Subscribe
Share
Share
Embed
Retirement Answers is a podcast built to help you succeed in retirement. The thought of retirement can be overwhelming and downright scary for many... but it doesn't have to be!
The goal of this podcast is to provide thoughtful insights and strategies to give you the confidence you need to retire successfully. At the end of the day, my ultimate goal for my clients and podcast listeners is to live a fulfilling retirement.
Follow along as I publish a new episode each week covering everything from retirement income planning, tax planning, Social Security, insurance planning, investing, and much more.
Here's to learning everything you need to know to live out your dream retirement!
Hey, friends, and welcome back to another episode of Retirement Answers. My name is Jacob Duke. I'm your host as always. Hey, today, I've got two questions for you. The first one is, are you ready for the next 30 or 40 or 50% drop in the stock market?
Jacob Duke:I want to come back to that here in just a second, because what I'm not doing with that question is I'm not making a statement. I'm not saying that anything will or won't happen. I'm just curious if you're ready. And the second question I have for you is, when do you sell your gains? Right?
Jacob Duke:Maybe you have a large position that's gone up in value, whether it be your portfolio as a whole, or maybe there's a specific investment or holding that you might have, that's gone up a lot over the last five or ten or fifteen years. And what I'm finding is, as I have more and more conversations every single day with people just like you, is the question that seems to constantly be coming up is Jacob, hey, what do I do with this holding? What do I do with my Nvidia stock or my Tesla stock or you fill in the blank, whichever one you have, what do you do with it? And when do you sell? And what are the implications of that?
Jacob Duke:And what about taxes? And hey, what do I put that money in whenever I do sell it? What do I reinvest it into? So there's a lot of questions wrapped up in that. And the reason that these questions here on my mind is because of a lot of conversations I'm having lately.
Jacob Duke:And one particular that I've had, about three weeks ago was was kind of why I wanted to do this episode. A gentleman came to us, he's been watching our YouTube channel for quite some time. I like, hey, Jacob, I think what y'all are doing is exactly what I'm needing and looking for. So we had an intro call, got to know each other better. And so on that call, one of the big things on his mind was, hey, I've got this holding and I don't know what to do with it.
Jacob Duke:And I'll just kinda give you a little bit of detail and then I want to tell you why this particular conversation sparked a desire and a need to talk about this on the podcast. So what he's got is he's got amongst the rest of his portfolio, he has $2,000,000 worth of Nvidia stock in his brokerage account. And I started asking questions about this and trying to learn more about it. So I was trying to understand like, hey, what are you doing with that money? Like, what's the point of it?
Jacob Duke:And and so what come to find out he invested $200,000 back in, guess, 2020 or 2021, five or six years ago, whenever he originally invested in Nvidia. Okay, so he's taking that money from 200,000 to 2,000,000 in about five years. And so as we're talking about it, you know, I presented a question to him, I said, hey, if I could have promised you five years ago that if you gave me $200,000 I could guarantee it, that if you wait five years, I can hand you $2,000,000 back, you know, and by the way, this is not a statement that I can do that. It's not a guarantee of anything. This is just hypothetical.
Jacob Duke:But if I could turn 200,000 into 2,000,000, would you take me up on that deal? Would you accept that offer? He's like, absolutely. No question. I would absolutely take 200,000 turned into 2,000,000 over five years.
Jacob Duke:And then I turned back to him, said, then why aren't you taking the deal? You have the deal in your hand. It's right there. Why are you not taking the deal? And I could see it on his face.
Jacob Duke:It just that light bulb went off. It's like, yeah, you're right. I said, so what's holding you back? And he said two things. The first one is understandable.
Jacob Duke:The second one raised the red flag in my mind and actually that's that's what prompted talking about on the on the podcast today. The first answer was, well, Jacob, it's in my brokerage account, so I'm gonna have to pay taxes on it. Right? Capital gains taxes on those. If I were to sell, you know, dollars 1,800,000 of gains, I'm gonna have to pay tax on all of that.
Jacob Duke:And that's a fair statement, right? That's a completely understandable thing to say, maybe I don't want to pay taxes on that yet. But the second one was the alarming one for me, And it just raised that flag in my mind is like, oh, that's where we're at. And what he said was, is Jacob, I think there's still room to run. And I was like, ah, okay, so one side of the equation is yes, we don't wanna pay taxes.
Jacob Duke:The other side is we don't wanna miss out. Right? And so what that tells me is, and by the way, is not unique to this gentleman. This is kind of across the board, different conversations, different stocks, but a very similar theme, is I don't wanna get out yet. I don't wanna miss out on maybe there's another run, there's more room to go, there's more room to run here is the common sentiment that I'm feeling and hearing from people in this gentleman and in other situations that I'm talking to every day.
Jacob Duke:And it told me everything I needed to know about where we're at. It told me that, hey, we're in the greed phase of the market run. We're in that stage, okay? And whenever I start to hear, hey, we've made a ton of money, but I want more. That's whenever I get to like, hey, I don't know that I want to be involved with that crowd.
Jacob Duke:Because I know at some point, money is not easy, okay? And all of us cannot win the money game this easily like it has been for five to ten years. It's been a very, would say overall, it's been a very easy time to make money. Guess what? In order for that to be possible for a five or ten or fifteen year period, the opposite also has to be possible for a separate five or ten year period.
Jacob Duke:Like it also has to be equally possible for it to go the opposite way by that same amount. That's the risk premium. That's what it takes to make money is there has to be a risk. If it's constantly making money and there's no risk, then we you know, you wouldn't make the money. That's the whole point.
Jacob Duke:So that's why I want to just kind of present this to you and say, hey, what are you holding out for? Many of you probably have large positions that have grown. Many of you probably have been holding on to individual stocks or securities. But I guess the question is, is what are you waiting for? Why haven't you sold yet?
Jacob Duke:What's the thing that's holding you back? Are you willing to continually push those chips to the center of the table and say, yes, I'm willing to risk this. Yes, I'm willing to risk. Why haven't you said, want to take my money and go home. And it's typically those two things, taxes and room to run.
Jacob Duke:Now, if we take that question of why haven't you sold the position that has made a lot of money and when is the right time to do that? And then we also think about, hey, are we ready for the next major market decline and or sustained market decline? We've had a couple of these over the last few years. We have a tariff conversations, we've had Iran war, we've had interest rate, you know, spike going up very quickly, which has sent us down about 20% back in 2022. We've had COVID if we go back five or six years with a 30% drop very quickly.
Jacob Duke:All those things have happened, but they have not been sustained. Right? We've been in that if you zoom out, we've still been in a bull market. We've still been an ongoing up into the right trend. The average return is double digits over the last however many years.
Jacob Duke:Okay? So, if that's the case, and we are getting to this greed phase of the market cycle, my question is, are you ready for the not so fun time that could be ahead? Okay, please hear me. I am not making any sort of predictions. I am just saying, are you ready if it were to happen?
Jacob Duke:If we did have a sustained twenty, thirty, 40% drawdown in the markets over one or two or even three year period or even longer, are you prepared to handle that in your financial portfolio? Are you prepared retirement wise? Are you prepared mentally? And if you retire tomorrow, and then that happens the first two years of retirement, is your retirement in jeopardy? Or are you prepared for it?
Jacob Duke:Okay, that's the question I want you to think about and process and say, am I really ready to have an all weather portfolio, an all weather retirement plan where I can sustain my lifestyle and what I want to do in the life I want to live, regardless of the things that are outside of my control, regardless of the markets that thrown at me over the next five to ten years. Am I ready for that? And can my plan sustain the lifestyle I want to live? That's the question, okay? And then paired with that is what positions do you have that have made a lot of money that you are holding on to because you think there's room to grow or you don't pay taxes yet?
Jacob Duke:What are those things? And how does that look for you? And then what's the reluctance to say, hey, I've won the game, why am I still playing? I've won the game, why am I re upping? Why am I anning up again into this thing that could end up jeopardizing my life over the next thirty years?
Jacob Duke:And what I found is a lot of times, it comes back to taxes and greed, but are we letting in the frame of taxes though, are we letting the tax tail wag the investment dog? Are we letting the taxes that you'd have to pay on your capital gains, right? We got to pay our fair share. Are you letting that dictate your decisions? And is it causing you to make a decision that otherwise is not prudent or wise?
Jacob Duke:Okay, that's what I want you to wrestle with. And the question then is like, Jacob, do I just never sell? Like maybe that's the answer. Do I own something that doesn't ever need to be sold? Maybe that's the answer, I don't know.
Jacob Duke:But that's for you to analyze for yourself. But really what I wanna point to today is, what did you invest for in the first place? Really, what did you invest for in the first place? If you were, if you go back ten years and you've got these, you know, positions that have gone up a ton in value. When you bought those companies, whatever it was called Tesla, Apple, Google, I don't really care, pick your whatever you have.
Jacob Duke:When you bought them, what was the goal? I'd imagine that it's some sort of version of I want to put some risk on the table so I can grow my money so that one day I can step away from work, or be financially independent or fill in the blank, right? That's probably if you're being honest with yourself, like why you invest. But oftentimes we tell ourselves that we want to invest so we can have more money. And more money is not a bad thing.
Jacob Duke:Like don't get me wrong, like more money definitely helps. It makes life easier, you can buy nicer things, you can enjoy better vacations like more money is not a bad thing at all. I just want you to be clear on what is the more money for? And if the more money is for a paid off home, a retirement that I can spend as much as I need to spend and enjoy the life I wanna live, leave a little bit for my kids one day, beyond that I don't need more. If that is your answer, then why are you striving for more?
Jacob Duke:When is enough actually enough? That's the thing I think people and guess what, I'm very guilty of this too. We just keep moving the goalposts on ourselves. Okay, once I have $1,000,000 I'll be fine. Once I have $2,000,000 I'll be fine.
Jacob Duke:Once I have $5,000,000 I'll be fine. Or once I have an income that's a 100,000 or 200,000 or 300,000, I'll be fine. Guess what? We just moved the goalposts. That's human nature.
Jacob Duke:But I want you to question like, hey, could I push back on that myself? Like could I push back on that and say, no, this is enough And that's all I need. And once I have that, I'm okay. And I can stop the chase. I can stop the constant striving for more.
Jacob Duke:Because whenever we're going through our onboarding process with a new client, the first thing we ever do before we talk about money is get clear on who that person is, what they really want, and what fulfills them. Because only once we know those things can we really invest with intentionality or create a plan that's correct for them. Yes, we can come up with a mathematically correct answer, but that is not the right answer for them oftentimes. It's kind of like a diet plan, right? Like, hey, I go to a personal trainer, they say, Jacob, I need you to work out six days a week, I need you to do these regimented workouts and you can only eat, you know, rice and grilled chicken.
Jacob Duke:Right? It's like, might be the perfect plan to get in shape and be in the best shape you've ever been in. But the problem is, is I can't sustain that right now. Like it's just not realistic. I wouldn't do it for longer than a week if even that.
Jacob Duke:Because I haven't worked myself towards that. I haven't built myself up towards like it's a slower progression than that. So even the best plan on paper, mathematically, financially and for retirement, it can be there, but it doesn't mean it's the right plan for you. So what are you actually investing for? If you can identify that answer, then you can more clearly answer the question of when do I sell this holding?
Jacob Duke:Or am I ready for that next big market decline? Because here's what I wanna give a couple of examples of like what I'm doing with two clients right now today. We're about to pay a bunch of taxes this year because of capital gains we're realizing in positions that have gone up a lot in value. Why are we doing that? Because both of these clients want to have paid off homes.
Jacob Duke:And to them, and we've talked to this back and forth for a number of weeks, to them being completely debt free and having no obligations other than the money they really want to spend every month is the thing they want. And that far outweighs any taxes they're gonna pay to get there. Because with everything in retirement and financial planning in general, there is a trade off to be had. You can't have all of it with no cost. There's a there's you gotta pay something in order to get the thing you really want.
Jacob Duke:It's just the way it goes. You can't avoid all of it. Yes, we can have strategy. Yes, we can, you know, change things around and move things certain times, you know, throughout retirement and different strategies. The thing is you can't avoid it all.
Jacob Duke:So for them, what they're doing is they're saying, hey, I want to be debt free. One person, it's because their wife is paralyzed by the debt. Even if it's not a big sum of money, like mathematically, the answer is keep the mortgage, keep the money invested, right? That's the mathematical answer, but they're not sleeping at night because of that answer. So let's help them sleep at night by paying off the debt.
Jacob Duke:Yes, you have a lower net worth liquid, but now you don't need as much liquid net worth because you don't have as much obligation monthly. So you're in the same spot, although one feels very different. And the other is being laid off at the end of the month, and their spouse is going to continue working for the next few years. And in order for that spouse's income to cover their monthly obligations and expenses, they wanted to pay off their mortgage to not to pull from their portfolio. Now, simultaneously, they've got different individual holdings that are at all time highs, each of these different people.
Jacob Duke:And so if they were ever to sell, now would be the time to do that to lock in the most gain and capitalize on what they've done. Right? And this is not something by the way, this is me disclaiming, I did not help them get these gains. These are things that they've done over a number of years before they even got to me. Okay?
Jacob Duke:But as we're working together, they're saying Jacob, that makes a lot of sense. If we were to ever sell, now's a good time to do that. And I've gone back and forth, I said, look, that means you're likely gonna give up some sort of gains that they're gonna make in over time that you're gonna give up by selling now. Are you okay with that? And so we've had many conversations around, hey, there's a trade off, there's pros and cons of this.
Jacob Duke:And each of them landed on, hey, I want to pay off these debt obligations so that I can take the money that we've made. Yes, we've got to pay capital gains taxes on it. I'm okay with that, but this frees us up. And so by having these conversations and going through this thoughtfully, we've identified that the question of what did you invest for? They've clearly identified it.
Jacob Duke:They invested for the ability to retire one day, the ability to have control of their life, their cash flow and so forth. It's not so they didn't invest just to have more money, but have all the problems that had not having money has. Right? The money is for something else. It's supposed to get you somewhere.
Jacob Duke:You're not supposed to just have more of it. It's supposed to be a tool in your tool belt to get you to the place you want to be. So in reality, your net worth really doesn't matter. Right? How much stock you have in these different holdings, it doesn't really matter.
Jacob Duke:It only matters how it can be used. And if you never let yourself use it, then it's really not useful. If you're always gonna be scared of paying taxes on the gains, then it's not really useful. It's just a number on a paper. It makes you feel good, but it's harming you in other ways that you're not really aware of yet because you're unwilling to part with the thing that's made a lot of money.
Jacob Duke:But making that much money was to fulfill these other obligations that you invested for in the first place. So there's a lot that we haven't covered here, by the way, like the actual mathematical piece of it. Hey, what are the tax? How much should we pay the taxes? And by the way, there's one of these two clients that I'm talking about, we are doing a gifting strategy to fulfill some of their charitable giving desires as well by gifting the appreciated holdings and things like that.
Jacob Duke:So there's more to it than just selling and paying taxes. There's other ways to help meet your goals. But I guess I just wanted to present these ideas and thoughts to you today because it's something that's coming up a lot in conversation with prospective clients and the clients that we are serving. Hey, what do we do with this money we've made? Right?
Jacob Duke:What do we do? And my question back is, well, what's your plan for whenever it loses 50% of its value? I don't know if that's gonna happen by the way, but what if it did? Are you ready for it? Are you prepared for it?
Jacob Duke:And does that scare you a lot? And so, it's a thoughtful conversation needs to be had. And I just wanted to throw this at you today because this is where my head's at, right? This is the things I'm dealing with, I'm talking with people about, and I want you to be prepared for anything and everything that might come in the future. Okay, so me making a statement of a market decline coming or looming.
Jacob Duke:This isn't me saying that you should sell everything. This is not me saying you shouldn't sell everything. This is me saying, hey, what is your plan for your money? Like what is it actually for? And I'm just gonna leave it there.
Jacob Duke:And I hope this is helpful. If it was, share with a friend. And thank you so much for tuning into this week's episode of Retirement Answers. We'll talk to you again here soon. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice.
Jacob Duke:Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.