Bull vs. Bear Markets: Why Staying Invested Matters
On this episode of Simply Money presented by Allworth Financial, Bob and Brian reveal what decades of bull and bear markets can teach investors about building long-term wealth, explain why some new ETFs look more like gambling than investing, and discuss the executive dilemma of whether a bigger paycheck and title are worth the trade-offs. Plus, smart strategies for reducing capital gains taxes, donating appreciated stock to charity, knowing when you no longer need life insurance, and why bonds deserve another look.
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Bob: Tonight, what every investor should know about bull and bear markets. You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James.
Well, did you take your money out of the market around, say, this exact date in 2022 thinking the market would just continue to crater? Brian, I remember 2022, that was not a fun year for the stock or bond market. But for those that got out, did you ever get back in? And for those who didn't, boy, looking back four years ago, it was a terrible mistake.
Brian: And that absolutely was. That was one of the five worst years we've ever had in the stock market. You know that the stock market frequently gets down to a, you know, 20% declines. But it doesn't stay that way, right? We we've had those, we've had those recently in terms of the last couple of early Springs. One was related to when we were getting used to the idea of tariffs being a thing that caused an initial panic. And then when we first bombed Iran, that caused an initial, pretty solid panic. We recovered quickly from both of those.
So, we're not talking about those sort of short term swings in the market. 2022, the market went down from day one, right? We all like to think in terms of, "What's my portfolio done since January." We think in terms of year to date. And that was one of the uglier years because it was down on new year's day and it was down the following new year's Eve. So, a loser all year long for that. And that stayed down more than 20%. We've only have five years, Bob, that are like that. You know, you've got to go back to 2022, of course, which doesn't come with a story. People don't really remember exactly what it was. Really it was the unwinding of all the crazy stuff out of COVID, interest rates and inflation being a thing, those kinds of things, but it doesn't have a title. 2008...
Bob: Well, and the federal reserve raising interest rates seven times. That rarely happens, Brian.
Brian: Oh, of course, but that's not how people think of it, right? People think of... You know, the general person walking down the street knows that 2008 was the great recession that came from banks overloading on mortgages and all kinds of things such as that. 2002, that people generally know, you know, that that was a reaction to the tech bubble bursting and 9/11 and the recession that came after that and so forth. And then before that, you go back to the 1974, 1938, I believe it is, and I'm missing one. No, that's all five of them.
But anyway, those are the five years. Those are the only five years that we've had where the market went down 20% and stayed down. But people tend to lose sleep over those particular, even though, you know, that goes back 80-some years, and, you know, we've only had 5 markets like that. Now, as you just mentioned, the S&P, it's up 118% since today...well, next week, I guess it is, four years ago. Meaning that, you know, the market has recovered and gone on to greater heights. It is today, isn't it? It was October 12th. Yes, so yesterday.
Bob: Yesterday, Brian.
Brian: Put it that way.
Bob: Please look at your calendar.
Brian: I cleaned my reading glasses.
Bob: I'm going to buy you a little small desk calendar to put on your desk so you know what day it is.
Brian: I will forget to change it every day. It'll be October 13th forever.
Bob: Well, hey, you know, our point here is just, you know, this stuff happens all the time. History, of course, offers no guarantee of what comes next. There will be other bear markets, that we can guarantee you. And what's driving the bull market right now looks very different than what powered it the first three years. You know, right now we've got artificial intelligence and people thinking about, you know, IPOs coming out, whether it's anthropic you know, Space X, all... You know, people are pouring money into these companies that they think will be the big winners.
We've got more concentration right now in tech stocks, Brian, in this S&P 500 than I think we've ever had before. Meanwhile, we've got interest rates continually to creep up. And at a certain point, if that continues, higher interest rates, you know, fixed income alternatives can start to become competition for stocks, and then stocks continued growing earnings, it becomes a bigger and bigger hurdle to get over if we're going to continue to see this market rocket higher.
Brian: Yeah, that's absolutely true. So, that's why we think it's really important to understand market history. I think that's just about the most important thing that people can understand in terms of building their own financial plan. You know, a lot of times people will think that, well, you know, whatever the market's doing right now, that's what it will always do, therefore, that's what I'm going to rely on. That is definitely not the case. As a matter of fact, that's dangerous thinking, because that's one of the few guarantees I get to give, which is that whatever's happening now isn't going to be happening forever in the future.
But let's go over some history here because I think this is important stuff for people to know. So, Andy Stout had put together, he's our chief investment officer, he's put together a lot of research that we use with our clients to help understand that market history. What is a bull market? What is a bear market? What should I expect? And this data goes back to 1949, which is not arbitrarily selected. That's about as far back as you can go and have something that still looks and acts like the S&P 500. You can make arguments either way on that, but that's kind of what we're looking at here. So, also, it's the post-war era. Obviously, we were in a different world before World War II, too.
But anyway, going back to 1949, there have been 12 bull markets and 12 bear markets. So, people who have a tendency to just kind of make a hair trigger reaction will say, "Well, I got a one out of two shot of a good market." No, that's not how this works. in that time, though, including the bulls and the bear market, stocks have averaged a 12% annualized return across all those time periods, 12%. Now, am I going to ever put a financial plan in front of somebody that assumes 12%? No, absolutely not. That's going to make the plan look ridiculous. And that ignores some very short term swings that can be dangerous. But within those bull markets, the longest bull, Bob, was 12 years. The shortest bear lasted only a month. The average length of these is about five and a half years for a bull market. The average length of a bear market is 13 months, right? So, when the market expands, it tends to do it for a really long time. When it contracts, that doesn't hang around so long.
Bob: Yeah. And I'm looking at a chart, you know, a chart that we call around here, the wall of worry chart, that basically shows the price of the S&P 500 index going all the way back, as you said, to 1949. And then on top of that chart, just all the horrible things that have happened in this country and around the world, that at any point in time would have made somebody, you know, say, "Hey, this doesn't look good right now. I'll wait until things look better." Things like President Kennedy getting assassinated. Us going off the gold standard in 1971. The tech bubble, of course, in, in the late nineties, early two thousands, 9/11, the great recession housing crisis, COVID-19, you know, on and on it goes. There's always a reason to be worried that the stock market's going to go down and stay down.
But Brian, you know, that number you just threw out, 12% annualized rate of return. What? Over the last 75, 77 years, that's a powerful number, which goes back to the saying that we often hear, but we don't heed the advice. It comes down to time in the market, not timing the market, again, for folks that have long-term capital that should really be invested in not traded.
Brian: Yeah, that's right. And so, the temptation is always to time it. I'm hearing from clients nowadays, and they're just being human, they're saying, "Hey, I've had a good run. It's been great. Shouldn't we take some profit?" And my answer to that is always, "What are we going to do with that profit?" If we're going to carve off a chunk, if it's taxable account, we're going to choose to pay taxes. What are we going to do? If we're going to dump it in the bank and sit on it until this sort of scary market that we assume is coming actually appears, then we're going to buy on the dip, there's a really, really, really good chance that we're going to miss time one of those moves. Remember, and even if... People will say, "Well, that's not market timing. I'm just trying to protect my gains. That's different." No, it's not. It's market timing no matter what. You're trying to be in for the good times and be out for the bad times. Whether you're doing that out of fear or greed, it's still timing the what we...
And here's some more information that Andy Stout has put together for us. So, the market mostly does a bunch of nothing. It's been bouncing up and down a little bit for months now. It's been pretty flat for a while. And this is an election year, so I think we're probably kind of keeping the powder dry till we know which direction the country is going to pivot. So, that's not too surprising, not to mention the run that we've had. But normally, the market that is what the market does. It just kind of wanders up and down a little bit. But we will have very, very quick moves. When people, investors get excited about something, it will happen quickly. When they get scared about something, that happens quickly, too. You need to be invested all of those days to really benefit from it. So, that's some of the data he put together for us.
Again, going back. Oh, how far back does this one go? This goes back about 50 years as well...I'm sorry, 20 years. So, the last couple of decades, the market has averaged 10%. If we stayed invested in the S&P 500, didn't touch it for 20 years, you've averaged a little over 10% return. If you miss the 10 best trading days, Bob, I'm talking 10 days out of 20 years' worth of trading days, so that's something like 4,000 days, if you only miss 10, your average drops from 10% all the way down to 6%. That is a huge, huge swing. And also, again, that doesn't sound like much, "10 to 6, well, that's a 4% decline." No, it's not. When you take into account the compounding that happens over those couple of decades, that's where it's at. So, missing the 10 best days, you lose 6%. If you miss the 20 days, now you're only down to 3% rate of return.
Bob: All right. And again, we're talking about the stock market here for long-term money, you know, growth capital that you need to leave, stay invested for 10, 15, 20, 30 years. And as you started off at the beginning of the segment, Brian, you know, we're not saying that everyone should have a 100% stock portfolio or even 80% or 90%. It all comes down to what your money needs to do for you and when, which leads me to another discussion that we shouldn't forget about, the bond market. You know, let's face it, bonds usually post gains. And they've kind of been left for dead here the last couple of years as interest rates have crept up.
The average annual bond market return, again, since 1949 is approximately 5%. And you get that 5% with a lot less turbulence than the stock market. Bonds have historically been about two thirds less volatile than stocks, and bonds do add diversification. The correlation, historically, now this didn't happen in 2022, but historically, the correlation between stocks and bonds in terms of return has only been about 17%, suggesting bonds tend to help smooth out your portfolio's return during turbulent stock market periods of time. And also, on top of that, Brian, they're a good thing to have for shorter-term money, income-oriented investors, folks that, you know, have less tolerance for risk. You don't want to ignore the bond market, you know, to get that job done. I know it could be boring at times, but boring certainly feels a whole lot better after the market went down 30%.
Brian: Yeah. And at the end of the day here, what matters is your investment program simply has to support what you are trying to do in your life.
Bob: Yep, exactly.
Brian: And that comes back to what we always say, which is, what is your plan? What are your resources? What are you trying to do with them? Then we can back into it. It's the scary times of the market that cause you to spit the bit and panic a little bit and change your investments for what you might perceive as a very short period of time. But people who tend to try to want to be protective will really, really, really be scared when it comes time to come back in.
I've got two clients who exited the market in 2008 and came to work with us around 2021 and they hit the skids immediately again. So, they started to convince themselves that the market was out to get them because they sat in cash for, what was that? Thirteen years, then came back and the market kicked him in the face again. One of them couldn't hack it. Well, probably never invest again. The other one trusted an advisor for the first time in his life and he's still invested. He's a pretty happy guy today.
Bob: Sounds good. Here's the Allworth advice, bull markets build wealth, bear markets test our patience, but a disciplined, long-term plan is what helps you get through both. Well, when you hear the word ETF or term ETF or exchange-traded fund, you might think of a relatively safe, diversified investment, but we'll explain why more than ever, that ETF label doesn't always mean what many think it means, and we'll explain why next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Are you paying more in capital gains taxes than you need to? Is there a smarter way to donate appreciated stock to charity? We'll tackle that issue and your other questions straight ahead. Well, we've talked a lot about how investing and gambling are two very different things or they should be, but apparently, Wall Street is determined to make that distinction harder and harder to detect, Brian.
Brian: That's right. So, go figure. These are the kinds of things that come out of Wall Street and we're along the same lines here. So, a new investment fund out there essentially allows you to place a bet on where the stock market is going to be a little more than three years from now. Now, we used to call these futures or options, but now, you can do it inside of an exchange-traded fund, right? The concept here is as old as time. You're basically betting, you're putting a time limit on it, right? First of all, anytime you invest in any kind of stock market fund, you're betting the market is going to go up, right? That's what this is. You just don't have a time limit on it. Futures, options, those kinds of things, as well as this particular ETF, you're betting it's going to go up and reach a certain point by a certain period of time.
So, this one's called the Roundhill S&P 500 Target 10,000 2030 ETF. In other words, I'm betting the S&P 500 is going to be at 10,000 by 2030. So, to put that in some perspective, that means the S&P 500 would need to climb about 29% to reach that level. That's about 8% a year. That's not all that crazy though, right, you know, especially after what we've seen. We've basically seen more than that. We've had three consecutive years of double digit gains. So, here's the catch though. This is not like buying a regular S&P 500 index fund and riding the market higher, like you're probably doing with your core of your portfolio.
By the way, none of this stuff, none of these shiny bells and whistle things should have anything to do with the core of your portfolio. If you catch wind of something like this and it's intriguing to you, treat it like a one-off. Take a flyer and whatever. But anyway. And then the reason is because you're taking a leverage position. These are options contracts. Meaning there's a time limit on it. If the market doesn't cooperate, you could lose your entire investment. So, Bob, tell us a little bit about how this works. You know, let's get in the... We'll keep it at a fairly high level. We won't get too technical. You're pretty good at that.
Bob: Well, I mean, you explained it pretty well. I mean, options, you know, you're leveraging a position saying you're betting that any position is going to reach a certain dollar amount by a certain date. And then the thing that people often forget about is that there's something called time decay going on in the background. You're leveraging up, you know, and you're paying for that time horizon to give that position, in this case, the S&P 500, time to reach that target, dollar level of $10,000. But for all the days that it doesn't do that or goes down in value or just move sideways, you know, that time decay is eating away at the price of those options embedded in here.
Brian, and something like this, Roundhill Target, whatever it's called, I think the danger here, and I think the reason we're talking about it in this segment is, this thing looks and smells on the surface a lot like a target date fund that many people use that do a wonderful job in many cases of building an allocated, diversified portfolio that has a nice mix of domestic, foreign bonds, small cap, large cap, all that. And if you just look at the title of this fund, you might think you're buying something like that, when in reality, you're buying a loaded up basket of options that do have this time decay.
And Brian, you know, if we get a down market or just a sideways market over a period of time, the complete value of this ETF could disappear entirely. So, that's really why we're talking about it here, is just, you know, know what you're buying and know what the inner workings of all these ETFs are, because we're seeing more and more of these things come out. Just because it says ETF doesn't mean it's safe and diversified. And, you know, people might get enamored by some short term returns in this thing if we have a real nice upswing in the market and think, "Wow, this is the best target date fund I've ever seen. I'm going to pour more and more money into it." That's why we're talking about it.
Brian: Yeah. And I think a lot of this is being driven by the predictive markets, the new trend out there with things, with places like Kalshi and poly market and some other areas where you can simply place yes or no bets on things. This is going to happen, or no, I bet it's not going to happen. That's really all this is. But these companies, they're just trying to make that easier and bring it closer to the investor, because you can get involved in options without having to jump through all of the hoops that you would have had to in the past. I don't think that's a good thing. That's a place where I believe hoops might be a little bit beneficial. Let's make it a little harder for people to get. Because at the end of the day, you are making a bet. This is either going to happen by this period or it's not. Don't get lulled to sleep by the fact that, "The S&P 500 is involved, therefore, I'm somehow investing in a diversified index." That's technically true. However, there's a time limit on it. And you will either win or lose based on that time.
Bob: Yeah. And even intraday, I mean, just to give an example of this specific fund, on one day, the S&P 500 rose seven 10th of 1%. This ETF jumped by 7.4%. Sounds fantastic. And that's what I'm worried about. People might take the bait and put a bunch of money in here. Well then, what happens on a down day? Let's say the S&P 500 fell just 0.5%, this ETF dropped by 5%. That's what we're talking about here. Here's the Allworth advice, just because wall street makes gambling look like investing, doesn't mean you should bet your retirement funds in this kind of a space.
You've worked your way up the corporate ladder and made great money, but the opportunity comes calling in the form of a big promotion to an executive position. Should you move up the corporate ladder? We'll talk about something called the executive dilemma 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, joined tonight by our career expert Julie Bauke. Julie, thanks as always for carving out some time for us tonight. We want to talk about something we're going to call the executive dilemma. Staying put versus jumping to the next big thing. Let's say you're in a great role right now, you love your job, you're obviously doing very well at it, but opportunity comes knocking. What's the right move, and how do you evaluate whether to make a move?
Julie: Yeah, I can kind of speak in generality because I've worked with a lot of people in this situation. And the first question I would ask is, why would you consider this move? So, in other words, what are the compelling things about this move. And sometimes what I find when people start listing out compelling things, more salary, you know, a higher level title. My next question would be, are you sure that those are the things that really matter to you? Because it's very ingrained in us that jumping for the next big thing, more money, more title, equals more happiness and career satisfaction. But I know for sure, that's not true.
And so, when you look at, why did that role appeal to you in the first place? And then ask yourself, are those the things that really matter to me at this point? I always start from a point of what matters most to you right now in your life, and then bring the career conversation into it. And because if you are going to get that bigger title and more money, does it also mean that you have to travel more? Does it mean you have to work weekends. And how does that fit into what your priorities are? And so, it's why, so that's the big question is, why would you?
And then take a look at, you know, what is it about where you are now that might be sticking in your gut as to why it even makes sense to look for something else? What are you missing where you are? If you could change some things about your current situation, would that solve that if you're getting to move on? So, I think just a really good, critical analysis of the whys and the what, both behind where you are, and what the opportunity is in front of you, is really, really important. Because we can get super caught up in, "Yeah, but it's a director title. Yeah, but it's a VP title," without really thinking about, what am I giving up to get that? And then, how does that work against what my whole life priorities are right now? So, a career decision has to be made on a bigger platform than in a vacuum.
Brian: Julie, I think a lot of people learn the hard way exactly what you just said, because we get this so ingrained in us that, "I got it. If I'm getting offered this position, well, clearly, I'm fantastic. Obviously, they love me, and I should take advantage of these benefits." But people do tend to learn the hard way that, "Whoops, maybe I caught my limit. Maybe I don't want that next level because my other things in my life have taken priority." So, how do people unwind it? For those people who feel like they may have done that in that position, what are some ways to unwind that?
Julie: Yeah. So, you're saying, like, if you've already taken that role?
Brian: Yeah. And it just didn't occur to you that, "You know what? I didn't really want this extra level of work. I just didn't think it through. I just thought it was another accomplishment."
Julie: So, the first thing, it kind of depends on a lot of things. So, let's say you have a very stable career history. You've worked a long time at one place and you've jumped to this other place. And you've been there nine months to a year and you say, "This isn't exactly what I thought it was going to be." You can successfully and confidently pivot at that point, versus a person who's had three, two year jobs in a row. Now, it starts to be, what story does your career tell? And that's what I would add. Because we want to picture yourself, you're now interviewing for a new job beyond the one that you took by accident. You've got to explain yourself. You've got to explain your career.
And it's perfectly okay to say, "They contacted me. It sounded like exactly what I wanted. When I got there, I realized that blah, blah, blah. I've done a lot of thinking, and now, I know exactly what I want, and which is why I applied for this role." And so, that's a good explanation. But if you are somebody who has a history of jumping without really thinking about, what I've done, and therefore, you have kind of a checkered history, you probably need to take a breath and build up some capital there where you are, so that as you move to the next thing, you've got a better story to tell. So, it's kind of a big, fat, it depends. And it's really, what does your whole career story say about you?
Bob: Julie, I want to go back to the situation where somebody's, you know, considering a move, they haven't pulled the trigger yet, and they're wondering how to evaluate this. And I'm going to make an assumption here. You correct me if I'm wrong. Oftentimes, people just haven't been coached on how to walk into that, you know, the boss's office or the executive suite and just be clear about what you love about working where you are, a couple of things that you would like to see tweaked. And I think, especially in today's labor market, where it is really hard to find good, seasoned, hardworking people, aren't people amazed. If they're coached by someone like you on how to go in and broach that conversation, oftentimes, you can walk out of that office, if your requests are reasonable, getting exactly what you really need to be truly happy where you are instead of making a completely new move and complete jump to a new company. Am I on target there at all?
Julie: Yes, very much so. We always say, try to fix it where you are first because job search is painful. And transitioning to a new unknown job as exciting as it may sound on the surface can also be really painful and surprising. And so, doing that clarity, looking at everything that's on your plate and really saying, "What do I like about my current role? What are the things that if I had a magic wand and can move them off my plate, I would? What would I like to see more of, less of in my role? And how do I then approach that?" Once you get clarity on that, then you have a framework, then you have talking points to go in and say, "You know, I've been in this role as COO for three years. And what I really love is integrating new ideas, new systems, new technologies. And then working across the organization to help implement those and bring those to life. I do get to do some of that in my role, but as I look at my next role, I would love to be more involved in those types of initiatives."
And that's the kind of conversation that you should be having. And we are so afraid to have those conversations because we feel like it's going to make us look less than committed, or that we're going to automatically end up on the layoff list. And you've got to assess your situation. If you have the type of leader who you feel like it really is risky to have those conversations, that might be different than if you feel like your leader really is open to you. You are valued and your leader is looking to retain you, I think it's up to you to go in and begin that conversation about what next might look like for you.
Leaders are so busy and yet they should be coming to you and initiating these conversations, but they aren't because they're getting squeezed. And I always say, the career fairy isn't coming. And so, if you want more or different out of your career, start where you are, try to get it where you are, or at least, put a plan together to get it where you are. Especially in a job market like we're in, that's always going to be the place where it's going to be least stressful to move.
Bob: That is great advice, Julie. 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. Do you have a financial question you'd like for us to answer? If so, there's a red button you could click while you're listening to the show if you're listening on the iHeart app. Simply record your question there and it will come straight to us. All right, Brian, get ready for Tony up in Mainville. He says, "My wife and I have around $2 million invested, and we're getting hit with some pretty significant capital gains taxes right now. Are there strategies we're missing that could help reduce that tax bill?"
Brian: Well, it kind of is the season. We've got a deadline here in a couple of days for the tax extension people to get their taxes done by October. So, I'm guessing that you're looking pretty closely at your taxes up against that deadline. So, yeah, what you can do is... So, we don't know what you're invested in. We just know how much you've gotten. Apparently, it's not in an IRA. It's not sheltered inside of anything. That's not a bad thing. That provides opportunities as well. But the first thing you ought to be looking for is, if you're going to sell something to gain, go look for something else that's sitting in a loss position. You can use those losses to offset the gains. We have a tendency as human beings to ignore the stuff that's sitting in a loss.
"Well, that one blew up in my face. I'm going to wait till it recovers then I'll sell it." No, think bigger picture. Pair that one up. You know, we've got winners and losers. That's life. Pair those losers up with some of your winners, sell off some of those positions. If you're truly in love with that losing position, you can buy it back. Nothing stops you from buying it back. You know, so you could, if you've got $50,000 in gains, but some other stuff sitting at $20,000 position, $20,000 in losses, selling those losing positions can reduce that net gain to $30,000. And that can get you... You know, that you can offset the capital gain. Not to mention, you can also take advantage of possibly just a straight up deduction against your taxes. You could deduct up to $3,000 against your ordinary income. You know, beyond, it's not limited to just the capital gains. If you don't use those losses, right? If you have more losses than you had gained, you get to carry them forward to future tax years.
That's why if you ever sit down with a new accountant, one of the very first questions they're going to ask you, and this is why they want your old tax returns, do you have any losses to carry forward? That will have been recorded on your prior year's tax returns, and then therefore carried forward as long as you've kept those records pretty good. So, make sure you understand which shares you're going to sell though, right? You can't just go, if you have something you have reinvested for years, you want to be very specific on which shares of those lots that you have sold. So, long story short, yes, there absolutely is a better way to go forward, but make sure you understand exactly how all of that works. Aaron and Mason. Aaron's got a highly appreciated stock that he's thinking about donating to charity. And he's just wondering, isn't it better to, you know, just sell it and write a check, or is there some smarter way to do it? Well, I think I know what you're going to say, Bob.
Bob: Well, Aaron, in almost every instance, it is best to not sell the appreciated stock, you know, because by doing so, you're going to pay a bunch of capital gains taxes that Brian just talked about on the prior question. In almost every instance, it's better to either give the shares directly to the charity or put them in something called a donor-advised fund, which allows you to aggregate shares in a charitable account, so to speak. Get the tax deduction, avoid the capital gains taxes, and then distribute the money to charity.
If you decide to give the money directly to a given charity, you want to do something called a DTC transfer. And all you need to do is call your church or charity or whomever you're trying to give these shares to, they will be happy to provide that information to you. It's the name of the brokerage firm they use and in the DTC information. And then give the shares directly to the charity. Make sure you let them know you're doing that so they can be on the lookout for the shares when they get transferred. And then the charity, you know, the administrator or manager, whoever's running things for that chosen charity will sell the shares, convert it to cash immediately. You get the full tax deduction and you pay zero capital gains taxes. And you're happy. The charity's happy. Everybody's happy. That's the way you want to go there, Aaron. All right, we got time for one more. Chris in Madeira says, "Our financial advisor suggested reviewing our life insurance now that we're financially independent. At what point does life insurance become unnecessary?"
Brian: Well, life insurance can become unnecessary when you've decided that your family can absorb the financial consequences of your death, right? So, if you can pass away, or your spouse or whoever, and there's no immediate financial loss, then you might be able to look at the...doing something else with those policies. So, I would think about this. Would either spouse's financial plan still work if the other died tomorrow? Now, this is a big assumption. Do you have a plan to begin with? What path are we on with or without? If everybody lives a nice, long life and everything is hunky dory, nothing bad ever happens again. That's your baseline.
Now, run those numbers again with, matter of fact, I'd run it both ways, one or the other passing away. Does somebody's salary disappear? That's a thing. If you yourself are a personal source of income because you're working, that's a problem. Yes, you need insurance. But on the other hand, if for example, the mortgage is paid off, the income streams are locked in, and there are survivor benefits on all those things, then, yeah, it's very possible you might not need life insurance. That's a very common conclusion that we come to during the process of a financial plan. Do I need this insurance anymore? If there's no financial hole created at my death, then maybe not. That is an okay decision to make. It can be scary, but again, that's what the financial plan will help you understand.
Bob: Coming up next, I've got my two cents on whether now might be a decent time to take a fresh look at putting some of your capital to work in the bond market. 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. Well, Brian, when we had our chief investment officer, Andy Stout, on the show yesterday to give us a little bit of a market update, he threw out some numbers that were interesting to me. If you look at the S&P 500 and, basically, the 11 different sectors that make up the broad index, if we're looking at forward-looking earnings growth, only 6 of those 11 sectors are showing projected earnings growth above 4.2%. Meaning, we've got a lot of concentration of earnings growth right now in the technology and energy space.
Meanwhile, I'm taking a fresh look here at the bond market. And again, I'm not trying to make a market timing recommendation that the stock market is going down, but, you know, Brian, we've got a lot of clients in their late 50s, 60s, 70s, 80s, folks that are just out there trying to say, "Hey, give me a rate of return that eclipses inflation and preserves my purchasing power." And I think for some folks, you know, they've kind of left the bond market, you know, left for dead, kind of like they did individual stocks or international stocks a few years ago. Here's my point. I'm looking at treasury yields right now, you know, going out. If you're going out anywhere between 7 to 30 years, let's just say that 7 to 10 year maturity level, you're getting interest rates or yields on treasuries at above 5%.
If you're willing to look at investment-grade corporates, I'm looking at, like, blue chip companies, you know, pristine balance sheets, you know, high quality companies, you could get yields now above 6%. So, if you compare those kinds of yields, you know, just look at corporate bonds, 6%, let's just say, you know, inflation levels out at around 3%, shoot, even 3.25%, you're starting to get returns that are almost double the inflation rate. Again, with some of your money and you're eliminating all the potential volatility in the stock market, that's a pretty nice spot to be for a piece of your portfolio, especially in tax deferred accounts like Roth IRAs, IRAs, where you don't have to pay the taxes until you pull the money out. I'm just saying that, you know, don't ignore the bond market just because it's given us nothing in terms of real rate of return here over the last couple years. Any thoughts on that, Brian?
Brian: So, I'll add something that I haven't seen in a very long time, but people are starting to ask about, you know, with the 10-year and the 30-year getting above 5%, people are starting to look at that and say, "Why wouldn't I just throw my whole full portfolio? If I can get 5% out of it and it's backed by the federal government, why wouldn't I just do that?" And the answer is because that's still going to give you a panic attack from time to time. If rates continue to go up, yes, if you hold those bonds to maturity, then you will experience, you know, what you think you will, that they're going to come due and they'll get paid off. That's the U.S. federal government. If it doesn't pay them off, we probably got larger problems than your bond portfolio. That said, those prices...
Bob: Yeah, and, Brian, and I'm sorry for interrupting, but that's kind of my whole point. You don't have to go out, you know, 30 years on the yield curve right now. You're not getting paid a whole lot more in interest between 7 years and 30 years. So, you can stay in that intermediate term timeframe and get some real nice yields. And then the other point on that, if you buy individual bonds and hold them to maturity, yes, on your statement, the prices are going to move around, but you're not worried about it. Hold it to maturity and you know what your yield is going to be. That's my point here. Thanks for listening. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
Well, did you take your money out of the market around, say, this exact date in 2022 thinking the market would just continue to crater? Brian, I remember 2022, that was not a fun year for the stock or bond market. But for those that got out, did you ever get back in? And for those who didn't, boy, looking back four years ago, it was a terrible mistake.
Brian: And that absolutely was. That was one of the five worst years we've ever had in the stock market. You know that the stock market frequently gets down to a, you know, 20% declines. But it doesn't stay that way, right? We we've had those, we've had those recently in terms of the last couple of early Springs. One was related to when we were getting used to the idea of tariffs being a thing that caused an initial panic. And then when we first bombed Iran, that caused an initial, pretty solid panic. We recovered quickly from both of those.
So, we're not talking about those sort of short term swings in the market. 2022, the market went down from day one, right? We all like to think in terms of, "What's my portfolio done since January." We think in terms of year to date. And that was one of the uglier years because it was down on new year's day and it was down the following new year's Eve. So, a loser all year long for that. And that stayed down more than 20%. We've only have five years, Bob, that are like that. You know, you've got to go back to 2022, of course, which doesn't come with a story. People don't really remember exactly what it was. Really it was the unwinding of all the crazy stuff out of COVID, interest rates and inflation being a thing, those kinds of things, but it doesn't have a title. 2008...
Bob: Well, and the federal reserve raising interest rates seven times. That rarely happens, Brian.
Brian: Oh, of course, but that's not how people think of it, right? People think of... You know, the general person walking down the street knows that 2008 was the great recession that came from banks overloading on mortgages and all kinds of things such as that. 2002, that people generally know, you know, that that was a reaction to the tech bubble bursting and 9/11 and the recession that came after that and so forth. And then before that, you go back to the 1974, 1938, I believe it is, and I'm missing one. No, that's all five of them.
But anyway, those are the five years. Those are the only five years that we've had where the market went down 20% and stayed down. But people tend to lose sleep over those particular, even though, you know, that goes back 80-some years, and, you know, we've only had 5 markets like that. Now, as you just mentioned, the S&P, it's up 118% since today...well, next week, I guess it is, four years ago. Meaning that, you know, the market has recovered and gone on to greater heights. It is today, isn't it? It was October 12th. Yes, so yesterday.
Bob: Yesterday, Brian.
Brian: Put it that way.
Bob: Please look at your calendar.
Brian: I cleaned my reading glasses.
Bob: I'm going to buy you a little small desk calendar to put on your desk so you know what day it is.
Brian: I will forget to change it every day. It'll be October 13th forever.
Bob: Well, hey, you know, our point here is just, you know, this stuff happens all the time. History, of course, offers no guarantee of what comes next. There will be other bear markets, that we can guarantee you. And what's driving the bull market right now looks very different than what powered it the first three years. You know, right now we've got artificial intelligence and people thinking about, you know, IPOs coming out, whether it's anthropic you know, Space X, all... You know, people are pouring money into these companies that they think will be the big winners.
We've got more concentration right now in tech stocks, Brian, in this S&P 500 than I think we've ever had before. Meanwhile, we've got interest rates continually to creep up. And at a certain point, if that continues, higher interest rates, you know, fixed income alternatives can start to become competition for stocks, and then stocks continued growing earnings, it becomes a bigger and bigger hurdle to get over if we're going to continue to see this market rocket higher.
Brian: Yeah, that's absolutely true. So, that's why we think it's really important to understand market history. I think that's just about the most important thing that people can understand in terms of building their own financial plan. You know, a lot of times people will think that, well, you know, whatever the market's doing right now, that's what it will always do, therefore, that's what I'm going to rely on. That is definitely not the case. As a matter of fact, that's dangerous thinking, because that's one of the few guarantees I get to give, which is that whatever's happening now isn't going to be happening forever in the future.
But let's go over some history here because I think this is important stuff for people to know. So, Andy Stout had put together, he's our chief investment officer, he's put together a lot of research that we use with our clients to help understand that market history. What is a bull market? What is a bear market? What should I expect? And this data goes back to 1949, which is not arbitrarily selected. That's about as far back as you can go and have something that still looks and acts like the S&P 500. You can make arguments either way on that, but that's kind of what we're looking at here. So, also, it's the post-war era. Obviously, we were in a different world before World War II, too.
But anyway, going back to 1949, there have been 12 bull markets and 12 bear markets. So, people who have a tendency to just kind of make a hair trigger reaction will say, "Well, I got a one out of two shot of a good market." No, that's not how this works. in that time, though, including the bulls and the bear market, stocks have averaged a 12% annualized return across all those time periods, 12%. Now, am I going to ever put a financial plan in front of somebody that assumes 12%? No, absolutely not. That's going to make the plan look ridiculous. And that ignores some very short term swings that can be dangerous. But within those bull markets, the longest bull, Bob, was 12 years. The shortest bear lasted only a month. The average length of these is about five and a half years for a bull market. The average length of a bear market is 13 months, right? So, when the market expands, it tends to do it for a really long time. When it contracts, that doesn't hang around so long.
Bob: Yeah. And I'm looking at a chart, you know, a chart that we call around here, the wall of worry chart, that basically shows the price of the S&P 500 index going all the way back, as you said, to 1949. And then on top of that chart, just all the horrible things that have happened in this country and around the world, that at any point in time would have made somebody, you know, say, "Hey, this doesn't look good right now. I'll wait until things look better." Things like President Kennedy getting assassinated. Us going off the gold standard in 1971. The tech bubble, of course, in, in the late nineties, early two thousands, 9/11, the great recession housing crisis, COVID-19, you know, on and on it goes. There's always a reason to be worried that the stock market's going to go down and stay down.
But Brian, you know, that number you just threw out, 12% annualized rate of return. What? Over the last 75, 77 years, that's a powerful number, which goes back to the saying that we often hear, but we don't heed the advice. It comes down to time in the market, not timing the market, again, for folks that have long-term capital that should really be invested in not traded.
Brian: Yeah, that's right. And so, the temptation is always to time it. I'm hearing from clients nowadays, and they're just being human, they're saying, "Hey, I've had a good run. It's been great. Shouldn't we take some profit?" And my answer to that is always, "What are we going to do with that profit?" If we're going to carve off a chunk, if it's taxable account, we're going to choose to pay taxes. What are we going to do? If we're going to dump it in the bank and sit on it until this sort of scary market that we assume is coming actually appears, then we're going to buy on the dip, there's a really, really, really good chance that we're going to miss time one of those moves. Remember, and even if... People will say, "Well, that's not market timing. I'm just trying to protect my gains. That's different." No, it's not. It's market timing no matter what. You're trying to be in for the good times and be out for the bad times. Whether you're doing that out of fear or greed, it's still timing the what we...
And here's some more information that Andy Stout has put together for us. So, the market mostly does a bunch of nothing. It's been bouncing up and down a little bit for months now. It's been pretty flat for a while. And this is an election year, so I think we're probably kind of keeping the powder dry till we know which direction the country is going to pivot. So, that's not too surprising, not to mention the run that we've had. But normally, the market that is what the market does. It just kind of wanders up and down a little bit. But we will have very, very quick moves. When people, investors get excited about something, it will happen quickly. When they get scared about something, that happens quickly, too. You need to be invested all of those days to really benefit from it. So, that's some of the data he put together for us.
Again, going back. Oh, how far back does this one go? This goes back about 50 years as well...I'm sorry, 20 years. So, the last couple of decades, the market has averaged 10%. If we stayed invested in the S&P 500, didn't touch it for 20 years, you've averaged a little over 10% return. If you miss the 10 best trading days, Bob, I'm talking 10 days out of 20 years' worth of trading days, so that's something like 4,000 days, if you only miss 10, your average drops from 10% all the way down to 6%. That is a huge, huge swing. And also, again, that doesn't sound like much, "10 to 6, well, that's a 4% decline." No, it's not. When you take into account the compounding that happens over those couple of decades, that's where it's at. So, missing the 10 best days, you lose 6%. If you miss the 20 days, now you're only down to 3% rate of return.
Bob: All right. And again, we're talking about the stock market here for long-term money, you know, growth capital that you need to leave, stay invested for 10, 15, 20, 30 years. And as you started off at the beginning of the segment, Brian, you know, we're not saying that everyone should have a 100% stock portfolio or even 80% or 90%. It all comes down to what your money needs to do for you and when, which leads me to another discussion that we shouldn't forget about, the bond market. You know, let's face it, bonds usually post gains. And they've kind of been left for dead here the last couple of years as interest rates have crept up.
The average annual bond market return, again, since 1949 is approximately 5%. And you get that 5% with a lot less turbulence than the stock market. Bonds have historically been about two thirds less volatile than stocks, and bonds do add diversification. The correlation, historically, now this didn't happen in 2022, but historically, the correlation between stocks and bonds in terms of return has only been about 17%, suggesting bonds tend to help smooth out your portfolio's return during turbulent stock market periods of time. And also, on top of that, Brian, they're a good thing to have for shorter-term money, income-oriented investors, folks that, you know, have less tolerance for risk. You don't want to ignore the bond market, you know, to get that job done. I know it could be boring at times, but boring certainly feels a whole lot better after the market went down 30%.
Brian: Yeah. And at the end of the day here, what matters is your investment program simply has to support what you are trying to do in your life.
Bob: Yep, exactly.
Brian: And that comes back to what we always say, which is, what is your plan? What are your resources? What are you trying to do with them? Then we can back into it. It's the scary times of the market that cause you to spit the bit and panic a little bit and change your investments for what you might perceive as a very short period of time. But people who tend to try to want to be protective will really, really, really be scared when it comes time to come back in.
I've got two clients who exited the market in 2008 and came to work with us around 2021 and they hit the skids immediately again. So, they started to convince themselves that the market was out to get them because they sat in cash for, what was that? Thirteen years, then came back and the market kicked him in the face again. One of them couldn't hack it. Well, probably never invest again. The other one trusted an advisor for the first time in his life and he's still invested. He's a pretty happy guy today.
Bob: Sounds good. Here's the Allworth advice, bull markets build wealth, bear markets test our patience, but a disciplined, long-term plan is what helps you get through both. Well, when you hear the word ETF or term ETF or exchange-traded fund, you might think of a relatively safe, diversified investment, but we'll explain why more than ever, that ETF label doesn't always mean what many think it means, and we'll explain why next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Are you paying more in capital gains taxes than you need to? Is there a smarter way to donate appreciated stock to charity? We'll tackle that issue and your other questions straight ahead. Well, we've talked a lot about how investing and gambling are two very different things or they should be, but apparently, Wall Street is determined to make that distinction harder and harder to detect, Brian.
Brian: That's right. So, go figure. These are the kinds of things that come out of Wall Street and we're along the same lines here. So, a new investment fund out there essentially allows you to place a bet on where the stock market is going to be a little more than three years from now. Now, we used to call these futures or options, but now, you can do it inside of an exchange-traded fund, right? The concept here is as old as time. You're basically betting, you're putting a time limit on it, right? First of all, anytime you invest in any kind of stock market fund, you're betting the market is going to go up, right? That's what this is. You just don't have a time limit on it. Futures, options, those kinds of things, as well as this particular ETF, you're betting it's going to go up and reach a certain point by a certain period of time.
So, this one's called the Roundhill S&P 500 Target 10,000 2030 ETF. In other words, I'm betting the S&P 500 is going to be at 10,000 by 2030. So, to put that in some perspective, that means the S&P 500 would need to climb about 29% to reach that level. That's about 8% a year. That's not all that crazy though, right, you know, especially after what we've seen. We've basically seen more than that. We've had three consecutive years of double digit gains. So, here's the catch though. This is not like buying a regular S&P 500 index fund and riding the market higher, like you're probably doing with your core of your portfolio.
By the way, none of this stuff, none of these shiny bells and whistle things should have anything to do with the core of your portfolio. If you catch wind of something like this and it's intriguing to you, treat it like a one-off. Take a flyer and whatever. But anyway. And then the reason is because you're taking a leverage position. These are options contracts. Meaning there's a time limit on it. If the market doesn't cooperate, you could lose your entire investment. So, Bob, tell us a little bit about how this works. You know, let's get in the... We'll keep it at a fairly high level. We won't get too technical. You're pretty good at that.
Bob: Well, I mean, you explained it pretty well. I mean, options, you know, you're leveraging a position saying you're betting that any position is going to reach a certain dollar amount by a certain date. And then the thing that people often forget about is that there's something called time decay going on in the background. You're leveraging up, you know, and you're paying for that time horizon to give that position, in this case, the S&P 500, time to reach that target, dollar level of $10,000. But for all the days that it doesn't do that or goes down in value or just move sideways, you know, that time decay is eating away at the price of those options embedded in here.
Brian, and something like this, Roundhill Target, whatever it's called, I think the danger here, and I think the reason we're talking about it in this segment is, this thing looks and smells on the surface a lot like a target date fund that many people use that do a wonderful job in many cases of building an allocated, diversified portfolio that has a nice mix of domestic, foreign bonds, small cap, large cap, all that. And if you just look at the title of this fund, you might think you're buying something like that, when in reality, you're buying a loaded up basket of options that do have this time decay.
And Brian, you know, if we get a down market or just a sideways market over a period of time, the complete value of this ETF could disappear entirely. So, that's really why we're talking about it here, is just, you know, know what you're buying and know what the inner workings of all these ETFs are, because we're seeing more and more of these things come out. Just because it says ETF doesn't mean it's safe and diversified. And, you know, people might get enamored by some short term returns in this thing if we have a real nice upswing in the market and think, "Wow, this is the best target date fund I've ever seen. I'm going to pour more and more money into it." That's why we're talking about it.
Brian: Yeah. And I think a lot of this is being driven by the predictive markets, the new trend out there with things, with places like Kalshi and poly market and some other areas where you can simply place yes or no bets on things. This is going to happen, or no, I bet it's not going to happen. That's really all this is. But these companies, they're just trying to make that easier and bring it closer to the investor, because you can get involved in options without having to jump through all of the hoops that you would have had to in the past. I don't think that's a good thing. That's a place where I believe hoops might be a little bit beneficial. Let's make it a little harder for people to get. Because at the end of the day, you are making a bet. This is either going to happen by this period or it's not. Don't get lulled to sleep by the fact that, "The S&P 500 is involved, therefore, I'm somehow investing in a diversified index." That's technically true. However, there's a time limit on it. And you will either win or lose based on that time.
Bob: Yeah. And even intraday, I mean, just to give an example of this specific fund, on one day, the S&P 500 rose seven 10th of 1%. This ETF jumped by 7.4%. Sounds fantastic. And that's what I'm worried about. People might take the bait and put a bunch of money in here. Well then, what happens on a down day? Let's say the S&P 500 fell just 0.5%, this ETF dropped by 5%. That's what we're talking about here. Here's the Allworth advice, just because wall street makes gambling look like investing, doesn't mean you should bet your retirement funds in this kind of a space.
You've worked your way up the corporate ladder and made great money, but the opportunity comes calling in the form of a big promotion to an executive position. Should you move up the corporate ladder? We'll talk about something called the executive dilemma 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, joined tonight by our career expert Julie Bauke. Julie, thanks as always for carving out some time for us tonight. We want to talk about something we're going to call the executive dilemma. Staying put versus jumping to the next big thing. Let's say you're in a great role right now, you love your job, you're obviously doing very well at it, but opportunity comes knocking. What's the right move, and how do you evaluate whether to make a move?
Julie: Yeah, I can kind of speak in generality because I've worked with a lot of people in this situation. And the first question I would ask is, why would you consider this move? So, in other words, what are the compelling things about this move. And sometimes what I find when people start listing out compelling things, more salary, you know, a higher level title. My next question would be, are you sure that those are the things that really matter to you? Because it's very ingrained in us that jumping for the next big thing, more money, more title, equals more happiness and career satisfaction. But I know for sure, that's not true.
And so, when you look at, why did that role appeal to you in the first place? And then ask yourself, are those the things that really matter to me at this point? I always start from a point of what matters most to you right now in your life, and then bring the career conversation into it. And because if you are going to get that bigger title and more money, does it also mean that you have to travel more? Does it mean you have to work weekends. And how does that fit into what your priorities are? And so, it's why, so that's the big question is, why would you?
And then take a look at, you know, what is it about where you are now that might be sticking in your gut as to why it even makes sense to look for something else? What are you missing where you are? If you could change some things about your current situation, would that solve that if you're getting to move on? So, I think just a really good, critical analysis of the whys and the what, both behind where you are, and what the opportunity is in front of you, is really, really important. Because we can get super caught up in, "Yeah, but it's a director title. Yeah, but it's a VP title," without really thinking about, what am I giving up to get that? And then, how does that work against what my whole life priorities are right now? So, a career decision has to be made on a bigger platform than in a vacuum.
Brian: Julie, I think a lot of people learn the hard way exactly what you just said, because we get this so ingrained in us that, "I got it. If I'm getting offered this position, well, clearly, I'm fantastic. Obviously, they love me, and I should take advantage of these benefits." But people do tend to learn the hard way that, "Whoops, maybe I caught my limit. Maybe I don't want that next level because my other things in my life have taken priority." So, how do people unwind it? For those people who feel like they may have done that in that position, what are some ways to unwind that?
Julie: Yeah. So, you're saying, like, if you've already taken that role?
Brian: Yeah. And it just didn't occur to you that, "You know what? I didn't really want this extra level of work. I just didn't think it through. I just thought it was another accomplishment."
Julie: So, the first thing, it kind of depends on a lot of things. So, let's say you have a very stable career history. You've worked a long time at one place and you've jumped to this other place. And you've been there nine months to a year and you say, "This isn't exactly what I thought it was going to be." You can successfully and confidently pivot at that point, versus a person who's had three, two year jobs in a row. Now, it starts to be, what story does your career tell? And that's what I would add. Because we want to picture yourself, you're now interviewing for a new job beyond the one that you took by accident. You've got to explain yourself. You've got to explain your career.
And it's perfectly okay to say, "They contacted me. It sounded like exactly what I wanted. When I got there, I realized that blah, blah, blah. I've done a lot of thinking, and now, I know exactly what I want, and which is why I applied for this role." And so, that's a good explanation. But if you are somebody who has a history of jumping without really thinking about, what I've done, and therefore, you have kind of a checkered history, you probably need to take a breath and build up some capital there where you are, so that as you move to the next thing, you've got a better story to tell. So, it's kind of a big, fat, it depends. And it's really, what does your whole career story say about you?
Bob: Julie, I want to go back to the situation where somebody's, you know, considering a move, they haven't pulled the trigger yet, and they're wondering how to evaluate this. And I'm going to make an assumption here. You correct me if I'm wrong. Oftentimes, people just haven't been coached on how to walk into that, you know, the boss's office or the executive suite and just be clear about what you love about working where you are, a couple of things that you would like to see tweaked. And I think, especially in today's labor market, where it is really hard to find good, seasoned, hardworking people, aren't people amazed. If they're coached by someone like you on how to go in and broach that conversation, oftentimes, you can walk out of that office, if your requests are reasonable, getting exactly what you really need to be truly happy where you are instead of making a completely new move and complete jump to a new company. Am I on target there at all?
Julie: Yes, very much so. We always say, try to fix it where you are first because job search is painful. And transitioning to a new unknown job as exciting as it may sound on the surface can also be really painful and surprising. And so, doing that clarity, looking at everything that's on your plate and really saying, "What do I like about my current role? What are the things that if I had a magic wand and can move them off my plate, I would? What would I like to see more of, less of in my role? And how do I then approach that?" Once you get clarity on that, then you have a framework, then you have talking points to go in and say, "You know, I've been in this role as COO for three years. And what I really love is integrating new ideas, new systems, new technologies. And then working across the organization to help implement those and bring those to life. I do get to do some of that in my role, but as I look at my next role, I would love to be more involved in those types of initiatives."
And that's the kind of conversation that you should be having. And we are so afraid to have those conversations because we feel like it's going to make us look less than committed, or that we're going to automatically end up on the layoff list. And you've got to assess your situation. If you have the type of leader who you feel like it really is risky to have those conversations, that might be different than if you feel like your leader really is open to you. You are valued and your leader is looking to retain you, I think it's up to you to go in and begin that conversation about what next might look like for you.
Leaders are so busy and yet they should be coming to you and initiating these conversations, but they aren't because they're getting squeezed. And I always say, the career fairy isn't coming. And so, if you want more or different out of your career, start where you are, try to get it where you are, or at least, put a plan together to get it where you are. Especially in a job market like we're in, that's always going to be the place where it's going to be least stressful to move.
Bob: That is great advice, Julie. 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. Do you have a financial question you'd like for us to answer? If so, there's a red button you could click while you're listening to the show if you're listening on the iHeart app. Simply record your question there and it will come straight to us. All right, Brian, get ready for Tony up in Mainville. He says, "My wife and I have around $2 million invested, and we're getting hit with some pretty significant capital gains taxes right now. Are there strategies we're missing that could help reduce that tax bill?"
Brian: Well, it kind of is the season. We've got a deadline here in a couple of days for the tax extension people to get their taxes done by October. So, I'm guessing that you're looking pretty closely at your taxes up against that deadline. So, yeah, what you can do is... So, we don't know what you're invested in. We just know how much you've gotten. Apparently, it's not in an IRA. It's not sheltered inside of anything. That's not a bad thing. That provides opportunities as well. But the first thing you ought to be looking for is, if you're going to sell something to gain, go look for something else that's sitting in a loss position. You can use those losses to offset the gains. We have a tendency as human beings to ignore the stuff that's sitting in a loss.
"Well, that one blew up in my face. I'm going to wait till it recovers then I'll sell it." No, think bigger picture. Pair that one up. You know, we've got winners and losers. That's life. Pair those losers up with some of your winners, sell off some of those positions. If you're truly in love with that losing position, you can buy it back. Nothing stops you from buying it back. You know, so you could, if you've got $50,000 in gains, but some other stuff sitting at $20,000 position, $20,000 in losses, selling those losing positions can reduce that net gain to $30,000. And that can get you... You know, that you can offset the capital gain. Not to mention, you can also take advantage of possibly just a straight up deduction against your taxes. You could deduct up to $3,000 against your ordinary income. You know, beyond, it's not limited to just the capital gains. If you don't use those losses, right? If you have more losses than you had gained, you get to carry them forward to future tax years.
That's why if you ever sit down with a new accountant, one of the very first questions they're going to ask you, and this is why they want your old tax returns, do you have any losses to carry forward? That will have been recorded on your prior year's tax returns, and then therefore carried forward as long as you've kept those records pretty good. So, make sure you understand which shares you're going to sell though, right? You can't just go, if you have something you have reinvested for years, you want to be very specific on which shares of those lots that you have sold. So, long story short, yes, there absolutely is a better way to go forward, but make sure you understand exactly how all of that works. Aaron and Mason. Aaron's got a highly appreciated stock that he's thinking about donating to charity. And he's just wondering, isn't it better to, you know, just sell it and write a check, or is there some smarter way to do it? Well, I think I know what you're going to say, Bob.
Bob: Well, Aaron, in almost every instance, it is best to not sell the appreciated stock, you know, because by doing so, you're going to pay a bunch of capital gains taxes that Brian just talked about on the prior question. In almost every instance, it's better to either give the shares directly to the charity or put them in something called a donor-advised fund, which allows you to aggregate shares in a charitable account, so to speak. Get the tax deduction, avoid the capital gains taxes, and then distribute the money to charity.
If you decide to give the money directly to a given charity, you want to do something called a DTC transfer. And all you need to do is call your church or charity or whomever you're trying to give these shares to, they will be happy to provide that information to you. It's the name of the brokerage firm they use and in the DTC information. And then give the shares directly to the charity. Make sure you let them know you're doing that so they can be on the lookout for the shares when they get transferred. And then the charity, you know, the administrator or manager, whoever's running things for that chosen charity will sell the shares, convert it to cash immediately. You get the full tax deduction and you pay zero capital gains taxes. And you're happy. The charity's happy. Everybody's happy. That's the way you want to go there, Aaron. All right, we got time for one more. Chris in Madeira says, "Our financial advisor suggested reviewing our life insurance now that we're financially independent. At what point does life insurance become unnecessary?"
Brian: Well, life insurance can become unnecessary when you've decided that your family can absorb the financial consequences of your death, right? So, if you can pass away, or your spouse or whoever, and there's no immediate financial loss, then you might be able to look at the...doing something else with those policies. So, I would think about this. Would either spouse's financial plan still work if the other died tomorrow? Now, this is a big assumption. Do you have a plan to begin with? What path are we on with or without? If everybody lives a nice, long life and everything is hunky dory, nothing bad ever happens again. That's your baseline.
Now, run those numbers again with, matter of fact, I'd run it both ways, one or the other passing away. Does somebody's salary disappear? That's a thing. If you yourself are a personal source of income because you're working, that's a problem. Yes, you need insurance. But on the other hand, if for example, the mortgage is paid off, the income streams are locked in, and there are survivor benefits on all those things, then, yeah, it's very possible you might not need life insurance. That's a very common conclusion that we come to during the process of a financial plan. Do I need this insurance anymore? If there's no financial hole created at my death, then maybe not. That is an okay decision to make. It can be scary, but again, that's what the financial plan will help you understand.
Bob: Coming up next, I've got my two cents on whether now might be a decent time to take a fresh look at putting some of your capital to work in the bond market. 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. Well, Brian, when we had our chief investment officer, Andy Stout, on the show yesterday to give us a little bit of a market update, he threw out some numbers that were interesting to me. If you look at the S&P 500 and, basically, the 11 different sectors that make up the broad index, if we're looking at forward-looking earnings growth, only 6 of those 11 sectors are showing projected earnings growth above 4.2%. Meaning, we've got a lot of concentration of earnings growth right now in the technology and energy space.
Meanwhile, I'm taking a fresh look here at the bond market. And again, I'm not trying to make a market timing recommendation that the stock market is going down, but, you know, Brian, we've got a lot of clients in their late 50s, 60s, 70s, 80s, folks that are just out there trying to say, "Hey, give me a rate of return that eclipses inflation and preserves my purchasing power." And I think for some folks, you know, they've kind of left the bond market, you know, left for dead, kind of like they did individual stocks or international stocks a few years ago. Here's my point. I'm looking at treasury yields right now, you know, going out. If you're going out anywhere between 7 to 30 years, let's just say that 7 to 10 year maturity level, you're getting interest rates or yields on treasuries at above 5%.
If you're willing to look at investment-grade corporates, I'm looking at, like, blue chip companies, you know, pristine balance sheets, you know, high quality companies, you could get yields now above 6%. So, if you compare those kinds of yields, you know, just look at corporate bonds, 6%, let's just say, you know, inflation levels out at around 3%, shoot, even 3.25%, you're starting to get returns that are almost double the inflation rate. Again, with some of your money and you're eliminating all the potential volatility in the stock market, that's a pretty nice spot to be for a piece of your portfolio, especially in tax deferred accounts like Roth IRAs, IRAs, where you don't have to pay the taxes until you pull the money out. I'm just saying that, you know, don't ignore the bond market just because it's given us nothing in terms of real rate of return here over the last couple years. Any thoughts on that, Brian?
Brian: So, I'll add something that I haven't seen in a very long time, but people are starting to ask about, you know, with the 10-year and the 30-year getting above 5%, people are starting to look at that and say, "Why wouldn't I just throw my whole full portfolio? If I can get 5% out of it and it's backed by the federal government, why wouldn't I just do that?" And the answer is because that's still going to give you a panic attack from time to time. If rates continue to go up, yes, if you hold those bonds to maturity, then you will experience, you know, what you think you will, that they're going to come due and they'll get paid off. That's the U.S. federal government. If it doesn't pay them off, we probably got larger problems than your bond portfolio. That said, those prices...
Bob: Yeah, and, Brian, and I'm sorry for interrupting, but that's kind of my whole point. You don't have to go out, you know, 30 years on the yield curve right now. You're not getting paid a whole lot more in interest between 7 years and 30 years. So, you can stay in that intermediate term timeframe and get some real nice yields. And then the other point on that, if you buy individual bonds and hold them to maturity, yes, on your statement, the prices are going to move around, but you're not worried about it. Hold it to maturity and you know what your yield is going to be. That's my point here. Thanks for listening. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
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