. We said this before, we bring this up all the time, there are seven companies out there that make up almost 40% of the S&P 500 right now. So, you know, yes, when NVIDIA and Apple miss earnings by a penny, remember, well, it doesn't matter what they actually earn, it matters how close they get to what the analysts thought they were going to earn, because the analysts are the ones out there with the opinions first, and then the companies have to follow.
Unknown Speaker:
Bob: Yeah, Brian, can you believe that NVIDIA, I mean, who comes out with earnings on Wednesday, they make up almost 8% of the S&P 500 right now, one company. And Wall Street money managers, they trade on that short term news for sure. But for you, the more important question to ask is, "Am I too concentrated in all of those magnificent seven companies?" And if so, don't try to time the market. Take an opportunity when the market's at a high and diversify. Take some money off the table. God forbid you might even have to pay a little bit in taxes. But last time I checked, paying 15% in capital gains taxes by trimming some gains is way better than seeing the whole dollar go down in value because, you know, a stock falls out of bed on a bad earnings announcement.
Again, it's not trying to predict what's going to happen next. It's doing basic, solid financial planning to get yourself out of potential harm's way, you know, ahead of all this potential news and headlines that most of us, I would say, you know, almost all of us, none of us can see this stuff coming in advance. That's why you got to make good decisions based on the fundamentals of your financial plan, not trying to predict what's going to happen next.
Brian: So, another thing that tends to get our attention and drag us in ways we shouldn't necessarily go is the catalyst, right? The occasional thing in the market everybody gets excited about. And right now, of course, that's AI, that's artificial intelligence, and Wall Street is basically in a love affair with it. But that means, when this happens, when we get this excited about one of these catalyst type events, they're not looking at current earnings. The market is pricing in 5 to 10 years of hypothetical future growth, assuming that these headlines are going to stay the way they are. And we're not saying that artificial intelligence isn't real. This is very big. We use it every day and it is going to touch an awful lot of things that everybody uses every day.
But the investment mistake that people make, you know, let's was take another example. So, we have 61-year-old Stacy. She read a couple articles about how great artificial intelligence is. And it's going to be the next great catalyst to create a bunch of money for everybody. So, she takes $300,000 and throws it into one hot artificial intelligence stock, and for "diversification" purposes, a theme based ETF that focuses on artificial intelligence companies. So, initially, that stock jumps for her and she's convinced she's a genius. But then it drops 25% on weak forward guidance, meaning that they didn't bring forward as much in earnings as the analysts thought they were going to. That ETF also, starts to drop down a little bit. So, now, she's sitting in a position where she's got speculative positions and really no plan and no income generation as a person who's about to step into retirement. So, again, real stories from real interactions we've had based off of us reacting in a very human manner to where we think profits can be had.
Bob: Here's the Allworth advice, don't let Wall Street's headlines become your strategy. Focus on what you can control, because that's what leads to real financial freedom. When is the right time to sell company stock? Speculation over a big local company has us posing this question and we'll explain what we're talking about next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Should you mix ETFs and mutual funds in a taxable account? Is your Roth IRA being used the right way? And can a portfolio optimizer really deliver better results? We've got answers that could help you save on taxes, avoid some common pitfalls with your investment plan, and invest with confidence. All of that's coming up straight ahead at 6:43. Well, tonight, the ninth largest publicly traded company in Cincinnati is in the news. And the news is massive TV station owner Sinclair has been in talks with Cincinnati's own EW Scripps company about merging, according to a new regulatory filing. Give us the details, Brian.
Brian: So, EW Scripps has been here for a long time. And Sinclair is based a little bit north of us, is talking about picking them up. Just to kind of set the table here, Sinclair owns Channel 12, and they've bought already $6.3 million shares worth of Scripps, which represents about an 8% share in the company. And Scripps owns Channel 9. So, this will be Channel 9 and Channel 12 being part of the same company. They recently traded from ABC to CBS. They swapped those a few years ago. And I'm not sure I'm ever going to keep that straight in my head. Channel 12 is ABC forever and Channel 9 is CBS in my brain because I'm born and raised here.
Anyway, so, according to this filing, Sinclair is saying that transaction is going to result in Scripps shareholders getting an ownership stake in the combined company that's valued at about three times the Scripps recent stock price. So, in other words, yes, if you're a Scripps shareholder, then they're purporting that you'll get about three times return if this thing goes through. And so, that's what we want to talk about. When is the right time to sell this stock? If you're not married to it and it receives a windfall like that, that might be something you're thinking about. So, here's a little bit of history. In early twenty two, Scripps stock was above 20 bucks a share. Last week, it was below three. So, it's been a bit of a bumpy ride. And of course, it has risen quite a bit since Monday's news. And that's probably leading some of you out there to think they need to pull the trigger if you do own some.
Bob: So, the question everybody asks is, "Should I do something?" And we'll use Scripps as an example. Say, you had a lot of money in Scripps stock when it was above 20, and you did nothing with it because you didn't have to, or maybe because you know, you can't time the market and you said, "Yeah, it'll come back. It'll come back. Long-term holding in my portfolio." Then you watch it continue to drop and drop to where it was last week, you know, at or below $3 a share. But since you had other assets and you didn't need the money, you still did nothing. Perhaps over this time, you periodically ask, "Well, maybe I should sell before it goes down further again, from above $20 to below $3," but you still did nothing because you didn't need the money. That could be a good thing, you know, based on this news we just got, sounds like a smart decision. You know you can't time the market, but now, for the first time in a couple of years, the stock is finally heading in the right direction. There's a lot of attention being given to it. And you might once again ask yourself, "Should I do something with it now?"
Brian, I feel obligated to say here, oftentimes, in our industry, people use market timing like it's a sin or a dirty word or something you should never do. And I vehemently disagree with that. And let me give you an example. If you've got a company like Scripps or any other individual stock, the decision to buy, sell, or hold should be based on your financial plan, not trying to predict what's going to happen to the stock. But be that as it may, you can still put orders around this stock. You can put a bracket order on it saying, "Hey, if it gets to this price on the upside, I'm going to sell it. And if it falls below a certain price on the downside, I've got a stop loss order on it." I mean, it's not that hard to do. Any good financial advisor can set an order structure like that. You're not predicting or timing the market. You're just protecting your investment, so something doesn't fall from $22 a share down to below $3. What say you?
Brian: Yeah. And I think when you talk about market timing in that particular example, I think that's a little bit different because you're not really timing the market. You're kind of timing an individual stock, which the individual stocks move like a flock of birds. They're going to move one direction, and then the other direction, you're not going to be able to predict any of it, versus a diversified portfolio, which is going to be a lot more steady and a lot more predictable. So, I don't think you're talking about, when you say that you're vehemently opposed to the idea that timing the market is a bad idea, I think you're just talking about what an individual stock can do, and you should pay attention to that company and get to know it and protect yourself on the upside and the downside. And I think that's a great idea.
And like you say, it's not hard to do. You just have to be okay with the idea that, "I may not be right. This stock can go to the moon, it can go through the floor. And I would spend some time picturing, what will it feel like? If this stock goes up 25% here in the relative short-term, which is an extremely good return, how will I feel? Will I feel more passionately positive than I will be angry if it drops by 50%?" Because both of those outcomes are very possible with any individual stock over a relatively short period of time. A diversified portfolio, not so much because you've got a little bit of everything doing its own thing on and on. So, you have to think about, "What will I be more passionate about?"
And if you're going to set stop loss orders, like Bob says, break it into chunks. If you've got 500 shares of something, then maybe you have 5 different orders selling 100 shares at a time at various prices. And don't get married to any one of them. Don't get greedy. If it's been on a good run, don't try to squeeze another couple bucks out of it because it may just hit its peak. You can sell a little bit now, and then hang on to another chunk for a better time.
Bob: Yeah. The only point I'm trying to make in this specific example is, the person that sold their Scripps stock at $22 a share, they've moved on. They don't care what's going to happen next with the stock at $3, and hopefully, coming back, they've moved on to something else, and they probably have been making money for several years in a diversified portfolio. So, let's talk about quickly when it does make sense to sell a stock. It's when your financial goals maybe have changed. You need to fund your retirement, pay for college, buy a vacation home, or just shift from growth to income. Again, it's financial planning-based, not prediction-based.
And another example is if the stock no longer fits your strategy. If your portfolio is now overweight in one sector, let's say technology, for example, or if a stock you bought for growth is now stagnant, it might be time to simply trim some and rebalance. Or the fundamentals of the company change. The reason you bought the stock no longer exists or that's changed. Maybe the leadership of the company has changed. Earnings have now become, you know, inconsistently poor or inconsistently good, you know. Or there's a major disruption in the industry. That's a sign it might be time to exit.
Here's the Allworth advice. Sell based on strategy, not speculation. Let your goals, your risk tolerance, and the reason you bought the stock in the first place, not the current headlines, tell you when it's time to walk away. Coming up next, how to actually prepare your kids for a future where AI changes potentially everything about work. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Joined tonight by our career expert, Julie Bauke. And Julie, thanks, as always, for joining us tonight. And you've got a pretty important topic to cover. Real interested in your thoughts. And the topic is, let's face it, giving career advice to kids has never been more difficult. Walk us through what's going on out there in the real world with respect to helping our kids get gainfully employed.
Julie: Now, I had to laugh when I saw that title because my first thought was, as if they listen anyway. I know what I'm doing, and my kids don't listen. One of them does, one of them doesn't. But, yeah, it's...
Brian: And hopefully, they're both listening this morning.
Julie: So, back in the day, it was very easy to say, "Go to college. Something great will be waiting for you. It's the path. It's the firm path to success and to having the life you want." And that is completely smashed at this point. And so, now, as parents have kids in high school, kids thinking about, "What sort of post high school education do I want?" Be it trade school or just something post high school, which pretty much everyone needs, we're at a loss as to how to be helpful in that conversation because that path has completely been smashed. Whether it is just gigantic debt, a job market disconnect between what your kids want to do and what's available, just lack of job search skills. So, it's everything has changed when it comes to this area.
But I think it's an opportunity, because what it's going to allow us to do is allow our kids to be more involved in the conversation. And the challenge here is going to be, as parents, believing that they know themselves, understanding that we may have this dream, they're really great with their hands. It might be the boomer or Gen X response might be, "Oh, great, you could be a mechanical engineer." And I think what we've got to say as an example in that case is, "Or you could be a technician. You could be an HVAC. You could own an HVAC company. You could be an HVAC repair person. You could be in auto repair. You could..." So, to not just pigeonhole your kids into something that feels like a path that felt safe to us is going to be really critical. Because you shouldn't be giving advice that worked decades ago or even a decade ago to today because it's entirely different.
And so, I think the first thing in this is to recognize that the advice that we got that worked for us and worked for many others isn't necessarily as relevant anymore. It's not that it's irrelevant, but it's not as relevant. The kids have more options than they used to, and it's exciting, but it can also be overwhelming. So, I think our role as a parent can be, expose them to as many opportunities, conversations, and places and people as possible, and help them start to discern what sounds interesting, what they might want to learn more about, and then explore all the various education paths and experience paths to get there. Because it's not a one and done anymore. Those days are gone.
Brian: Hey, Julie. So, one of the topics that I wanted to hear from you on, and that's great, I appreciate that update. But with regard to AI, so, that's everywhere, and I kind of feel like, yeah, you can identify some jobs that clearly could be done by AI right now. But I have a feeling that that label is getting slapped on a lot of jobs where, you know, maybe parents are kind of prematurely discouraging their kids. Do you see that happening? Do you find yourself in a position where you got to say, "No, hold on, there are still paths to go do this for a living without AI being a factor," or, yeah. Tell me about that.
Julie: Yeah. So, here's what I think is true. When we hear the phrase, "All these jobs are going to be replaced by AI," I think it's more true to say, almost every job or every job will be affected in some way by AI. And it might just affect the way you do the job. It might not take the job, but it might affect the way you do the job. So, when you look at, what are the things that we know to be true as we look forward? Everyone entering the job market in the job market has to have a comfort level with technology, with learning technology. They have to have really strong people skills, soft skills, listening, communicating, presenting, influencing, working across, working with customers. They have to have those, what we call soft skills. Now, really, those soft skills are becoming the most important.
And so, as you look at how do you prepare your son or daughter for what's next, the three buckets I would focus on is technology. Now, they're digital natives, but not everybody is as comfortable as everybody else. But are they getting exposed to the different ways that technology help us work and live our lives better? And the second is really the soft skills, the communicating, getting along with people. You can be brilliant, but if you're difficult to work with, you're not going to have the career you want. And the third is really an openness to learning, to taking feedback, to getting excited about what else can I learn? What else can I do? Those are the kind of people, and really that applies to us of all ages, the companies are really looking for. Anything that's max of, "I've always done it this way," no matter how old you are, is really going to limit, I would say, your opportunities for growth.
Bob: Julie, when I listen to you talk here, I think I agree with you. I think the whole paradigm here for the last 5, 10, 15, 20 years has been this specialization into certain areas. And what I mean by that is we tell our kids to get a STEM degree. Well, and you mentioned technology. What can tend to happen is people bury themselves behind a computer screen and just work with numbers all day, and they have zero people skills. They've never interacted with a customer. They've never had to critically think and engage in, God forbid, a disagreement with another human being and how to resolve that. That kind of stuff is not going to get solved by AI. You've got to get out there and mix it up in the world. I mean, shoot, even standing behind a cash register at McDonald's for a couple of years when you're in high school, you learn incredible skills that are transferable to any job moving forward. I think we've lost sight of that in society today.
Julie: We absolutely have. We have. It's, we have erred, we have moved over to the side of, "I want my kid to take as many AP classes as possible." And then we send them off to a prestigious college and say, "Okay, they're good now." No, they're not. And I think we see the numbers of how young people are really struggling. They're struggling because they don't know how to navigate this world right now. And it is very challenging. It's easy for us as boomers to say, "Ah, toughen up." But it's bigger than that. And so, what anything you can do to expose your kids to difficult conversations. Don't order their food for them. Don't call their teachers. Don't make them step out and step into uncomfortable situations. And don't get in there with a rag and try to clean up messes. That's the kind of stuff that employers are really struggling with. You might be making yourself feel better in the moment, but you're really hurting your child's chances for career success.
Bob: All right. Good stuff as always, Julie. Thanks again for joining us.
Julie: You're welcome.
Bob: You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. You have a financial question you'd like for us to answer, there is a red button you can click while you're listening to the show. If you're listening on the iHeart app, simply record your question and it will come straight to us. Mark in Loveland leads us off tonight. Brian, he says, "We've held on to a lot of our winners for years, but now, we're worried they'll become "too big to sell". How do you unwind gains without blowing up your tax return, Brian?
Brian: Yeah, that's a very common problem. We're talking about a taxable account here. So, not an IRA, not a Roth, not any kind of retirement plan, just a regular, old brokerage account that spits out of 1099 every year. And so, this is a good problem to have, of course. Mark and his family own some investments that have done well. And obviously, they've gotten to a point where they're just concerned about how to unwind them. So, what we're referring to here is capital gains tax. Capital gains tax isn't as painful and scary as you might be thinking. Nobody wants to pay taxes, but once you get over the idea that that's not ever going to happen, that's not an option, then you can kind of look a little more in depth at this.
So, what you can do here in terms of taking some of this risk off the table, right? We've got big positions in individual stocks. Well, then what you can do is, first of all, make sure you understand what your actual capital gains hit will be. It's possible if you arrange your finances the right way... We don't know much about Mark's situation other than this question, but remember, it's always possible to sell things possibly without having any capital gains at all if your income is relatively low. And this happens for people who maybe have retired, there's no salary anymore, they're living off of savings accounts for a little while before they turn on social security and pensions and things, and they're just in a lower bracket. There can be a window, depending on Mark's age, which we don't know, where he might be able to escape without paying much in capital gains.
Worst case scenario, most people are going to wind up paying a fixed 15%. If you've got over $400,000, $500,000, $1000 in income, then you might sneak up into the 20% bracket. But regardless, most people are going to wind up paying 15% on the gain alone. And remember, we are sitting here in November. You're only six weeks away from another tax year. So, if you do want to back off on a position, you could sell some now, and a month and a half later, sell another chunk, and you now spread that gain into two tax years. And there's always charitable donations. If you are charitably inclined, donate some of those shares. If you are doing things anyway to benefit charities, then don't write them a check, give them shares of the company. Trust me, they know what to do with them. They're going to send you a brochure with their church logo or whatever on it and something called a DTC number, which is how you're going to get those shares to their account. So, you can donate something.
Bob: And you'll be on their mailing list from here to eternity.
Brian: Exactly. They'll love you. But this is for if you're already giving anyway. It's just a more efficient way to do it. You can dodge the gain, not give up some of your cash, and also, reduce your risk at the same time. So, let's move on to Dan and Anderson. Dan says, "Hey, Bob, we've always invested in these broad indices, but I'm starting to wonder if we're missing opportunities in these smaller, less followed areas. How do you know when to go off the beaten path and when to stick to the main road?"
Bob: Well, Dan, a couple of things off the top of my head here, and Brian did a great job of covering this yesterday on the show, I mean, I think where a lot of investors that don't work with a good advisor have been underweighted for years now, I would say, is international stocks. And take a look at how those have done this year. So, don't abandon those broad, large cap U.S. bond or U.S. stock indices. Obviously, those are what have carried the weight here return-wise for decades and decades, and will likely continue to do so.
But if you're talking about other opportunities or just diversifying some of your risk away, I would look at international stocks. I think another area to start to look at, if you have not already, is private equity. Tread lightly in that area. Get with a good, fiduciary advisor who can give you the pros and cons, and do some research on where to venture into private equity. But those are a couple of areas off the proverbial beaten path, as you say, which might make some sense to take a look at here as we close out 2025 and head into 2026. All right, Brian, in Florence says, "We own both ETFs and mutual funds in a taxable account. Is it worth it to switch entirely to ETFs for tax efficiency, or are there hidden trade-offs?" Brian?
Brian: Lots of capital gains tax questions without being specifically named capital gains tax questions. But that's really what we're talking about. So, a mutual fund, these are the kind of things, of course, we've had for a very long time. If you own them outside of a retirement plan, outside an IRA, Roth IRA, 401(k), then they spit out capital gain distributions and dividends and things like that. Those are good things, of course. If I have a capital gain distribution, it means I must have had a capital gain, so we want that. But what happens is, with a mutual fund structure, if that fund decides to sell off a position that it has owned for decades and you've owned that fund for six months, well, congratulations, you get that decade-long gain passed along through to you. That is the capital gain distribution. And this is the time of year that it happens. And there's a lot of people out there nodding their heads because they have PTSD from these capital gain distributions. You don't see it coming. It doesn't necessarily profit you instantly, but it does hit your 1099, meaning you've got to pay taxes on it.
So, the benefit of an exchange-traded fund is it has a different structure. exchange-traded funds have a different way of building themselves where you do not bring on the gain that that fund has had for 30 years. When you purchase an exchange-traded fund, it is created, and all the assets underneath it are purchased at the moment that you purchase it in your account. So, therefore, you don't have that risk.
Anyway, back to Brian's question, Brian probably gets this, and he's saying, "Should I bother switching to all this? And I think the answer is, yes. You've got a sizable enough account. It is definitely worth looking at. Don't go cold turkey, though. You don't want to do this all at once. Remember, as we were saying earlier, you could slowly change this over. Over a 14-month period, you can get into three tax years. So, figure out what your overall gains hit is. Do a little bit now, a little bit anytime in '26, and then a little bit in '27. I do think that exchange Traded Funds are a better way to go for the coming decades than mutual funds, but not so badly that I want you to tear off the Band-Aids. Spread out that tax hit. Quick one for Melissa in Madisonville. She says they've got a Roth IRA, Bob. They haven't touched it in years. Should it be a higher growth-oriented, or higher risk maybe in the Roth to amplify that tax-free growth? What do you think?
Bob: Well, in the spirit of not fixing it if it ain't broken, Melissa, I think you're spot on here. The answer is, yes. Put your higher growth stuff in your Roth. These are probably the last assets you're going to touch if you're a long-term investor. I think you are spot on here. That's exactly what you should be doing with your Roth IRA. Great question. And I think you're already on the right track. Good job, Melissa. Next, I've got my two cents for folks that might be retiring from a company where they own company stock between now and the end of the year. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Tonight, I want to talk to folks that might be retiring between now and the end of the year, especially if you own company stock in your retirement plan. And I'm just going to give you an actual case example with a lady that I have been working with over the last few months. And she just retired from a local company, and has a bunch of company stock in her retirement plan. She makes a good income, had almost her full salary this year because she worked through the middle of November, and is actually getting a fairly large severance check that's also going to be coming in 2025. So, needless to say, she's going to be in a much lower tax bracket in 2026 than she is in 2025.
So, the question came up in our meetings, "What do I do about rolling over my 401(k) plan?" And we were able to take a look at that. And she has some company stock with very low basis in it. So, the concept here for those that don't already know about it is something called net unrealized appreciation, meaning you can pull that company stock. Do not roll it to an IRA. You can move that company stock to a taxable brokerage account, and your only tax liability is you have to pay ordinary income taxes on your basis in that stock, in other words, what you paid for the stock. It's a tremendous opportunity to save on income taxes. However, you still do have to pay the taxes on your cost basis in that stock.
So, this lady was asking me, "Bob, are we ready to do this? Open up the accounts. Get everything rolled over?" And I said, "Nope, we're going to wait till January." She's like, "What?" I said, "Yeah, you're going to be in a very low tax bracket next year. Wouldn't you rather pay taxes on the cost basis that stock in 2026 versus 2025?" Showed her the reasons why with actual tax software, and the light bulb went off. She was worried about getting started and she's like, "Bob, how am I going to pay you? Don't you need to be paid for what you do?" And I'm like, "We're good. You've already made an agreement to come over and work with us. Our job as a fiduciary is wait to move this money over to a time frame that is at your best interest, not ours." Brian, I know you run into situations like this all the time as well.
Brian: All the time. And remember, what you're doing is you're swapping income taxation for capital gains taxation, a much more efficient way to go. Great thing to look at if you have the opportunity in your 401(k).
Bob: Thanks for listening tonight. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.