Steve Sprovach: Tonight, the Fed leaves interest rates alone, a warning about trying to beat the market, and yep, we're gonna answer your questions when you ask the advisor. You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. We got a great show, so let's get rolling here. The Fed. Okay. And no news is good news, I suppose. The Fed has been meeting over the past two days. No change in interest rates.

Steve Hruby: Yeah. In March 2022, it was zero. Now...

Steve Sprovach: I know. That wasn't that long ago.

Steve Hruby: It really wasn't. Now it's at 5.25% to 5.5%. So, 11 hikes over that period of time. And again, we pause. We've seen that a couple of times now. The problem is inflation, it's running at 3.7% year over year. We've talked about this recently. That's largely due to higher oil prices, but the core rate sits at 4.3%. Now, remember, the core rate, that strips out energy and food prices, which are more volatile, and it's the Fed's preferred measure for inflation because it provides a better look at trends.

Steve Sprovach: Right. But you and I both drive, you and I both eat, and...

Steve Hruby: So, it's still... Yeah.

Steve Sprovach: It's still a big deal. Because, in August, the overall inflation rate jumped. It went from 3.2% to 3.7%, and that's really what you and I are paying, okay? Maybe the Fed doesn't pay attention to it, but your wife, I, my wife, when she goes shopping... I'm not allowed to go shopping. When my wife goes shopping, she tells me all the time, "Yeah, I paid 6 bucks for this two weeks ago, and now it's 10." You know, it's absolutely crazy, and this is a win on inflation, but the core rate did come down, and that's what the Fed pays attention to because it tells the Fed, what we're doing by raising interest rates is indeed slowing down the economy, which is indeed slowing down inflation. And if it's important to them, it ultimately does affect you and me...

Steve Hruby: Of course.

Steve Sprovach: ...on core inflation, because when they raise interest rates, next time we gotta buy a car, if you have to change houses and get a mortgage, whatever you have to do, where you're borrowing money, it's gonna cost you more with the Fed raising interest rates. So, this is kind of good news, that the Fed did not raise interest rates, but we're not done yet. I mean, the Fed is always keeping the door open, and I appreciate this. There's not a lot of BS. They say, "If the data changes, our policy will change," and they always leave that door just cracked a tiny bit for additional rate increases. And I think, you know, there's still a chance they might do one more this year.

Steve Hruby: I mean, that's what we've been saying all along. You know, every time Andy Stout, chief investment officer of Allworth Financial, is in the studio, I ask him the question, what's gonna happen next? Because we're always talking about interest rates right now. It's top-of-mind for everybody. Has the Fed gone too far? Are they gonna push us into a recession? Do we have the soft landing? What's gonna happen? And at this point, they're in a holding pattern, to wait and see how these previous interest rates have had an effect on inflation. And, yeah, maybe we go up again later this year. Maybe we don't. But you shared some of the downsides of higher interest rates. I wanna shine light on maybe some of the positives...

Steve Sprovach: Hey, and there are some. Yeah.

Steve Hruby: ...yeah, that hopefully, our listeners are taking advantage of. The first one is, when you have cash on the sidelines, if you're fortunate enough to have cash on the sidelines, doing nothing in a regular old-fashioned savings account, there are opportunities to get your money working a lot harder right now with very little risk.

Steve Sprovach: And you and I were just talking to this with some people yesterday. You know, they did what we asked them to. They've got an emergency fund, which was substantial when we were talking to them, and you asked them, what kind of interest rate are you getting? "Probably next to nothing."

Steve Hruby: 0.01%.

Steve Sprovach: They named the bank, and, yeah, it's a very well-known local bank, and it is literally almost 0%. And their assumption was, "Well, everybody's like that."

Steve Hruby: No.

Steve Sprovach: Maybe two years ago they were. Not today.

Steve Hruby: Yeah. There's organizations out there that are racing to raise their rates on high-yield savings accounts...

Steve Sprovach: They want your money.

Steve Hruby: ...to steal your business from these other banks.

Steve Sprovach: Absolutely. Yeah.

Steve Hruby: And it's a good time to consider that, and explore, because all you do is you move your money to a different bank account, and now you're getting 4%.

Steve Sprovach: Yeah. Let's talk about that a little bit. A money market. A money market at a bank is basically zero risk. At a bank, it's gonna be insured, and it's a dollar a share. It's a high-yield savings account. You can get that money anytime. It's not locked up like a CD. A money market is as liquid as a savings account at the bank. It's really just the bank saying, okay, it can't be a dollar. It probably has a minimum of, you know, 2,500, 5,000 bucks. But whatever. If you're keeping a substantial amount in a savings account for emergency purposes, talk to your bank about what their money market pays. It's worth a phone call. Some banks are taking advantage of the fact that the average person doesn't change their banking relationship for over 20 years.

Steve Hruby: Yep. Exactly.

Steve Sprovach: You know, you get in a routine. You get in a groove. "Well, all my bills are coming out of this account," and this, that, and the other thing. It's worth it, if one bank is paying 3.5% on a zero-risk money market account and another bank is paying 0.1%. And literally, we're seeing those differences.

Steve Hruby: Yeah. Because you're guaranteed to slowly lose purchasing power on those dollars. If you're just sitting on the sideline, not taking advantage of some of the side effects of the Fed kicking up interest rates, you're making a mistake.

Steve Sprovach: Yeah. And I don't wanna put some scare into people about brokerage firms and brokerage money markets, because they're not guaranteed to the same degree as a bank money market is. When you have a money market at a brokerage firm, technically, it can vary from a dollar a share, although it almost never happens, you know. But if you're willing to go that route, you might even get better than 3%. We've seen some online banks that are insured, that are not brokerage money markets, we've seen them up close to 5%.

Steve Hruby: That's correct. That is. And now, the other side of the coin here is, we also don't want you to say, well, there's been volatility in the markets. What's the Fed gonna do? I've heard different things. I'm reading these scary tidbits of information online, or I'm, you know, seeing it on the news. Maybe I should sell my long-term investments and move to a high-yield savings account.

Steve Sprovach: Yeah. Let's cash outta stocks, put it in the money market. At least there I'm getting 3% without worrying. Yeah.

Steve Hruby: That's the...

Steve Sprovach: Where do you go wrong?

Steve Hruby: Yeah, exactly. Where you go wrong with timing the market? Catastrophically, sometimes.

Steve Sprovach: Sometimes. Yeah.

Steve Hruby: Yeah. Because nobody has a crystal ball. You have to guess right twice, before the markets tank, before they go back up. So, we're not advocating that you move your 401(k) into a money market fund in that account, because the long-term investments are what's gonna keep up with inflation over the long term. But if you have cash on the sidelines, an emergency fund, that you wanna get working a little bit hard, there are some advantages to what the Fed's been doing, and that's higher interest rates in those accounts.

Steve Sprovach: You're listening to "Simply Money," on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about the Fed did not increase interest rates today, and what you can do to take advantage of interest rates where they are. And again, the rates, if you're depositing money into an account that pays interest, shop around a little bit. No question. You may be in one of those well-known local banks that are paying...that, basically taking advantage of you, but consider some other nice, safe alternative, certificates of deposit. Treasury bills, through a brokerage firm, I mean, we're talking upwards of 5%, maybe 5.2% on six-month and one-year maturities. We haven't seen this in decades, literally.

Steve Hruby: Yeah. And when the Fed, you know, does inevitably lower interest rates...

Steve Sprovach: And they will. Yeah.

Steve Hruby: ...in the future, at some point, we're gonna talk about some predictions that we've seen here recently. Once they lower interest rates, we're gonna start to lose some of those benefits that we've seen in these higher-yield savings accounts.

Steve Sprovach: And I think we have to talk about, is it time to lock in rates for a longer period of time? Again, this is not your 401(k) money. This is the money that you wanna be ultrasafe with, for, when I say emergencies, really, okay, next time the market goes down, you're a retiree, you're drawing on a monthly basis, maybe drawing it from the emergency fund while markets are down, and then when markets recover, replenishing the emergency fund. That's why we say when you're working, you know, 3 to 6 months of spending is okay, but when you're retired, maybe a year to two years. Well, that's a lot of money, of spending need that you're keeping in emergency funds. So, if you've got, you know, $50,000, $100,000, $150,000 that you wanna stay ultrasafe with, and fully liquid if you need it, well, okay, maybe you can tie up a little bit of that for six months or a year. Maybe you wanna ladder your CDs or your treasury bills. And laddering is where, okay, I don't wanna put all of it away for three years to get that better rate, but, you know, maybe I'll do a third of it for, I don't know, one-year maturity. Maybe another third for a two-year maturity, maybe another third for a three-year maturity, separate from the fully liquid chunk, and that way, every year, I've got money coming due.

Steve Hruby: This way, the bank isn't taking advantage of you. You're taking advantage of them.

Steve Sprovach: Exactly. And it's not rocket science to do. I mean, laddering sounds like this ultra-sophisticated strategy. No, it's just, you know, all at once, buying different maturities of, whether it's CDs, whether it's treasury bonds, whatever type of maturity you're talking about, but the safe dollars that you keep in emergency funds. All right, well, how about some of these predictions that we're hearing these days?

Steve Hruby: Yeah. So, an article from MarketWatch that we read, I wanna preface by saying that this part of the segment...don't act on people's predictions. You know, when Wall Street predictions were out there years ago, nobody saw interest rates rising 11 times.

Steve Sprovach: I didn't see one. I didn't see one economist say, "Hey the Fed's gonna raise interest rates from 0 to 5.5% in one and a half years' time.

Steve Hruby: Yeah, exactly. So, you know, take this with a grain of salt, but there's some people out there. So, first of all, Brian Rehling, he's the head of global fixed income strategy at Wells Fargo Investment Institute. His viewpoint is that there's gonna be one more rate hike this year, but then rates are going to stay higher for longer than the market currently anticipates.

Steve Sprovach: Yeah. Which may be the case. You know, if we see this economy continue to grow aggressively, and we don't enter a recession, and right now, looks like maybe we may have beaten a recession, at least in the near term, the Fed may say, "You know what? We gotta keep rates up here a little bit longer, because growth is still happening and inflation isn't getting to that 2% target." I don't know. The Fed doesn't know. And they're smart people, getting as much data as anybody can get, and it's a little bit of a guessing game. So...

Steve Hruby: Yeah, it is. And, you know, here's some more guesses. Chief investment officer at Nuveen, they said that another rate increase is more likely to occur before any rate cuts, just like you said, with inflation still above the Fed's target. U.S. market strategist at Morningstar research services, the Fed is done hiking interest rates, but the market isn't pricing in the probability of the Fed cuts until June 2024.

Steve Sprovach: Yeah. So, we're talking about three extremely credible sources. I mean, Nuveen is, in my world, the bond expert out there, worldwide. And, okay, well, let's listen to them. Morningstar, probably the best research group for mutual funds and investments I've encountered. Okay. Let's listen to... These are three very credible people, with three somewhat different predictions of what to expect out of the Fed. That's normal. Yeah. You know, you're gonna see that, because, again, the Fed doesn't know what they're gonna do until they get more and more data.

Steve Hruby: Yeah, exactly. And Morningstar, they're also thinking that after June of 2024, there's gonna be anywhere between four or five cuts next year.

Steve Sprovach: Yeah. And that's the one I like. And that's where I happen to be at. I would like to see the Fed, probably not before midyear next year, but the Fed starting to cut rates a little bit. I think they will if the economy really starts to slow down from everything they've done up to this point, because there is a lag time. You know, there is a period of time between what they did with their policy changes and interest rate increases and impacting the market. It takes time to work its way through. Coming up next, why some say it's easier than ever before to beat the market, and why we think that it's all a bunch of bunk. You're listening to "Simply Money" on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. Hey, if you can't listen to "Simply Money" every night, very next day, we're gonna put it on our podcast. You can listen to the podcast doing whatever you happen to be doing. And if you've got some friends that can use some advice, tell them too. Just search "Simply Money" on the iHeart app, or wherever you find your podcast. Straight ahead at 6:43, we're answering your questions about long-term care insurance, Procter & Gamble stock, and more. All right, Hruby. So, if you're trying to figure out where to send the kids to college, this is a big decision, and you'll be there in about 10 years...

Steve Hruby: I will [crosstalk 00:13:16] geez.

Steve Sprovach: ...with your daughter.

Steve Hruby: Thanks for the reminder.

Steve Sprovach: It's gonna happen pretty darn quick, and it's gonna be a lot more expensive than it is now, which is crazy expensive. You might wanna check out the latest rankings from "U.S. News and World Report," because we've got a well-known local college that is doing pretty well in the rankings.

Steve Hruby: Yeah. So, Miami University, they narrowly kept its lead as Greater Cincinnati's best institution of higher learning in this [crosstalk 00:13:41]

Steve Sprovach: The Harvard of the Midwest...

Steve Hruby: Sure. The Harvard...

Steve Sprovach: ...as a good friend of mine who went there would call it.

Steve Hruby: Yeah, exactly. This was the newly-released report of the best colleges list, 2024, again, from "U.S. News and World Report." Miami ranks 133rd amongst 439 national universities. It did go down 28 spots since last year, but it's still at the top of the list in this area. And the highest-ranking programs at Miami currently, engineering and undergraduate teaching programs.

Steve Sprovach: I was surprised. They're ranked third in the country in teaching. I didn't know they were well-known for a teaching school. I have a little issue with them talking about how they're ranked 11th in engineering, or, I'm sorry, 30th in engineering, because I happen to know, through my older son, Rose-Hulman ranked number one for undergrad engineering 25 years in a row.

Steve Hruby: Oh, look at that. Nice little humble brag that you plugged there.

Steve Sprovach: Yeah, good. I never heard of Rose-Hulman until he said, after he got accepted to Purdue, he said, "I'm not going to Purdue. I'm gonna Rose-Hulman." And I said, "Where? What?"

Steve Hruby: What is that?

Steve Sprovach: "You got accepted at Purdue. Why wouldn't you go to Purdue?" And he said, "Trust me. It's the right place for me." And it was.

Steve Hruby: And it worked out.

Steve Sprovach: It worked out fine. But this is good local news for Miami of Ohio. Best in the area. So, yeah. Good for Miami.

Steve Hruby: Yeah, exactly. A couple others on the list. UC, they're up eight spots from last year, 142nd, 76th among public schools, and features the 5th-ranked co-op and internship program. Obviously, something like that is very valuable for making sure that...

Steve Sprovach: Yeah. [crosstalk 00:15:09] program is awesome.

Steve Hruby: Yeah. That making sure that you're prepared to enter the workforce. Which, this list provides a greater emphasis on just that. So, it focuses on social mobility and outcomes for the graduating college students. You know, metrics like class size, faculty, different degrees, alumni giving, this is all taken into consideration, but half of the score comes from the likelihood that somebody's gonna have social mobility improvements upon graduation.

Steve Sprovach: Yeah. So, check out the U.S...

Steve Hruby: So, that's a good metric, in my opinion.

Steve Sprovach: Well, it is. And hireability, how many kids graduating are actually getting jobs in their field, that's kind of the whole point, you know? Yeah. So, check out "U.S. News and World Report's" latest release of the best colleges list for 2024. Okay. So, we talk a lot about how you just can't time the market. Give it up. Just let things go. As long as you're in the better investments, hands-off is generally gonna make you a whole lot more money. Well, we've got a new study that's been done, and it's from Morningstar, and I just got done saying how Morningstar is one of the best research groups out there. Pretty interesting analysis of funds that have beaten the market.

Steve Hruby: Yeah. So, this is a Morningstar report that was on MarketWatch, which is a great source of news, but I'm not sure I'm a big fan of the headline as to what they said, because, "Has it become easier to beat the market?" It's...

Steve Sprovach: They're just trying to get clicks.

Steve Hruby: Exactly. It shows this Morningstar report that found that supposedly 57% of actively managed funds and ETFs beat their benchmarks in the first half of 2023. And this looks at specific style categories, but furthermore, the Morningstar report calculates that three out of four funds in the "U.S. Small Blend," for example, category, beat their benchmarks. That's certainly higher than what we've become accustomed to in previous years.

Steve Sprovach: Yeah. But let's just dive a little bit deeper.

Steve Hruby: Dive a little bit into...yeah.

Steve Sprovach: Yeah, yeah. Because, okay, 57... First of all, actively managed means there's some person or a team of people at that mutual fund that is buying and selling stocks within the portfolio. That's as opposed to passive, which is, they're hands-off, it's the Standard and Poor's 500, it's the Russell 2000, whatever the group of stocks is, 10 years from now, it's the same group of stocks that it is today. So, active is buying and selling within the mutual fund or exchange-traded fund. Passive is, and pick a group of stocks, let them go. No changes. So, the argument's always been, "Well, yeah, you want people buying and selling and staying in front of the market and following trends and everything else." And we've got some work from 1990, but it was Nobel Prize-winning, from a guy named William Sharpe, that says, no, passive always outperforms active, and that's what everybody's been... And then Morningstar comes out with this study, saying, "Well, a little bit more than half has actually outperformed, in this one segment, for the first half of this year. Pretty narrow, but it kind of surprised me a little bit.

Steve Hruby: Yeah. So, you're talking about William Sharpe, and, you know, he argued that...

Steve Sprovach: The Sharpe ratio.

Steve Hruby: Yeah. The Sharpe ratio is an actual measurement of risk-adjusted rate of return that this gentleman came up with. And he would say that, if one group of active managers is beating the market, then it must be the case that another group is lagging behind. And when you take transaction costs into account, the average market-weighted return of all of these active managers must, by necessity, be below the return of the market as a whole. This is what William Sharpe argued. So, this article, that, you know, this headline, that's a little noisy, from MarketWatch, comes out and says, "Is it easier to beat the market more now than ever?" A lot of people in the industry would argue no.

Steve Sprovach: And I don't care. I just want people to make money that I work with. You know...

Steve Hruby: That's true.

Steve Sprovach: ...I use any group out there that can make more than the next group, but the bottom line is we're talking about a six-month period, 57%. That's not 80%, 90%. Fifty-seven percent of this one segment outperformed. You know, to me, that's not Earth-shattering. That's not a long-term trend. It's worth looking at. But like you said, they didn't take transaction costs into account, and you have transaction costs.

Steve Hruby: And it also honed in too far, to just the one little area that has outperformed. If you look at the percentage of large-cap growth funds beating their benchmarks, it averages below 50%. So, you can look at it just as easy on the other side of the coin, and look at the information that you need to to prove your point.

Steve Sprovach: So, I think William Sharpe still has something. I think you should still consider passive investing. Here's the Allworth advice. Timing the market and trying to beat the market, yeah, it's, over time, gonna be a losing proposition. Stick to a financial plan that uses historical performance as a guide. Coming up next, the financial considerations needed when older couples get married. You're listening to "Simply Money" on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. You know, back in the day, a lot of couples got married and had kids in their 20s. I was 24 when I got married, and some of my friends thought, "That's crazy young." I didn't think so. I thought I was extreme. I was more mature at 24 than I am at 64. At least I felt that way. But, you know, times have changed. People are waiting a lot longer to get married. How old were you when you got married?

Steve Hruby: Oh, geez. I don't know. You put me under the spotlight.

Steve Sprovach: Is this a tough question?

Steve Hruby: It is.

Steve Sprovach: Come on, now.

Steve Hruby: No. Let's see, I got married 11 years... Yeah, I was in my mid-20s.

Steve Sprovach: Okay. Yeah. So, but I'm seeing a lot of people wait longer. It's not unusual to see somebody 30 and over getting married. I have a good friend who's almost 60, got married for the first time. And we're seeing this, you know, when older couples get married, there's some pretty significant financial issues that differ from younger people getting married, and it's a whole different ballgame financially.

Steve Hruby: Yeah, exactly. So, Wall Street Journal covered a 2022 study from "The Journal of Marriage and Family" that found that the rate of first-time marriages for people in their 40s and 50s has actually risen by 75% for women and 45% for men.

Steve Sprovach: That's a big increase. I mean, that's more than just a drop in the bucket. That's a big sociological change.

Steve Hruby: It absolutely is. And what changes here is the money talk, the conversation that you should be having, or conversations, plural, that you should having.

Steve Sprovach: When you're both broke in your 20s, there's not a whole heck of a lot to talk about.

Steve Hruby: Yeah. For me, it was, she graduated college with no debt. I graduated college with $40,000 in debt...

Steve Sprovach: Debt, yeah.

Steve Hruby: ...so it's like...

Steve Sprovach: It's more about debt than assets.

Steve Hruby: ..."Yeah. Hey, congratulations. You've married into debt." I must be worth it.

Steve Sprovach: But if you're in your 50s, you've got a career path, you've probably accumulated some assets, and this becomes a major issue, and not necessarily where you need a prenup, although that might be a good idea, but you definitely, and I know a number of people that have remarried, and, you know, not necessarily a first marriage, but, you know, it becomes a, "Well, this is my money, you've got your money, and then let's have our money." And this is a serious conversation. You better work out before things get ugly.

Steve Hruby: Yeah. I mean, you and your partner, you gotta talk about what you own, what they own, and how you're gonna own things together. So, a home. At that point, maybe you both already own your own home. So, what do you do with it? If you're talking about different assets and liabilities, you wanna cover current income, spending habits. That's typical for marriage at any age, obviously. But older couples, they may have higher expenses, such as child support, alimony, if this is a second marriage.

Steve Sprovach: Yeah, if there are kids involved. Yeah. You can [inaudible 00:22:43] spousal support, you know, whatever. You know, there could be a lot of issues that come into the picture with that. I'll give you one that definitely is something you wanna consider: Social Security. I mean, when you get married, if one of you is a non-working spouse, or maybe you worked at low-paying jobs earlier in your previous marriage, earlier in your career, there's a whole different equation as a married couple for social security benefits, and the non-working spouse, actually, in most cases, comes out way better with Social Security.

Steve Hruby: Yeah. That's true. And that's a great point too, because I have seen situations where if it's a second marriage or another serious relationship after getting a divorce, you can actually collect on your ex-spouse's social security benefit. If half of their benefit is larger than your full benefit...

Steve Sprovach: Than your personal benefit. Yeah.

Steve Hruby: ...than your personal benefit that you've gotten yourself, or will be getting yourself, that benefit goes away if you get remarried.

Steve Sprovach: It does. Yeah, yeah. But you mentioned something most people don't know. If you were married for at least 10 years, your ex doesn't even have to know about this.

Steve Hruby: No. And it doesn't affect them. It's just more money in your pocket.

Steve Sprovach: Nope. Exactly.

Steve Hruby: But if you do get remarried, so this is a part of the conversation you have, because you're essentially redoing a roadmap for retirement at this point. It's also not only combining expenses, but combining assets and future sources of cash flow, between pensions and social security. So, these are conversations that you need to sit down and have, to remap expectations too. Where are you gonna live? Where do you wanna live? Not only whose house, but where are you gonna live in retirement?

Steve Sprovach: You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and we're talking about what happens when you get married later in life, on the financial side. And I'd like that phrase you just used, "roadmap for retirement." It's unusual that two people coming into a marriage have each done financial plans for themselves as single individuals. But if they did, you gotta redo it again once you get married, because it's, and we've talked about Social Security. It's not just that, but now you're talking about 401(k)s. It's generally a lot cheaper to live as a couple than as an individual. Instead of two mortgages or two rents every month, you're living under the same roof. You wanna take a look at the changes it makes in retirement, and the most important part of that updating your financial plan is communication, between the two newlyweds that are older people.

Steve Hruby: So, what about estate planning?

Steve Sprovach: Huge issue.

Steve Hruby: Oh, absolutely. So...

Steve Sprovach: Huge issue. Especially if there were kids involved from an earlier marriage.

Steve Hruby: That's a great point. So, at its most basic, estate planning means what's gonna happen with your assets when you're gone. And if this is a second marriage coming together, and you have assets, you have a family from a previous marriage, these are things that you need to take into consideration as far as how to handle beneficiaries, not only your investment accounts, but also life insurance policies. In this situation, where it's not just a first marriage, but a remarriage, then this is where maybe we look at setting up a trust, to ensure that your assets go to your children, but still supports your spouse if you're gone.

Steve Sprovach: Yeah. Estate planning doesn't mean, "Oh, I've got this huge estate, and I live on an estate. I've got lots of..." No. Estate is just everything that you've got in life, whether it's a lot, whether it's a little, whether it's a million-dollar portfolio or just a savings account. Everybody has an estate, and you've got to get everything in writing, whether it's a remarriage, whatever the case is, so that everybody is crystal clear on what your wishes are, and where it goes. Probate, a lot of people think is a bad word. It's really just, the probate court is a judge making sure everybody who's supposed to get whatever you wanted to have get to them, gets it. That's all it is. And the more you put in writing, the less of a hassle it is for the probate court to try to figure out what the heck you meant.

Steve Hruby: Yeah, that's the key. The more you put in writing. So, sitting down and having that conversation, fleshing out what you wanna have happen with your money when you're gone, and maybe also if you become medically incapacitated, for example.

Steve Sprovach: No question. No question. I've seen it from a really good friend of mine, when his mom passed away, dad remarried. And the kids at first didn't really like the new mom, and that's pretty common. And they started thinking, "Well, what happens now, you know, when dad passes?" because he was older than the new mom. And we're talking about adults. I mean, this friend of mine, this was not when he was 15. This was when he was 40, okay? So, okay, what happens to our inheritance? Does she get it all? Well, could be, you know? So they talked to dad, and dad had already set this up. He wasn't gonna, you know, squeeze the kids out of their inheritance. What he put on paper was, he set up a trust, through his attorney, and what was his before that marriage went to his kids.

Steve Hruby: Got it. Yep.

Steve Sprovach: My friend, right? But, you know, the kids didn't know that until dad sat down and talked to the kids. So, like in anything in life, especially when it comes to money, finances, yeah, that's a hot button. You've gotta have good communication between all parties. Here's the Allworth advice. Getting married later in life? Yeah, it's the kind of scenario where you're gonna want the help of a fiduciary financial advisor, as the situation may very well be complicated. Coming up next, we're answering your questions about 401(k)s, insurance, and more. 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 Steve Sprovach, along with Steve Hruby. Straight ahead, where to save money on vacation rental properties? You're gonna wanna listen to that. Okay. Ask the advisor is where you get to ask us questions, and you do that by clicking the red button on the iHeart app while you're listening to our podcast. Just record your question. It goes straight to us. And that's how we heard from John and Cole Rain. John said, "I worked for a company a long time ago. I know I had a 401(k) with them. Once I took a new job, forgot all about it. Now I don't know if that company's even around. How do I find out information about my old 401(k)?" Good question.

Steve Hruby: This is a fun little game to play, John. Because at the end of it, maybe you find some hidden money that you forgot about.

Steve Sprovach: Exactly. Especially if it's been that long where you forgot about it. Maybe it's a good chunk of change.

Steve Hruby: Yeah. So, eyes on the prize for this one, because there may be a little bit of digging. I would start by looking for an old statement.

Steve Sprovach: Yeah. I've seen this. Yep.

Steve Hruby: Yeah. Look for an old statement, whether or not it's a hard copy, or maybe been emailed to you in the past. Who held the 401(k)? Who was the custodian? You could call them. Fidelity, Schwab, Vanguard, Empower. There's a whole lot of custodians out there. That's just a few of them. Call the old employer. Ask to speak to somebody in HR.

Steve Sprovach: If they're around. Yeah.

Steve Hruby: If they're around. If they're not, then, yeah, it's locating the old statement, finding who held the old 401(k), and making some phone calls.

Steve Sprovach: Yeah. Just because the company may have gone out of business, your money is actually, the 401(k) money, is at a plan sponsor or custodian. And they've got the money. I mean, they've got a responsibility to maintain that account and to notify you of the value of that account. Maybe you moved a couple times and that's why you don't know anything about it. But if you can dig up an old statement, that 800 number is gonna be your lifeline. Okay. So, Angela, for Thomas, said, "My parents are 69 and 71. They think it's too late to buy long-term care. What do you guys think?"

Steve Hruby: Well, there's 12,000 good reasons as to why they might wanna consider.

Steve Sprovach: Why do you say that?

Steve Hruby: That's the average cost of entering a nursing home.

Steve Sprovach: Yeah, yeah. It's not cheap.

Steve Hruby: No. It's not. So, the problem is, is the older you get, the higher the premium will be on a new long-term care policy. So, this is something that you're gonna have to dig into their financial plan, look at how much money they need to support their financial goals, see if they can cash-flow the added premium expense, because that will be high. There are conversations out there where you could sit down and talk to a fiduciary financial advisor, and if they have old life insurance policies with a cash balance, for example, you could look at that and possibly convert it to a long-term care policy with some of that cash balance.

Steve Sprovach: Yeah. And I agree. I used to think the sweet spot to buy long-term care was between 60 and 65, because, you know, once you hit 65, they start getting pretty expensive. And before 60, realistically, are you going to need long-term care? And then I had open heart surgery at 60, and guess what got a lot more expensive for me to buy? Because I [crosstalk 00:31:33]

Steve Hruby: Long-term care.

Steve Sprovach: Exactly. And I'm still gonna buy it. It's gonna cost me more, but, you know, it's definitely, you wanna get the numbers. That's all there is to it. And please start out with somebody who's not selling long-term care on commission. You may ultimately buy it, buy your policy from somebody, but when you're trying to figure out how much long-term care insurance you need, have a financial plan drawn up by a fiduciary, and have them tell you, "Okay, this is the size of the policy you need. Now, start going out and shopping. Who's got the best deal on it?"

Steve Hruby: Exactly.

Steve Sprovach: That way, you're getting good advice. And again, you may ultimately buy it from a commission-based insurance agent, but at least now you know if they tell you, "No, you need three times that size of a policy," well, the fiduciary said, "No, you really don't," you kind of know who to believe and who not to believe. All right. Eddie wants to know, he recently inherited Procter & Gamble stock from his dad. Very common around here in Cincinnati. "What's my tax obligation going to be?" Very confusing issue for a lot of people.

Steve Hruby: Yeah, it is. You know, sorry to hear about your loss there, Eddie. That's always tough. When it comes to inheriting stock, though, the IRS is actually nice about this. Because what happens is there's a step-up in basis on those shares at the date of death. Now, what that basis does is it establishes the baseline for calculating taxes. Any earnings on top of that is what you're actually taxed on. But if there was a lot of gains, which oftentimes happens with P&G shares that have been held for a while, you are not liable to pay those gains that maybe your parents or your father would've had, because of that step-up in basis.

Steve Sprovach: So, let's back up a little bit. So, inheritances, with very few exceptions, an inheritance is not generally taxable. So, just the fact that, even if it was a million dollars, it doesn't matter. You're not gonna owe tax on that million dollars of Procter & Gamble stock. If you turn around and sell it, and the price that you sold it at is the same as the price it was on the date of your dad's death, there's no gain...

Steve Hruby: Yeah. So, there's no taxes.

Steve Sprovach: ...from the date of death. So, that's what we mean by cost basis. No tax due. Good for you. And that's if it's held outside of an IRA. If it's inside of an IRA, different ballgame. Any distribution is generally gonna be taxable from an inherited IRA. All right.

Steve Hruby: And that's at your ordinary income taxes.

Steve Sprovach: There you go. Okay. Mark from Mount Airy, "I know 529 plans are great ideas for college costs, but how about a Roth IRA? Can I use that for college savings?" I've heard this from a number of people. There are more than a couple people out there recommending Roth IRAs to fund college.

Steve Hruby: I mean, you can use it to fund college, but it's a lot different. So, the 529, depending on what state you live in, if we're in Ohio, Mount Airy, in this case, for Mark, you use Ohio's 529 college savings plan, which is BlackRock's College Advantage, and there's a deduction on your state taxes when you make that contribution.

Steve Sprovach: If you use Ohio's. You don't have to use Ohio's.

Steve Hruby: You don't have to. But to get the deduction, you do.

Steve Sprovach: And you're not limited to an Ohio college. 529 plans are extremely flexible. You can go to any school you want, and as long as the distribution from the money you saved up in that plan is used for legitimate college expenses, it comes out tax-free.

Steve Hruby: Yeah. And here's something, a couple other things to take into consideration. A 529, anybody can contribute to it, whereas other people aren't gonna be putting money in your Roth IRA. There's also higher contribution amounts allowed in the 529 than the Roth IRA. So, I think we're, you know, leaning away from the 529 in this situation, more toward...or, leaning away from the Roth IRA and leaning more towards of the 529.

Steve Sprovach: Yeah. Yeah, I'm not a big fan of the Roth IRA for college. Coming up next, where you can save money on rentals when you travel. You're listening to "Simply Money" on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. You know, for a lot of folks, Hruby, staying in a hotel, not their game plan when they travel. More and more people doing Vrbos, Airbnbs, and there are some decent ways to save some money if you're going that route.

Steve Hruby: Yeah. So, first of all, rent directly through the property owner.

Steve Sprovach: They're not all gonna do that. They're not all gonna go for that. But it's a good idea if you can find someone who does.

Steve Hruby: Yeah, yeah. Absolutely. And that's easy enough in this day and age, because the property owner, you find that through sites just like Airbnb and Vrbo. That's working directly with them. So, that's certainly a way to save money. But, you know, you gotta be aware that every rental property is different, so make sure that you're reading the reviews. Ask questions to the owner. Is the property pet-friendly if you're traveling with one? Do they accept credit card or PayPal? If they're asking you to mail cash or use a wire transfer service...

Steve Sprovach: A little bit of a red flag.

Steve Hruby: ...you maybe pump the brakes on that one.

Steve Sprovach: Yeah. But I think bypassing the service, and going directly through the owner, some owners really wanna do that. They're just using the service as an advertisement for their place that they're renting out. And yeah, they pocket more cash. So, they might wanna talk to you about that.

Steve Hruby: That's a win-win.

Steve Sprovach: All right. So, when is the best time to book? A year ahead? The day before? You know, I tend to be one of those persons, I wanna just know where I'm going.

Steve Hruby: So, you book it whenever, as early as you can. Is that what you're saying?

Steve Sprovach: That's what I do, but it doesn't mean I do the smart thing.

Steve Hruby: Well, I mean, there's risk involved, because what happens... At NerdWallet, they have shared that the lowest median price it is is four weeks in advance. So, property owners, they're typically lowering their prices about a month out...

Steve Sprovach: They're starting to panic.

Steve Hruby: ...compared to the last minute.

Steve Sprovach: They're saying, you know, "Hey, I gotta get this place rented. Something's better than nothing." Might drop their prices.

Steve Hruby: Yeah. But the risk there is that if you wait until you're a month out from traveling, maybe you're not gonna find exactly what you want. So...

Steve Sprovach: Exactly.

Steve Hruby: ...this is one of those things where saving money, versus being comfortable and not having to worry, is a decision that you need to make.

Steve Sprovach: But that's why being flexible with your dates, that can really save you a ton of money. Okay. That week is booked up, but the week before, if you can take your vacation then instead, may be 20%, 30% less.

Steve Hruby: Yeah. I did my honeymoon in Costa Rica during the rainy season, which is literally...

Steve Sprovach: Yeah, you'll save money.

Steve Hruby: ...half off, because it rained the entire time. What about booking properties further away from tourist attractions?

Steve Sprovach: You know, I rent a place on the Jersey Shore every summer, and if you're on the beach, you're gonna pay $2,000, literally $2,000 more a week than if you're three blocks away. Guess what Cheap Steve does? I walk three blocks.

Steve Hruby: Books really far out, and walks three blocks.

Steve Sprovach: You better believe it. I'll save the money every time. Hey, thanks for listening. Tune in tomorrow. We're gonna talk about financial products that can do more harm than good, things you should negotiate, and a little bit of retirement fact or fiction. You're listening to "Simply Money," presented by Allworth Financial on 55KRC, THE Talk Station.