Happy Birthday, Bull Market: Lessons from Three Years of Growth
On this week’s Best of Simply Money podcast, Bob and Brian celebrate the third birthday of the latest bull market — and reflect on what an 85% rise in the S&P 500 since 2022 really teaches long-term investors. Then, they explore a hidden risk for high-net-worth investors: complacency. When your wealth grows, it’s easy to think it’ll manage itself. Bob and Brian share how rebalancing, tax strategies, and proactive planning can keep success from turning into vulnerability. Plus, the team answers your most pressing financial questions about Roth IRAs, 5% CDs, and more.
Download and rate our podcast here.
Bob: Tonight, we celebrate an important birthday that has fueled your portfolio if you made the choice to participate. You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James.
October is a very special month. It's the three-year birthday or anniversary of the latest bull market. Hats and horns and loud noisemakers for all those who decided to stay in the market back in October of 2022, Brian. It seems like yesterday we were having a really rough time of it in 2022, and lo and behold, we're up over $6,600 on the S&P after falling to a low of a little over $3,500 in 2022. I'm wondering how that works if you stay invested and play the long game.
Brian: That's right. So, this very day, October 14th of 2022, we were all in the depths of misery because that was the bottom of that bear market of '22. And so, 2022 was one of the five worst years we've ever had. It doesn't come along with a crazy story, right? It's up there though with the 1937s, 1974, 2002, and 2008. 2022 was the fifth worst year we ever had in the stock market. It just doesn't have a great depression or great recession or any of those kind of crazy headlines. It was just the unwinding of a lot of stuff after the post-COVID run up. But the S&P hit a low then of above $3,583. And now, as you just said, we're over $6,600 on the S&P. So, that's an 85% jump in this three-year span. If you panicked in 2022, then figure out how to not do that again. If you ignored it like you should and you let things come back, then you are in good shape. You should be sitting at a point where you've got more money than you ever had in your entire life.
Bob: All right, Brian, let's go back to 2022 and look at the last three years and that 85% jump. I mean, obviously, 2022, the big reason the market went down is that's when the Federal Reserve raised interest rates seven times in that year, and it just crushed both the stock and the bond market. But who would have thought, with all the headlines and noise and political division and turmoil and threats of World War and all this stuff flying around every day, who would have ever guessed that over the last three years, the market would be up 85% over that period of time? And that's really what we're trying to drive home here is, it's never going to feel like a good day to put your money at risk in the stock market. I would have never have guessed we'd be where we are today. And I don't know. How were you feeling in 2022? And are you surprised at where we are today?
Brian: Same as I felt after 2008 and after 2002, right? The pattern doesn't change. It's time in the market, not timing the market. So, the idea is not to try to avoid these things. Andy Stout, our Chief Investment Officer, puts together information all the time for us to understand market history. I think it's an extremely important thing for everybody to understand, just to see how things actually work.
So, let's go through a little bit of math. Had you invested a million bucks in the S&P 500 20 years ago, that million dollars would now be worth about 7.1 million. And that's just sitting there and ignoring it. That's not doing anything cute with it. That's not getting into any of the latest crazes or the meme stocks or crypto or anything like that. That's just the 500 largest American companies and what they've done for a seven time increase in your portfolio there. That's if you left it alone. Now, let's say out of those 7,650 days or however many days it was, had you missed 10 of them, then that million dollars would be worth only about $3.3 million. I'm literally talking about 10 trading days out of thousands upon thousands of trading days in that 20-year period. So, that million dollars...
Bob: So, you missed the 10 best days and you gave up over half of the return over a 20-year period by missing the 10 best days. That's really hard to believe, but those are the facts. Those are facts.
Brian: That is the fact. That's right. Now, let's make it even worse. Had you missed the 20 best days... When we say missed, what I mean is, "Whoops, the market is kind of bumpy right now. I'm going to get out and stay out until I feel it's better," which means you've already eaten a little bit. Nobody's going to nail the exit point. The market's coming down a little bit. You're going to permanently lock in that loss, and then you're going to miss the upswing because you're not going to hit the upswing any more than you missed the downswing. So, had you missed the best 20 days, now your million bucks is only worth about two. That's doubling over 20 years, which is a really, really sad return. If you missed the best 30 days, now at this point, you're basically not making any money. Your million would now be worth 1.3. So, 1 month out of the last 20 years' worth of trading days, that's where all the return has come from. Don't get cute. Don't try to time the market. You don't know better than anybody else.
Bob: Well in that 30 days over 20 years missing it, that million bucks, like you just said, it's worth $1.3 million. Brian, that's only a 1.3% annualized gain. That doesn't even keep pace with inflation to say nothing of taxes. And unfortunately, people have this kind of experience because they're in and out, in and out. They cave into fear. And at that point, if you're going to miss those best 30 days over 20 years, you might as well just put it in cash, put it in a CD. These numbers are powerful, and it lends to the real point that we're trying to make, patience is the key here. Walk us through some more numbers.
Brian: Yeah, if you think about this, what we're saying is most of the time, the market does a bunch of nothing. All we did was pull 30 days out of 20 years, and we basically made the market do nothing over the past 20 years, even though we started with an example of a seven-time return over that time frame. So, the majority of trading days, Bob, they don't end with huge gains and losses. They kind of go up a little bit and go down a little bit. So, let's unpack that a little bit. Over the past three years, just since 2022, again, ending literally today, October 14th of 2025, we've had 750 trading days. Of those, 415 have had an average daily gain of 0.7%. The other 335, an average loss of 0.6%. So, that almost cancels out, except that there are more up days than down days. So, if you compound that tiny 0.03% edge over 750 days, all of a sudden, instead of just adding up to 22.5%, it snowballs. Every day's gain builds on the last. That's compounding, and it happens in the background, but it can't if you kick the legs of the stool out from under it by trying to time it.
Bob: Yeah. The point is that your portfolio growth takes time. In most days, it's going to feel like it's doing nothing, and you do have to sit through some volatility like what's gone on, let's say over the last few days. Up down, up down, that's all part of the game. And you've got to remain patient and disciplined and not worried about or focus on what's happening every single day, because most days, not much is happening at all. Now, Brian, this doesn't mean that we've never had some extended bear markets. Since 1949, we've had 12 bull markets and 12 bear markets. Again, since 1949, the same number of bull and bear markets. But here's the key...
Brian: Well, Bob, if we've had just as many bulls as bears, then how can we possibly have made any money? That doesn't make any sense.
Bob: Well, here's the key, and this is really important. The average length of those bull markets has been five years and five months with an average total return of 270% over that time for each of the bear markets. The average length of each bear market has just been 1 year and 1 month with an average total loss of only 32% over every bear market. So, you don't have to be a genius or a math wizard to know that even though the number of bear remain, the gains that you get in bull markets far outweighs any pullbacks that we have in bear markets. And that's why long-term investors always win.
Brian: Yep. So, the idea is to stay invested and ride it out because the bull markets are longer and go higher than the bear markets last and the bear markets go down. So, volatility is to be expected, right? We're always going to have the ups and downs. U.S. stocks have experienced corrections averaging 14% down since 1980. So, that's pretty average. We had one of 10% earlier this year in April. That was no fun because that was all bear driven.
Bob: It was more than 10%. It was getting close to, if not over that 14%. And let's face it, everyone was freaking out because we'd never seen the reason why before. We had never seen a president of the United States hold up a chart saying, we're going to tariff the entire world simultaneously. Back in '08, '09, we'd never seen a housing crisis like what we saw then. The reasons for these bear markets are always new. Think of COVID. No one had ever seen anything like COVID during their lifetime. So, we have a tendency to think that, well, this time it's different. This time the market's never going to return just because it goes down a percent. But it's expected in terms of a market block market. That's normal. And that's what we kind of call the price of admission, the price of being involved.
Brian: Yes. And then there's always an upswing that follows it. So, take this, for example, from 1949 to 2024, if we see a 20% pullback, historically speaking, these are not estimates, these are real numbers, whenever the market pulls back 20% from that 75-year period going back to right after World War II, a 20% drop has rebounded with a 46% return over the next 3 years and 73% over the next 5 years. So, don't screw with the long-term investments. Remember, there are people sitting at the top of all of our publicly traded companies and they are navigating, they are making decisions, they are pulling levers and pushing buttons to try to make those companies profitable again.
When the market pulls back, it's simply saying, I don't see how you're going to be profitable here in the short run. And changes are made, layoffs happen, new products are discovered, new markets are discovered, and we move on. The United States' profit margin, has always been that way. And that's why we always have that recovery. The stock market is not detached from anything else. It exists for the purpose of measuring opinions on how profitable companies will be. And as long as there is human greed out there, someone is going to push the ball forward because it is by far the best way to create a bigger pile of money.
Bob: Here's the Allworth advice, the most accomplished investors, well, they exhibit unwavering discipline regardless of current market conditions. This bull market may have some folks thinking they've "made" it financially. Coming up next, why that sense of success might actually be the biggest risk to your long-term wealth. 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. If you can't listen to "Simply Money" live every night, subscribe and get our daily podcast. And if you think your friends or family or both could use some financial advice, tell them about us as well. Just search "Simply Money" on the iHeart app or wherever you find your podcast. Straight ahead at 6:43, we are digging into some of your most pressing financial questions like when to move money out of CDs that are paying 5%, what to do when you're sitting on big gains in your brokerage account, and more.
Well, there's this natural tendency to believe that once you've built a big net worth or big pile of wealth, it just runs on autopilot. It's self-sustaining. You don't have to worry about it anymore. You don't have to optimize anything. The market's been doing great like we've just illustrated, so we'll just ride it out and watch. The more money you have, the more exposed you might be. Bigger balances mean bigger tax bills, more estate planning complications, and more risks in terms of dollar amounts and volatility if you allow your asset allocation to drift off target. Brian, let's walk through some of these moves that a lot of wealthier investors just kind of don't pay attention to that can really make a huge difference if they do a little proactive planning and get strategic about their money.
Brian: Yeah, so one of the areas where complacency can be a problem, where if I start ignoring things, well, things get a little bit out of whack, Bob. So, maybe I was in a 60/40, nice balanced conservative portfolio when I set my plan, but if I haven't touched it in these past three years of this really strong bull market, well, I might be sitting on a portfolio that's no longer 60% stocks. It's 80% stocks. That's a good thing. We want growth, but that's the whole point of needing to rebalance an asset allocation and diversification. You're not going to know that until a correction hits and it hits a little harder than you thought it would. Well, that means you were probably out of whack to begin with. So, you had a little too much exposure in the more volatile thing. Another element, Bob, is tax loss harvesting. You look like you want to say something, Bob. So, I'm going to give you a second there.
Bob: No, I want to go back to that first point. I mean, because I see this happen once in a while. You allow, people allow their portfolio to get, like you said, move from that initial 60% stock up to 80%, 85% stocks. And then we get that annual 14% decline. And then the phone rings and say, "Should we get out?" Well, what you should have done is trim some of the gain when the market was up. And you and I've been talking about that, it seems like, for the last two or three weeks now, keeping your allocation in balance where it needs to be according to your risk tolerance so you don't freak out when we get a little volatility. You know, I just bring that up because that happens from time to time.
Brian: Yeah, yeah, and that's it.
Bob: That's what some of my phone calls are about. I don't know. Do you go through anything similar with your clients?
Brian: Absolutely. And we always go over, you know, let's talk about what's working in the portfolio and what's not working as well. Because an asset-allocated portfolio diversification, by definition, means you're going to have something that's leading the pack doing great. You're going to have something that's bringing up the rear end. But those things are never going to stay the same. For years, it's been the international and emerging market stocks that have kind of lagged the rest of the pack. But that is not the case this year. You're up 25%, 30% in your international position, assuming you kept it in place. A lot of people walked away from it over the last decade when those positions were simply not performing as well as the U.S.-based stocks. So, make sure you've got a good allocation there. The United States is changing how it's perceived by the rest of the world for, you know, good, bad, or indifferent. That's what's happening. And the world is changing its perception. Therefore, opportunities are being found elsewhere.
Bob: All right. I interrupted you before, Brian. You wanted to talk about, I think, tax loss harvesting and dovetailing that with concentrated stock positions. I know you've got some good stuff to share.
Brian: Yeah, so this is year end, time to start thinking about this stuff. We're getting close to close to go time here in Q4. So, that means, hopefully, your advisor or you are proactively looking for losses to harvest. Or maybe if you've got something that's sitting at a significant gain, sell that too to realize that gain and not lose the dollars. But if there's a position at a loss position, then go ahead and offset the gain with that. Otherwise, just leaving money on the table. Either are puzzle pieces in front of you that fit directly together, so do that. If you have a good nest egg, we're not talking small dollars here. Good tax planning can easily be a pretty significant six-figure swing over a few years by taking these taking these steps.
Now, this also comes up with concentrated stocks. People do let their gains run, don't want to pay the tax and, "Hey, it ain't broke. I'm not going to fix it." That stock just keeps running and running. Now, all of a sudden, we've got a single position that's maybe 30% or 40% of their portfolio. Or sometimes, this is an employer stock grants and options, those kinds of things. You have a lot exposed and not sleeping very well at night. So, I think you've got an example for us.
Bob: Yeah, let's take an example, you know, hypothetical couple named Dan and Lisa. They're in their early 60s. They recently sold a business. They've got about $6 million now, obviously more than enough to feel financially independent. They're smart. They've worked hard, and now, they feel like they've made it and they're coasting. They haven't rebalanced their portfolio in years. They haven't updated their estate plan since their kids were in college, and they've made almost no tax planning moves at all. And Brian, this is an example of what you just talked about. They just let their portfolio coast up to 85% in stocks, heavily concentrated in tech stocks. So, they've got big embedded gains in several positions, and now, they don't want to talk about it because they know that tax man is looming, and any moves that they make, they're worried about a big tax bill.
Here's the risk, they're just one correction away from losing hundreds of thousands of dollars in value, and they have no guardrails in place, no structured withdrawal plan, no strategy for Roth conversions, and no estate transition plan. So, everything they built is exposed not because they're reckless, but because they've just grown comfortable, and they just assume that that $6 million number will manage itself. And those are the kind of people that will benefit from working with a good, fiduciary advisor to help them be a good steward of that $6 million and make it work even harder for them.
Brian: Yeah, if you're a high performer, you've got there for a reason, but most likely, there was somebody pushing you along the way. So, even high performers need accountability. The irony of that is, you know, the more money you have, the more you need somebody asking tough questions to make sure we're looking under every stone for things that can go wrong and possibly, for missed opportunities. But very often, sometimes high-net worth investors stop listening to that. We hit a point where we check the box. I've made it. I've made my fortune. I must be doing something right, therefore, nothing needs to change. But as we just talked about with the example of the international stock positions, markets do change. There's also tax laws that change your goals. Your own personal situation may change. So, it's an ongoing conversation really that never stops. Even Tiger Woods has a swing coach. At the top of his game, he still had people in his ear telling him what was going well and what wasn't. And so, he could have somebody in arm's length away who would see things that he wouldn't. That's what a financial advisor does.
Bob: Yeah, the people who stay sharp, the ones who preserve their wealth, and even continue to grow it, they treat financial planning like a skill to maintain, not just a box they checked one time. Here's the Allworth advice, the moment you feel like you've "made" it, is exactly when you need to stay engaged, because success can't protect you from complacency. Here's a question you may have asked yourself, should I invest in real estate? We're going to look at the pros and cons coming up 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 real estate expert, Michelle Sloan, owner of RE/MAX Time. And Michelle, this is a topic that Brian and I are excited to get into because it comes up all the time with our clients, is real estate a good investment, especially now considering prices are higher than ever? You know, talk about pros and cons of real estate as an investment.
Michelle: Well, it is no matter what, whether you're buying a home that is for your personal use or buying a home that you're going to use as a rental or a vacation home or an Airbnb. It is an investment. One way or another, it's the biggest investment that you're ever going to make. So, the question is, do you try to jump into the market right now when we have talked about the home sales year-over-year are up seven percent? So, yes, the prices of homes are up. They are higher than they were. But we don't anticipate them to be lower any time soon. So, you get in today. it's going to be a better price, most likely, then it will be a year from now.
And you have to you have to do your own financial planning, and you have to talk to people that know your situation because every situation is different. Are you going to need a mortgage? Well, you're going to have to bake in that interest rate in those closing costs. And maybe you have to do some repairs, depending on what you're looking for. You want to you want to look at the big picture. If you're going to pay cash, it's a different story. You're not going to have that overhead of a mortgage payment and the interest rate and all of that stuff. So, there seems to be an awful lot of buyers today that have equity.
Brian: And Michelle, on the topic of the mortgage there, so for those people looking maybe for a second home, these are people who tend to be, of course, you know, maybe retired or maybe about to retire, can you talk a little bit about the challenge of getting a mortgage if you may have plenty of assets, but no income? Some banks are cool with that, some banks aren't, even though you've got a lot of money in the bank. What kind of situations have you seen like that?
Michelle: Yeah, you have to shop around. I am finding that a lot of buyers in that situation who maybe are in their 70s and they're retired, they still have some income. It may not be as much as if they were working full-time. And more often than not, they're going to put maybe 70% or 80% down in cash and then only get a small mortgage. And that's really the way to go if you have the means to do that. That way, you know, you're not using all of your cash and leaving some of that available, and then you're only taking out a small mortgage. You might have to do just a little bit of shopping, but there are definitely lenders out there who can help you.
Bob: All right, Michelle, I'm curious, because I think we have to distinguish between, when we buy a home, are we buying it to live in it, or a second home, vacation destination to live in it? Or are we buying it as a rental income source, a true, 100% investment property? Talk about the whole property for rental income market right now. How are average rents trending? Are you seeing people successfully handle rental property right now when you factor in all the tax benefits of the depreciation? You've already talked about potential appreciation of the home price, to say nothing in the rental income. Is that still working right now as a good cash flow investment strategy?
Michelle: Absolutely. There is always opportunities in the real estate industry. I think that you have to decide. If you're buying a home as rental income, a lot of the HOAs have tightened down. And this is the one thing that I get questioned an awful lot, "I have $300,000 to spend. I want to buy a rental property. I'd like to maybe get a condo or something like that so I don't have to do all of the maintenance. What can you find for me?" Well, that's going to be more of a challenge because if you are buying a condo for rental purposes, oftentimes, the HOA has clamped down, and not allowing rentals in a lot of communities.
So, again, it's a lot of research, but there are opportunities. And then you have to think about, if you're buying a rental, single family home, you're going to have maintenance. Who's going to take care of the yard, the lawn, the exterior? That kind of thing. The average rent right now in Cincinnati is about $1,400 a month. That sounds so high, and it is. And the rent has rose 7.4%. So, you want to do some calculations, you know.
Brian: Michelle, is it even possible? Because I'll have people throw this out every now and then. They inherit money, they retire, and so forth. Is it really even possible? Because we get this idea that, "Hey, I'll just buy a property and I'm going to Airbnb it." That was cool maybe 15 years ago. You could actually, you know, make a little money.
Bob: You could cash flow it.
Brian: Yeah, you could totally cash, make it pay for itself. But now, I'm feeling like it may get you just under a break even, but you're going to lose money. Am I wrong? There just seems like every situation I look at, that just doesn't work anymore.
Michelle: There's a lot of work involved. And people don't see that. You know, every time somebody's in and out, you have to clean. And then if they bust things up, you know, you're going to have to fix things. And then you're paying...
Brian: Treat it like a rental is a phrase for a reason.
Michelle: Yeah. You know, an Airbnb, I think, again, it sounds great, but I would do, buyer beware, if you're planning to do something like that, because there are a lot of hitting costs that you may not consider. Yeah, it sounds perfect. You know, "Let's buy a cool place in downtown Cincinnati, the overlooking the river. And, you know, we'll Airbnb it and we'll get $1,000 a night." Well, you're not always going to be rented. It's going to cost you money. You're going to hire somebody. Unless you're going to do the work, unless you're going to clean after every person, and make the beds, and wash the sheets.
Brian: Which means you're going to be in the thing. Yeah, you're going to be in it more than you ever intended to.
Michelle: Absolutely, because it's a lot of work.
Bob: Well, Michelle, you know, something that that I've become aware of here in recent months, you know, is you brought up the HOAs, I think you got to do your due diligence on the financial condition of that HOAs because insurance rates are climbing. So, these condo buildings are in need of repairs, which means assessments, and depending on the location, you know, big-time assessments. You know, think about areas in Florida where these condos that are 40, 50 years old are not hurricane proof. You know, you got to look beyond just the price of the place and what you think you can rent it for, right? And so, are there particular locations you're seeing that are very attractive versus, you know, big watch out signs?
Michelle: You know, and that's a really good question. And it really, it's going to be very personal. So, if the rentals that Scott and I own, they're all local. So, if we need to get to them quickly, we can. But thinking of, I would never buy personally a rental in Florida because I can't keep my eyes on it. It's kind of like owning a bar. If you're not in that bar all the time, people are going to be drinking your alcohol and they're going to be stealing from the till unless you're there and monitoring the situation or maybe hiring somebody that you know and trust. So, as far as a location, it really, really depends on what type of property you're looking for. If you're looking for a little higher-end property, if you're looking for something that's, you know, a fixer upper, there's so many options. But the biggest thing that I can say is planning is key. Connect with a smart financial planner, I think we know some, and a really smart realtor. I think we know one of those, too.
Bob: It sounds great. Hey, thanks. Thanks as always for all your help, Michelle. 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? There's a red button you can click while you're listening to the show right in the iHeart app. Simply record your question and it will come straight to us. All right, Brian, Martin in Loveland has one for you. He says, "We're retired and we're drawing from our portfolio. How do we decide which accounts to tap first? Taxable accounts, IRAs, Roth IRAs. How do we decide to make that money last longer?"
Brian: Yeah, this is a great question. And it's a good thing to tackle early on to understand the differences between all these accounts. So, really, you might have a lot of different accounts. There could be 15 accounts in one household, but there's really only a handful of tax treatments. So, some things are tax deferred. That's oftentimes your IRAs and 401(k)s. You've never paid taxes. Or those things can also be Roth, meaning you didn't get a deduction upfront. So, you technically pay taxes on the front end, but no taxes on the back. Or you might have a taxable account. This is something that spits out a 1099 every year on the dividends and maybe there are capital gains and those kinds of things. So, those are the three basic tax treatments.
So, here's some ways to think about it. A good rule of thumb is to spend those taxable accounts first, then your tax deferred ones, and save those Roth IRAs for last. Now, let's get more specific. There are exceptions to this, but that's kind of a good way to just start thinking about it. Since the Roth money is tax free, and there's no requirement of distributions, we're not trying to avoid those at age 75 or 73. So, let the Roth run, put them on the back end, and your kids are also going to inherit them a little more efficiently.
But let's talk about more specific situations. If you're at a low-tax bracket early in retirement, you might fill up those brackets by going ahead and taking, proactively, strategic IRA withdrawals and paying taxes a little earlier than you have to. But otherwise, doing it at a lower bracket because you have less income. You also might do partial Roth conversions at this time. Not only is that going to turn it into tax free income from here on out, it's also going to reduce future required minimum distributions, and you're going to control your taxes later when social security and Medicare kicks in.
So, hopefully that helps answer that question a little bit. Let's move on to Jerry in Westchester. And Jerry says, "If Roth accounts are so tax efficient, why wouldn't we just stick all of our dollars into that instead of traditional IRAs and 401(k)s?" What do you think of that, Bob?
Bob: Well, I say to Jerry that that might be exactly what you want to do, I mean, depending on your situation. So, kudos to you for thinking about this stuff, you know, up front. But here's how I'd answer the question. Any time we get into a discussion or you have to do the analysis on this Roth versus regular IRA and 401(k), you got to build some assumptions into your long-term financial plan. Things like, what are tax rates now based on your current income? What do you think tax rates are going to be down the road? What are your income needs going to be? So, there's some work that goes into this to come up with a plan to determine whether it does make sense to defer taxes now. Most of the time, you know, the traditional IRAs and 401(k)s make the most sense for people that are in a high-income tax bracket now and think they're going to be in a lower tax bracket, you know, when they retire. So, you got to run the numbers.
But look, there's nothing wrong with the Roth IRA. There's a lot right with the Roth account. There's nothing wrong with it. The key here is to match the strategy with your individualized financial plan to determine which mix of Roth versus regular accounts make the most sense for you. And again, it has a lot to do with your current income now, the tax bracket you're in now, versus where you think you're going to be down the road. And then everybody has an opinion on where tax rates are headed. We'll leave that for another day. But hope that helps, Jerry.
All right. Rachel and Fort Mitchell, you know, says, "Brian, we've got cash and CDs earning over 5%, but rates won't stay that high forever. How do we transition back into longer-term investments when the time comes?"
Brian: Yeah, Rachel, this is a very common question now, because when interest rates finally got off the mat a few years ago and we all slowly began to remember that we're allowed to get paid on our deposits, a lot of people put money into the CDs and kind of lock some of these rates in. Well, those are starting to come due now, and we've got decisions to make. Yields are coming down. The Federal Reserve has cut interest rates a little bit and, probably, is expected to have a few more of those, too, which is going to be good for your stock market portfolio, but not great for where you're trying to lock in those yields. So, really, think of it this way, we're kind of turning down a dimmer switch, you're not flipping light switch. Instead of moving everything at once, reinvest things gradually, maybe every quarter or as those CDs mature. That's a way to kind of force yourself to dollar cost average. You're not throwing everything into your stock and bond portfolio at the worst possible time because you're going to spread it out over time.
You also could look at something called a bond ladder, which basically means, let's say, you buy...you know, I'll make up an example. You've got $50,000. You put $10,000 into 5 different bonds coming due each year over the next 5 years. That's going to lock in the yields where they currently are, but also, create liquidity on an annual basis. That's the basic function of a bond ladder. So, you know, think of it as a process not a, "Okay, I'm done with CDs today, and now, I'm all in the stock market." So, just be don't make it more complicated than it has to be to get back in.
So, we want to John and Anderson. John's had an adviser for a long time and he says, they're starting to wonder about how to evaluate performance beyond just the returns. What should they really be measuring in determining whether this adviser is providing value for him, Bob?
Bob: Well, John also said, you know, they've been working with the same adviser for years and he's just starting to wonder how to evaluate the performance, not just of market returns, but advisers. And here's my answer. And this this is somewhat, I guess, might be controversial to some. I think most people in our business, Brian, feel free to disagree, whether it's fiduciary advisers, commission-based brokers, people holding themselves out as investment advisers, you know, let's face it, over almost 80% of all actively-managed, you know, accounts net of fees underperformed their peer group index. Again, over two thirds, close to 80%.
So, you got to conclude that the value added here in any financial adviser relationship is not in that adviser saying, "I'm going to beat the market every year," it's all the other stuff they do for you. The tax efficiency, the estate planning, the truly comprehensive financial plan, putting behavioral guardrails around some of the decisions that people make, keeping them from making decisions from which they might not be able to recover from. That's where the value is added. And if your current advisor is not adding that kind of value, you might want to get a second opinion from a good, fiduciary adviser. Coming up next, I've got my two cents on why people don't stay more disciplined from a long-term standpoint in the stock 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. All right, Brian, I'm going to throw my behavioral finance cap on here tonight and talk a little bit about why some investors don't stay more disciplined, you know, and treat the stock market like the wonderful, long-term investment opportunity that it is. And, you know, we threw out a slew of data earlier in the show today making the case and it's facts. There's no opinion there. It's just facts on the benefits of having a lot of your money in the stock market long-term. I want to talk about why people don't do it.
And I've come up with three most common reasons. And look, I've been guilty of all three of these, you know, at some point in time over the course of my career. I would say one is control. When the market does nothing and we're used to running a business and we want to make things happen. We think we're smart and we think we can outsmart the market. We think we can pick stocks and, you know, time the market in and out. We just think we're smarter than everyone else and we want to control the outcome ourselves.
Number two, and this is a big one, is just the media. Let's face it, over 90% of the stories we hear all day, every day in the media are negative. That's what sells, negative headlines. And people just get scared and they say, "Gosh, what else could happen bad? I'm going to park my money on the sidelines and wait for the market to get better." And as we've already illustrated, you miss the best 10, 20, 30 days over a 20-year period, and you literally leave millions of dollars on the table.
And then the third is politics, you know, depending on who's in the office. And again, you know, this is not a political, you know, comment. I'm just saying, people on both sides of the aisle, depending on our biases, we think if one political party is in power, the whole world's going to come to an end, and if I get my guy or my party in office, everything's going to be great. And this is just a great reminder that if you look back over history, depending on which political party is in power, the long-term returns on the stock market are nearly identical, Brian. Thanks for listening. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
October is a very special month. It's the three-year birthday or anniversary of the latest bull market. Hats and horns and loud noisemakers for all those who decided to stay in the market back in October of 2022, Brian. It seems like yesterday we were having a really rough time of it in 2022, and lo and behold, we're up over $6,600 on the S&P after falling to a low of a little over $3,500 in 2022. I'm wondering how that works if you stay invested and play the long game.
Brian: That's right. So, this very day, October 14th of 2022, we were all in the depths of misery because that was the bottom of that bear market of '22. And so, 2022 was one of the five worst years we've ever had. It doesn't come along with a crazy story, right? It's up there though with the 1937s, 1974, 2002, and 2008. 2022 was the fifth worst year we ever had in the stock market. It just doesn't have a great depression or great recession or any of those kind of crazy headlines. It was just the unwinding of a lot of stuff after the post-COVID run up. But the S&P hit a low then of above $3,583. And now, as you just said, we're over $6,600 on the S&P. So, that's an 85% jump in this three-year span. If you panicked in 2022, then figure out how to not do that again. If you ignored it like you should and you let things come back, then you are in good shape. You should be sitting at a point where you've got more money than you ever had in your entire life.
Bob: All right, Brian, let's go back to 2022 and look at the last three years and that 85% jump. I mean, obviously, 2022, the big reason the market went down is that's when the Federal Reserve raised interest rates seven times in that year, and it just crushed both the stock and the bond market. But who would have thought, with all the headlines and noise and political division and turmoil and threats of World War and all this stuff flying around every day, who would have ever guessed that over the last three years, the market would be up 85% over that period of time? And that's really what we're trying to drive home here is, it's never going to feel like a good day to put your money at risk in the stock market. I would have never have guessed we'd be where we are today. And I don't know. How were you feeling in 2022? And are you surprised at where we are today?
Brian: Same as I felt after 2008 and after 2002, right? The pattern doesn't change. It's time in the market, not timing the market. So, the idea is not to try to avoid these things. Andy Stout, our Chief Investment Officer, puts together information all the time for us to understand market history. I think it's an extremely important thing for everybody to understand, just to see how things actually work.
So, let's go through a little bit of math. Had you invested a million bucks in the S&P 500 20 years ago, that million dollars would now be worth about 7.1 million. And that's just sitting there and ignoring it. That's not doing anything cute with it. That's not getting into any of the latest crazes or the meme stocks or crypto or anything like that. That's just the 500 largest American companies and what they've done for a seven time increase in your portfolio there. That's if you left it alone. Now, let's say out of those 7,650 days or however many days it was, had you missed 10 of them, then that million dollars would be worth only about $3.3 million. I'm literally talking about 10 trading days out of thousands upon thousands of trading days in that 20-year period. So, that million dollars...
Bob: So, you missed the 10 best days and you gave up over half of the return over a 20-year period by missing the 10 best days. That's really hard to believe, but those are the facts. Those are facts.
Brian: That is the fact. That's right. Now, let's make it even worse. Had you missed the 20 best days... When we say missed, what I mean is, "Whoops, the market is kind of bumpy right now. I'm going to get out and stay out until I feel it's better," which means you've already eaten a little bit. Nobody's going to nail the exit point. The market's coming down a little bit. You're going to permanently lock in that loss, and then you're going to miss the upswing because you're not going to hit the upswing any more than you missed the downswing. So, had you missed the best 20 days, now your million bucks is only worth about two. That's doubling over 20 years, which is a really, really sad return. If you missed the best 30 days, now at this point, you're basically not making any money. Your million would now be worth 1.3. So, 1 month out of the last 20 years' worth of trading days, that's where all the return has come from. Don't get cute. Don't try to time the market. You don't know better than anybody else.
Bob: Well in that 30 days over 20 years missing it, that million bucks, like you just said, it's worth $1.3 million. Brian, that's only a 1.3% annualized gain. That doesn't even keep pace with inflation to say nothing of taxes. And unfortunately, people have this kind of experience because they're in and out, in and out. They cave into fear. And at that point, if you're going to miss those best 30 days over 20 years, you might as well just put it in cash, put it in a CD. These numbers are powerful, and it lends to the real point that we're trying to make, patience is the key here. Walk us through some more numbers.
Brian: Yeah, if you think about this, what we're saying is most of the time, the market does a bunch of nothing. All we did was pull 30 days out of 20 years, and we basically made the market do nothing over the past 20 years, even though we started with an example of a seven-time return over that time frame. So, the majority of trading days, Bob, they don't end with huge gains and losses. They kind of go up a little bit and go down a little bit. So, let's unpack that a little bit. Over the past three years, just since 2022, again, ending literally today, October 14th of 2025, we've had 750 trading days. Of those, 415 have had an average daily gain of 0.7%. The other 335, an average loss of 0.6%. So, that almost cancels out, except that there are more up days than down days. So, if you compound that tiny 0.03% edge over 750 days, all of a sudden, instead of just adding up to 22.5%, it snowballs. Every day's gain builds on the last. That's compounding, and it happens in the background, but it can't if you kick the legs of the stool out from under it by trying to time it.
Bob: Yeah. The point is that your portfolio growth takes time. In most days, it's going to feel like it's doing nothing, and you do have to sit through some volatility like what's gone on, let's say over the last few days. Up down, up down, that's all part of the game. And you've got to remain patient and disciplined and not worried about or focus on what's happening every single day, because most days, not much is happening at all. Now, Brian, this doesn't mean that we've never had some extended bear markets. Since 1949, we've had 12 bull markets and 12 bear markets. Again, since 1949, the same number of bull and bear markets. But here's the key...
Brian: Well, Bob, if we've had just as many bulls as bears, then how can we possibly have made any money? That doesn't make any sense.
Bob: Well, here's the key, and this is really important. The average length of those bull markets has been five years and five months with an average total return of 270% over that time for each of the bear markets. The average length of each bear market has just been 1 year and 1 month with an average total loss of only 32% over every bear market. So, you don't have to be a genius or a math wizard to know that even though the number of bear remain, the gains that you get in bull markets far outweighs any pullbacks that we have in bear markets. And that's why long-term investors always win.
Brian: Yep. So, the idea is to stay invested and ride it out because the bull markets are longer and go higher than the bear markets last and the bear markets go down. So, volatility is to be expected, right? We're always going to have the ups and downs. U.S. stocks have experienced corrections averaging 14% down since 1980. So, that's pretty average. We had one of 10% earlier this year in April. That was no fun because that was all bear driven.
Bob: It was more than 10%. It was getting close to, if not over that 14%. And let's face it, everyone was freaking out because we'd never seen the reason why before. We had never seen a president of the United States hold up a chart saying, we're going to tariff the entire world simultaneously. Back in '08, '09, we'd never seen a housing crisis like what we saw then. The reasons for these bear markets are always new. Think of COVID. No one had ever seen anything like COVID during their lifetime. So, we have a tendency to think that, well, this time it's different. This time the market's never going to return just because it goes down a percent. But it's expected in terms of a market block market. That's normal. And that's what we kind of call the price of admission, the price of being involved.
Brian: Yes. And then there's always an upswing that follows it. So, take this, for example, from 1949 to 2024, if we see a 20% pullback, historically speaking, these are not estimates, these are real numbers, whenever the market pulls back 20% from that 75-year period going back to right after World War II, a 20% drop has rebounded with a 46% return over the next 3 years and 73% over the next 5 years. So, don't screw with the long-term investments. Remember, there are people sitting at the top of all of our publicly traded companies and they are navigating, they are making decisions, they are pulling levers and pushing buttons to try to make those companies profitable again.
When the market pulls back, it's simply saying, I don't see how you're going to be profitable here in the short run. And changes are made, layoffs happen, new products are discovered, new markets are discovered, and we move on. The United States' profit margin, has always been that way. And that's why we always have that recovery. The stock market is not detached from anything else. It exists for the purpose of measuring opinions on how profitable companies will be. And as long as there is human greed out there, someone is going to push the ball forward because it is by far the best way to create a bigger pile of money.
Bob: Here's the Allworth advice, the most accomplished investors, well, they exhibit unwavering discipline regardless of current market conditions. This bull market may have some folks thinking they've "made" it financially. Coming up next, why that sense of success might actually be the biggest risk to your long-term wealth. 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. If you can't listen to "Simply Money" live every night, subscribe and get our daily podcast. And if you think your friends or family or both could use some financial advice, tell them about us as well. Just search "Simply Money" on the iHeart app or wherever you find your podcast. Straight ahead at 6:43, we are digging into some of your most pressing financial questions like when to move money out of CDs that are paying 5%, what to do when you're sitting on big gains in your brokerage account, and more.
Well, there's this natural tendency to believe that once you've built a big net worth or big pile of wealth, it just runs on autopilot. It's self-sustaining. You don't have to worry about it anymore. You don't have to optimize anything. The market's been doing great like we've just illustrated, so we'll just ride it out and watch. The more money you have, the more exposed you might be. Bigger balances mean bigger tax bills, more estate planning complications, and more risks in terms of dollar amounts and volatility if you allow your asset allocation to drift off target. Brian, let's walk through some of these moves that a lot of wealthier investors just kind of don't pay attention to that can really make a huge difference if they do a little proactive planning and get strategic about their money.
Brian: Yeah, so one of the areas where complacency can be a problem, where if I start ignoring things, well, things get a little bit out of whack, Bob. So, maybe I was in a 60/40, nice balanced conservative portfolio when I set my plan, but if I haven't touched it in these past three years of this really strong bull market, well, I might be sitting on a portfolio that's no longer 60% stocks. It's 80% stocks. That's a good thing. We want growth, but that's the whole point of needing to rebalance an asset allocation and diversification. You're not going to know that until a correction hits and it hits a little harder than you thought it would. Well, that means you were probably out of whack to begin with. So, you had a little too much exposure in the more volatile thing. Another element, Bob, is tax loss harvesting. You look like you want to say something, Bob. So, I'm going to give you a second there.
Bob: No, I want to go back to that first point. I mean, because I see this happen once in a while. You allow, people allow their portfolio to get, like you said, move from that initial 60% stock up to 80%, 85% stocks. And then we get that annual 14% decline. And then the phone rings and say, "Should we get out?" Well, what you should have done is trim some of the gain when the market was up. And you and I've been talking about that, it seems like, for the last two or three weeks now, keeping your allocation in balance where it needs to be according to your risk tolerance so you don't freak out when we get a little volatility. You know, I just bring that up because that happens from time to time.
Brian: Yeah, yeah, and that's it.
Bob: That's what some of my phone calls are about. I don't know. Do you go through anything similar with your clients?
Brian: Absolutely. And we always go over, you know, let's talk about what's working in the portfolio and what's not working as well. Because an asset-allocated portfolio diversification, by definition, means you're going to have something that's leading the pack doing great. You're going to have something that's bringing up the rear end. But those things are never going to stay the same. For years, it's been the international and emerging market stocks that have kind of lagged the rest of the pack. But that is not the case this year. You're up 25%, 30% in your international position, assuming you kept it in place. A lot of people walked away from it over the last decade when those positions were simply not performing as well as the U.S.-based stocks. So, make sure you've got a good allocation there. The United States is changing how it's perceived by the rest of the world for, you know, good, bad, or indifferent. That's what's happening. And the world is changing its perception. Therefore, opportunities are being found elsewhere.
Bob: All right. I interrupted you before, Brian. You wanted to talk about, I think, tax loss harvesting and dovetailing that with concentrated stock positions. I know you've got some good stuff to share.
Brian: Yeah, so this is year end, time to start thinking about this stuff. We're getting close to close to go time here in Q4. So, that means, hopefully, your advisor or you are proactively looking for losses to harvest. Or maybe if you've got something that's sitting at a significant gain, sell that too to realize that gain and not lose the dollars. But if there's a position at a loss position, then go ahead and offset the gain with that. Otherwise, just leaving money on the table. Either are puzzle pieces in front of you that fit directly together, so do that. If you have a good nest egg, we're not talking small dollars here. Good tax planning can easily be a pretty significant six-figure swing over a few years by taking these taking these steps.
Now, this also comes up with concentrated stocks. People do let their gains run, don't want to pay the tax and, "Hey, it ain't broke. I'm not going to fix it." That stock just keeps running and running. Now, all of a sudden, we've got a single position that's maybe 30% or 40% of their portfolio. Or sometimes, this is an employer stock grants and options, those kinds of things. You have a lot exposed and not sleeping very well at night. So, I think you've got an example for us.
Bob: Yeah, let's take an example, you know, hypothetical couple named Dan and Lisa. They're in their early 60s. They recently sold a business. They've got about $6 million now, obviously more than enough to feel financially independent. They're smart. They've worked hard, and now, they feel like they've made it and they're coasting. They haven't rebalanced their portfolio in years. They haven't updated their estate plan since their kids were in college, and they've made almost no tax planning moves at all. And Brian, this is an example of what you just talked about. They just let their portfolio coast up to 85% in stocks, heavily concentrated in tech stocks. So, they've got big embedded gains in several positions, and now, they don't want to talk about it because they know that tax man is looming, and any moves that they make, they're worried about a big tax bill.
Here's the risk, they're just one correction away from losing hundreds of thousands of dollars in value, and they have no guardrails in place, no structured withdrawal plan, no strategy for Roth conversions, and no estate transition plan. So, everything they built is exposed not because they're reckless, but because they've just grown comfortable, and they just assume that that $6 million number will manage itself. And those are the kind of people that will benefit from working with a good, fiduciary advisor to help them be a good steward of that $6 million and make it work even harder for them.
Brian: Yeah, if you're a high performer, you've got there for a reason, but most likely, there was somebody pushing you along the way. So, even high performers need accountability. The irony of that is, you know, the more money you have, the more you need somebody asking tough questions to make sure we're looking under every stone for things that can go wrong and possibly, for missed opportunities. But very often, sometimes high-net worth investors stop listening to that. We hit a point where we check the box. I've made it. I've made my fortune. I must be doing something right, therefore, nothing needs to change. But as we just talked about with the example of the international stock positions, markets do change. There's also tax laws that change your goals. Your own personal situation may change. So, it's an ongoing conversation really that never stops. Even Tiger Woods has a swing coach. At the top of his game, he still had people in his ear telling him what was going well and what wasn't. And so, he could have somebody in arm's length away who would see things that he wouldn't. That's what a financial advisor does.
Bob: Yeah, the people who stay sharp, the ones who preserve their wealth, and even continue to grow it, they treat financial planning like a skill to maintain, not just a box they checked one time. Here's the Allworth advice, the moment you feel like you've "made" it, is exactly when you need to stay engaged, because success can't protect you from complacency. Here's a question you may have asked yourself, should I invest in real estate? We're going to look at the pros and cons coming up 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 real estate expert, Michelle Sloan, owner of RE/MAX Time. And Michelle, this is a topic that Brian and I are excited to get into because it comes up all the time with our clients, is real estate a good investment, especially now considering prices are higher than ever? You know, talk about pros and cons of real estate as an investment.
Michelle: Well, it is no matter what, whether you're buying a home that is for your personal use or buying a home that you're going to use as a rental or a vacation home or an Airbnb. It is an investment. One way or another, it's the biggest investment that you're ever going to make. So, the question is, do you try to jump into the market right now when we have talked about the home sales year-over-year are up seven percent? So, yes, the prices of homes are up. They are higher than they were. But we don't anticipate them to be lower any time soon. So, you get in today. it's going to be a better price, most likely, then it will be a year from now.
And you have to you have to do your own financial planning, and you have to talk to people that know your situation because every situation is different. Are you going to need a mortgage? Well, you're going to have to bake in that interest rate in those closing costs. And maybe you have to do some repairs, depending on what you're looking for. You want to you want to look at the big picture. If you're going to pay cash, it's a different story. You're not going to have that overhead of a mortgage payment and the interest rate and all of that stuff. So, there seems to be an awful lot of buyers today that have equity.
Brian: And Michelle, on the topic of the mortgage there, so for those people looking maybe for a second home, these are people who tend to be, of course, you know, maybe retired or maybe about to retire, can you talk a little bit about the challenge of getting a mortgage if you may have plenty of assets, but no income? Some banks are cool with that, some banks aren't, even though you've got a lot of money in the bank. What kind of situations have you seen like that?
Michelle: Yeah, you have to shop around. I am finding that a lot of buyers in that situation who maybe are in their 70s and they're retired, they still have some income. It may not be as much as if they were working full-time. And more often than not, they're going to put maybe 70% or 80% down in cash and then only get a small mortgage. And that's really the way to go if you have the means to do that. That way, you know, you're not using all of your cash and leaving some of that available, and then you're only taking out a small mortgage. You might have to do just a little bit of shopping, but there are definitely lenders out there who can help you.
Bob: All right, Michelle, I'm curious, because I think we have to distinguish between, when we buy a home, are we buying it to live in it, or a second home, vacation destination to live in it? Or are we buying it as a rental income source, a true, 100% investment property? Talk about the whole property for rental income market right now. How are average rents trending? Are you seeing people successfully handle rental property right now when you factor in all the tax benefits of the depreciation? You've already talked about potential appreciation of the home price, to say nothing in the rental income. Is that still working right now as a good cash flow investment strategy?
Michelle: Absolutely. There is always opportunities in the real estate industry. I think that you have to decide. If you're buying a home as rental income, a lot of the HOAs have tightened down. And this is the one thing that I get questioned an awful lot, "I have $300,000 to spend. I want to buy a rental property. I'd like to maybe get a condo or something like that so I don't have to do all of the maintenance. What can you find for me?" Well, that's going to be more of a challenge because if you are buying a condo for rental purposes, oftentimes, the HOA has clamped down, and not allowing rentals in a lot of communities.
So, again, it's a lot of research, but there are opportunities. And then you have to think about, if you're buying a rental, single family home, you're going to have maintenance. Who's going to take care of the yard, the lawn, the exterior? That kind of thing. The average rent right now in Cincinnati is about $1,400 a month. That sounds so high, and it is. And the rent has rose 7.4%. So, you want to do some calculations, you know.
Brian: Michelle, is it even possible? Because I'll have people throw this out every now and then. They inherit money, they retire, and so forth. Is it really even possible? Because we get this idea that, "Hey, I'll just buy a property and I'm going to Airbnb it." That was cool maybe 15 years ago. You could actually, you know, make a little money.
Bob: You could cash flow it.
Brian: Yeah, you could totally cash, make it pay for itself. But now, I'm feeling like it may get you just under a break even, but you're going to lose money. Am I wrong? There just seems like every situation I look at, that just doesn't work anymore.
Michelle: There's a lot of work involved. And people don't see that. You know, every time somebody's in and out, you have to clean. And then if they bust things up, you know, you're going to have to fix things. And then you're paying...
Brian: Treat it like a rental is a phrase for a reason.
Michelle: Yeah. You know, an Airbnb, I think, again, it sounds great, but I would do, buyer beware, if you're planning to do something like that, because there are a lot of hitting costs that you may not consider. Yeah, it sounds perfect. You know, "Let's buy a cool place in downtown Cincinnati, the overlooking the river. And, you know, we'll Airbnb it and we'll get $1,000 a night." Well, you're not always going to be rented. It's going to cost you money. You're going to hire somebody. Unless you're going to do the work, unless you're going to clean after every person, and make the beds, and wash the sheets.
Brian: Which means you're going to be in the thing. Yeah, you're going to be in it more than you ever intended to.
Michelle: Absolutely, because it's a lot of work.
Bob: Well, Michelle, you know, something that that I've become aware of here in recent months, you know, is you brought up the HOAs, I think you got to do your due diligence on the financial condition of that HOAs because insurance rates are climbing. So, these condo buildings are in need of repairs, which means assessments, and depending on the location, you know, big-time assessments. You know, think about areas in Florida where these condos that are 40, 50 years old are not hurricane proof. You know, you got to look beyond just the price of the place and what you think you can rent it for, right? And so, are there particular locations you're seeing that are very attractive versus, you know, big watch out signs?
Michelle: You know, and that's a really good question. And it really, it's going to be very personal. So, if the rentals that Scott and I own, they're all local. So, if we need to get to them quickly, we can. But thinking of, I would never buy personally a rental in Florida because I can't keep my eyes on it. It's kind of like owning a bar. If you're not in that bar all the time, people are going to be drinking your alcohol and they're going to be stealing from the till unless you're there and monitoring the situation or maybe hiring somebody that you know and trust. So, as far as a location, it really, really depends on what type of property you're looking for. If you're looking for a little higher-end property, if you're looking for something that's, you know, a fixer upper, there's so many options. But the biggest thing that I can say is planning is key. Connect with a smart financial planner, I think we know some, and a really smart realtor. I think we know one of those, too.
Bob: It sounds great. Hey, thanks. Thanks as always for all your help, Michelle. 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? There's a red button you can click while you're listening to the show right in the iHeart app. Simply record your question and it will come straight to us. All right, Brian, Martin in Loveland has one for you. He says, "We're retired and we're drawing from our portfolio. How do we decide which accounts to tap first? Taxable accounts, IRAs, Roth IRAs. How do we decide to make that money last longer?"
Brian: Yeah, this is a great question. And it's a good thing to tackle early on to understand the differences between all these accounts. So, really, you might have a lot of different accounts. There could be 15 accounts in one household, but there's really only a handful of tax treatments. So, some things are tax deferred. That's oftentimes your IRAs and 401(k)s. You've never paid taxes. Or those things can also be Roth, meaning you didn't get a deduction upfront. So, you technically pay taxes on the front end, but no taxes on the back. Or you might have a taxable account. This is something that spits out a 1099 every year on the dividends and maybe there are capital gains and those kinds of things. So, those are the three basic tax treatments.
So, here's some ways to think about it. A good rule of thumb is to spend those taxable accounts first, then your tax deferred ones, and save those Roth IRAs for last. Now, let's get more specific. There are exceptions to this, but that's kind of a good way to just start thinking about it. Since the Roth money is tax free, and there's no requirement of distributions, we're not trying to avoid those at age 75 or 73. So, let the Roth run, put them on the back end, and your kids are also going to inherit them a little more efficiently.
But let's talk about more specific situations. If you're at a low-tax bracket early in retirement, you might fill up those brackets by going ahead and taking, proactively, strategic IRA withdrawals and paying taxes a little earlier than you have to. But otherwise, doing it at a lower bracket because you have less income. You also might do partial Roth conversions at this time. Not only is that going to turn it into tax free income from here on out, it's also going to reduce future required minimum distributions, and you're going to control your taxes later when social security and Medicare kicks in.
So, hopefully that helps answer that question a little bit. Let's move on to Jerry in Westchester. And Jerry says, "If Roth accounts are so tax efficient, why wouldn't we just stick all of our dollars into that instead of traditional IRAs and 401(k)s?" What do you think of that, Bob?
Bob: Well, I say to Jerry that that might be exactly what you want to do, I mean, depending on your situation. So, kudos to you for thinking about this stuff, you know, up front. But here's how I'd answer the question. Any time we get into a discussion or you have to do the analysis on this Roth versus regular IRA and 401(k), you got to build some assumptions into your long-term financial plan. Things like, what are tax rates now based on your current income? What do you think tax rates are going to be down the road? What are your income needs going to be? So, there's some work that goes into this to come up with a plan to determine whether it does make sense to defer taxes now. Most of the time, you know, the traditional IRAs and 401(k)s make the most sense for people that are in a high-income tax bracket now and think they're going to be in a lower tax bracket, you know, when they retire. So, you got to run the numbers.
But look, there's nothing wrong with the Roth IRA. There's a lot right with the Roth account. There's nothing wrong with it. The key here is to match the strategy with your individualized financial plan to determine which mix of Roth versus regular accounts make the most sense for you. And again, it has a lot to do with your current income now, the tax bracket you're in now, versus where you think you're going to be down the road. And then everybody has an opinion on where tax rates are headed. We'll leave that for another day. But hope that helps, Jerry.
All right. Rachel and Fort Mitchell, you know, says, "Brian, we've got cash and CDs earning over 5%, but rates won't stay that high forever. How do we transition back into longer-term investments when the time comes?"
Brian: Yeah, Rachel, this is a very common question now, because when interest rates finally got off the mat a few years ago and we all slowly began to remember that we're allowed to get paid on our deposits, a lot of people put money into the CDs and kind of lock some of these rates in. Well, those are starting to come due now, and we've got decisions to make. Yields are coming down. The Federal Reserve has cut interest rates a little bit and, probably, is expected to have a few more of those, too, which is going to be good for your stock market portfolio, but not great for where you're trying to lock in those yields. So, really, think of it this way, we're kind of turning down a dimmer switch, you're not flipping light switch. Instead of moving everything at once, reinvest things gradually, maybe every quarter or as those CDs mature. That's a way to kind of force yourself to dollar cost average. You're not throwing everything into your stock and bond portfolio at the worst possible time because you're going to spread it out over time.
You also could look at something called a bond ladder, which basically means, let's say, you buy...you know, I'll make up an example. You've got $50,000. You put $10,000 into 5 different bonds coming due each year over the next 5 years. That's going to lock in the yields where they currently are, but also, create liquidity on an annual basis. That's the basic function of a bond ladder. So, you know, think of it as a process not a, "Okay, I'm done with CDs today, and now, I'm all in the stock market." So, just be don't make it more complicated than it has to be to get back in.
So, we want to John and Anderson. John's had an adviser for a long time and he says, they're starting to wonder about how to evaluate performance beyond just the returns. What should they really be measuring in determining whether this adviser is providing value for him, Bob?
Bob: Well, John also said, you know, they've been working with the same adviser for years and he's just starting to wonder how to evaluate the performance, not just of market returns, but advisers. And here's my answer. And this this is somewhat, I guess, might be controversial to some. I think most people in our business, Brian, feel free to disagree, whether it's fiduciary advisers, commission-based brokers, people holding themselves out as investment advisers, you know, let's face it, over almost 80% of all actively-managed, you know, accounts net of fees underperformed their peer group index. Again, over two thirds, close to 80%.
So, you got to conclude that the value added here in any financial adviser relationship is not in that adviser saying, "I'm going to beat the market every year," it's all the other stuff they do for you. The tax efficiency, the estate planning, the truly comprehensive financial plan, putting behavioral guardrails around some of the decisions that people make, keeping them from making decisions from which they might not be able to recover from. That's where the value is added. And if your current advisor is not adding that kind of value, you might want to get a second opinion from a good, fiduciary adviser. Coming up next, I've got my two cents on why people don't stay more disciplined from a long-term standpoint in the stock 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. All right, Brian, I'm going to throw my behavioral finance cap on here tonight and talk a little bit about why some investors don't stay more disciplined, you know, and treat the stock market like the wonderful, long-term investment opportunity that it is. And, you know, we threw out a slew of data earlier in the show today making the case and it's facts. There's no opinion there. It's just facts on the benefits of having a lot of your money in the stock market long-term. I want to talk about why people don't do it.
And I've come up with three most common reasons. And look, I've been guilty of all three of these, you know, at some point in time over the course of my career. I would say one is control. When the market does nothing and we're used to running a business and we want to make things happen. We think we're smart and we think we can outsmart the market. We think we can pick stocks and, you know, time the market in and out. We just think we're smarter than everyone else and we want to control the outcome ourselves.
Number two, and this is a big one, is just the media. Let's face it, over 90% of the stories we hear all day, every day in the media are negative. That's what sells, negative headlines. And people just get scared and they say, "Gosh, what else could happen bad? I'm going to park my money on the sidelines and wait for the market to get better." And as we've already illustrated, you miss the best 10, 20, 30 days over a 20-year period, and you literally leave millions of dollars on the table.
And then the third is politics, you know, depending on who's in the office. And again, you know, this is not a political, you know, comment. I'm just saying, people on both sides of the aisle, depending on our biases, we think if one political party is in power, the whole world's going to come to an end, and if I get my guy or my party in office, everything's going to be great. And this is just a great reminder that if you look back over history, depending on which political party is in power, the long-term returns on the stock market are nearly identical, Brian. Thanks for listening. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.