Amy: Tonight, another jumbo interest rate hike by the Fed. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Steve Sprovach. What does it mean to you? Well, for the fourth straight time, yes, the Fed has raised interest rates by three-quarters of a point. It's a big deal, which is why we wanna bring in Allworth's Chief Investment Officer, Andy Stout, the heavy hitters, not just on Monday, he comes in to make sense of this. Okay, I wanna start with a quote from Fed Chair, Jerome Powell, after the announcement of this rate hike today. Andy, he said, "We've got some ground left to cover, and cover it, we will." I feel like that's not what markets wanted to hear.

Andy: No, it really wasn't. If you look at the statement from the Federal Reserve, which is a press release, basically, when they talk about the raising rates, some of the information in there, and the text in there suggested the Federal Reserve might be a little bit less aggressive in the future when it comes to rate hikes. And markets love that. Saw the Dow shoot up, you know, almost 400 points. Now, you know, once Powell started talking, he came off as a little bit more aggressive than what the statement said, and to your point where he was talking about the level of where we need to get to, and we might not be there yet, we definitely aren't there yet. You know, that pulled the optimism out of the markets.

Amy: It's crazy. I mean, when you say pull the optimism out of the markets, what you meant was the headwind from green to red in a millisecond, based on his comments. I mean, you and I have talked for many years on this show about the power of the Fed chairs' words, case in point today.

Andy: Yeah, there was a few specific things that jumped out to me. One of the main ones, which this is where...we call these hawkish statements, means that they're really concerned about fighting inflation, and they are going to just keep raising rates aggressively. So, one of the more hawkish things that he said was that it was very premature to think about pausing. That's when one of those instances, Amy, where you saw Marcus just go from one level to another level. And that going level was a lower level, obviously, because we aren't even thinking about pausing at this point.

Amy: You know, what's interesting to me, Andy, is I think it was just, what? A week, a week and a half ago, maybe two weeks ago at the most when you had the Fed governor from San Francisco, I believe, Mary Daly saying, "Hey, I think we can look at the fact that we've maybe tightened as much as we need to at least these jumbo rate hikes." Maybe this is the last one in November. And then we're gonna start to kind of really sort of loosen policy from there. What Jerome Powell least what I heard from him today was sort of the opposite of that, which was kind of this continued aggressive stance.

Andy: Well, in terms of jumbo rate hikes, that's where we're talking about these three-quarters of a point rate hikes where the Fed has done essentially four in a row. Now, if you look at where the Fed funds rate, which is the interest rate that banks can lend to each other on an overnight basis, that's set now at 3.75% to 4%. It's in that target range. I know people don't really borrow at the Fed funds rate, but the average person, maybe you borrow a prime, which is the Fed funds rate plus three percentage points. So you feel that pain when the Fed raises rates.

So when we look at these jumbo rate hikes of three-quarters of a point, you know, Powell did say something in his press conference that alluded to the fact that maybe it won't be another one as a big where he did say it's possible that you could see a slower hikes maybe at the next meeting...or smaller hikes, excuse me, maybe at the next meeting or the meeting after that. If you look at where the market's pricing in in terms of the size of these rate hikes, right now, the market's pricing in essentially a 70% chance of a half-point hike, and a 30% chance of a three-quarter point rate hike. So that's where the market's pricing right now. They're expecting the Fed to bring that in a little bit to a half-point hike. So, still bigger than normal, but not the 75-basis point hike as of right now. But you know what, Amy? A lot can change between now and when the Fed next meets on December 14th, like what will the inflation numbers coming up?

Amy: Well, he mentioned, too, like, that he wanted to see some tightening or some softening. And he said that, "Signs of softening just aren't obvious to me at this point." What do you think it takes for Jerome Powell to say, "Okay, this is working?"

Andy: Well, you know, there's a few things he didn't mention there, even seeing some effects on demand, but it hasn't really, you know, developed into effects on inflation. And when you look at the Fed statement itself, the reason I thought it was originally the written statement, the press release was, you know, less aggressive. I mean, there was a statement in there where it said the committee will take into effect the cumulative tightening of monetary policy. So they're going to be thinking about a lot of the rates they've already done. They're acknowledging that they've done a lot of rates. They also take into consideration the lags in which economic...I don't know in which these rates affect inflation.

So, they are admitting that everything they've done yet will affect inflation. But because it affects the inflation on a delay, they don't know what the ultimate impact will be. So, when you see combinations like that where they talked about how much they've already tightened in the lags, you know, that certainly suggests that the Fed believes are getting a little bit more closer to the end than what markets were originally thinking. And that's why you saw the big rally following the press release.

Amy: You're listening to "Simply Money" here on 55KRC joined by Andy Stout as we make sense of the Federal Reserve, our nation's central bank, big announcement today, three-quarters of a point to another jumbo rate hike, as well as the markets digesting what Fed Chair Jerome Powell said in the wake of that. I think it's interesting, Andy, they kind of went rogue, right? The press release was written. I mean, as we know, we've watched these things many times, they're usually super buttoned-up. Comments usually follow the script. Why do you think he thought it was important to kind of go off script a bit today?

Andy: Well, when you think about what the Fed is ultimately trying to do, I don't know if he's necessarily going off script. But they do try to be, you know, relatively transparent. And when the Fed has talked in the past, you kind of knew where Jerome Powell stood on things. I mean, they've been quite wrong in the past. I mean, it was just about this time last year when we were talking about transitory inflation if you remember that. Now...

Amy: Yeah, it's actually crazy to think about that. But you're right. It was.

Andy: Yeah. So, I mean, the Fed, they're doing their best. They may not always, you know, do a perfect job. They certainly don't. I don't think any central bank necessarily does. But in terms of, you know, going rogue, I don't know, if he's necessarily going rogue, I think they're just trying to be transparent and setting market expectations properly. Because if they don't set market expectations to be positioned for tightening in the future, then what can happen is actually can have the opposite effect of what they want to happen. So that could actually cause inflation to maybe become a little bit more entrenched than it already has.

You know, one of the other statements that really stuck out to me, Amy, when Jerome Powell, on the hawkish side of things were more aggressive on rate hikes, he said the ultimate level of rate hikes will be higher than what they previously expected, right?

Amy: Yes. And that actually, I think, was the market started to go the other direction.

Andy: Yeah. So I've been watching the press release and writing down some notes as I go. That was the first one where I put a star by. I was like, "Oh, that's a hawkish," when I got a couple more stars after that on the statements. But that was the first one that jumped out. And then I went to, you know, just to confirm, you know, where did the Fed think rates would be before? Like, where do they see interest rate hikes ending? And that's when you look at what's called a dot plot, which is the every Fed member does their own voting, and non-voting members, by the way, does their own projection on where the Fed funds rate will be in the longer term.

And where they had them at the end of 2023, at least the median dot was between 4.5% and 4.75%. So based on where we're at today, that would suggest rate hikes of another point 0.75%, to at least get to that level. So now, Jerome Powell is saying rates will need to get above that level. So, we're looking at more than, you know, a three-quarter point rate hike, you know, collectively at the next few meetings.

Amy: I wanna get your take on a comment that Jerome Powell made today. He said, "I prefer an over-tightening of the economy to failing to tighten enough." Let's talk about what he means by that because that's a fairly hawkish comment as well.

Andy: Yeah, he doesn't wanna make the same mistake that the Fed made in the late 1970s when inflation was creeping higher, and higher, and higher then the economy started to slow down. So, they cut rates and there was some initial indication that inflation was coming down, but it ended up that they cut rates way too soon. And then we were left with the double recession in the early 1980s combined with a hyperinflationary environment. And that's probably one of the Fed's biggest failures of all time. And that's what Jerome Powell does not want a repeat of. So, his biggest concern is making sure that the Fed doesn't make the same mistake twice.

Amy: Really quickly, Andy, what's the takeaway for investors from today and moving forward?

Andy: Well, today is a noisy day. There will be some more noisy days when it comes to the market. There's gonna be some more volatility until all this uncertainty plays out. But, you know, if you don't need money right away and you got 5,10 years on your side, you know, staying invested, staying calm will probably be your best way to enjoy financial peace of mind.

Amy: I like that noisy day, right? Five years from now, you probably will not remember this particularly noisy day in the market. Here's the Allworth Advice. Will the Fed pivot and maybe do a smaller rate hike next month? If so, it could signal that it believes its hikes are finally impacting inflation. We will see as the data continues to come, and we will certainly follow this for you. So how much cash do you have on hand if a recession happens? And does your HSA have an investment option? Should it be in stocks? These are questions we're gonna answer next in our Ask the Advisor segment. You're listening to "Simply Money" here on 55KRC The Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you can't listen to our show every night, well, you can still get our daily podcast, listen the following morning on your way to work, or at the gym, whenever it works for you. And if you think maybe your friends could use a little money help as well, spread the word. Search "Simply Money" on the iHeart app or wherever you find your podcast. Straight ahead at 6:43, why you need to be reviewing the rules for capital gains? What you need to know to potentially save some money on taxes before the end of the year? We're gonna talk about that next.

Okay, so I want to remind everyone, we're not red, we're not blue, we're green. But there is a recent poll out that caught our attention which asked people would you take a check from the federal government for essentially stimulus to combat inflation while prices are so high? And 63% said, "Sure. Give me that check. That sounds like a great idea."

Steve: Amy, this drives me absolutely crazy. And by the way, thanks, Andy Stout, for taking over. So, eventually, I got to the studio. So, this...

Amy: Good, glad you're here. Glad you could join us.

Steve: Yeah, you had the smart person to start the show off. And that's important with the news today.

Amy: We always appreciate Andy's analysis. Yes.

Steve: Exactly. So, I mean, this just drives me nuts in so many different ways. I mean, are we not teaching our children anything about economics? How was this question even phrased? Was it would you like free money? You know, because what we're looking at is basically stimulus just checks being given to people because things cost more to combat inflation. But isn't that what got us in this place in the first place? You know.

Amy: That is exactly a huge contributor to what got us. Yeah.

Steve: Yeah. We did a lot of stimulus. And, you know, the cause of inflation primarily is too many dollars chasing too few goods. And this is adding even more dollars to the equation. So I get why people would say, "Sure, I'll take the money." But this is not the answer. And a lot of states are doing this.

Amy: Well, they say they'll take the money, but I don't think there is the full understanding of the total repercussion of this, right? Yes, I'm paying more for everything right now. Yes, it's harder for me to stretch my budget when the grocery bills and the energy bills, and the Duke bill, and all of those things are coming in. So, I think on the face of it, yeah, a lot of people would say, handouts stretched, "I'll take that check. I'll take that stimulus money," not understanding that really what it does is it just perpetuates the cycle...

Steve: It does.

Amy: ...that we're giving the money out for even in the first place. We saw Liz Truss, right? She was prime minister of Great...

Steve: For about half a day. I think, yeah.

Amy: Literally for, like, as long as it takes a head of lettuce to rot. That's how long she lasted. This was part of her plan, right?

Steve: Yeah.

Amy: Europe was or England was dealing with the same issue that we are as far as inflation, and honestly, to the nth degree maybe that we're dealing with.

Steve: More of a problem with energy.

Amy: Yes. And as a result, her plan was stimulus money. And we questioned that on the show, just as we question this. This is not a political stance, so this is just explaining kind of economics 101, right? How this all works.

Steve: Exactly. And I'll tell you what really worries me. I mean, not that we don't have enough bad things to talk about and get depressed over. But treasury bills, treasury bills are yielding right now about 4.4%. Treasury bills are how we fund the national debt. That's where the money comes from. Investors buy treasury bills, and that pays for the debt. A year ago, they were paying about 1%. I mean, we literally are looking at four times the interest payments on the same amount of debt. So, you know, I worry a lot about the national debt in this country and how much of our tax dollars are going to pay for more and more interest payments as interest rates rise? I mean, I haven't seen this talked about much. So, you know, giving out additional money to increase the national debt, I don't think is a really good idea regardless of your political persuasion.

Amy: As you mentioned, it's happening, 19 states already giving out money, and Kentucky Senate actually approved a billion-dollar rebate for taxpayers, but the state legislature has adjourned for the year. It's likely that's probably not gonna happen. Indiana, though, as part of the state's automatic taxpayer refund law, there's some money going out, rebates of $125 and $250, depending on if you're single, or household. States are doing this. And again, at the surface, I think it seems like it makes a lot of sense. But when you dig deeper, not too much,

Steve: Well, here's the difference. A lot of states at least are running...they're running surpluses, they've got extra money, and most states have budget balanced in their...balanced budgets, easy for me to say, in their constitution. So, they...

Amy: Right. They have to balance the budget every year.

Steve: ...literally have extra money. The last time I checked, the federal government does not have extra money.

Amy: Not so much.

Steve: And yet people are calling for this being a federal program. I hope it doesn't go any further. It's not actually a proposal in Congress. This is just something that people have cooked up saying, 'Would you like this? But, you know, politicians listen to this kind of stuff. And they do tend to wanna do what keeps their people happy. And, you know, free money is always gonna keep people happy. I just hope they keep their wits about them and don't take this any further.

Amy: If we stopped you and said, "Do you have a question about money?" Most people would say, "Yeah, here's what it is." You can email us, ask yours at asksimplymoney@allworthfinancial.com. It's Ask an Advisor, asksimplymoney@allworthfinancal.com. Our first question comes from Sarah, who lives in Montgomery, "I have an HSA great, huge fan of a health savings account. My plan is to act like it doesn't even exist, watch it grow as I pay for my medical expenses on my own. Since it does have an investment option, should I just invest 100% in stocks and let it ride?"

Steve: I'm wondering if Sarah in Montgomery is not really Amy in Northern Kentucky. This is very out of your ally.

Amy: Sarah and I might have talked at some point.

Steve: Well, you know why this is timely as a lot of companies are doing their open enrollments for benefits for next year. And, you know, this is a question a lot of people don't understand what a health savings account is, HSA. And I'll tell you what, they are not bad deals. You're a big fan of these, aren't you?

Amy: Yeah. So, obviously, hopefully, Sarah has talked through with her family, whether it makes sense to have a high deductible health care plan, right? Because you can't have an HSA unless that is the plan that you have. But if you do, and you have a substantial emergency fund set aside where you can pay those doctor bills, hospital bills, any medical bills as they come up, you can afford the full deductible. I think exactly what Sarah's doing makes a lot of sense. She's putting money aside, investing that money to grow for retirement. What's the latest step, $350,000 for the average couple retiring this year?

Steve: Oh, it's more than that. Yeah.

Amy: Yeah, of what you'll have to pay in in health care expenses over the course of your retirement. So, it makes a lot of sense to use an HSA for this reason. Next question comes from John in Forthright. "I've heard that I should increase the amount of cash I have on hand in case a recession happens. How do I determine how much I need? Is there a formula?"

Steve: Kind of but here's the issue. You know you better than I know you, John. And, you know, everybody's got their own amount of, you know, how much do I need in order to sleep at night? I mean, that's really what it boils down to. I like three to six months of living expenses to be put in emergency fund. Yeah, it's just in the bank, it's not gonna grow much, at least you're getting a little interest these days. You like a little bit more, don't you? Than six months.

Amy: I do. Because I also think that during a recession, if you're worried about losing your job, it takes longer, right? During those times to get that job back. So we think an emergency fund of three to six months during normal times might be just fine, but something that could last longer during a recession just in case you do lose that job and it takes longer to get one I would much prefer to have a little bit of room to breathe and to sleep at night. So, I would say anywhere from three months to a year's worth of critical living expenses set aside. And I think you're making a great point, know yourself, right? Whatever you're comfortable with. I wanna quickly get to Brett and Lovelin. When you make a financial plan with someone, what's the life expectancy you use? So, what should I use?

Steve: Well, we tend to use 92 for men, 94 for women. And a lot of people are gonna say, "I'm not gonna make it that far." What if you do? I mean, you know, what if you have the back luck to live a long time?

Amy: Don't bet against yourself.

Steve: We don't want you running out of money. But keep in mind, it's not just longevity in your family, accidents happen when you get older, you never know, you know, what the future is gonna be. I would rather plan on 92, 94 than 65, or 68, or something like that.

Amy: So, have you heard of the metaverse? This is a virtual world where people live, work, spend money, talk to others. This is considered kind of an evolution of the internet, thousands are going there. But with it comes some personal security concerns. We're gonna talk about what the heck this is and what you need to know about it next. You're listening to simply money here on 55KRC The Talk Station.

You're listening to "Simply Money." I'm Amy Wagner along with Steve Sprovach. You may have heard of the metaverse. But here's my question. What is it exactly? How do you even go there or find it? Joining us tonight is our tech expert Dave Hatter from Intrust IT explaining what the metaverse is and what we all need to know about it literally. I have no idea. Is it like, "Can I go there now?"

Dave: Well, Amy, you could. I think you might be underwhelmed. So, I mean, metaverse is one of these popular terms. And it's been around for a while, but it's sort of caught on here recently because Facebook has been heavily pushing it. You may know that Mark Zuckerberg rebranded the company, and it's now called Meta rather than Facebook, and Facebook is just one of the brands or properties of Meta. So, they're trying to play off this idea. And, you know, you may have heard the term metadata or meta-applied to other things like with metadata, it's data about data, right?

So Metaverse, that's where I can describe it as think of an AI world or a virtual reality world, and I'll try to kind of explain the difference between some of these concepts because there's a lot of overlap, and different people will explain it in different ways. But just think about an online world, maybe like a video game, or I think most people might be able to relate to sort of open universe video games like SimCity or something like that, where there's really no specific objective that you're trying to accomplish necessarily, or maybe Roblox or Minecraft for people who have younger kids that are into that sort of thing.

But it's an online world. And, you know, there's been lots of experts pontificating on this about how, you know, at some point, we're all gonna do everything in this online world. And you've got all these big tech players trying to race to kind of become the place because, you know, if Facebook has their Metaverse and Apple has their Metaverse, and Microsoft has their Metaverse, if I'm in the Microsoft Metaverse, you know, how will I interact with you in the Facebook metaverse? Is that a thing? Would they wanna, you know, allow them to connect somehow? I think in the long-term the answer is yes. But in the short term, you know, they're all kind of at odds with one another.

So, it's basically just a virtual world where you can go in there and interact with other people virtually. The big fundamental difference really now is you have augmented reality and virtual reality. I'm sure you've seen the goggles people wear. And, you know, through haptic devices, and goggles, and so forth that allow you to sort of sense being in this world, it's, you know, a much more realistic experience than it was if you're just looking at a flat screen playing a video game. That makes sense.

Amy: Okay. I mean, I do comprehend this whole, like, virtual reality, the gaming, right? I get why that's cool. And you feel like you're a part of something even though you're not really there. Very cool. I've heard people saying you feel like you're on the roller coaster, you're really doing things that you're not doing. But I've also heard when talking about the metaverse, I've seen articles about buying real estate there and interacting with it, like paying money to be part of something. And I guess that's what I don't understand. Like, we have a real world still, right? Like what is it?

Dave: Yes. And, you know, you've touched on one of the things that I think is fascinating about it. Now, if you're familiar with the idea of NFTs, non-fungible tokens and NFT art and so forth for a while last year, or I guess it was earlier this year, there was this big craze where you'll see celebrities paying ridiculous amounts of money for some digital art that they "owned," right? You know, if I go out and take a picture of something, I mean, clearly, there's copyright laws and things that prevent me from just stealing your stuff. But, you know, when something's in digital format, it's pretty easy to copy, right?

But through blockchain and some other stuff, you know, you could show that you had the original copy, and this thing really caught on for a while. It's kind of gone bust. Most of the people that bought into this have now lost lots of money when they bought these things, and, you know, some pretty high-profile celebrities. But, you know, the idea that you're gonna go into the "metaverse," and buy like a house and it's gonna have value because other people wanna buy that house, to me, it's just laughable. Now, maybe we'll get there at some point. I don't know if you've read the book or seen the movie, "Ready Player One."

Amy: I have not.

Dave: It's sort of this dystopian world where everyone lives in this metaverse kind of place. And, you know, the real world is sort of this dystopian Orwellian nightmare. So people escape into this online universe or metaverse.

Amy: This is a very rosy picture of the future. My goodness.

Dave: Yeah. The book is great, by the way. Especially if you're a child of the '80s, it's got lots of '80s references pop culture, Dungeons and Dragons, video games, that kind of...so you know, being the nerd that I am, I loved it.

Amy: So, my question about the metaverse, because you do read about it from time to time, you see it in places, people talking about it, what does the average person need to know about it at this point in time, right? Like maybe not five years from now, obviously, you don't have a crystal ball about what's gonna happen here, but is there anything we need to know about it now? Should we be interacting with it in any way, or is it just kind of this thing that tech companies are hoping will buy into but people really aren't yet?

Dave: You know, Amy, I'm not a great prognosticator. I'm often wrong in my predictions. So...

Amy: Never. You're never wrong.

Dave: So just understand that going in. I mean, I think there are definite upsides for this kind of technology, particularly in the training space. You know, I think, eventually, education, as we know it today, stands to be completely upended by technology. Imagine if you could take all of the best instructors across the world and, you know, extract their knowledge into some sort of AI-based process, and then you could go to school "by throwing on some goggles," and immersing yourself into like, "Imagine if you were trying to learn brain surgery." And you can immerse yourself into a world where you had gloves that will allow you to feel what you're doing and some kind of goggles on so you're completely immersed in this world and you could essentially perform surgery in a, you know, VR, virtual reality AI kind of model that would be about as realistic as doing it on, like, a cadaver or something.

You know, I mean, we're not far from that. I think in a lot of training-type context, you're trying to learn how to work on a machine or something, anything like that, where you need the tactile experience of doing it and muscle memory and all that, I think there's...you know, we're kind of there now with this technology when you see some of the more advanced stuff that's out there. And even some of the games. Like, there's some pretty cool games. If you wanna exercise, you can throw on some goggles, be a Jedi Knight, have a lightsaber, and then you just basically, you know, fight stuff so that you get your exercise in while you're playing the game as opposed to the old style, "I just sit on the couch and, you know, press some buttons."

But in terms of like, we're all gonna be in there, and, you know, we're gonna be buying properties and stuff. I think we're a long way away from that because I don't think the average person really gets a whole lot of value out of it. I mean, it's kind of interesting. But for me, the novelty wears off quickly because it's really just kind of a video game at this point. And, you know, I think a lot of the hype cycles that have gone on around it over the last year or so Facebook has put billions into this really have just sort of fallen on deaf ears at this point. So, I wouldn't rule out that it will eventually someday become a much larger part of all of our life experiences. But unless you're in very specific industries, where, again, you're trying to learn, you know, specific types of skills or something, I just don't really think it's there yet.

Amy: Dave, I wanna very quickly get to whenever there's kind of a new frontier when it comes to tech, there are always scammers. So, if someone is interested in figuring out what the metaverse is and how to interact with it right now, any precautions that we need to know about at this point?

Dave: Well, I think you asked a good question because, you know, once you're, "in the metaverse," you can guarantee there'll be scammers in there because there are scammers everywhere, right? And the scammers know, all of this technology and the ability to connect with people all around the world is a great conduit for them to scam you out of whatever.

So, yeah, I think, you know, the best way to learn about this, frankly, is to go to reputable sources, places like "Fortune" magazine, or "Wired" magazine or "PC" Magazine, you know, where they have editors who are researching this stuff and writing about it, they're talking to industry experts that work in it. That's the best way to kind of learn about what's out there and what's reputable. And then in terms of trying to experience it yourself, you know, from what I've seen, and I'm not an expert on this subject, but from what I've seen, probably Facebook has the most complete "metaverse" offering out there with their Oculus goggles and all that stuff.

You know, you can go try these things out somewhere, maybe you know somebody that's got one, or you can buy this stuff, it's not that expensive although I really just sort of pains my soul to ever give Facebook a plug in any way, and try it out for yourself. I predict you'll find it interesting but underwhelming, and you'll be sorry you sprung for the goggles if you buy them yourself because it's just not that much there at this point again, except in more specific sort of training-oriented circumstances.

Amy: Great perspective as always from Dave Hatter, our tech expert from Intrust IT. You're listening to "Simply Money" here on 55KRC The Talk Station. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Steve Sprovach. We are officially in November, so we're talking not turkey, Christmas trees, why? We will explain why you need to be thinking about your own Christmas tree right now.

Steve: There's actually Christmas music on the radio now. It makes me happy.

Amy: I heard it this morning. I am not a Grinch. But I think everything in good time, I was going through the stations...

Steve: You're a Grinch.

Amy: ...and I was just outraged as I am on November 1st every year,. It's not time for it yet, Sprovach, it's not time.

Steve: It's always time.

Amy: One thing it is time for, as we get closer and closer to the end of the year, is tax planning. I think, Steve, it's easy for people to get confused. Tax preparation is that pain in the rear-end thing that we have to do, right?

Steve: Yeah. Every April 15th, yeah.

Amy: Coming every April in order to make sure our taxes are filed correctly. But tax planning usually happens all year long. And for a lot of people can make a huge difference. And if you haven't thought about it much yet, we would say start thinking about it for the end of the year. And I think it's really important to understand capital gains, what they are, how they work, and, as an investor, how you can use capital gains to your advantage.

Steve: Yeah, you don't have to be a CPA to have a basic understanding of capital gains. Capital gains, it's just when you sell something that you bought at a lower price, that's a profit, a capital gain is just a profit. And if you...

Amy: You gain money.

Steve: Exactly.

Amy: You gain something.

Steve: And if you held on to whatever it was that you sold for at least a year in one day, it's considered a capital gain as opposed to ordinary income, and has a lower tax rate in all likelihood. Give you an example. Let's just say you make over 83,000, under a half a million bucks, and you sold some stock at a profit sometime this year. Your capital gains tax rate is...assuming you held the stock for more than a year is 15%. If you sold that stock in less than a year and had the same profit, you'd pay not 15%, you'd pay between probably 24% and 32%, almost double, you know. So capital gains...

Amy: And that's a great point. Most of the time, your capital gains rate will be about half loosely of what your income tax rate will be. So, understanding holding it for at least a year makes a lot of things. Let's talk about who this effect is, right? If you've got a 401(k), you're putting money into...you know, just growing, We're not talking about buying and selling things within your 401(k) or, you know, investments that you've aside for retirement. Absolutely.

Steve: Yeah, and I just went through this with someone yesterday, what do you mean you can't take losses inside an IRA? No, that's the whole point of tax deferral, it's awesome. You know, you'll get growth over time and pay tax on the backside when you take the money out of an IRA or a 401(k). But no, if you have a taxable investment account, you just open up a joint account, bought some Procter and Gamble, bought a mutual fund. By the way, this may be a bad surprise year. This may be one of those years where you in January get your capital gains report called a 1099, and you may have had some capital gains this year, even though you may have lost money. That's going to wake a lot of people up in February.

Amy: That's a tough pill to swallow, right?

Steve: Yeah, that's not a lot of fun. But let's talk about that a little bit because if you do have capital gains this year, and that, again, is from selling something, actually realizing the gains, selling something at a profit, well, as long as you...before the end of this year, if you have a loss and you sell something at a loss, you probably can match that loss against the gain. If you made $5,000 on the sale of stock, but you lost $5,000 on one of your bonds or bond mutual funds, and you sell that, they offset each other. You can match them against each other, and this is something that you would have to do before the end of the year.

So you know, one of the first points I wanna make, Amy, is, you know, take a hard look at what your capital gains may be this year and consider taking...it's called tax loss harvesting, but consider taking losses to offset the gains. Talk to your tax advisor before you do anything, but you may want to at least start the thought process at this point.

Amy: Well, and to your point, tax loss harvesting could be one of the very small slivers of a silver lining...

Steve: It's about to happen. Yeah.

Amy: ...that we have. And this year where so many investments are down, right? How can you take it to your advantage? Well, obviously, you know, we would say if you've got money on the sidelines, buying right now, you're buying stocks at a discount now, they're on sale, but the other advantage to things being down is if you have a gain and you match it with a loss that removes those taxes that you'd owe.

Steve: They can. Yeah.

Amy: It can. It can offset. So lots of things through here. But I think the whole point is to understand what your options are, ask questions of your financial adviser, of your CPA when you're working with them so that you can figure out ways to truly kind of take these things or use these things to your advantage.

Steve: No question. And, you know, more than a couple of people sold a home last year. "Wow, it's worth what? Let's put it on the market and, you know, buy a condo, move into a vacation home, something like that." You may have some significant gains if it was not a primary house. Yeah, it may be a lot of gains. I had somebody sell a rental property just couple of weeks ago and now he's dealing with, "Okay, I may have to declare a very large capital gain." You can get into some fancy strategies, 1031 exchanges, and things like that, depreciated assets, no reason to get into that on this show, but just one more lesson of, "Talk to your accountant well before the end of the year, so if there is something you need to get done by December 31st, you've thought it out and you know exactly what the best advice is for your own situation."

Amy: Here's the Allworth Advice, Paying Uncle Sam, obviously, unavoidable, but the more educated you are about things like capital gains taxes the less hopefully you will have to shell out. All right, if you're looking for that perfect Christmas tree this holiday season, you got to get one now. Yep, that goes for artificial trees as well. We're gonna tell you why next. You're listening to "Simply Money" here on 55KRC The Talk Station.

You're wondering why we're playing Christmas music, there is a very good reason. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Steve Sprovach. I know, I get it. This is the very beginning of November. You have not even thought about planning for your...

Steve: You are such a Grinch. You hate this. You hate this coming this early.

Amy: Thanksgiving meal. Yes. I do. I think everything in its season.

Steve: Amy the Grinch.

Amy: Everything in its season. It's not Hallowthanksmas. It's not Halloween, Thanksgiving, Christmas altogether. It is Halloween, and then Thanksgiving, and then Christmas. But we will get this warning out because we love all of you and we wanna make sure that you do you have a very happy Christmas this year, a very merry holiday season. And so, if you need to get a Christmas tree this year, if you do not already have an artificial one in your basement, if you need a new one, or you have a live one, get it now. Except if you were to get a live Christmas tree right now, it will be dead before Thanksgiving.

Steve: Yeah, it might be. But I'll tell you what...

Amy: You better water the heck out of that thing.

Steve: Yeah, I love live trees. And we got them for years. When the boys were young, that was basically the day after Thanksgiving, we would head out.

Amy: I do love the smell. The smell of a live tree in your home, nothing like it.

Steve: By the way, don't store it outside for the first week before you bring it inside. I won't tell you about the spiders that apparently got into it while it was outside. But I love a live tree. And there are plenty of places around Cincinnati where you can cut your own. And the prices are surprisingly pretty reasonable. We made a whole day out of it. But this year, remember that supply chain issue that kind of reared its ugly head over, you know, the early days of the pandemic? It's hitting artificial trees this year. So if you go artificial, you might not wanna wait.

Amy: But I wanted to go back to the real trees too because we've...also fertilizer, right? The cost of so many supplies have gone up over the past year. Inflation is hitting everything. Fertilizer is costing more to these tree growers. Also, we talked about labor costs going up this year, right? People who are working in harvesting these trees. And so, if you are buying a real tree, well, you better save a little extra this year. You know you mentioned you can get some affordably. I have noticed over the past several years like, "Gosh, remember what a live tree used to be?" There are some places that are selling them, you know, north of 100 bucks for a real tree.

Steve: Oh, easy. If you get a balled and burlapped tree, yeah, you can spend a lot more than that. Yeah.

Amy: So, these growers are saying anywhere between 11%, more to 20%, 25%, more you can expect to pay this year. So, keep that in mind. Last year, the median tree 69.50 for a real tree. I expect that that's gonna be more expensive. Speaking of median prices, the median price of an artificial tree last year 70 bucks.

Steve: Well, how about my favorite, the silver tree with red Christmas...

Amy: Oh, here we go.

Steve: ...balls on it and a multicolored rotating disc. I remember my grandma had one of those when I was a little kid. I'm bringing them back. I'm gonna have one this year. I'm doing it.

Amy: We talked about it last year, and we actually heard from people, a number of west siders apparently. These were big on the west side talking about, "Yes, we had those, we love those."

Steve: I love it.

Amy: So, keep in mind with the supply chain issues, you are going to pay more for the artificial trees this year. And also the supply chain issues, you may not be able to get them. So just keep that in mind, plan ahead. Thanks for listening. Tune in tomorrow. We're talking about the market's reaction to the Fed rate hike. You've been listening to "Simply Money" presented by Allworth Financial here on 55KRC The Talk Station.