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Come join a groundbreaking new podcast that promises to change the way you think, the way you live, and the way you manage your future. Grab a cup of coffee, a 6mg Zyn, some noise-canceling headphones, and get lost in the world of the Fiscal Firehouse. With your co-host Jon Beattie and Louie Barela, the Fiscal Firehouse is your guide to financial freedom. Tailored to union firefighters, we will discuss problems, solutions, and benefits that are unique to our profession. Change your finances, change your life at the Fiscal Firehouse. Brought to you by Local 1309.
Fiscal Firehouse Introduciton:
Welcome to the Fiscal Firehouse,
a podcast dedicated to promoting
financial literacy to firefighters.
I'm your co-host, John Beatty, executive
board member of Local 1309, a lieutenant,
and also a certified financial planner.
With me, I have the other co-host of the
fiscal firehouse, Louis Barella, executive
Board member of Local 1309 ambulance
driver, and want to be financial expert.
Together, John and I hope to bring
clarity to the world of personal finance,
specifically relating to firefighters.
Firefighting is a
difficult job making sound.
Financial decisions shouldn't be.
Jon Introduction: In today's episode
of the fiscal firehouse, John and
Louis kicked things off with some
lighthearted banter, talking about
college football drama, pro football
rivalries, and the realities of
getting older as a sports fans.
Before shifting gears into a topic
we get asked about all the time,
the taxable brokerage account.
What exactly is it?
How does it work and
when does it make sense?
Compared to retirement accounts like the
4 57 plan, we break down the flexibility,
tax considerations, and real world use
cases that matter most to firefighters.
And as always, our goal is to cut
through the noise and help make smarter
financial decisions that fit your life.
Without further ado, let's kick it
over to local 1309 studios and the
recording of the physical firehouse.
Jon: Welcome back to another episode
and recording of the Fiscal Firehouse.
I'm your co-host John Beatie
with me as always, mixing it up
a little bit across the table,
wearing his, big D for the Donkeys.
Big game.
Big
Louie: hate week.
It's hate week on the podcast.
Jon: dude.
We got a lot of stuff to talk about.
We're actually not gonna talk
about anything financial.
We're just gonna talk.
Shit.
Basically the whole episode because
we got a lot of stuff to unpack here.
It has got nothing to do
with personal finance.
Louie: No, nothing.
Nothing.
Jon: where do you wanna start
off with I, this is the first
time since I've known you, Louie.
I mean, we're going on a four year
friendship here and he's always
worn the maze and blue everything.
Blue Michigan stuff.
Tough times to be a
Louie: You know what?
It's never been a better
time to be a Michigan fan.
Let me tell you something.
College football season's almost over.
Thank God.
Uhhuh, we got
Jon: But you guys have basketball.
Louie: We're the number
one team in the country.
We're gonna go to the final four.
We're probably gonna win it all.
You could take that to the bank.
Dusty May and Michigan basketball.
We're a basketball school.
All right.
Jon: Forget
Louie: Football also a hockey school.
We're ranked top two or three.
We're, we might win a
hockey championship too.
We're going for it all.
We're going for the big leagues.
And then, yeah, we just got a couple
things on the football side to figure out.
it's not looking too good on that
Jon: side.
Oh my God.
Louie: You know what though?
it's a sad story.
It really is.
I don't know if you've been
following the whole Sharon Moore
thing in Michigan, but it is
Jon: No.
Gimme some backstory.
I mean, I just saw that he was arrested.
He
Louie: was arrested.
It involved him cheating
on his wife with a staffer.
Probably involves hush money.
It involves, unfortunately, and this
is where it's really not a joke,
especially in the fire service, but
there was some suicidal things that
were said he was placed on hold,
not trying to make light of that.
It's just, it's a crazy story.
It really is.
Jon: But, so he's in jail right
now waiting to be arraigned
Louie: a mental health hold.
I think he was on an M1 hold.
he kind of went crazy.
But, yeah, they, it was all involving an
affair that has been going on for maybe
quite some time, like, not just the last
couple months, but maybe longer than that.
So, you know, don't wanna say
anything too much more than
that, because, it's all hearsay
Jon: Yes.
Prove innocent.
You know, I assumed to be innocent
until proven guilty kind of thing.
Louie: But it's a terrible situation.
And so now Michigan has to
go look for a new coach.
And it's not the best time to
look for a coach right now.
So
Jon: I feel like there's something, the
podcast we put out into the universe,
and I'll talk about these two things.
So first of all is head football coaches.
So, Louis went to Michigan and many
of you know that I attended many
division one universities, one of mine
being Ole Miss, and dude, all right,
football coach said pack my bags.
See you guys later.
Dude.
It is been nothing but drama for
Louis and I for the last month just
dealing with, head football coaches.
So
Louie: and college football is
better than any kind of TV drama
or soap opera or reality TV show.
It is.
It's all the scandals and all the drama.
it's great.
Jon: It is great.
Yeah.
And the one thing that's interesting
about the NCAA and something that I
didn't really think about until this
whole Lane Kiffin Ole Miss thing,
fiasco showed up is like, you know,
in the NFL, you can't talk to another
coach until their season is over.
Yeah.
that is not permissible.
Why the NCAA continues to let
these coaches wheel and deal
while they're still midway through
the season or in the playoffs?
It just, I mean, they're
eating their own right now.
They're cannibalizing
Louie: Themselves.
it's a weird situation.
It's a weird situation.
So
Jon: so
Louie: there's that, and then there's
pro football, which it's hate week.
We got Denver versus Green Bay.
Yes.
You are an exclusively Green Bay guy.
Like you don't cheer for any
of the NFL teams, do you?
Jon: No.
So I am 100% bleed green and yellow.
Okay.
so that is who I always root for.
But you know, if Green Bay is not playing,
I will root for the Broncos for sure.
I live here, I've lived here for 25
years, so, you know, my wife's a huge
Broncos fan and my kids are split.
One of 'em likes the Broncos and
the other one likes the Packers.
So there is such thing as
a favorite child for sure.
So
Louie: know who it is in
Jon: we know who it is
in the Beatty household.
so huge week.
And unfortunately though, and this goes
back to just kind of the, where we're at
with finances, but like, I was like, man,
it'd be really cool to go to the game.
You know what the tickets are running.
No, I
Louie: I didn't even look.
Jon: no.
Cheapest one in section 500, which is
in the top bowl, was like three 50.
That's X fees.
So by the time you pack in
fees, you're looking at 400.
By the time you pack in parking, maybe
a drink or two and some food, you're
looking at, you know, 800 bucks, six 50.
You know, dude.
So I'm just like, no,
we're not doing that.
We're gonna watch it on the couch.
We're gonna have some family fun and,
we're just gonna watch it that way.
At least the weather
is gonna be beautiful.
Louie: I'll tell you this, I.
This is a sign that I'm getting old.
Right, of course.
But man, I have enjoyed going to
the stadium less and less, whether
it's mile High Stadium, whether
it's the big house in Michigan even.
I just feel like it's fun.
It's great to do like once a
season or maybe twice, but I feel
like the experience is top to
bottom, better watching it at home.
Like now
Jon: way more comfortable.
Louie: You can buy an ole tv, you can buy
a 4K TV package and you can watch these
games and eat better food, drink better
beer, all from the comfort of your home
without dealing with drunks, without
dealing with idiots, without dealing
with parking for a fraction of the cost
like that, that would cost you one game
to probably have that set up for a tv.
Nice food, nice beer, and no idiots.
Yeah.
Versus that's just one single game,
Jon: It is, it's crazy.
And I think things changed for me,
significantly when I had kids and
then bringing your kids to the games.
You want a different experience
than when you're in college.
Right.
Like, and that's maybe
just where we're at, right.
Doing our life cycle.
It's having younger kids and
not wanting them to be a bunch
rounded drunks that are just, you
know, it's just, it's not kosher.
It's the kids don't enjoy it.
You don't enjoy it, and it's way
cheaper to just sit on your couch
Louie: and you guys know us, we're cheap.
Like that's why we have
a podcast on finances.
So Of course we're like,
we need just save that
Jon: Yeah.
I've vest that over 35 years at 7%
compounding like you're gonna end up with.
Louie: I could put that in a
Roth IRA or a brokerage account,
which, Ooh, foreshadowing.
little foreshadowing there.
Jon: I love that.
So that was the one thing
that I wanted to talk about.
Football.
The other thing, and this has
definitely been a fan favorite.
So the lottery episode, man, we were
firing on all cylinders apparently
'cause we got a lot of good feedback.
but they must have been listening
to us, the old Lotto Commission.
And you know what they
did after our podcast?
They did.
They made it even easier to gamble.
and what I mean by that is now you
can buy your co Colorado lottery
tickets, Powerball, mega Millions.
On your phone
Louie: Mm-hmm.
Jon: and you can use credit.
You no longer.
You always, you know, basically
since the dawn of time, if you're
gonna purchase a auto ticket, you
either had to have coal hard cash,
or you had to have a debit card.
You could not use credit to purchase this.
Nope.
Now you can go ahead and
max out a credit card.
Go all in.
Louie: new Age.
It's a new age, gentlemen.
Let's do it.
Let's do it.
Let's just go all in on lottery tickets
on our phones through credit cards.
Sounds like what could go wrong.
Jon: No,
Louie: what could go wrong.
Jon: it's a whole episode onto itself.
But I was like, man, I feel like we're
really throwing some stuff out there.
And the universe is just giving it
back and being like, man, what we're
talking about is really resonating
with society in a multitude of ways.
So there you go.
Louie: John, I also got big news.
I just kind of dropped this on you
before I, this is big news for me.
Jon: Oh yeah.
Louie: got here, but I have
given up coffee and just caffeine
in general, which is crazy.
Right.
Jon: Tell me why, because it's not
a, I mean, tell me the why behind it.
What, is it a health
Louie: No.
No, it's not.
It's not for sleep.
I just was like, you know what?
I'm drinking a lot of coffee.
We drink a lot of coffee, right.
Jon: Yeah, dude, you work with Captain
Louie: Oh, Reed.
Oh
Jon: I mean, who can go ounce
for ounce with this guy?
And I,
Louie: Reed was mortified.
Like when I told him I was giving it up
and I was like, I'm, 'cause I was started
doing a little bit less coffee each day.
I was drinking fewer and fewer grams
every day to try to like wean myself off.
I couldn't
Jon: Did you have massive headaches?
Louie: I did have headaches when I
got to about 10 grams of coffee a day.
Okay.
and then, they kinda went away after
a day or two, but I was telling
Reed this and he's like, why dude,
why are you doing this to yourself?
Don't do this.
Like, he was concerned.
Jon: there's health effects, there's
benefits of drinking, caffeine.
I mean, if you don't want the
Alzheimer's, that's what you do.
Louie: what you do.
Right.
Uhhuh?
Well, I already have some timers.
I don't have Alzheimer's yet,
but I have some timers, so
maybe I'll need to start again.
I don't know how long
I'm gonna give it up for.
But you know what I've noticed, the
biggest difference that I've, realized
is I feel better in the morning.
Like when I wake up, I don't feel
as like groggy, foggy or groggy.
Yeah.
I just feel like I'm more alert
and more able to cope with the
boys and with what they want
Jon: So how long have you been doing this?
Louie: I'm on day three of No.
Caffeine.
Day three.
Day three.
Okay.
Yeah.
So, so
Jon: still fresh, we're still, there's
still plenty of time for you to have an
espresso martini at the holiday party on
Louie: beer in the morning now.
But you know, you can't have it all.
You can't have it all.
You gotta have a vice, you
gotta have something going on.
So yeah, the cost of giving up caffeine,
I guess was drinking beer in the morning.
But, you know, besides that,
things are going great.
It's the holidays.
I'm feeling good.
Thanks man.
I
Jon: you look
Louie: feel good.
Jon: refreshed.
You got a nice little, you
know, couple day shadow there.
Little stubble.
Louie: day middle of a 10
day, so gotta love that.
Things are going well
Jon: And, what's going on for the
holidays at the Barella household?
Louie: We have family, Kate's
family's in town right now, but
then we're not doing anything.
We're staying here.
We have our big tamale fest, which
we talked about traditions last year.
I think this is our 47th
year, 48th year, I don't know.
but we're doing that this coming weekend.
So we're doing the tamale making
at our house on Saturday and then
the big sing along, on Sunday.
So.
Yeah, it's going great.
Jon: Oh, nice.
I love to hear that.
Yeah.
Louie: Anything new with you?
Jon: yeah.
Everything.
And then some we will, same thing.
Holidays.
I think my dad will come over.
We'll have some.
I think that's really it for the
family and Katie's parents I think.
And we'll actually hang out with
her brother and, my sister-in-law
and their kids, so that'll be good.
And then we're gonna go off to the old St.
John, for a week, after Christmas.
So yeah, it'll be nice.
This was, yeah, so I've never been
to that part of the Caribbean,
so we're super excited about it.
Louie: been to the Caribbean at all, so
Jon: Yeah, well, it's not
easy to get from here.
Like there's a reason that people
go to Mexico and other places from
Colorado because it's so much, yeah.
So much more convenient to get
there, rather than have to take like
two planes and three time zones.
And I mean, these are first world
problems, don't get me wrong, but we
always wanted to try someplace different.
So that's kind of our goal every
year around Christmas time,
is to try someplace different.
So I'll report back
Louie: Boom.
Sounds good.
What
Jon: that's all about.
So, love holiday season though.
Although it, man, it definitely does
not feel like holiday season here, dude.
It's fricking 64 degrees.
Like people are up there skiing on rocks.
I mean, it's not good.
We definitely need some, we could
re we could use the precipitation.
Louie: Yeah.
Yeah.
Totally agree.
we need, we need the rain.
We need the snow.
Jon: oh my God.
So, what are we actually to talk
about financial, financially today?
What do, what's on the old dock?
Louie: what's on the docket?
Well, we have something that I'm, I
don't know about you, John, but I can
say that I probably get asked about
this type of account more than just
about any other account, including
our retirement accounts that we have.
And that is the taxable brokerage account.
And the reason why I get asked about
that a lot is because people want
to know like, Hey, what do I do?
How should I save money if I need it
before retirement or if I'm trying
to save for a house or a new car?
And so people have heard about,
you know, brokerage accounts.
They don't know exactly what that means.
They don't know what a taxable brokerage
account necessarily does or what you
use it for versus a retirement account.
So I feel like I get a lot of
questions about saving money
specifically in a brokerage account.
So that's what we're
gonna talk about today.
Jon: Yeah, and I agree, I
definitely get questions.
I don't think, I think the name itself,
people when you talk about that, they're
like, well, what the heck is that?
Yeah, what the heck is that?
And I'm like, you got a Robinhood account?
They're like, oh, I got
one of them, of course.
And I'm like, well, that is a
taxable brokerage account, a
nerds, that's what we call it.
But in reality, if I just mentioned Robin
Hood, I would say that resonates with
like 80% of our listeners slash members.
they definitely know what
Robin Hood's all about.
So there's definitely some
confusion about how they work
and potentially, uses for them.
and I would definitely advise to
not use the gambler's mentality when
you're thinking about your Robinhood
or your brokerage account, but
there's definitely some benefits.
And Louis and I will go through what
some of those benefits are, or just
if you're considering saving money,
why potentially a brokerage account
might be better than a retirement
account or other things like that.
So definitely.
This is something that I
think in our circles as far
as are not talked about a lot.
I think when you think about brokerage
accounts, generally speaking,
you're thinking for really affluent
people that have a lot of different
money and a lot of different assets
and a lot of different locations.
And, that's what more people, you
know, tailor to the brokerage account.
But, there's definitely some advantages
for firefighters specifically to
have a bro a brokerage account.
So why you'd want to use one.
Louie: I like my brokerage account.
It's not my favorite account,
but, we have a brokerage account,
we've used a brokerage account.
We still use a brokerage account
Jon: Yep.
Louie: and I think they're great.
So, there's some caveats though, and
important things to know, which is why.
We're doing this episode today, but I
think we should start by actually just
talking about what we mean when we
Jon: Yeah.
What's the definition
of a brokerage account?
Louie: Yeah.
So, the definition that we're gonna
go off of is that a brokerage account,
or a taxable brokerage account is a
non-retirement investment account that
allows you to buy and sell securities
like stocks, bonds, ETFs, mutual
funds, crypto, everyone's favorite.
I guess you
Jon: Yep.
Mm-hmm.
Louie: include that in there
using after tax dollars.
So they do not offer an immediate
tax benefit like you would
get with, Retirement account.
but that means that any capital gains,
dividends or earned interest are taxed in
the year that they are realized or that
they are incurred, if that makes sense.
That's a really heady technical term.
I know John's like shaking his
head like, yeah, we could have
tightened it up a little bit.
But that's, I guess, a
good working definition.
but a lot of people out there
are probably like, I don't
actually know what that means.
You're talking about tax deferred
and you're talking about, realized
gains and stuff like that.
So maybe we should
unpack that a little bit.
John, what do you think?
Jon: Oh yeah.
No, so that's definitely
what that's all about.
And really it's just any source of
monies that you can come in from
all sorts of different sources.
It doesn't have to be earned income.
It could be a windfall, it
could be from inheritance.
It can be from, I don't know, you just
looked under your couch and found some
money, like you can use that money.
Mm-hmm.
Right.
And then you can invest it in a
multitude of different, avenues or
vehicles, whether that's stocks or
bonds or crypto or whatever that is.
And then what's really nice about this
is there's not a lot of the limitations
that you have within a retirement account,
like when you can take out the money,
Louie: how much you can
Jon: much you can take out,
how much you can contribute.
All those other things.
It really is the most flexible of all
accounts that you can possibly have.
similar to, if you want to think
about like a savings account, it just
depends on how you're gonna get taxed
on the earnings of those investments.
'cause hopefully, you know,
you're investing, for the
potential for that money to grow.
And then those are called earnings.
And then when you take out those
earnings, you get taxed at a different
rate, specifically depending on how long
you hold it and what that asset was.
So that's really what makes it a little
bit different compared to like a savings
account or some of these other things.
But basically speaking though,
the best news is yeah, if you
just got money lying around, you
can open up a brokerage account.
Most of these places now, whether it's
at Robinhood or a more traditional,
custodian like Fidelity or Schwab,
they typically don't have minimum.
So you can, you know, they
can do fractional shares.
So even with like 10 bucks or 20
bucks, you can start to open up these
accounts and fund them that way.
So that's really what that's all about.
Yeah.
Any, anything else to add as far as
the definition and then we'll get into
here maybe some pros or some thoughts
about why you'd wanna open up account.
But as far as the definition, you think
that most of our folks could probably
wrap their head around what that
Louie: yeah, I think that's pretty good.
The only thing I would maybe add is that,
we generally call it an after-tax account
in the sense that every dollar that you're
putting on it, you've already putting
into it, you've already paid taxes on.
So when you get your paycheck, tax
money is already gone and then you
can use that money to contribute.
So it's not like you can auto
deduct from your paycheck.
It's not like you get a tax write
off or any kind of tax benefit
now by putting it to that account
and you really don't get it later.
You do pay taxes and we'll talk
about preferential taxes, treatment
on brokerage accounts later, but you
are paying with after tax dollars.
so yeah, I would just put that in there,
but I think that's good for definition.
Yeah,
Jon: No, so let's start
with, maybe the pros.
So why you would want to consider a
brokerage account or a taxable brokerage
account versus a retirement account?
You know, specifically for our folks,
a lot of 'em, it's the 4 57 plan.
Like why should I consider, you know,
putting my money inside a brokerage
account versus a retirement account?
So there's a couple.
So first and foremost, and Louis and
I already alluded to it, but it's the
most flexible account you can have.
And what we mean by that is
it's very flexible in when you
can take out your money, right?
A lot of the other.
Programs and plans,
retirement plans specifically.
The 4 57 is, you really can't
access that money until you
separate from service, right?
That's the biggest thing with the 4
57 is, I mean, there is loans all,
but we're not gonna talk about that.
But realistically, you want
to think about your 4 57.
Plan is not really being able to
touch until you separate from service,
which is not great if you're looking
at like saving up for a down payment
on a house or a vehicle or whatever
other your savings goals are.
You want something that
it's liquid, right?
That you can immediately access and you
don't have to worry about, prepayment
penalties and all these other things.
So the flexibility is key.
So, and this is good because if you
think about it, for most, retirement
plans, you have to be 59 and a half
until you can take out that money.
Now, obviously.
The 4 57 plan is different.
You can take out that money
basically penalty free as soon as you
separate for service from service.
So most of our members will be under the
age of 59 and a half, but they can still
access their 4 57 money and they don't And
they don't have to pay penalties on that.
Yep.
You don't, you have your 10%
early withdrawal penalty on that.
So we've got things like buying land or
a cabin, which side note is we're under
contract for a little piece of property.
Nice.
Back up there in Northern Wisconsin.
So hopefully this time it'll close.
So we brokerage money.
We did use our brokerage account.
To fund, the purchase of a little 10
acre parcel up there, which is great.
Yeah, so we just ended up paying some,
long-term capital gains on that, which
we'll talk about here in a minute.
you could also use it for, you know,
where this, where the brokerage
account really shines is in, you know,
I know a lot of the listeners here
have heard about the fire movement.
The financial independence retire early
and a lot of people in that space,
they retire way before 59 and a half,
and they need to have access to money.
So they're all about funding a brokerage
account 'cause they can take out that
money penalty free whenever they want.
So.
A lot of people, I mean, just like
anything else, and I think you guys
all lo know Louie and I, well enough,
like what we really believe in is we
believe in low cost funds or basically
no expense when you're investing.
And then also the diversification.
Diversification in how you're investing,
and then the diversification within
whatever location your assets are located.
So whether that's a retirement
account or a brokerage account, a
high yield savings account, it's
really nice to have different buckets
that you can pull out money from.
because at the end of the day, a lot
of these have different tax treatments.
So that's probably
Louie: those are the
Jon: a huge reason is the freedom and
flexibility to take out that money.
Louie: And then sometimes people
have to do it because they can't
contribute it into another account.
Maybe their workplace
doesn't offer a 401k plan.
maybe they don't have enough earned
income to put it into an IRA.
so you can always put money into a
brokerage account if that's the case, or
sometimes, which we would love to hear.
There are people that max out there.
Retirement accounts.
So you might max out your 4 57 plan.
You might max out your Roth IRA after
that, and now you're still like, but
I still wanna save for something.
Of course, that's a small subsection,
especially of firefighters.
There's not a ton of firefighters out
there that are maxing both of those out.
But there are some, I've definitely
talked to some firefighters in our
department who have maxed amount and
they're like, okay, what do I do now?
And then the only place I can really
turn them to, I shouldn't say the
only place, there's things, right?
Like, there's HSAs through a spouse,
there's, you know, a spousal IRA.
There's other things like that.
But outside of that, let's just assume
that they've maxed out their retirement
accounts and they still want money
to, or to put money somewhere to grow.
The brokerage account is a great option.
Yeah, for all the reasons you said.
Plus, there's no restrictions on how
much you can put in, when you can
put it in, when you can take it out.
So you're basically giving this
account that you kind of hit the
nail on the head when you said it's
basically like a savings account,
but you wanna invest your savings.
That's really what it kind of is.
Like.
You can open an account anywhere.
Have this money invested and then
take it out anytime you want.
So yeah, it's really
good for those reasons.
Jon: So that's, I would say that's
probably highlight number one.
highlight number two is, there are
no required minimum distributions.
These are also abbreviated as RMDs.
And I know many of you're like,
what the heck is that term?
How does that apply?
So Required minimum distributions
are applicable to retirement
accounts, specifically 4 0
1 plans, or your 4 57 plan,
Louie: traditional IRA,
Jon: all that stuff.
And basically what this is a way for the
government to finally start recouping some
of the money that you've been deferring
for so long, and these rules have changed
since the Secure Act and then secure 2.0
Act as far as when RMDs
actually take a place.
I think currently it's 73 and I think
within the next year or two, that's
gonna be up to 75, depending on your age.
But it's not till way later in
your career or your lifespan that
these RMDs start taking effect.
But basically what the
government says that, what the
IRS says is you can only defer.
That income for so long before we finally
need you to start taking out some money.
Louie: Uncle Sam needs to get paid
Jon: eventually.
Louie: this debt, we got this debt.
We need to pay these bond holders.
Pay us our money.
Jon: Pay us our money.
So what that means and why that's a
big deal, and especially if you have
been a saver and you have a lot of
money in a traditional retirement
account is, you know, by the time
you get to 73 or 75, and this is all
based on actuarials as far as the IRS
tables for how they calculate this.
But if you have a couple million dollars
in those accounts and you hit to 75, like
you can start, they start making, you
take out a significant portion of that.
I mean, we're talking sometimes
hundreds of thousands of dollars that
you have to take out mandatorily.
and that can really affect
your taxes when all of a sudden
you've been in a pretty low
Louie: especially if you have a
pension, if you're a pensioner.
Yeah.
Jon: Like there's potentially the
room for you to have to actually
end up paying the IRS quite a bit of
money because they're gonna mandate
that you start taking this money out.
So it's a good problem to
have, don't get me wrong.
Like if you've been a really good
saver and all of a sudden you have
a lot of this mo you have a lot of
money inside your retirement accounts,
that's a great problem to have.
But it can definitely.
Your tax liability and how much you end
up paying in taxes later on in your life
Louie: So you can wipe your tears
away with the a hundred dollars
bills that you're forced to
take outta your traditional IRA.
Jon: exactly right.
So that's one thing that is also nice
that inside a brokerage account, so
taxable brokerage account, your Robin Hood
account, your Fidelity account, right?
These ones, they do not have RMD.
So you can continue to grow
those assets as much as you want.
And you don't have to, you
don't have to pay that out.
And, this is a little bit further advanced
when you're thinking about it, but a.
Why that matters is, if you're
thinking of legacy planning or they
also call it estate planning, like how
you're, the people that you leave your
money are gonna inherit that money.
It is much better for you to pass on
your assets in a brokerage account.
Than a pre-tax retirement
Louie: account.
Mm-hmm.
Jon: because there's this
concept of step up in basis.
Alright?
And why that matters is, let's say I,
let's say I die and I have a million
dollars inside my brokerage account.
Like that was the value that was left in
that account that the date of my death.
So whoever inherits that money basically
inherits it at that value of $1 million.
They're not gonna pay anything
in taxes on that million dollars.
I gotta step up in
Louie: gotta step up in basis is what
Jon: Now obviously if it grows beyond
that million dollars and they don't
start taking it out until after
the fact, then they're gonna pay
tax on that difference at a capital
gains rate, which is less than what
your normal wage income would be.
but that's pretty great.
That's a great way to leave assets to
your kids or your wife or whoever, your
spouse or your loved ones or whatever.
So that's great.
Versus if it was pre-tax
money that was left.
That way they don't get
that step up in basis.
Alright.
And there's also a certain amount of time
that they have to take out that money.
There's inherited IRA rules that take
place that basically says that if you're
a non-spouse or some of these other,
circumstances that you leave, leave
your money to is you have to liquidate
all that money within like 10 years.
So there's different like, inheriting
rules that, you know, maybe
we'll talk about at a later time.
But that's like from a legacy standpoint
or an estate planning standpoint, like
RMDs or, having a brokerage account is
a way better way to leave your assets
than a traditional retirement account.
Louie: And just so we don't lose the
strain too much while we're on that
subject, Roth accounts are also,
they also have the same advantage
when you leave them to your heirs.
Yes.
So it's, those are also good
accounts to leave to your estate
or to your children or whatever.
Both brokerage Roth accounts are good
for that Traditional retirement accounts
or pre-taxed retirement accounts.
Not so good.
Still good.
Jon: gonna pay
Louie: you're gonna pay taxes.
Yeah.
You're gonna pay tax on
it, so it's still good.
Just not as good as those other accounts.
Correct.
Jon: So as you're kind of going
through that, so as we're talking
about taxes, so one of the advantages
of a taxable account, so a brokerage
account, is you get some what they
call preferential tax treatment, right?
On that growth.
So there are different rates at
which you will pay based on kind
of what tax bracket you sit in
and how long you held that asset.
So really in order for this to really
work out to your advantage to be the
most preferential for tax treatment is
you wanna hold assets, what they call
long-term and what the IRS defines that as
is you gotta hold it at least for a year.
Alright?
So if I'm gonna hold a stock, you
know, a really good rule of thumb is
in order to get the best tax treatment
is to hold it for at least a year.
And then you're gonna get
more preferential rates, if
you don't hold it for a year.
Basically, whatever that growth
with whatever that growth was.
On your earnings, you're gonna pay at
whatever your marginal tax rate is.
So if I'm in, let's say the 24% tax
bracket and I made $10,000 on a stock
and I only held it for six months,
I'm gonna pay 24% basically on that
$10,000 because I held it short term.
So I held it for less than a year.
They basically just add it to whatever
your earned income was, and then that's
the rate edge which you're gonna pay.
Okay.
Which is not great.
I mean, 24%.
I'm like, that's not super great.
if there's better ways to do it.
And there is.
So if you hold it long term,
there's basically three different
rates at which it can get taxed.
It can actually get.
Taxed at 0%.
So potentially if you are in a
really low income bracket, you
don't have a lot of earned income.
So maybe you had a bunch of, you funded
a Roth account for a long time, so
you're taking out that Roth monies.
Those don't count towards
your taxable income.
You could then take some money out of
your brokerage account for potentially
0% up to a certain amount of money.
Which is great.
I mean, that's as free
money as you can get.
the more common one is the 15%.
Yeah.
This is really gonna say, like my
general rule of thumb is I tell most
people if they've got a brokerage
account, and they held it for at
least a year, pretty much count on
15% is what you're gonna get taxed on.
Yeah.
Like that's, that makes up
a huge tax bracket, right.
From like 10% all the way
up to 35% pays that 15%.
And then if you're a super, affluent.
A person or you've got a lot of
income to report, potentially it
could be up towards 20% is basically
the max rate at which you'd get
taxed on that, which is still better.
I mean, if you're in the 37% tax bracket,
Louie: still better
Jon: and that's better.
20% is way better than that.
And there's other caveats to this.
Like everything else.
There's the, the Medicare sur charge
tax, which we won't talk about that.
So it'd even be a little bit
higher than 20%, but it's
still way less than your 37%.
So those are super important Yeah.
To consider.
Louie: So let's do this, let's
just do a little walkthrough
Jon: you can
Louie: tell me this.
We're gonna do a scenario here
Jon: Ooh.
Case studies.
All right.
I need a beer.
Gimme that.
Fire Captain Beer.
Yeah.
Louie: I'm not married to a pa so
we're just gonna say that I'm not
in that really high, long term.
30 per 20% bracket.
Let's just say I'm a firefighter.
Married to like an electrician
Jon: Oh, nice.
Okay.
Which maybe are making more
than PAs and physicians now.
Not for this
Louie: No, not
Jon: Okay.
Louie: I'm subject to 15%.
So let's do this.
Let's say I buy a, in my brokerage
account, I buy a share of, Costco stock.
We love
Jon: Oh, you do?
Are a Costco rep.
Through and through.
Louie: So buy it for a thousand dollars.
and it goes up within the first
six months that I sell it.
It goes up to.
$1,100.
Okay.
So I sell it.
Mm-hmm.
And I've basically made myself
a tidy little sum of $100.
Okay.
But I only kept it for six months, John.
So how much am I paying
for selling that stock?
Jon: So, yeah, you're no longer
gonna get your preferential treatment
as far as long-term gains, right.
Because you only held it for six months.
You didn't hold it for
at least the whole year.
So basically whatever rate you are
gonna file your taxes at for that year,
Louie: So if I'm at the 22% marginal
tax bracket, you're saying I'm
gonna pay 22% on that whole $1,100?
No.
Jon: not on the whole,
no, just on your earnings.
Because this goes back to
the concept of basis, right?
And we all know that this is all
after tax money, not pre-tax money.
So that a thousand dollars that you
had in, in order to invest in Costco,
you've already been taxed on that money
Louie: Oh, that's right.
I put in after tax dollars, so
I'm not getting double taxed
Jon: No.
So there's no such thing as
double taxation when it comes
to the, brokerage account.
All right?
So you have your basis of a thousand
dollars, that's what you put into it.
So you're not getting taxed on that.
It's only on the gain of that.
So the a hundred dollars,
okay, so basically $22 is what
it's gonna cost you in taxes.
It's not so bad, right?
Out of, so you're still gonna
show a net profit of $78.
Okay?
Right?
So not bad.
Louie: So then same scenario.
Let's say I buy the stock,
goes up, a hundred dollars.
Jon: Mm-hmm.
Louie: it took, it went
up and down a little bit.
It took a year and a day to get to 1100.
So then I sell it.
Yep.
Now I have my $1,100.
That took me a year.
How much tax do I pay on that?
Jon: So you're still, you still had a
difference of a gain of a hundred dollars.
Correct.
And, but you held it
now for over 365 days.
So full year you're gonna pay 15%
on that gain rather than the 22%
because you got the preferential
treatment because you were smart
and you held it for at least a year.
So super, super important when you're
thinking about when you wanna sell things.
and all of these, platforms are great.
I can't speak for Robinhood 'cause I
don't use it, but I have to imagine
just what I've heard, like they're
technically very savvy, but like I
know on Fidelity and all these other
ones, like it'll tell you exactly
whether or not it's gonna be qualified
for a short term or a long term gain.
Like they categorize that all very
nicely, which is great when you're
selling things that you can actually
make sure that whatever you're
selling at the holding period for
whatever you thought it was gonna be.
So whether it was a year
or less than a year.
Louie: so I think the important
thing in that is that.
We did this little exercise so we
can kind of show you how much you
would pay under different situations.
So like a hundred dollars gain, if
you sell it in the short term, a
hundred dollars gain, you have to
pay, your marginal tax rate, which
could be 22%, 24%, maybe less if
you are in a lower tax bracket.
But for firefighters,
that's probably a safes
Jon: that 22 to 24 is where the
majority of our folks are at.
Louie: But if you kept another six months,
or if you kept it longer than a year,
you would only pay $15 per $100 a gain.
So it is worth it to keep money.
I mean, I don't know about you John.
I don't really ever sell short term.
I don't, I'm not a day trader.
I would never pay that tax rate
when I could hold onto it anyway.
And John, you and I are both
buy and hold investors anyway,
so we're not trading stocks.
We buy things to hold
'em for the long term.
Correct.
So all of my stuff in my brokerage
account, besides the stuff that
I just bought, is long term.
So it's gets that
preferential tax treatment.
Jon: Very rarely have we ever sold
stocks, that were for short term gains.
most of the time.
Like I said, I'm very similar to
Louie, where we buy and hold, we
believe in index funds and just
kind of set it and forget it.
And then if you make some money and
you need some money, you liquidate it.
And that's great.
Occasionally we've been
speculators to some degree.
Sure.
This is more, my wife
that does this and not me.
But, we've done, we've definitely sold
some stocks, that took some pretty big
hits, like right outta the ch so, that
kind of takes us, we're kind of skipping
ahead, but one thing that you do have, as
an advantage in a brokerage account that
you do not have in a retirement account
is this concept of tax lost harvesting.
You've heard that term Louis, haven't you?
Yeah.
Oh yeah.
Why is that, how is that advantageous
to Joe Schmo firefighter?
why would they want to consider that
concept or that strategy, or what is that?
Well,
Louie: when you sell a stock at a
loss, or when you sell any kinda
investment at a loss, you can use that
loss to help offset your tax bill.
So, you know, you know how you pay
tax on a gain while you basically
get that, you get the reverse
treatment when you sell at a loss.
So if you're selling at a loss, you
can use that loss to help offset
because you're losing money and you
don't get to pay tax on that money.
You get like a, it's not a
credit, it's really an offset.
Yep.
so where that can come in
beneficial is, let's say in your.
Taxable brokerage account, you have
all these gains for the year, but you
had one stock that just stunk it up and
Jon: big bologna skin, just augered it in
Louie: a thousand dollars on that stock.
So the value went down.
You can sell that stock and
then use that loss to offset
the gain from your other stocks.
Oh, does
Jon: Oh, okay.
Yeah.
Louie: Yeah.
So I'm trying to keep it as
simple as possible because
tax loss harvesting is a very.
It's become a very big deal lately
and you have these roboadvisors
and stuff like that tout the
benefits of tax loss harvesting.
the truth is, it really is more for
people who buy and sell individual stocks.
Like that's when you can really take
advantage of tax loss harvesting.
If you are one of those people, which
once again John and I would suggest
you buy low cost index funds for the
majority of your saving and investing.
But if you're one of those guys that
like to have like 10% of your portfolio,
you want to just explore and play and
see what you can do and you have these
individual stocks you could potentially
use tax loss harvesting to, offset any
other gains you have in your portfolio,
your taxable brokerage portfolio.
Jon: Yep.
No, I think that's well said.
So that's the biggest, that's the key
differentiator with this one though.
So don't get this confused.
You cannot do this with
a retirement account.
All right?
So you cannot do tax loss harvesting
with a, an a retirement account, which
is another reason why it's not great to
go all in on individual stocks within a
retirement account because you can't take
advantage of this thing goes to zero.
it's no benefit to you.
so if you are one of those.
One of those, investors that likes
to invest in individual stocks for
whatever reason, like that's your jam.
the brokerage account is a much
more efficient way of doing that.
So you can kind of take advantage of
your winners and then offset your losers
to keep your, the amount of taxes that
you're gonna pay or the amount that
you're gonna have to report way less.
So just something to consider.
but this is definitely something that,
you know, the investment industry and the
finance industry is really gleaning onto.
Is it can optimize some of your
tax strategies when you're looking
at trying to minimize your gains,
by selling some of your losses.
So definitely something to, we would
be remissed if we didn't talk about
the advantages of tax lost harvesting.
That's probably one of the most common
cited things when you're considering
a taxable, a brokerage account.
and then this is kind of the last, if
we're doing a top five, really advantages
of a brokerage account, and that's really
man, the world is your oyster, so to
speak, as far as what you can invest in.
We already talked about it.
Individual stocks, exchange traded funds,
mutual funds, real estate funds, options.
I mean, you, crypto, like, you name it.
Like, it's almost, it's almost too much.
Like you literally anything that
you can possibly think about, like
this is the access point or the
vehicle in which you can access
those, which is great for if you're
Louie: be great.
Could be great.
Jon: could be great.
It could be great.
It
Louie: also gives you access
to some tools like margin.
And, you know, some options trading
and stuff like that, that you
can get in a lot of trouble with.
Yes.
but you basically have the keys
to the entire investment world
if you have a brokerage account.
And so you can do some crazy
things, some risky things.
there's a lot of people that have made a
lot of money, but there's probably even
more people that have lost a lot of money
with their taxable brokerage accounts.
a lot of pain.
If you go on wall streete bets,
subreddit and you look at what people
have done with their brokerage accounts.
Jon: What I feel like I, I don't know if
this is right or not right or wrong, but
I just feel like the brokerage accounts,
and I've mentioned Robinhood a lot because
Robinhood, like, you know, I've actually
listened to their founders and why they
really got into it and they really wanted
to democratize, investing to like the low
person, right, to like the commoner, if
you will, that didn't have hundreds of
thousands of dollars to invest and have
a broker and have all these minimums.
Like they really wanted you as
a common person to be able to
invest in an Apple stock, but you
didn't have $450 to buy the stock.
They were the ones that really
helped create fractional shares.
So you could literally, if you
had $2, yeah, we'll give you,
you know, one, 1000th of a, of
an Apple share, which is great.
Everyone really needs to have
access to the, stock market.
Like we've noticed like the, the,
the distribution and wealth and, the
inequalities that they talk about.
And it's really people that have,
access to invest in appreciable,
assets like stocks that really have
an advantage versus those that don't.
And Robinhood has definitely done
that, but I do feel like Robinhood has
gamified, trading and that's truly what
it is, where people are trading stocks
daily, sometimes multiple times a day.
And that, in my opinion, is really
where you become more a speculator.
Yeah.
And not so much an investor where you
see something, it goes up by a little
bit, you sell it, and then you buy
something else hoping it's goes up.
and it really just creates some
challenges when you're thinking
about buying and holding long term.
So
Louie: that's a fool's errand.
And I'll just say this right now, this
might be controversial, but if that's
what you're doing, like I know how to
make money by, day trading on a regular
basis, you don't, and if you have made
money, it's because you got lucky.
And in the last 10 years.
You know, 12 years, maybe even 15
years, the economy's been so good.
the stock market's been so good that
any fool could do that and make money.
but I think Warren Buffet has a
quote that when the tide goes out,
you see who's been swimming naked.
Jon: Oh yeah.
Louie: And I think, and what he's
referring to when he, he said that when
he was referring to when the stock market
is going down or when the economy's in
trouble, you see, who doesn't really
know what they're doing with their
investments and with their stock strategy.
And so, you know, I would say almost
everyone is not gonna be able to figure
out the right stocks to buy and hold long
term and beat it and beat the market.
And if you do, it's 'cause you got lucky.
And it's not because you are just this
great stock analyzer or because you've
seen the most stock memes on Wall
Street bets or something like that.
So we, we're just saying that because
we're touting, it almost sounds like
we're touting taxable brokerage accounts
and we're talking about all these
benefits, but there is like a dark.
Underbelly to the whole tax,
to the whole Robinhood thing.
And I think you could listen to their
founders and talk about democratizing,
but you can look at it from a skeptical
viewpoint, which I tend to do very often.
And that is they gamified the system and
they wanted people, they enticed people
in with free trades so that they can
buy and sell without necessarily doing
it to make money, for their investors,
but instead to just make money for
themselves and to get people attracted
to this idea of logging into your app
30 times a day, buying and selling cool,
fun meme stocks and stuff like that.
And so, you know, I don't know, may,
maybe Robinhood did have a, it was
purely, for the good of the people,
but I do think that the other way
to look at it is they really made.
A game out of investing and if
you treat investing and saving for
your retirement as a game, it's
probably not gonna be a good thing.
Jon: Yep.
No, that's kind of our 2 cents on that.
So, you know, to kind of wrap up
on like the benefits though for
going back to the brokerage account.
So really think about
it's flexible, right?
So you can take out the money
kind of whenever you want.
There's no early withdrawal penalties that
you have to worry about, or restrictions.
You can get preferential tax treatment
compared to what you would pay as like
a W2 employee or a salaried employee.
There are advantages that way
as far as leaving a legacy
and estate tax advantages.
the brokerage account definitely
holds true with that versus a
traditional retirement account.
and you just really have a ton of
investment options and choices inside
whatever custodian your preference is.
So there's a lot of, there's
a lot of opportunities there.
So.
Let's talk about then on the flip side
of that, and this is one that we've
talked about before, but what are
maybe more advantages or why should
our listeners and members think more
about contributing to a retirement plan?
And specifically we're talking about
in this circumstance, their 4 57
plan versus a brokerage account.
what are the advantages of that?
let's start with number one, Louis.
Yeah.
Louie: So, One of the cool things
about contributing to a retirement
account that you don't get with a
brokerage account is that you get
a tax benefit if it's a traditional
4 57 that you're contributing to.
You get a tax break this year, so you're
not paying taxes on any of the money that
you put into that account, or as with
a brokerage account, like as we already
mentioned, you're gonna have to pay.
You're gonna have to use after
tax dollars to fund that account.
So you get an immediate tax break
when you put money into a 4 57.
Same thing with a Roth 4 57 if
you were to put money into it.
It's also on an after tax basis.
But the beautiful thing about it
is, instead of having to pay 15% on
gains, when you eventually withdraw
that money, you don't pay anything.
The government already got their money
and so they don't get anything after that.
So you can see, like that shows
you a stark difference between a
brokerage or a Roth I or a Roth 4 57
let's say, is that you're getting a
huge tax benefit that you don't get
with a taxable brokerage account.
Jon: No, that's correct.
And that's definitely well said.
So that's just something to consider.
So whether you're not, you're thinking
about the tax deferred growth or if
you're talking about paying taxes via
Roth right now, but then having, you
know, absolute, tax free withdrawals,
when you get to the age in which you
retire, Definitely things to consider and
definitely a leg up for the retirement
plan, whether it is the traditional or
the Roth, excluding the brokerage account.
Alright, so, there are, another,
yeah, I guess you would call it
benefit of the four fifty seven
is, you can put in quite a bit of
money inside of that account, right?
So this year it was what, 23,000?
I think 20 or next year it's
gonna be 24, 23 5 24, 24 5.
I always get 'em.
We should definitely check on that.
But it's, I mean, for most of us,
like most of our members don't have
that ability to totally max it out.
But if you are great.
and there also are, catch up
provisions that are allowed.
So if you're over the age of 50, you
can contribute, you know, another
seven or $8,000 on top of that.
which is great, which is an unbelievable,
I mean, if we have members that are
starting young or even middle age and
they're maxing that thing out, they're
really gonna be setting themselves up
for success when they already retire,
after hopefully 20 or 25 or 30 years.
that's gonna be a nice little
chunk of change in there.
So
Louie: 23, 20 $4,000 of tax deferred
or tax free growth is phenomenal.
Like that is gonna be amazing.
And you don't get that with the
taxable brokerage account 'cause you're
paying taxes on it and on the gains.
So, and then the biggest, I'll say
this, I think this is the biggest one.
John, you put this in here.
this is the last thing to talk about
for this, but I actually think this
might be number one in terms of the
importance is with a 4 57, whether it's
traditional or Roth, you have, payroll
deductions to make savings automatic.
So I would say that, if we didn't have
this, if you had to actually choose to
go in and put, pull money outta your
checking account to save in your 4 57,
I bet our contribution rate here at West
Metro would plummet to the single digits.
Like you
Jon: Oh, for sure.
Five
Louie: to 5% of people or
something contributing.
So the fact that.
With a 4 57, you have it.
You set it up with pay with payroll,
you set it up with hr and then
money is automatically deducted
before you ever get your paycheck.
Just eliminates any kind of temptation
to use that money for something else.
It's gone before you even see it.
It's in a different account.
You don't have easy access to it, and
that's the best thing for investors.
You set it, you forget it,
and it just keeps growing and
growing behind the scenes.
Yeah.
You can't do that with
the taxable brokerage.
You have to manually go into your checking
account and or go into your app and pull
money into your brokerage account every
month and you can set it up for automatic,
I guess you could do that, but it still
has to hit your checking account first.
Jon: Yeah, no, that, I mean,
they call that friction, right?
Anything that you make frictionless,
if you will, and just automatic,
it, there has been study after
study that just shows what people's
investment futures look like.
If it's, if they never literally
see the money, it just automatically
gets withdrawn and set up and
they don't touch it at all.
that is definitely the best case
scenario for the majority of people
is to not be an active investor, to
just have a plan, continue to set that
up and then just don't mess it up.
Yeah.
Which is, doesn't sound great.
'cause most people like to control,
feel like they have control
and they want to make moves.
Like they feel like that's
the better thing to do.
But like, evidence says, and
anecdotal says like, the more
people mess with their portfolios
and investments, the worse they do.
And it doesn't matter what
investment you're talking about.
that is just, that is the truth.
Louie: maybe you can kind of help
fill in the fuzzy details for me.
But there was a brokerage, I wanna
say it was like either Fidelity or
Schwab that did this study, that
showed that people who were dead were
better investors in their retirement
accounts than people that were alive.
Yeah.
And the reason why is because
they did not, the dead people
did not touch their investments.
So they just were, they just grew.
They didn't change 'em, they
didn't reallocate 'em, they
didn't try to, you know, open up a
brokerage account associated with
it and try to do their own thing.
They just left their investments
there 'cause they were dead.
The people that were alive would
always change the allocation or change
the investments or change the funds.
And that led to worse outcomes
over time for those people.
Yeah.
Which is kind of funny.
Jon: is, it's scary.
I mean, to think that dead people are
better investors than professional
money managers, but that's the
cold hard truth is just whatever
strategy you have, it really is.
it's just continuing to stay the course
and keep with that strategy and not
mess it up and not, get in and outta
positions all the time and really
feel like you're making a difference.
'cause it is the one thing that
people have proven time and time
again is they cannot time the market.
And that's the one thing from the very
beginning, Louis and I have always
advocated for, is do not think that
you are smarter than anyone else.
And that you have a better skillset,
that you can all of a sudden get
in and out of stocks and know
when they're gonna go up versus go
down and sell high and buy a low.
it just does not work that way.
And this is for people that have
dedicated their lives to figuring
out market structure and they
still are not able to do it.
So, set up that index fund.
Just continue.
To contribute the max that you can and
then come have a drink a fire Captain
ale with Louis and I after 25 years.
and you're gonna be in really
Louie: real good shape.
Jon: Yep.
So that, that, that ability
to make those automatic saving
it just set up is critical.
That's probably the, I
agree with you Louis.
That's probably out of all the
benefits, that is by far the number
one thing from a behavioral standpoint.
Yep.
once again, wrapping up 4 57,
think about it, is there's tax.
deductions if you do, traditional or
there's, the ability to do a Roth account
and then have tax withdrawals later, which
is great, which is something that you
will not get with a brokerage account.
you don't have to worry
about, early withdrawals.
All right?
From the 4 57 plan.
If you leave, a traditional 4 57, you can
basically take that out as soon as you
leave service, doesn't matter your age.
there are pretty good contribution limits.
and it really is that forced
discipline and structure that make,
a retirement plan, specifically the
4 57 really, a good opportunity for
our folks to invest and save money in.
Louie: So then John, my big
question to you after that is
you hear all these benefits of
the 4 57, like tax deferred Yeah.
Or tax free in the case of the Roth 4
57, you know, contributions and growth.
I guess, the question is, and I've been
asked this a lot, is, well then why
would I invest in a brokerage account?
Like what, in under what circumstances
should a person choose to invest
in their brokerage account over
their, retirement accounts?
And I know you said flexibility,
but what does that actually
mean for me as a firefighter?
Like when should I choose, the
brokerage over a retirement account?
Do you have any thoughts on that?
Yeah,
Jon: if you need money, whatever
that money's gonna be used for.
So, you know, probably the most common
for a lot of our listeners and members
is like some type of, big purchase.
So whether that's a down payment for
a house or something else like that.
So something that you're gonna need
access to money before you retire.
you're gonna wanna fund that
in a different way than using
your retirement account.
I mean, it sounds very obvious,
like one is even in the terminology
retirement, but if you really want to
think about it, that's what I would add.
Advise someone.
So if you know that you're gonna need
some money, let's call it $25,000,
and I know once again, I'm living in a
pretend land thinking $25,000 is gonna be
Louie: a down payment
Jon: anything more than a vehicle today.
you're kidding yourself, but no, let's
just say, that's your goal is you wanna
save up $25,000 and you're gonna need
access to it in the next couple years.
A brokerage account.
And even then you could probably
get into the semantics of maybe a
savings account would be better.
'cause I'm gonna need
that within a year or two.
let's say it's five years.
Five years, I'm gonna need $25,000.
I'd be like, okay.
Seems pretty reasonable to
invest that money in, a broad
and a broad based index fund.
And then, in, in five years, hopefully
you've gotten some growth off of that.
That's a great opportunity
for a brokerage account.
Anything else, like savings wise,
as you're thinking about like, you
know, well I think after retire I
might want a second home, or I'm
gonna do all these other things.
I think you're much better gonna
be suited for maxing out your
retirement account first and foremost.
Funding that long-term down the road
from not only a tax strategy, but
just an optimization of your finances.
You're gonna be better suited.
Whether that's a traditional
or whether that's a Roth.
we could have, arguments on both ends.
I got a good one.
Ooh,
Louie: what if, you know, I mean, these
big monster mega banks that I'm with,
Wells Fargo and Chase, they don't give me
good savings account rates, but I needed
my, have my emergency fund somewhere.
Yep.
Can I put my emergency fund
in a brokerage account?
Because then I could buy some stocks,
maybe some, crypto and I could
make a lot more on that savings.
That's just sitting there
not making anything for me.
What do you think about that?
Yeah.
Can I put my e fund in there?
Jon: I think your e fund or your
emergency fund is best suited
in something that is safe.
Right?
And what is safe is something that is
backed by the FDIC, which is backed
by the government, that you're not
gonna lose that money and anything.
And you'll see on every disclosure of
every investment and any stock, and
even in bonds, that they will tell you
that this, that you have to basically
acknowledge the disclosure that says,
this investment has the opportunity to
lose money, including your principal.
So the amount of money you put in.
So the concept within an emergency
fund is that is specifically
sacred and it has to be liquid.
So you have to be able to access it
immediately, and you have to know
what the value of that is gonna be at
all times or else what's the purpose.
Louie: So, so John, I totally, I
asked you that question in that way
'cause I've been asked that same
question that same way by countless,
buddies at the, around the fire.
Station dinner table.
And I always tell them, no, it's
not an appropriate place for your
savings or your emergency fund, like
just your regular emergency fund.
You need to have three to six months.
Right?
We always tell people three to six
months is a great mark to shoot for.
And if you have that, you don't, you
wanna know, you can rely on it if things
go bad, if you lose your job, if you're
injured, if you have, some big house
expense that you were not expecting.
What can happen in a brokerage
account, and this is true, whether
you hold individual stocks or whether
you hold an index fund like we, that
we always tout, you can experience
a 25 or 30% drop in one day.
It's happened before, it
will probably happen again
Jon: Oh, it will?
Yeah.
Guaranteed
Louie: in the long run is the best
thing you can do with your money.
buying index funds and stocks are great,
but in the short term, in the really
short term, it could be very volatile
and you can lose a lot of money.
The worst thing you can do is
have the market go down by 30%
and then freak out and sell.
You sell your stocks and take a 30% loss
because you need the money at that time.
So for emergency funds, we would say
definitely don't put it in a brokerage
account that needs to be in a savings
account or CDs or something like that.
It should not go in a brokerage account.
Yeah.
Same thing with a house fund.
Like I talk to a lot of people who
say, I'm gonna, I wanna use a brokerage
account to save money for a house.
The question that I always ask is, what
is your timeline for buying a house?
And if they say it generally is always
like, well, my, my wife wants to buy
one next year, this time, next summer.
And I'm like, okay.
So.
your wife wants to buy a house next
summer, you've agreed to that, or at
least she's coerced you into that.
The worst thing you can do is put your
money in a brokerage account and then have
your, whatever your down payment, that
you've been working hard for $50,000, go
up and smoke when the market tanks and has
a, you know, black Monday kind of moment.
And if that happens, then you're
not buying a house next year
or you're selling at a loss and
you're putting less than you think.
But if people say, I don't know when
I wanna buy a house just sometime
in the future, maybe four or five
years down the road, I don't know.
And then I'll say,
okay, so you don't know.
You just know you wanna buy
at some point in the future.
Do you, are you okay waiting if the
market goes down in four years right
before you buy a house, could you
wait another year before you bought
that house for the market to recover?
And if people go, yeah, I don't mind,
like I, I'm flexible, then I'll say,
okay, then you can put that house
fund in a, or that down payment in a
brokerage account and write it out.
But if you know you have a timeline and
it's in the short term within the first.
Within the next like three years, I
would say probably a brokerage account
is not a good time, a good place
to, to put that money, you wanna put
it into a safe asset that you know
is gonna be there in a few years.
And generally that's a savings account.
Jon: I think that's a
pretty good rule of thumb.
That's typically, and they
call it, time horizon, right?
Is like, when are you gonna
wanna access this money?
And you know, by definition most
people will say short term investing
goals are things that are a
couple years, two or three years.
Call it, if you need something that
money within two or three years,
that's a short term investing goal.
And you should not be investing
it aggressively in stocks because,
potentially the stock market can
be depressed for multiple years.
And that way you don't
have access to that money.
If you do have access, it's gonna be at
a loss and you don't want to do that.
Pretty much anything.
once you start getting four or five,
six years, that's more longer term or
midterm and then you can be a little
bit more aggressive and take a little
bit more risk by investing in stocks.
'cause historically the stock market,
even though it goes up and down throughout
the course of a year, and even though it
can be down for a year or two, typically
after, a year or two of the stock market
being depressed, it will go back up.
and it will go higher than where
your original investment is.
So I think that's rule of thumb if
you're thinking about it, as far as
when your goals are for accessing
that money, anything less than
three years should definitely be
safe, high yield savings account
where you can immediately access it.
The flip side of this, and this is where
people want to eat their cake too, is they
want safety, but they also want growth.
Yeah.
And you just can't have it.
that's the definition of risk.
Like risk is defined by what your
expected return is gonna be, and it's,
if you expect to get a lot of growth
or a lot of, you're gonna have to
take a lot of risk and vice versa.
So that's the nature of those.
So we wanted to just unpack the,
brokerage account because we talk
about it a lot, or we, at least we
hear a lot of people talking about it.
So we just want to shed a
little bit of light on what
it is, where it can be useful.
For our folks and our listeners.
and also, you know, because that
always gets put up against, well,
what's more adv advantageous, the
4 57 or brokerage account, and how
should I think about both of those?
And I hope after this podcast people will
understand that at least there, there are,
evidences for when it could be beneficial
for a multitude of different reasons.
And just understanding that there are
options out there and flexibility and
just being, educated on what are you
using the account for, what's your goals?
And then matching that goal
with the appropriate account.
I think that's what we were trying to do.
Exactly.
Louie: And we, John and I, we care
about firefighters future, so we're
always gonna have an inclination
or a bend towards pushing people
towards retirement accounts.
And I think that's for a good reason.
we want people to invest in their
four 50 sevens or their IRAs.
Obviously we love people to do
that on the Roth basis so they
can lock in some low tax rates.
and so we're always gonna push that.
But that doesn't mean John and
I both have brokerage accounts.
We both use our brokerage accounts.
He just said that he, used his
brokerage account to put some
money down on a piece of land.
I did the same thing when
I bought a house last year.
I sold off some stock investments from
my brokerage account, some index fund
investments I should say, and used the
proceeds to put a down payment on a house.
And that is, that was a great thing.
Like we were very lucky to have that.
And we have a chunk of money in our
brokerage account that is almost, it's
not an emergency fund, but it's a.
It's a comfort fund.
'cause now we have this unallocated money.
It's not in YA, it's not something
that I know I'm what I'm gonna do.
I just know that I have this.
Chunk of money to be
used for whatever it is.
If I, if my car catches fire, and
station 13 has to put it out, I know
that I could go buy another one with
the proceeds from my brokerage account.
So there's just some good things about
that, that, that gives you some comfort
to have money that I can access right now.
So I think for a lot of people, even
though it's not an emergency fund, we
still have that in a savings account.
It could be a good way to just save
for some unknown event in the future.
It's like a war chest.
Yeah.
Right.
Like, you know, something crazy
could happen and I'm just gonna
keep investing for 10, 15, 20 years
and see what's in that account
eventually and use it when I need to.
Jon: Yeah.
We're at the age now where I know
a lot of people that unfortunately
they're, they're getting inheritances
right now from parents or grandparents
that are passing away and they're
getting bequeathed, stocks or whatever,
and they're getting this money.
And that's where I've seen a lot of people
start to use that and be like, okay,
I've just got this pool of money now.
What am I supposed to do with that?
And then they'll open up a
brokerage account and use that for
their investing, which is great.
Which is a, an amazing opportunity, for
taking that money and hopefully using
it wisely towards your financial future.
So that was the goal.
But other than that though,
man, big weekend coming up.
go pack.
Go baby.
Go
Louie: Go.
Broncos country.
Jon: Go pack, go.
No, thanks again for everyone, listening.
Hey, happy holidays,
however you celebrate that.
I truly mean that.
We hope to see many of you at
the, soiree coming up tomorrow
on Saturday for the, the holiday
party, I should say, for West Metro.
be safe out there.
man, I just really hope you get
to spend, this, really cherished
time of the year with, friends and
family and reflect back on all the
things that are important to you.
And, hopefully you can set your
financial goals and strategies to
meet those, similar, priorities.
Louie: Yep.
Stay safe, keep saving.
Merry Christmas.
The Fiscal Firehouse Podcast is
a podcast curated specifically
for local 1309 members.
This podcast is for informational
and educational purposes only,
and should not be construed as
professional financial advice.
Should you need professional
advice, consult a licensed
financial advisor or tax advisor.
The opinions of John Beatty, Louis
Barilla and their castmates are
solely their own, and don't reflect
that of West Metro Fire Rescue.