Amy: Tonight, when we say the word stamina, I don't know, you might think of running, lifting weights, but maybe right now the best way that you could look at stamina is weathering this current financial storm. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. Every week, I like to think, "This week is gonna be different.

This week, we're going to be talking about the good things in the markets and the good things in the economy." And, you know, obviously, no sunshine and rainbows here today, which is why we have Andy Saltz, our Chief investment Officer, joining us every Monday to try to make sense of what has been a not-so-pleasant year for the market, for your 401(k). Andy, no new good news today, huh?

Andy: Well, we certainly did not end the quarter very well to close out the month of September. So when you look at just the big picture, stocks and bonds, both struggled. And the culprit is what we've been talking about for the past few weeks, and that's, not surprisingly, inflation. It's still here if you were unaware of that, and it's probably not going away anytime in the immediate future. However, you know, that doesn't mean that we should go and, you know, bury our heads in the sand because there are some positive things to be looking at, as well, and some opportunities, as well.

Steve: Andy, I hate to do this, but investors out there are saying, "Wow, we just got walloped. It was a rough week. It capped off a rough quarter. It just sums up to a rough year." What do you tell the investor who's seen, you know, stocks and bonds just drop massively over the course of the year, and they're concerned they might even lose more money when there's no, you know, in their view, no great economic news upcoming?

Andy: Well, when you think about no great news upcoming, I think that's where everyone, whoever has those thoughts needs to take a step back because the market doesn't care about how you feel. And actually, the market will tend to do the exact opposite of what you're feeling. So, in other words, markets tend to bottom when news is the worst out there. Markets tend to top when news is really, really good, right? Think back to the beginning of the year in January, just had a really good 2021.

There was a lot primed for the economy to keep growing, keep moving in a good direction. Inflation appeared to be moving lower, and everybody felt really good. Housing prices were on the rise. And, well, that happened to be the top of the market, and we're now, what, 25% lower. So, when you look at where we're at today, that drop of 25%, now let's look forward. What's happened, Steve, when we've seen a big sell-off in the past? Well, you've seen it followed by some really strong rallies.

For example, whenever the S&P 500, which is a large-cap stock index, which represents companies like Procter & Gamble, and Fifth Third Bank, things like that, companies like that, whenever you've seen a decline of 25% on average, the S&P 500 was able to enjoy a positive 21% return over the next 12 months on average. Obviously, every time is different. And if you look at the next five years after the stock market's dropped 25%, well, it's even better.

The cumulative, so it's not annualized, but the cumulative average return was 63%. And that doesn't include dividends, so you could probably add about roughly 10 percentage points to that number. So, you know, what I would tell investors is, let's take a step back, don't let your emotions take over, look at the facts, understand what's going on, and always avoid any sort of emotional investment decision because those are often going to be poor decisions.

Amy: Andy, I wanna talk about a point that you made recently that I think makes a lot of sense that maybe a lot of people aren't thinking through. When you think of a recession, you don't think about kinds of recessions, flavors of recessions. But there are different kinds of recessions, right? I mean, what we went into in 2020 was driven by an event. With the pandemic, right, the entire economy shut down. What kind of recession are we, do you think, maybe heading toward now, and what does that mean for investors?

Andy: That's a great question, Amy. So there's three types of recession. I mean, we can categorize these however we want, but there's three ones that I like to think about. That is, event-driven, like COVID, as an example. There is what we call structural, and those tend to be the worst ones, by the way. That's like 2008 when, you know, the banking system was on the verge of collapse, and the balance sheets for all the banks were upside down, and it was just a nightmare.

Then you have cyclical recessions. These are gonna be recessions that are just part of like a normal business cycle. And this would include things like inflation as being too high, so the Fed gets aggressive or whatever. This is similar to a cyclical recession more than the other two. Now, I'm not saying there might not be a little bit of characteristics of each one, but if you had to put one into a category, I would definitely put this more into the cyclical side if we do fall into recession.

I'm not saying we're in a recession. I mean, the data for the third quarter that we've seen so far actually looks pretty good from an economic perspective. But, you know, there will eventually be recession, there's no question about that. And I would put it more in the cyclical side. And when you think about cyclical recessions, they do tend to be more shallow in terms of market declines in other bear markets.

Steve: You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Amy Wagner. And if it's Monday, we're talking to Andy Stout, the Chief Investment Officer of Allworth Financial. Andy, I'm with you on not panicking when markets have dropped this much because, you know, I get nervous when markets are high, and I get, I wouldn't say excited, but I see opportunity when stocks are cheap because we're batting 1,000 on recovering eventually from market bottoms.

I guess what I would like to hear from you, though, is, all right, let's say you went into this with a 60% stock, 40% bond mix, and you're seeing both stocks and bonds down. You recognize maybe there are some pretty good deals out there. Should the average investor, if they're comfortable with increasing risk, should they make allocation changes, maybe go from 60% to 70% stock if they feel comfortable?

Andy: Well, market timing usually does not work. It doesn't work for most people. Study after study shows that people who try to time the market like that, it ends up backfiring. Because what can happen, I'm not saying it would happen, Steve, but what could happen is that someone makes that move, go to 60 to 70, and then let's just say the next couple of weeks, the markets go down.

And now, all of a sudden, they're kicking themselves in the foot and be like, "Oh, I always make the wrong decision. Why did I do that? What was I thinking?" And then just go out of cash. So you're letting your emotions take over. You're in a much better situation if ahead of time you have a plan, ahead of time you have a strategy, and you stay disciplined, and you stick to that. So, when you're thinking about any sort of stock-bond changes, I wanna do it for market reasons.

If you have that stock-bond investment mix set up so that you can weather the volatility along the way and still be able to enjoy your financial goals, you know, that's the way to think about it, right? I mean, it doesn't really... It's not going to benefit you, I should say it that way. It's not gonna benefit you if you're going to try to time the market because you got to make quite a few right decisions along the way. You're better off just staying true to that investment mix.

Now, if you don't have an investment mix, obviously, you wanna make sure that you have something set up based on how much market turbulence you can withstand, and how much return you need to get in order to achieve those financial goals. But once you have that set, I mean, you should be able to really weather the storm and also enjoy your financial goals.

Amy: Andy, there's new economic data, of course, that comes in weekly, right, showing different pieces of the American economy. And lately, especially last week, I think there was a lot of economic data that came in showing that the economy looks like it's being pretty resilient now. That would usually be good news. But from the standpoint of, is the aggressive steps that the Federal Reserve is taking right now even working, it's kind of bad news. I just wanna get your take on this whole good news, bad news situation with this economic data that's coming in.

Andy: Yeah, and that's what it is. Good news is bad news right now, at least that's how it's been for the past few weeks. The high-level reason for that, Amy, is because when we have good economic news, that means the economy is growing, lots of people have jobs, which is normally a great thing, people can try to get better wages. Like, that's inflation, right? That's the problem. When you have the economy growing, job markets tie, people will demand higher wages, then we have wage inflation, that'll feed into other areas of the economy causing other areas like manufacturing and services to see prices increase there, as well.

And that's what the Fed does not want. The Fed does not want this wage inflation. It does not want the inflation in the broader economy. So when you have this good economic news, that leads to inflation. And we're already at uncomfortably high levels of inflation. So, when you do see the good economic news, that means the Fed's going to be more aggressive for longer, possibly, suggesting that higher interest rates, more interest rates might be sticking around longer, and that can have a worse or a bigger negative impact on the economy when you look out to see what the ultimate repercussions are going to be for what the Fed is doing.

Because what we don't know, Amy, and the Fed doesn't know this, and no one knows is, what is the actual economic impact that the Fed is going to cause from these rate hikes? Because when the Fed raises rates, it happens with like a 6 to 12-month lag. So we're not even really seeing anything that they've done so far hit the real economy. And they're gonna be continuing to stay aggressive, and we're not going to know. And that's one of the bigger risks out there, that the Fed is too aggressive, you know, because we don't even know what they're doing, or they don't even know what the impact is going to be, I should say.

Steve: You make a great point. I mean, they are increasing rates dramatically, and the impact hasn't been felt yet. So they may have increased rates enough already. So, okay, Andy. You said, generally, on average, a year after a 25% market sell-off like we've experienced, stocks tend to be up about 21% higher 12 months later. How about bonds? I mean, bonds have gone through a tough sell-off. What would you expect out of that market, and when would you think the rebound would occur there?

Andy: Well, when you look at a bonds return, most of it's explained by its yield, or its interest, or income that it's spewing off. So, when you look at that, you can get a pretty good idea for what the returns are going to be over a period of time. Now, even if you own individual bonds, or a mutual fund, or an exchange-traded fund, or ETF, or fixed income, it's gonna be the same thing. You wanna look at that income, and that's gonna kind of tell you what the expected rate of return is going to be.

It's easier to do for an individual bond, but that doesn't mean there's not going to be volatility because bond prices and interest rates move in opposite directions. So, when you look at today's world and you look at just interest rates out there right now, you could look at a short-term bond, could be getting around maybe 3%, depending on the type of bond. It could be a government bond, it could be a corporate bond, depends on how risky it is, as well, but that's where you'd wanna look at.

And that's typically going to be about what the average return is. So, I know there's been, obviously, a rather uncomfortable sell-off in the bond market. And when we look forward in terms of those expected returns, you know, we're looking at expected returns, on average, for the bond market, over the next 10 years, to probably coming in somewhere around 4% in that general area, annualized. Which would mean in a couple two, three years, we may have offset this decline overall.

Amy: Here's the Allworth advice: market volatility is likely to continue until inflation comes down. Just be patient. Also, know that markets will eventually bounce back because history proves that. Coming up, if you think inflation is bad here, it could always be worse. We're talking way worse. We'll look at the rates in other countries next. Plus, why it could be some time before you see the prices of cars drop.

You're listening to "Simply Money" here on 55KRC, the talk station. You're listening to"Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you can't listen to "Simply Money" every night, well, subscribe to our weekly podcast. It's "The Best of Simply Money." You'll find it on the iHeart app, or wherever you get your podcast.

Straight ahead at 6:43, how to protect yourself financially if you were ever to get divorced. It's an emotional time. We'll have what you need to think through there. Inflation, it's like the thing you can't get away from these days. Everywhere you go, pay more for this, pay more for that. It seems like it couldn't get any worse. But you know what, Steve, misery loves company. And it turns out, it could actually be much, much worse.

Steve: No lie. I mean, it's a good thing we're here. There in Europe, it's going nuts. Most of Europe, double digits. And you can look at some country, Sri Lanka, cost of food has doubled, up 100% in the past year. I mean, we're talking about... If you go to Europe, Germany imports, I think, 40% of their natural gas from Russia. So, they're stuck. I mean, they're in bad shape right now. It's not just energy prices, it's everything going up. And in just about every case, a lot more than we're experiencing here.

Amy: All right. So you mentioned Sri Lanka. You said that their prices have doubled for food. Their inflation rate right now, 69%, their inflation rates. Ours hasn't gotten to 10%. And to your point, too, most countries in Europe, the 19 Eurozone countries, 10 have double-digit overall inflation. Of course, Germany being, what, close to 11%. Estonia, Lithuania, all have inflation rates above 22%. Ouch.

Steve: Yeah. But, you know, what's pretty cool is the Euro, the currency, that is rising drastically, and that actually helps them a little bit.

Amy: Yes.

Steve: Not as much as the U.S. dollar. I know there's a lot of knocks on the U.S. dollar, and is it gonna lose its status as reserve currency? Not a chance. I mean, the U.S. dollar is probably the strongest currency in the world right now, and that's a good thing for us. That actually helps us a little bit with inflation. But the bottom line is, yeah, they've got issues over there, especially as they head into wintertime because they're gonna be paying a whole lot more for energy. I think France is about the best off because they've put a cap on natural gas prices, so, yeah, that's subsidized by the government, but at least it's helping bring their inflation rate down into the 6% range. France is about the only one that's close to us right now.

Amy: Yeah. When we talk about inflation, right, there's different components. It's like peeling an onion, right? All the different layers actually make up the whole of how we got here. And one of the major contributors that we've seen month over month sort of growth in inflation is, my goodness, the cost of buying a vehicle right now is insane. The average cost of a new car, close to $50,000 right now. That is mind-boggling to me.

Steve: It is. And, you know, it all comes back to... You know, again, inflation is too many dollars chasing too few goods. But on top of that, you've got to have a supply and demand part of the equation. And, you know, during the pandemic, Amy, a lot of people held off buying a car. They didn't wanna go out, whatever the case was. And now, even with higher interest rates, there is so much pent-up demand out there, and the car manufacturers can't keep up with it. And one of the big reasons is chips. We still have a computer chip shortage.

Amy: I mean, you're right. Okay, so at the beginning of the pandemic, we were afraid to do anything. I mean, remember back to that time. You were maybe going to the grocery store, but mostly like ordering groceries. I mean, you weren't traveling, you weren't going to work, you weren't doing anything. So that message to the car industry was like, "Shut down, shut down," right? "People are not gonna buy cars for a while." What they didn't anticipate was how quickly the demand came back.

So there was already kind of this shortage of chips sort of going into this huge increase in demand. And then this whole microchip shortage. And just a couple of years ago, all those cars, right, were parked down at the Kentucky Speedway. So just a couple of weeks ago, my husband and I were driving back up from Louisville, and I look over, beautiful day, blue skies, you could totally see as far as you could see. And I look over at Kentucky Speedway, and I said, "Do they even have events?" The parking lot was jam-packed.

Steve: Was it really?

Amy: My husband glances over and says, "The weird thing is they're all the same make and model. They're all the same pickup truck." And I thought, "Oh my gosh, we're back to that." Channel 19 did a really interesting story where they had a drone over... If you think about how huge those parking lots are at Kentucky Speedway, I think every single parking spot is full right now with a truck, with a vehicle waiting for a chip.

Steve: Well, Ford makes their trucks in Louisville, so I guess that's a pretty close venue for them. Ford had an announcement last week. First of all, you think inflation isn't affecting, you know, certain industries. Yeah, there's a chip shortage, and part of that's, by the way, due to China still has a zero tolerance...

Brent: For COVID, yes.

Steve: ...yeah, for COVID. So they're locking down factories, and that's, you know, reducing the chips. Well, wait a second, didn't Governor DeWine just open up a chip factory in Ohio? Yeah. Takes about five years for those to get online.

Amy: Huge lag.

Steve: Yeah. So, you know, we're doing the right things, but it's not gonna be fixed tomorrow. That's the problem. Well, Ford is warehousing right now between 40,000 and 45,000 vehicles because they can't get chips. The cars are done. And these are not, you know, fancy computer chips, these are the little chips that do little things like, you know, make the windows go up and down when you push a button, you know. And they're the ones that are in short supply. So if they've got 40,000, 45,000 cars waiting to sell that they can't sell, you've got more and more demand pent-up for it. Those prices aren't dropping anytime soon the way I see it.

Amy: And there's been all kinds of predictions that by the end of 2022, this chip shortage would be resolved. And there has been some resolution in places like electronics, computer chips, right? But these are different kinds of chips highly specialized for cars. And, my goodness, in some cars, like high-end Mercedes that have all these bells and whistles on them, there could be hundreds of different chips in them.

So, this one might take a little bit longer to resolve. Here's the Allworth advice. It could be some time before we see full new car inventory, which means you might pay more for both new and used cars for the foreseeable future. The use of adjustable-rate mortgages are on the rise. The question, is it right for you? We're gonna look at that topic next. You're listening to "Simply Money" here on 55KRC, the talk station. You're listening to "Simply Money". I'm Amy Wagner, along with Steve Sprovach.

Since the beginning of this year, as we've seen interest rates rise, so have ARMs, adjustable-rate mortgages, in popularity, in fact, tripled in just since the beginning of this year. Joining us tonight is Brent Scarce [SP] from WesBanco, of course, our credit expert, with some insights into, first of all, why ARMs are more popular now, and second of all, if you're considering one, what you need to know. Obviously, interest rates right now, Brent, for many people have gone up, feels like, overnight, and for some people, sort of priced them out of buying a home.

Brent: That's right, Amy. At the beginning of the year, we were looking at interest rates in the 3s, and now we're looking at interest rates on 30-year fixed rates close to 7, if not in the 7s, depending on credit scores, and adjustments, and things of that nature. So yes, it is a significant different world right now than it was at the beginning of this year. And adjustable-rate mortgages, I know a lot of people, when you just say those words, adjustable-rate mortgage, a lot of people get nervous because they remember...

Amy: We've got horrible flashbacks to '07/'08, right?

Brent: That's right. So when you go back to, you know, the 2007 and 2008 period where there were a lot of subprime adjustable-rate mortgages that were in place, a lot of people purchased homes, you know, with no money, and low credit scores, and, you know, they were put into a lot of these adjustable-rate mortgages that were kind of designed to be heavily in favor of lenders and it put a lot of borrowers in a hard spot when they started to adjust. A lot of people remember that, and they automatically think, "Oh, my gosh, ARMs are all like that," and that's not necessarily the case. What we're finding now is that the adjustable-rate mortgages that are available in the marketplace today, the normal conventional adjustable-rate mortgages, they're not really something to be feared.

If you are purchasing a house right now and you find yourself in a position where, you know, "Hey, I qualified before at, you know, 4.625, or 3, or whatever, but now my payment, you know, on a fixed rate is gonna be $200, or $300, or $400 more per month, and that's jeopardizing my ability to qualify, or it's more than I wanna pay," you certainly need to take another look at conventional adjustable-rate mortgages. Because right now, you know, a 30-year fixed, like I said, is, you know, knocking on the door of 7%, depending on the day and the hour. But, you know, if you were to enter into a 5/1 adjustable-rate mortgages, which... Let's explain how this works, by the way.

Amy: Yes.

Brent: Adjustable-rate mortgages are fixed. Usually, they are fixed for some period of time at the start rate, and then after a certain amount of time, they can start to adjust. The lender can adjust the interest rate. Now, most adjustable-rate mortgages are either fixed for 3, 5, 7, 10, and there's even a 15-year option where you can have your rate fixed at the start rate for those periods of time, okay? So, if you have a 7/1 ARM, for example, that means your rate would be... Let's say that rate started, I'm just gonna throw a number out there, let's say it started at like 5.75, or something like that, interest rate.

Well, then your rate would stay 5.75% for 7 years, okay? And then after that seven-year period, that's when the lender could potentially adjust your rate. They tie these loans, usually to some sort of an index, and that's considered the cost of funds for the bank. And then they add some sort of margin to it, usually around 2.5% or 3%. Consider that the profit margin for the bank, okay? So, let's say after the end of the 7 years, the index is yielding, say, 4%. Well, then they add, say, a 3% margin to it, that would be 7%, right?

So, four plus three would be seven. So, that's what your rate could potentially adjust to from 5.75, okay? Now, does that mean it's going to? Not necessarily. It depends on what that index is yielding, and so forth, okay? But here is the reason why that isn't as risky, as well. Some people might be sitting there thinking, "Oh, my gosh, my rate could potentially go from 5.75% to 7%." Well, the average person does not stay in the same house, or even the same loan, usually, for seven years or longer. Some do, but think of yourself. How long have you lived in your current home?

Amy: Well, just less than a year.

Brent: So, let's say you end up in a situation where, you know, right now you're building a house, rates have gone up on you, and you're kind of fearful. Well, a lot of people are saying right now, if we're heading into a pretty good recession, you know, the Fed continues to raise interest rates, right?

Amy: Yes.

Brent: So what's gonna happen if that pushes us into a severe recession? What's gonna happen to the interest rates?

Amy: They'll continue to go up.

Brent: Most likely they're gonna go down. [crosstalk 00:25:55].

Amy: Oh, you mean once we go into the recession? Yes, yes.

Brent: Yes, yes. Once we start to go into a recession, well, once unemployment goes up and once a lot of other things start to happen to slow down the economy, [crosstalk 00:25:15.767]

Amy: And we don't expect that to take five years, or seven years, or whatever the full term of one of these adjustable-rate mortgages would be.

Brent: Right. So what a lot of people were saying is, "Hey, marry the house, but date the rate." Or, "Get your forever home, but not your forever loan." So, you could take advantage of an adjustable-rate mortgage, you know, that's fixed for 7, or 10, or even 15 years, which gives you a long time to watch what interest rates do to potentially refinance. Or, you could also potentially just enjoy a lower monthly payment for a little while and use that money to do other things with.

Amy: Brent, let me ask you this, is there anything in fine print with any of these loans that would say, "Hey, so you've got a 5-year adjustable-rate mortgage, and you're, you know, 4 years and 11 months into that." Could you not refinance then for a fixed-rate loan? Is there anything to say, "Hey, I need to let this go into this adjustable-rate phase," or can you sort of play it like that?

Brent: Yeah. Most people, they take an adjustable-rate mortgage because they don't plan to either be in the house for that long.

Amy: More than that term.

Brent: Let's say you get a five... Yeah. So let's say I'm buying my starter home. I don't plan to be in this house, necessarily, for, you know, 30 years. I plan to be in it for maybe four years, maybe five years, and then I plan to move up once I, you know, maybe start a family and, you know, need more space, and that sort of thing. So, you might take an adjustable-rate mortgage if you're in that situation, or if you know that there is a chance you may be relocated for your job in the future, maybe within the next 10 years. You know, taking a loan that's fixed for 7 or 10 years would give you plenty of time there.

Amy: Of course, the best-laid plans, right? I think that for some people, you can say, "Oh, we're only gonna be in this house for four years or whatever," but things change. And what happens then? You end up staying for seven years, eight years.

Brent: You can always refinance to another loan. And I'll tell you, I had a house that I purchased in 2005, Amy. I had an adjustable-rate mortgage on that for 13 years. And in my particular situation, it actually didn't change on me until I was selling the house. So, you know, yes, there is risk that your rate could adjust after 5, 7, or 10 years. But for the average person, they're not gonna be in that house for that long, or there's plenty of time to watch the market to be able to refinance, you know, after, say, a year, or two years, or three years into that loan. So, you can go ahead and purchase the property and start to enjoy the benefits of gaining equity, you know, in a property and give yourself, you know, the ability to have something to sell and use that equity to buy something bigger down the road.

Amy: Brent, quickly, who would you say an ARM doesn't make sense for? Who does it not work out for?

Brent: Well, if you're someone who knows, for a fact, that you're not going to, you know, wanna be in that house for very long, if you're gonna be in the house for less than, say, five years... I would prefer someone right now, if they know there's a chance they're gonna move within five years, I would say take a longer adjustable-rate mortgage, like a 7/1 or a 10/1 ARM because that would lock you in, you know, perhaps in the 5s or so right now, instead of having to pay somewhere in the 7s.

Amy: Sure.

Brent: If you know, for a fact, you're gonna move in a very short amount of time, you know, I would say maybe not purchase a house right at the moment. Maybe renting might be better for you if you're only gonna be in the property for a very short amount of time. You know, fixed rates right now, going up the way they have, they've made it to where it's pushed a lot of people out of the ability to even purchase a home where the adjustable rate can still give them the opportunity to be able to buy a home now and at least start to gain some equity with the opportunity to refinance or sell in the future.

Amy: You know, I think for so many people, you know, ARMs might be the only option now. But for many, of course, there's flashbacks to '07, '08. I've seen research that shows, though, the people who are taking on these loans far different than they were back then, most of them coming to the table with 20% down, you know, just higher salaries, higher income levels, and those are the people who are choosing ARM. So for those who maybe have written them off in the past, it might make sense now. Great insights as always from Brent Scarce, of course, our credit expert from WesBanco.

You're listening to "Simply Money" here on 55KRC, the talk station. You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. When was the last time you RTFP'ed, right, read the fine print before you signed? We're gonna make it easier for you, tell you the words you need to skim for. That's straight ahead. All right. You know, I think everyone walks down the aisle with the best of intentions. I can tell you that I did, and, you know, it, unfortunately, doesn't always work out.

Steve: About half don't. About half don't.

Amy: Forty-two to 53% of marriages eventually end in divorce. And I've been through it, it's an incredibly emotional time. And I think a lot of people make mistakes when it comes to their money during that time because you're just dealing with so much that can have a longer-term impact than you might ever have even realized. So we wanna tackle this admittedly difficult topic right now with, if you're in this, if you know someone who is, some of the things you need to be thinking through in order to protect yourself,

Steve: Well, over 40 years, I've encountered this more than a couple of times.

Amy: I'm sure you have.

Steve: I even encountered one where I found out before the husband found out. That was interesting. Yeah. And so, you know, this is a really touchy subject, and you are dead-on with, yeah, it's so emotional that, you know, whichever party you happen to be dealing with as an advisor, yeah, a lot of stuff comes out real soon, and you've got to just be Switzerland, play it neutral, and do what's necessary and, obviously, legal. But there are some things that you've gotta pay an awful lot of attention to as one of the soon-to-be ex-spouses because there is a lot of money generally, at stake, even if it's just tied up in something like a 401(k) plan.

Amy: Yes. Right. So how do you... And what if maybe you're the wife, and you took off when the kids were younger and so your 401(k). Maybe you don't have a 401(k), but you have worked together to stock away a lot of money into that 401(k). Half of that belongs to each spouse, right? And so you have to get a QDRO, which is an order that comes from the court, right, a qualified distribution plan that comes from the courts, and that will help you figure out how to divide those assets.

Steve: Yeah. And they have to be worded correctly, by the way. It's qualified domestic relations order, QDRO. And if you've never heard of something called a QDRO, if you're going through a divorce...

Amy: It's a good thing if you haven't heard of it.

Steve: Well, yeah, but you will get very, very comfortable with using that term because it's the judges' and the courts' order of how assets are gonna be distributed, that, you know, both parties, at some point, will need to sign off on. And this is where... And I have seen some QDROs that were so poorly written, they couldn't be executed. I mean, I'll give you an example. If you're a federal employee, your 401(k) plan is called the thrift savings plan, a TSP.

Well, if the QDRO, if the court order, did not specify it as the thrift savings plan and just said, the retirement plan, guess what, they can't split the money. It's gotta be that specific. And if your lawyer screwed up, you're gonna have to go back to the court, and everybody's gonna have to sign the agreement again. And guess what, you may have changed your mind at that point. So it can be just an absolute mess.

Amy: On the flip side of the 401(k), you know, a lot of people, 35% of defined contribution plan participants take out a loan, have taken out a loan at some point. So you have money missing from that 401(k) or whatever it is, that loan that's out with outstanding, and then you go through a divorce. "Okay, well, it was the other person's 401(k), so who cares?" "Not so," says the courts. The court says, "No, it's on both of you together to repay that loan. The divorce, the dissolution of that marriage, does not mean you don't have to take on that debt."

Steve: By the way, guess what happens if you don't make your payments on that loan on your 401(k)? It's a distribution. And if you're not 59-and-a-half, it's an early distribution.

Amy: Taxes, penalty.

Steve: Yeah. That can cost a whole lot of money. How about Social Security? Let's keep it nice and simple, right?

Amy: Yeah.

Steve: I mean, one of the things, and actually, this is good news. If one spouse did not work or did not work enough to get a large benefit and expects to get a spousal benefit... And a spousal benefit is where you may not have worked enough to build up your own personal benefit to be large, but you can draw half of your spouse's benefit, not at their expense. That's in addition to your spouse's Social Security. So you can draw half. But what happens when you're divorced?

Amy: Right. Yes, exactly. You have to figure out what that's gonna look like.

Steve: You get a spousal benefit. You still get it if you've been married more than 10 years.

Amy: If you've been married 10 years. Yes, absolutely.

Steve: If you've been married 10 years, you will still get it even after the divorce. That's spousal benefits.

Amy: One thing to take note of there, too, is the spouse doesn't even know, right, that you're are pulling off of their benefit. They have no idea. So if you don't want them to know, they don't have to. I do wanna make a point really quickly, though, about the house because I think that for so many people, there's a huge fight over the house, right? The kids grew up there, it's emotional. You've got so many memories there.

Ed and Nathan, our founders, made the point, I remember when I first started working at "Simply Money", often the person who gets the house loses. And when you think about it, you buy that house with two incomes, and then, all of a sudden, one person's trying to keep it on one income. Don't be overly emotional about the home, right? Look at it from a financial perspective and decide, "Does one of you keeping the home makes sense, or does it make sense to sell that house?" Start fresh, right, and just divide that money. Here's the Allworth advice.

Going through divorce, heart-wrenching, right, gut-wrenching process. If there's a way to keep the financial lines of communication open, then, hopefully, both parties can come out ahead in the end. Coming up, you've always heard, "Read the fine print before you sign something," but do you really? What you need to be looking for next? You're listening to "Simply Money" here on 55KRC, the talk station. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. RTFP, right? Read the fine print, you know you should, but, honestly, Steve, how often do you really read the fine print?

Steve: Never.

Amy: When you bought your house, right, a few years ago...

Steve: Never.

Amy:...did you read every single word of every single line? Of course not.

Steve: Yeah. I'm getting wheeled in for my heart surgery, and they're presenting me with all of these documents, and I'm like, "Just get me in there and fix it, please." You know?

Amy: Yes. Right.

Steve: And the problem is, there are some things you need to be aware of.

Amy: Yes. "The Washington Post" actually asked some experts, right, "We're not gonna read everything, but what should we really be looking out for? Certain words, certain things?" Keep an eye out for asterisks in the fine print. That or a superscript letter or number shows that things have been modified in what you're signing. Look at what those changes are because that's often a red flag.

Steve: I never thought of that one. I mean, an asterisk, and there is nothing down at the bottom or a footnote with no footnote. Yeah, that would be a big deal. You know, I ran into this years ago when somebody wanted to do business and open up an account. And this was the first time. They sent it back with corrections on the brokerage agreement, and I'm like, "I've never heard of that." So, you know, it's like, there are some areas where they're not gonna be willing to change the agreement. And if you don't agree with what they have as their standard notation, you have to consider doing something else.

Amy: Yeah. Another thing to look out for, "affiliates" or "partners" in there. "Our affiliates," "our partners" mean that, "Hey, you may not only get unsolicited mail, or email, or whatever from whoever you're signing that contract with, whoever their partners are, their affiliates are,...

Steve: Oh, they're selling your information. Yeah, if you see that...

Amy: ...who knows? Yes. Who knows where that information... Along those lines, too, watch out for "third party." Also, "while supplies last." If you're assigning something that says, you know, "You can have this while supplies last," this is could be a bait and switch tactic, right?

Steve: Yeah.

Amy: You go into this store for something that's on sale, and you don't get exactly that but an alternative at full price, you really gotta pay attention to these details.

Steve: I like that car insurance company that says, "A simple little device that you can put in your car may lower your insurance premiums." Well, I know exactly what it's doing. They plug it in, like, when you go and have your car checked out, and they plug it in. It tells you everything that happened with that car. Well, if you're doing 75 in a 65, my answer is they may actually increase your insurance premiums because they know exactly what you're doing when you do something like that.

Amy: There's a good reason why Amy Wagner does not have that device in her car. Also, "automatic renewal," right? This is a huge gotcha.

Steve: Oh, that bit me once. Yeah.

Amy: You sign an agreement, you think, "Well, you know, they'll let me know when that term comes up." Uh-uh. If it says, "Automatic renewal" in there, they'll just keep putting that on your credit card as long as that credit card number works, and you might not even catch it. "Voids warranty," opt-out. Unless you tell the company otherwise, they're gonna do whatever they want with your information, all things you have to watch out for. You've been listening to "Simply Money" here on 55KRC, the talk station.