Let's Talk Money

December 21st, 2024

Episode Transcript

Speaker 1 (00:05):
Good morning everyone. Thank you for joining me on this
snowy Saturday. I hear that lovely Christmas music behind me,
and it's just a reminder of how close we are
to the holidays next week. So for all those who
are celebrating, Merry Christmas, Happy New Year's an exciting time
of the year, nice time of the year. Hopefully you're
able to spend some time with family and just kind

(00:27):
of appreciate the things we have and the great year
that we've had.

Speaker 2 (00:32):
And it's a snowy Saturday at least where I Am
not sure where.

Speaker 1 (00:34):
You're listening from, but I'm here in northern Saratoga coming
to you live this morning, and we got a few
inches of snow last night, so it's looking like we're
going to have a white Christmas up here at least.
And hopefully all those who are out there traveling today,
whether you're going to see family or maybe up some
last bit of holiday shopping, hopefully you're able to get
it on the roads safely. And whether you find yourself

(00:55):
out and about or more I'm uncomfortable at home. Thank
you for tuning in, you're turning on your radio this
morning and spending some time with me as we talk
about all things financial.

Speaker 2 (01:05):
My name's Harmony Wagner.

Speaker 1 (01:06):
I'm a wealth advisor here at Bouchet Financial Group, and
I'm a Certified Financial Planner or CFP and also a
Certified Private Wealth Advisor CPWA. Both of those designations just
give me education and experience with advanced financial planning, and
so I put those things to work day in and

(01:26):
day out with our with our wonderful clients. And it's
always a pleasure when I'm able to join you on
on a Saturday morning and talk to our listening audience
as well. So thank you for tuning in. If you
have any questions or anything that you'd like to discuss,
please feel free to use the phone lines. They are open,
so you can call in with a question at one
eight hundred Talk WGY. That's one eight hundred eight two

(01:49):
five five nine four nine. And we also have an
email address that you can use if you'd like to
submit a question that way. That address is ask Bouche
at Bouchet dot com, Ask b O U, C H
E Y at Bouche dot com. So if you're not
able to call on the phone or you're not comfortable
with it, you'd rather type it out. I know sometimes

(02:10):
I feel more comfortable in a written format getting my point.

Speaker 2 (02:13):
Across, So feel free to use that as well.

Speaker 1 (02:16):
I've had that number of radio listeners use that, and
it's a great way to ask a question. And you know,
as we always say, if you're thinking of a question,
something's on your mind, chances are it's on somebody else's
mind too, So please go ahead and call in. I
have plenty to talk about, but I would love nothing
more than to hear what you want to talk about today,
So let's get into the show. We had a really
interesting week in the markets from economic data perspective, A

(02:39):
lot going on, so let's chat about that, and I'll
start as I typically do with the market recap. So
there was an up and down week to say the least.
We quit the roller coaster in the markets this week,
and despite a positive trading session yesterday Friday after a
positive PCE report which we'll get into in a little bit,

(03:00):
all three major indexes did end down for the week
after some heavyheading economic data, an a Prince Dead meeting,
and some political muddy waters a little bit.

Speaker 2 (03:10):
So for the week, the.

Speaker 1 (03:11):
Sp was down two point one nine percent, NASDAK down
two point two and the Dow as well, actually two
point two five, so all right, in that two point
two range, down for the week, even after you know,
they tried to claw back some losses yesterday. Both all
three of those ended up a little over a percent yesterday,
but still a down week overall. So stuff has slipped
a little bit off their highs, and we'll take a

(03:33):
look at some of the reasons why.

Speaker 2 (03:34):
But you know, just kind up putting this weekend focus, right.

Speaker 1 (03:37):
I think it's maybe human nature or even just the
nature of you know, us coming to you each week
on the show, we often focus on, you know, what
happened in the last five trading days, But when we
really zoom out a little bit, you're to date, the
S and P is still up twenty five percent, NAS
Deck up thirty two and a half, and the Dow
up for the year. So, you know, we don't want

(03:58):
to focus too much in on the you know, day
to day, week to week. We know there are ups
and downs in the market. That's the price you pay
for being an equity investor, and I don't think that's
surprising to anyone, So we really want to, you know,
keep a zoomed out focus, and you know, truly even
one year is actually a short time arizon from an
investment perspective. Right, A lot of times clients come to

(04:20):
us and we say, you know, you got to keep
a long term mindset, and they say, well, what does
that even mean?

Speaker 2 (04:24):
What is long term?

Speaker 1 (04:26):
And for us, it typically means you know, certainly, you know,
three to five years or more even over over two years. Right,
if you're not needing these funds that you have invested
within the next two years, you have a very good
chance that, you know, the market is going to be
higher in two years than it is today. It doesn't
always happen, but even some of the most significant corrections
bear market declinents in the last fifty to seventy five years,

(04:49):
so many of them, nearly all have recovered within twenty
four months. So there are a lot of historical indicators
to say that you know, two years are more is
certainly at least a medium term time horizon. And you know,
you could even regue that it's long term from an
investment perspective, So even one year, you know, markets can
be down in a single year.

Speaker 3 (05:10):
We don't.

Speaker 1 (05:11):
We encourage our clients not to you know, hone in
on the too short frame. You really want to keep
a long term perspective, and I think that'd be a
theme of of today's show as well. But so just
time to put other thing and focus. All three of
the major indexes are having a great year. One down
week is not really taking away from that. But let's
talk a little bit about some of the economic data

(05:32):
that came out and why the markets reacted the way
that they did. So there was a lot going on
this week. Tuesday and Wednesday we had the FED meeting. Uh,
you know, much awaited markets that really priced in almost
with one hundred percent certainty, a twenty five basis point cut,
and that's exactly what the Fed did. However, commentary afterwards,

(05:56):
you know, the Fed shared Jerome Powell came that brought
to light that the Fed throwing out kind of their
original plan for twenty twenty five policy actions and leaning
towards a higher for longer rate environment. Now we know
this is always subject to change, right, They are monitoring
the inflation numbers, the strength of the economy all the time.

(06:16):
So you know what they say now doesn't mean that
they won't you change their tune in a few months
from now, but it wasn't necessarily what markets wanted to hear.
So even though we knew this was the possibility, right,
the economy has stayed very strong and inflation hasn't hit
the fed the goal yet of two percent, so of
course it was a possibility that they were going to
come out a little bit more.

Speaker 2 (06:35):
Hawkish in their commentary.

Speaker 1 (06:37):
But markets did react really strongly on Wednesday especially, and
ended the day down over two percent, which was, you know,
a big hit for these indexes that haven't seen significant
declines very often this year, even with you know, an
election and you know, things going on it we haven't
seen a lot of volatility. In fact, in some ways
it's been a much less volatile year than average. So

(06:59):
you know, why did why did this happen even though
we got a twenty five basis point cut. Well, from
my perspective, I think markets were really pricing in perfection, right.
They were saying, we want to see a twenty five
basis point rate cut and really positive commentary coming from
the Fed saying more rates to come and soon. Any
deviation from this perfect market preferred scenario was going to,

(07:21):
you know, cause some losses in the market. That's exactly
what happened. So that happened on Wednesday. Markets closed down
with pretty significantly. A Thursday kind of attempted a rally.
In the earlier part of the day. We had a
great GDP report for Q three. It was a great number.
We saw that the latest estimate anyhow, rose by three

(07:42):
point one percent instead of the two point eight percent
that had been expected previously. That was released on Thursday,
So there was upward revisions to personal consumption, trade, and
government spending that all drove up the gains. And we
also saw the labor market continuing strength. The jobless claims
fell by over nine percent last week to two hundred

(08:03):
and twenty thousand, So a lot of times you see
some of those seasonal fluctuations in the labor market and
those kind of subsided a little bit. So we saw
the jobless claims falling pretty significantly, another great indicator for
the strength of our economy. However, by the end of
the first day, it was another down day in the markets,
because you know, as we've seen so many times this year,

(08:23):
you know, I feel like a broken record sometimes saying it,
but we've seen this good news is bad news kind
of situation when we're saying, okay, the markets are so strong,
you know, the Fed has no reason now to cut,
and that's what the markets are saying, Okay, this strengthens
their their position that they may not be cutting rates
in twenty twenty five as soon as the markets would

(08:44):
like them to. Finally, on Friday, we had the PCE
report come out, which you know, a lot of people
focus on the CPI report for inflation, but the PCE
is actually the feds preferred gauge on inflation and national
place increases decelerating in Nooga and came in below estimates,
just slightly, but still below estimates, which was great. So

(09:08):
the personal consumption expenditures, that's what PC stands for. It
strips out food and energy costs, which are historically very
volatile all the time, so it takes those out, and
I think that's, you know, the primary reason why the
Fed typically prefers this index over the CPI. And it
rose only point one percent from the prior months. In
October it had been point three percent, so it was

(09:31):
less than the previous months significantly, and it did come
in lower than the expectations, which were point two percent,
so that was a positive thing, and we saw markets
react favorably, although they couldn't totally recover the weekly losses.

Speaker 2 (09:46):
So we're seeing a lot of strength in the economy.

Speaker 1 (09:49):
You know what that means is that you know, the
Fed is going as slow as they feel that they
need to. On top of all this, you know economic
news coming out, there was some political turmoil kind of
mudding the waters as well. It's been, of course a
lot of tariff talk. People are worried about how that's
going to affect the markets, and also you know, inflation.
Those things are tied together in a lot of ways,
so that's something that's inflecting markets and investors outlook. And

(10:12):
there's also threats of a government shutdown, although I had
logged on to see the news last night and I
saw that they've passed the bill to push federal funding
out till till March, so you know, they've pushed that
off for another time. But I think the threats of
that yesterday, especially our government shutdown, was really dominating headlines
yesterday and you know, putting a little bit of a

(10:33):
damper on the markets as well.

Speaker 2 (10:35):
So all in.

Speaker 1 (10:36):
All, like I said, a lot going on this past week,
a lot of ups and downs.

Speaker 2 (10:39):
Quit the roller coaster.

Speaker 1 (10:40):
But you know, I'll remind you of my earlier comments
that the market is still very positive year to date,
and you know, looking at last year as well, it's
just been an incredible run for equities as specifically, and
as always, you know, we're we're long term investors here
at Bouchet. That is our philosophy. That's how we manage
our client portfolios. Stee Bouchet and all of our advisors

(11:02):
have our personal wealth manages just like our clients and
the exact same portfolios. So we are personally long term
investors as well. We really believe in that, and so
we don't hang our hats on ups and downs of
the day, weeker months. Right, We're focusing on fundamentals. The
economy remains strong, markets maintain pretty good momentum, and so
you know, we're encouraging our clients and our our listening

(11:22):
audience today as well to stay the course, you know,
stay invested, don't sweat the daily ups and downs. You know. I,
of course I meet with a lot of clients every
every week and it always gives me a little sigh
of relief when when the client says, you know, I don't.
I don't check, you know, my portfolio every single day,
because I've done that personally at different times in my
life and it is too stressful.

Speaker 2 (11:43):
It's you know, you get.

Speaker 1 (11:45):
Really high when you have a good day in the markets,
so you're like, oh, you know, I made this much
money in the market today, and then just as fast,
you know, that high can be crushed when.

Speaker 2 (11:53):
We have a down day.

Speaker 1 (11:54):
And overall, we know the markets go up over time
over the long term, so you know, the ups and
downs are aren't typically going to be a deviation from
the long term market trajectory. So that's sometimes that's my
advice for folks, especially who are really nervous. Right, if
you don't need these funds, and if you do, you know,
we're having a different conversation and we're planning around that.
But if you don't need the funds, you know, don't

(12:14):
sweat the ups and downs, and then if you need to,
don't check it right put the the phone down, But
don't don't mug onto it necessarily every day. Maybe check
it every month or a couple of weeks or a
couple of months, as long as you're you know, confident
and you have trust in your investment philosophy and the
advisor you're working with, if you have one. You know,
you shouldn't have to ride the ups and downs of

(12:34):
the market on a daily basis. So that's my soapbox
for that. I will just you know, take a moment
to talk about the bond market. This past week, we
saw a ten year treasury yields increase to four point
five to seven as they're fed indicated that rates may
stay higher for longer in twenty twenty five. And we
know that bond prices have a you know, inverse relationship

(12:56):
to interest rates as well, so as interest rates are
coming down, however slow that might be, bond prices will
do well. So the outlook for for bonds is good
as we go forward. Yields are you know high compared
to where they were just a few years ago, so
you can get a nice income stream off of those
fixed income assets, and you know, the price outlook for

(13:19):
the future for bonds is good as well. If rates
come down in the future, the bonds that you have
that are paying higher rates from you know, this higher
for longer environment that we're in now, are going to
be more attractive to you know, bond buyers, so that'll
be great for you for the.

Speaker 2 (13:34):
Price action on bonds. So outlook for bonds is positive.

Speaker 1 (13:38):
After a Friday CPE reports showed inflation coming in better
than expected. The yields did take down a hair, but
you know, still in that four point five percent range
on the tenure. So you know, ultimately we just still
find ourselves in that, you know, push me to pull
your game of inflation right right when it seems to
have convinced everybody that's coming down. We see a few
consecutive months of it, you know, trying to you know,

(14:00):
hold on a little bit. We've seen that for the
last few months. We saw it again earlier in this year,
as you may remember, I think January through March we
saw inflation not coming down as consistently.

Speaker 2 (14:10):
So this is all normal.

Speaker 1 (14:12):
This was all expected and and what you know, a
very realistic and reasonable way that inflation could come down
over time. Not totally linear, not a smooth ride down
to two percent, but you know, ups and downs along
the way, and the market will work all those things
out as we go. Next week is a short week
in the markets. Markets close at one pm on Christmas
Eve and they're closed all day Wednesday for the Christmas holiday,

(14:34):
there aren't really any notable earnings.

Speaker 2 (14:36):
Schedule to report.

Speaker 1 (14:37):
We'll see some data come out on jobless claims, new
home sales, et cetera, but nothing you know, too crazy
compared to it this week. Next week should be a
quiet week, so you know, with the holiday, it's a
short week as it is. Let's take a moment two,
go to the films and chat with Mike from Troy Morning.

Speaker 4 (14:55):
Mike Morning, I've had a question on the S and
P five hundred index funds. I was looking at purchasing
some to put into my rough account and with the
funds I see, I have an option for the e
f T s or a mutual fund or indexed fund

(15:16):
and just you know, wondering the difference and what you recommend.

Speaker 1 (15:21):
Yeah, that's a great question. So from in a simple way,
mutual funds are typically actively managed, meaning that you know
you're going to be paying a fund manager, a person
or a team of people to pick and choose what
stocks they think are going to do the best in
the category. So if you're looking at an SMP five
hundred mutual fund, typically they're going to be you know,

(15:43):
picking US large cap stocks and what a mutual fund
manager tries to do is say, you know, which out
of these five hundred that I could pick from of
the largest companies in the US, which ones do I
think are going to do the best, you know, over
the next one, two, three, so how many years. And
that's how they select what's in the basket of stocks.
And ETF, especially one that tracks the S and P

(16:04):
you know, pretty simple type of index fund. It's technology based.
It's not based on a person's picking and choosing. They're
just saying, you know, we're gonna put you know, all
these companies in this fund. So an ETF that attracts
the S and B five hundred I would expect to
be possibly cheaper because it's a technology based There's always
an expense ratio for buying a fund, whether it's a

(16:25):
mutual fund or an exchange traded fund. But on average,
exchange traded funds are much cheaper in terms of expenses
than a mutual fund. So that is a positive thing.
And we also just see that, you know, the markets
are very efficient. Now probably not perfectly efficient. Oh that's
kind of a conversation for another day, but but they're
very efficient. So these technology based ETFs can really do

(16:47):
a great job. And what we see, especially in the
US large cap space, which is what you're talking about,
that ninety percent of the time tfs outperform their mutual
fund years. Even the best mutual fund managers can't out
perform their benchmark over you know, more than a year
or two at a time. So we use ETFs in
our client portfolios. We even use the S and P

(17:08):
five hundred ETFs, and that's what I would recommend. You're
gonna pay less in expenses and over time, you know,
nine times out of ten, the performance would be better
in the ETF.

Speaker 2 (17:19):
Did they answer your question.

Speaker 4 (17:23):
Yes, thank you. Just I guess one clarification. So with
these the st P five hundred funds, the managers are
actually picking different aspects. It's not really you know, all.

Speaker 2 (17:33):
Five hundred funds, not typically in a mutual fund.

Speaker 1 (17:38):
No, And their goal is to outperform the benchmark by
choosing the ones that are going to do the best.
But we just see that no one can really predict that,
especially not consistently. Somebody can get lucky a year or two,
but yeah, nine times and the ETF will do better.
That just holds the diversified x almost five hundred performance
almost exactly, whereas the mutual funds do tend to underperform

(18:01):
a vast majority of the time. They don't hold all
five hundred funds. Typically maybe one or two hundred is
what I've seen. Could be different depending on the fun though.

Speaker 4 (18:10):
Okay, thank you appreciate the information.

Speaker 1 (18:14):
Yeah, thanks for calling in Mike. Great, well, we just
wrapped up you know, the market and economy aside of
the conversation and a great question from Mike. We're going
to go to a quick break right now, but we'll
be back in just a moment with more Let's talk
money on WGY.

Speaker 2 (18:30):
Don't go away. Thanks for staying with me that break.
My name is Harmony Wagner.

Speaker 1 (18:40):
I'm a wealth advisor at Bouchet Financial Group and it's
great to be joining you on this beautiful, sunny but
snowy Saturday morning at least where I am, and thank
you for taking the time to tune in and listen
to the broadcast today.

Speaker 2 (18:51):
Phone lines are open.

Speaker 1 (18:52):
We just had a great call from Mike, and if
you have another question that you'd like to ask, I
would love to hear it.

Speaker 2 (18:57):
That phone number.

Speaker 1 (18:58):
Again is one eight hundred talk WGY one eight hundred
eight two five five nine four nine. And we also
have another method if you have a question to ask,
which you can email us.

Speaker 2 (19:09):
The email address is.

Speaker 1 (19:11):
Ask Bouche at bouche dot com. That's ask ask bouche
is b O U C h e Y at bouche
dot com. I find that's a great way for people
who either can't make a phone call or don't prefer
to and would rather type out their question to do that.
And let's actually go to an email question right now.
So I just had an email come in from a

(19:32):
gentleman named Bob who shares that he has a substantial
amount in his four oh three b and is sixty
two years old. And Bob's asking if he should take
out twenty thousand dollars per year and reinvest back into
the market. He's had an understanding that you can take
up to twenty thousand and it's exempt from state tax.

Speaker 2 (19:49):
Bob, You're exactly right.

Speaker 1 (19:50):
New York State has a retirement income exclusion of twenty
thousand dollars per person, so in a married couple you'd
have up to forty thousand. However, it does have to
twenty thousand from each person. So for example, if if
you're married but only you know one of you has
an IRA.

Speaker 2 (20:06):
You can't take forty thousand from you.

Speaker 1 (20:08):
Know, Bob's iray in this case, you'd have to take
twenty from you know, the one spouts to twenty from
the other. So there is but it is per person.
So I think that is a great strategy, Bob. And
without you know, knowing your whole situation, I can't say
one hundred percent, but you know, we do recommend this
for a lot of clients. Right you will be r
md AH. For Bob probably at seventy five, given that

(20:32):
he's sixty two, but for some folks at seventy three.
It all depends on when your birthday falls. And once
you reach DH you're gonna be forced to take out
money from any pre tax or qualified account. That would
include four oh one k's, four h three b's iras,
deferred comp through savings plans, which are governmental savings plans

(20:55):
that you put money in you get tax reduction. Those
are the kind of accounts that you're gonna have to
take out once you each rm d AH.

Speaker 2 (21:02):
So it's a great thing to be proactive about that
before you reach RMDH.

Speaker 1 (21:06):
So Bob Cher is that he's sixty two, it's a
great time to say, I'm gonna start taking money out
for my pre tax retirement account now. And that accomplishes
two things for you. You get to use up that
New York State exclusion for more years, so less tax
is paid overall, which I think everyone would agree is
a great thing. The other thing you do is that
you give yourself more flexibility down the road. By reducing

(21:29):
your IRA or fourth three B or four to one
K balance, you're reducing what your rmds will be in
the future because that is a percentage based off of
the account balance. So by taking money out of the
IRA four one K, four to three B earlier in retirement,
before you reach that RMD age, you can control that
balance and that way your RMD amount, the amount that

(21:50):
you're required to take and pay taxes on, will be smaller.
So of course you can take more in the future,
but you also have money in possibly a taxable account
or even a ROTH IRA and Bob, what I would suggest,
and you know, happy to talk about it more if
you would like, but ROTH conversions are a great way
you can use that twenty thousand New York State exclusion
towards it. You take the money out of the four

(22:10):
or three B, you pay the taxes on it, and
then you put it into a wroth. You make that conversion,
you don't have to have earned income to do it.
You're you're also not limited in income to do it.
So unlike a wroth contribution where you put cash into
a roth, ira, a conversion is where you move money
from a pre tax account into a wroth and you
pay the taxes on it, but you're moving it from

(22:31):
this place where right now it'll it'll always be taxed
as ordinary income in the four or three B, and
you're putting it into a wroth where it'll never be
taxed again. So that is a great option as well,
especially if you don't have any need for the funds,
which it sounds like you don't that you'd be looking
to reinvest it anyway, you know, putting it into a
wroth where you can invest it in you know, the

(22:51):
same kind of funds you had before, or even more
aggressive if it's long term, more long term money is
a great way to do that. So love the way
you're thinking. I think being proactive about bringing down your
four or three B balance before you reach our MDAH
is very prudent. And also, you know, using up that
New York State exclusion. If you don't use it now,
it's going to be gone for you know, all these years,

(23:14):
so it's really smart to do that. Well, we're coming
down to the halfway point here in the show, so
we'll be having a short news break, but we will
be back shortly with more.

Speaker 2 (23:24):
Let's talk money on WG.

Speaker 1 (23:26):
Why this is brought to you by Bouchet Financial Group,
where we help our clients manage their wealth while they
prioritize their health.

Speaker 2 (23:32):
We'll be right back.

Speaker 1 (23:38):
Well, thanks you for staying with me through the news break.
This is Harmony Wagner. I'm a wealth advisor at Buchet
Financial Group, a certified Financial planner and certified private Wealth Advisor,
and today I'm here coming to you live and just
answering all your questions, talking about you know, all things financial.
We talked about the markets and the economy in the

(23:58):
first half of the show. Had a couple of great
questions about taking money from a pre tax account before
r md AH and the difference between ETF and mutual funds.

Speaker 2 (24:10):
So if anyone else has questions they want to ask.

Speaker 1 (24:12):
You know, nothing I love more than than having our
listening audience call in or email in.

Speaker 2 (24:17):
With what they want to talk about. So please steel
free to utilize that.

Speaker 1 (24:20):
The phone number is one eight hundred talk w g
y A one eight hundred eight two five five nine
four nine, and the email address is ask Bouche at
Bouchet dot com. Bouchet is spelled b o U c
h e Y, And that's a great way to get
your questions answered as well. You know, before the break,
we were talking about the markets and the economy, and

(24:43):
you know, as I always like to do on the show,
I like to kind of boil it all down and say,
you know, what do we what do we do?

Speaker 4 (24:48):
Uh?

Speaker 1 (24:49):
You know, us individuals who are trying to manage our
own wealth or you know, trying to understand how to
be smart financially and the things that we do. You know,
you hear a lot about what's going on on a
macro level with the markets in the economy, and sometimes
it's hard to say, Okay, I'm seeing these headlines right
they seeing kind of scary or maybe overly optimistic. Oftentimes

(25:12):
when I read it, that's the sentiment I get right,
is that they're either very negative or.

Speaker 2 (25:16):
Very positive, and it can be hard to weed out.
You know, how do I make.

Speaker 1 (25:21):
Changes in my own personal financial life or do I
make changes? So, you know, some of the things that
I would be encouraging people to do, you know, just
in light of where we are in the markets right now,
is to do a risk tolerance review. You know, it's
good to do this, not necessarily all the time, but
you know, maybe a couple of times a year to
really think about, you know, what is my tolerance for risk.

(25:41):
When we have these kind of conversations with our clients,
we're talking about two things, two components that really make
up are a risk tolerance. The first is, you know,
risk capacity, and that's the part that we can really
guide our clients on is to say how much risk
do you need to take on or do you not
need to take on based on your financial goals.

Speaker 2 (26:01):
Right.

Speaker 1 (26:01):
We have these in depth planning meetings with many of
our clients and say, Okay, we know what you're gonna
need in the future, right, we know what you're gonna
be on a regular basis every month or year, and
we also know you know, some of the other bigger
goals you have, maybe a big home improvement project you
have or some travel or you know, we have this
sense of what you're gonna need, so we can tell you, you know,

(26:23):
how aggressive you need to be or how aggressive you
might not need to be. Right if you're in a
great spot now and your wealth is gonna cover all
of your your financial goals.

Speaker 2 (26:33):
Even if you're in a really conservative allocation.

Speaker 1 (26:35):
And maybe you don't need to take on a lot
of risk totally dependent on the person that the family
and their situation. So risk capacity is a big part
of that, and that's where we can guide our clients
and say, I think you need to take on you know,
this level of risk, wore, I think you can scale
back if you want to. And then there's also this
other component which is risk appetite, and that is you know,
really driven by the client and them telling us, you know,

(26:57):
this is how comfortable or not I am market risk.
Our goal is always to educate our clients and to
you know, help them understand how the market performs over
time and how to you know, invest in a diversified
way and take advantage of the upside while minimizing downside risk.

Speaker 2 (27:16):
But there are some clients, so even they understand that
from in their head.

Speaker 1 (27:19):
And from a logical perspective, but they still do struggle
to say, it's really hard for me to take on
risk to see my wealth that I work so hard
for going up and down, and that's their risk appetite.
And so where those two things converge is often where
risk tolerance and your desired allocation can be determined. So
it's a great time to review that, determine, you know,

(27:40):
what kind of risks do I need to take on
to meet my goals and how comfortable ALI with it
and to find you know, where you want to be,
and then to reset potentially if you're out of tolerance,
you know, it's a good time to capture games in
the market. Markets have had a great year, two years
in a row, great time to capture those games, especially
if your equity side of your portfolio has really had
a great and now it might be out of tolerance.

(28:02):
You can you know, reset calf of some of those gains.
Obviously in a taxable account you want to do that
in a tax conscious way, but it can be a
good time to do that. And also you know, if
you're going to be rebalancing the maybe putting some more
on a fixed income side.

Speaker 2 (28:14):
You're going to be locking in some good yields right now.

Speaker 1 (28:16):
So it's a great time to take a look at
that and say, you know, this is where I want
to be going into the new year, going forward, and
to you know, reset that from both an equity standpoint
and a balance standpoint.

Speaker 2 (28:28):
Good time to reset that.

Speaker 1 (28:30):
Let's go to the phones now and chat with Paul
from the Bethlehem Morning.

Speaker 2 (28:33):
Paul, how are you?

Speaker 3 (28:35):
Good morning? How are you? How are you?

Speaker 2 (28:37):
And good? Thanks? What can I do for you today?

Speaker 3 (28:40):
Good? Oh, things are going good. I've got a question
that sort of follows up with your topic. Just was
I wan don't know if you think for the recently
retired are soon to be retired, if the sixty forty
lend in your portfolio is still workable, and if so,

(29:01):
is the forty percent in all in bonds and a
bond ETF sufficient or should we break that up into
cash a little bit, because four percent or four and
a half percent on money markets is pretty good, and uh,
you to throw an alternative in there, an alternative investment,
And if so, is there a single or a simple

(29:23):
e ETF that would cover alternatives.

Speaker 1 (29:28):
Yeah, those are great questions. I'll try my best to
answer them in the order that you asked. So, you know,
I think, without knowing much more about your situation, I
would say, generally speaking, I personally love sixty forty for retirees.
I think it is a great kind of sweet spot portfolio.
You still have more than half your portfolio really growth
focused by being in the equity side, but you have

(29:50):
forty percent on the fixed income and you know, probably
alternatives and maybe cash substitutes as well. That's going to
you know, be there for you because if you're going
to be drawing either now or in the near future
from the portfolio you want to have, you know that
that section that's going to kind of anchor you, that's
not going to be as volatile, not subject to market risk.
And I'll say a little more on that in just

(30:11):
a moment, but you know, I think that the sixty
to forty really is great. And like any you know,
investment philosophy, there are times where it comes in and
out of favor just from like a you know, general
headlines perspective.

Speaker 2 (30:23):
You might see a headline that says, oh, the sixty
forty portfolio is out.

Speaker 1 (30:27):
I don't really feel that way, you know, I still
feel it's appropriate. We look at the outlook for the future,
the long term, and you know, I think that you
still are going to always want a real favorable concentration
to stocks in your portfolio. Right, But as long as
you're not living off of a huge part of your
portfolio every year, which wouldn't be sustainable anyway, you know,
you can access whether it's four or five percent that

(30:49):
you're taking out every year, you can access that from
the fixed in come side, even if equities are down,
and so you really kind of put yourself in a
good spot where you still have growth, but you're protected.
In our client portfolios, we do use alternatives on the
fixed income side. So if a client's in a sixty forty,
that forty percent isn't totally in bonds, right, that might
make up a majority of it, but we might have

(31:10):
ten fifteen percent in alternatives. Alternative is really the goal
there is this to diversify away from true equity funds
or true bond funds, because we've seen in recent years
twenty twenty two great example, bonds, although they are generally
considered a pretty safe asset.

Speaker 2 (31:27):
They can have.

Speaker 1 (31:28):
Bad years, and we saw that in twenty twenty two
when they were down you know, fifteen sixteen, seventeen percent.

Speaker 2 (31:33):
So they're not totally you know, risk proof.

Speaker 1 (31:36):
Really, I suppose nothing really is, but they're really not
as risk proof as people might have thought before that time.

Speaker 2 (31:43):
So alternatives kind of help you.

Speaker 1 (31:45):
I don't have necessarily a specific recommendation, but something you
might look for is something that has maybe a buffer
built into it, so it's conservative in that regard where
it might take out some downside.

Speaker 2 (31:56):
You could look for, you know, something that has more
of an income component to it.

Speaker 1 (32:02):
So there are things that you know, use options contracts
behind the scenes to generate more income and invest in
really safe kind of blue chip companies, which still can
be subject to risks. Certainly they're not not risk proof,
but they tend to be more conservative and more defensive.

Speaker 2 (32:17):
So those are some examples of what alternatives could be.

Speaker 1 (32:19):
Some folks like to put in, you know, real estate
or commodities.

Speaker 2 (32:24):
Those are things you can look into.

Speaker 1 (32:25):
You gotta you know, for yourself, or if you're working
with an advisor, if it makes sense for you. There's
certainly risks in all those categories, but they can help
you diversify away from true equities or true bonds. And
I think you know, if you ask also a question
about you keep somem in cash, you know, I think.

Speaker 2 (32:40):
It's a great idea, especially if you are taking money
from the portfolio.

Speaker 1 (32:43):
So what we do for our clients is we set
aside two years worth of their cash need. So if
you were to say you're my client and you said
I need one thousand dollars a month, I'm gonna put
twenty four thousand, twenty four months worth in a very
conservative holding, so that no matter what goes on in.

Speaker 2 (32:58):
The equities, bond markets, or both, I can get.

Speaker 1 (33:00):
You the portfolio distributions that you need every month for
the next two years and give the other markets time
to recover if they need it. So that would be
a cash substitute like a money market like you said,
or an ultra short duration bond fund would work in.

Speaker 2 (33:13):
That kind of spot. So hopefully I answered your questions.
Is there anything I missed?

Speaker 3 (33:18):
No, you're pretty much covered. If I could just ask
another quick one related to that. So the bond portion,
I've had a few bond ETFs and although the said
is dropping the learning rates they've gone down the last
couple of months. So as opposed to just buying a
bond ETF, should you buy treasuries flat out and get
x four percent or whatever it is for the ten

(33:40):
year or are you comfortable with ETFs for the longer term.

Speaker 2 (33:44):
Yeah, so they there's pros and cons to both.

Speaker 1 (33:47):
I think a lot of people do like treasuries right now,
and they are much more predictable and controllable for you.
So you can buy one as long as you're going
to hold it to maturity. You know you're going to
get the yield that's you know is on it, and
so that could be comforting for some folks, and especially
if you feel, you know, I know I'm not gonna
need it in the next two, five, ten years, whatever
term you end up. You know, selecting based on your

(34:09):
time horizon, it works really well if you have more
short if you do more short term ones, it does
create more or just work for you to stay on
top of it. If you're doing a lotted ones, whereas
every three or six months, that's quite often that you
have to you know, repossession in your portfolio and you
take on some reinvestment risk, meaning if you know, maybe
you have a nice three months right now, but in

(34:29):
three months, if the rate is lower, you're not gonna
be able to get that same rate, so you get
take on reinvestment.

Speaker 2 (34:34):
Risk with bond funds.

Speaker 1 (34:35):
You know, I'm not totally surprised to hear that the
bond funds have gone down in the last few months,
even with rates getting cut, because we actually have seen
the ten year you know, things on the longer term
end of the yields curve actually go up at times.
So even though the federal funds rate is going down,
short term rates doesn't always mean that longer term.

Speaker 2 (34:54):
Ones are going to you know, stay in lockstep with it.
At times, they can act oppositely.

Speaker 1 (34:58):
So that's what we've really seen, and so I'm not
surprised that, you know, perhaps some of the bonds you had,
especially if they're more towards the longer term and five
ten years or more, those probably would have the price
would have moved negatively in the last few months.

Speaker 2 (35:12):
Now, I think over time, you know, over.

Speaker 1 (35:15):
A year, two going forward, I think that the price
would swing back. That be my expectation over time, But
in a few months, you know, you can't always predict
what the longer term rates are gonna do, even when
we think.

Speaker 2 (35:26):
The Fed's gonna cut short term rates.

Speaker 1 (35:28):
So bon ETFs are nice because you don't have to
manage it as much. You can set it and forget it,
and over time it will tend to match the long
term trends. But yeah, in the short term you can
see more ups and downs, and because you don't see
all the bonds that are you're holding in there, it
can feel a little bit more, you know, unpredictable, or
like you're not quite sure what's going on. Not as
much transparency with the bond etf as opposed to holding

(35:50):
individual treasuries.

Speaker 2 (35:51):
So oftentimes for our clients we do hold both, I
will say that.

Speaker 1 (35:54):
So it can work, and it can even work in
tandem with each other if you want to do a
little bit of each. But pros and cons, but overall
you're gonna get nice eeo done bonds now, whether in
a ETF or individual treagery. So it just kind of
depends on how much you like to see and still
you have control and a handle on what's going on.

Speaker 3 (36:11):
M Okay, it makes sense. Appreciate it.

Speaker 2 (36:14):
Yeah, thanks both for calling in.

Speaker 1 (36:15):
Have great things I'll take an a book call now
and chat with Steve from East Green Bush.

Speaker 2 (36:19):
Morning Steve, Good morning.

Speaker 3 (36:24):
So I've been fortunate enough to have some games over
the last year and a half with my.

Speaker 2 (36:29):
Broker's account, and I'm.

Speaker 5 (36:32):
Looking to minimize my capital.

Speaker 2 (36:34):
Games on that. Oh are you still there? It broke
up a little bit. Yeah, can you hear me?

Speaker 1 (36:46):
Yeah, so I think let me don't know if I
got a question. It sounds like you have some games
in your brokerage account and you're looking to see how
you can minimize taxes.

Speaker 2 (36:55):
Paid on those.

Speaker 5 (36:56):
Yes, yep.

Speaker 2 (36:58):
Great.

Speaker 1 (36:59):
Now when you say games, are they did you sell
and realize those gains or they still realize at this point?

Speaker 5 (37:05):
So yeah, okay, So you know a couple of things
you can consider now in a year like this one,
you might not have much options for it, but tax
loss harvesting is always a great idea.

Speaker 1 (37:17):
So any losses that you have in this includes losses
that you had in previous years that you didn't use already.
So if you had capital losses in a brokerage account,
whether they're you know, unrealized right now and you can
sell them before your end and use those to set
off to offset any gains that you have, or what's
called a loss carry forward, which is when you know
you sold that a loss in a previous year and

(37:38):
you haven't used it up yet, you can.

Speaker 2 (37:40):
Apply those against it again. It is a little bit tough.

Speaker 1 (37:43):
Sometimes in a year where it seems like almost everything
has done well, you may not have a lot of
losses and sometimes you do pay taxes and it's because
you make money, and you know it's the one downside
to having a great year. So if you don't have
any losses, or if you do have losses, i'd encourage
you to look look to those first.

Speaker 2 (38:00):
The other thing that you could consider is, you know
if you have.

Speaker 1 (38:06):
Charitable deductions that you could make, So that's sometimes that
people do. If if they're charitably inclined and they might
have a big gain in their portfolio, sometimes what they'll
do is they'll use what's called a donor advised fund,
which is when you can put a large amount into
a charitable account in one year, it stays in that account,
it doesn't actually go to charity right away, So you
can bunch together a couple of years worth of donations

(38:28):
and it gives you a really big charitable deduction in
one year that you can use if you have a
high income year for any reason.

Speaker 2 (38:33):
But in your case, you know, large gains.

Speaker 1 (38:35):
So those are kind of two things that come to
mind just generally speaking, that you could use. You know,
sometimes there is no way around it. And you know,
because you had a great year in the brokerage account,
you may have to pay Uncle Sam. But those are
two things that come to mind as possible options.

Speaker 3 (38:52):
All Right, thank you so much.

Speaker 2 (38:54):
You're welcome, Steve, have a good day.

Speaker 1 (38:57):
All Right, we're going to go to a brief news
break here, but we'll be right back with more. Let's
talk money here on w g Y. Thanks everyone for
staying with me. This is Harmony Waggers Heads. It's advisor
at Bouchet Financial Group and it's a pleasure to speak

(39:17):
with you here on the radio every so often and
to chat with I listening on aience. We've had a
bunch of great questions already today. We still have about
ten minutes left in the broadcast. So if you have
a question burning on your mind, please call in or
email in and I'll do my best to answer it
in the time that we have.

Speaker 2 (39:32):
The phone number.

Speaker 1 (39:37):
Eight two five five nine four nine, or if you
prefer to email a question in that email address is
ask ask.

Speaker 2 (39:44):
Bouchet b O U. C. H. E.

Speaker 1 (39:46):
Y at Bouchet dot com. So, you know, as we've
come down to the end of the year, it is
it is surprising that we are almost at the end
of twenty twenty four with only a few days left,
and as much as Christmas can overshadow it, sometimes you know,
we are coming up on New Year's as well, and
personally New Year's is actually my favorite holiday of the year.

Speaker 2 (40:07):
I love kind of that reflective element to it.

Speaker 1 (40:09):
And you know, I always remember look back and the
year that we have, and I look back at photos.

Speaker 2 (40:14):
I have really young kids.

Speaker 1 (40:15):
I have three little girls, so to me, it's always
you know, amazing at this phase of life to see
how much they've grown over a year. It's always a
really big change from the beginning of the year to
the end. So I love to look back at that
and to remember, you know, the failures of the year,
and then of course to turn to the year ahead,
and you know, it's such a for me at least,
I love that feeling of a braver year, all the

(40:36):
possibilities that we have in it to you know, change
and better ourselves. And of course that looks like a
lot of different things for different people. Maybe you have
a health goal or you know resolution, or you want
to get more organized, or when you have a trip,
you want to take family relationships, you want to build,
whatever it might be. But you know, since this is
a financial show, I didn't want to take a few

(40:56):
minutes to just talk about some financial goals that you
might have, or maybe you don't have any end you're
looking for some inspiration, But I did it really interesting
article this week that a lot of Americans are setting
the financial resolution.

Speaker 2 (41:09):
To be practical in twenty twenty five. You know, we have.

Speaker 1 (41:14):
There's a study that said that unexpected expenses and inflation
are top financial concerns for the majority of Americans. And
you're talking with a lot of clients every day. I
would say that I feel that as well from the
people that I'm speaking to. You know, it's still is
really affecting people's wallets, and you know, especially I've seen
it in the areas of insurance recently. You know a

(41:35):
lot of people saying, man, I need to increase my
portfolio withdrawals and retirement.

Speaker 2 (41:39):
Like the insurance is just crushing me at this point.

Speaker 1 (41:42):
And so that's you know, something that it seems like
a lot of people across the country are feeling, and
so that living practically, it says, you know, nearly two
thirds of Americans, according to this one survey anyway, are
considering a financial resolution to really control their their spending
and consider, you know, what changes they might need to
make to be practical in the year ahead.

Speaker 2 (42:03):
And one of those big.

Speaker 1 (42:03):
Ones was talking about establishing an emergency savings account or
emergency reserve fund. And that is great advice, right, whether
no matter how wealthy someone is or or they aren't,
emergency savings is a really important piece of a risk
management plan, right, not even a financial plan, but a
risk management plan, and saying, if something happens to you

(42:24):
in your life, you want to be able to have
funds that you can access at a moment's notice, whether
you lose your job, or you know, the furnace goes
on the house, or you know, you get in the
car exit need to replace the car, or medical bills.
There's so many things that could happen, and hopefully they don't,
but you know, there's so many things to be prepared
for and a lot of clients ask us, what do

(42:44):
you what do I need my emergency reserve to be
And generally we tell people, you know, between three to
six months worth of your monthly expenses, and it can
vary a little bit, and you know, depending on the
ins and outs of your optional situation, you might find
that you know, you might being closer to three or
the six months side of that spectrum. And some folks
either are like more conservative, They're like, I want to

(43:07):
maybe nine months.

Speaker 2 (43:07):
I really want to feel safe, And that's fine too.

Speaker 1 (43:10):
You don't want to find that you have real excess
cash built up over years.

Speaker 2 (43:14):
Because you're just losing money to inflation.

Speaker 1 (43:17):
When when you have a lot of cash built up,
so you want three, six, maybe nine months worth beyond that,
you want to make sure you're investing it appropriately for
your risk tolerance and and you know what your financial
position is in life. But three to six months is
good typically for most people. If it's a two income household,
that gives you a little more stability, right, even if
something happens to one of the income earners, you still

(43:39):
have the other one. So maybe for that kind of situation,
especially if your jobs are very secure and you know
in so much you can tell, of course, maybe closer
to three month mars off. And if you're maybe a
single income earner or your job is not a secure
or you feel like you just have an high bills, right,
maybe you have my mortgage, you know, high debt payments

(44:01):
something like that, where if you I just have higher
you know, the expenses and maybe my peers, then maybe
you air towards the sixth month side of the equation.
But that's a good goal to have if you don't
have it already, to say, let's focus, you know, first thing,
January one, Let's make a plan for setting up my
emergency savings so that I'm really protected. All the investing
in the world might not do you any good. If

(44:22):
you know your money's in the equities market and all
of a sudden you need to pull out money for
an unexpected expense when the market there down right, that
can really hurt your your portfolio.

Speaker 2 (44:32):
It can hurt your your overall wealth position.

Speaker 1 (44:34):
And you know it's it's a completely avoidable, uh you
know thing that you can do by just having that
emergency reserve set aside. So that is a great, great
way to start off the year and focus on it.
Another great thing you can do, as I talked about, was,
you know, we talked about mistolerance, So making sure that
you're on top of that and you feel really comfortable

(44:56):
with that, and that's your you have a plan for
monitoring that. You know, whether it's you decide that you
just want to rebalance only when you feel like it's needed.
Maybe some folks just say I'm going to rebalance once
a year or twice a year just to make sure
it doesn't get away from me. Those are good things
to do as we you know, approach the new year
retirement plan. Contributions is something great as well. So once

(45:17):
you've got your emergency savings set aside and you know
it's in a good place, you want that really just
in your bank account, not invested, even in something that's
conservative like a CD.

Speaker 2 (45:27):
You know, you can think.

Speaker 1 (45:28):
About how it's locked up and something like that. You
really want this to be just cash. That's why it's
a small amount and it's okay about that. It's not
working for you in terms of income. It's it is
working for you in terms of protecting you. But yeah,
you want to keep that in liquid cash. But you know,
Once you have that set aside, if you find you
have more cash coming in or a little extra in
the bank account, you want to do something with thinking
about you know, how can I make this work for

(45:49):
me right? If you're in a spot to do it,
ROTH contributions are a great option. You have to have
earned income to do it, and you also can't have too.

Speaker 2 (45:58):
Much earned income.

Speaker 1 (46:00):
The threshold is different based on whether you're a single
tax player, a marriage, finally and jointly, but if you
are over a certain income threshold, you'll phase out of
being able to contribute to a ROTH. But if you
are in that you know magic sweet spot where you
have enough earned income to do it and you don't
have much to preclude you from doing it. Ross are
a great option. The money goes in there. You don't
get a tax deduction now, but it grows tax free,

(46:22):
So you're putting money from a place where it'll be
taxed to a place where it'll never be taxed again,
and you can always access your contributions to it. So
there are some restrictions about how long you have to
wait before you can get into earnings and before you'd
have to pay taxes or even potentially a penalty on it,
but no matter what, you could always take out the
money that you put in. So if you put in

(46:43):
let's say, you know, seven thousand is the limit for
twenty twenty five and twenty twenty four, actually same for
both years for folks who are under fifty.

Speaker 2 (46:51):
If you put seven thousand.

Speaker 1 (46:52):
In into the rough account now and it grew to
ten thousand, even if you're you know, under fifty nine
and a half or you need to act fit in
a year or two, you can always take out that
seven thousand that you put in. The three thousand of growth,
you know that has more restrictions on it, but you
can always take out the original contribution. So it's a

(47:12):
pretty low risk way to save for your future. Well,
we're kinding down to the bottom of the otter here.
Thank you so much again for tuning in and turning
on your radio this morning.

Speaker 2 (47:23):
It was really great.

Speaker 1 (47:26):
Well you got something valuable or at least interesting out
of the show. We'll be back right here on WGY
tomorrow at am with more. Let's Talk money, brought to
you by Bouchet Financial Group, where we help our clients
prioritize their health while we manage their wealth. For life,
Stay safe and healthy for all those who celebrate. I
wish you a very very Christmas, Poppy Honikah, happy New Year.
I will the pleasure of speaking to you again in

(47:47):
twenty twenty four. To have a great start to the
new year.

Speaker 2 (47:50):
Take care,