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News, planning insight, and forward thought on the economy, markets, and wealth management.
Israel strikes Iran. Welcome. It's Money Talk, the Annex Wealth Management Show. Lots to talk about there. Also in the next hour, we're gonna examine the troubling rise in what is called the gray divorce.
Danny Clayton:Also, you might be able to have cryptocurrency in your four zero one k. Is that a good or a bad idea? And what's the responsibility for company owners when it comes to a risky investment like that even if the employee makes the decision? It's all between the expertise and informed opinion of our host today. Brian Jacobson is our chief economist.
Danny Clayton:Welcome.
Brian Jacobsen:Hey. It's great to be here.
Danny Clayton:Dave Spano is our CEO.
Dave Spano:Thanks, Danny. You know, you and I are old enough to remember the Arab oil embargo and the Yom Kippur wars that really pushed oil prices around in the in the mid nineteen seventies. But here we are with another oil incident, right, and turmoil after what happened with Israel and Iran, Brian.
Brian Jacobsen:Yeah. And I think that it's important to create some context here as far as the oil issue. Right? If you think about Iran, they produce maybe, like, 1% of the global output of oil. So they're a big player, but they're not huge.
Brian Jacobsen:The bigger issue is really around the Straits Of Hormuz, which is in the Persian Gulf, where if they decide that they're going to, you know, harass some ships as they go through there or try to close it, that's the part that could be really damaging to the flow of oil globally, because about 25% of seaborne crude goes through there. And so that's where I think you're seeing this outsized reaction in the oil markets. Now, obviously, we don't know how this is gonna play out, but it did happen so quickly. But we've seen this happen before. Oftentimes, you get spikes in the price of oil, things play out, sometimes it's over the course of days, sometimes weeks, sometimes months, but then eventually, you do see those oil prices come back down.
Brian Jacobsen:I find it somewhat encouraging in terms of oil supply that, you know, if you think about president Trump, he went over to The Middle East on some sort of like charm offensive, basically, during the first part of this administration.
Dave Spano:It's funny. Those I didn't know those two words went together. Sounds interesting to me. Yeah. Charm offensive.
Brian Jacobsen:Really, I think that it means we do have allies that Saudi Arabia, they have spare capacity. United Arab Emirates, they have some spare capacity. And so I'm not really all that concerned about the longer term implications, but it is quite troubling to see, you know, the price of oil higher, stocks move lower, and then also the loss of life.
Dave Spano:And you think about, Brian, you know, if you look at charts, and we we do that, and you tie that to crude oil prices, you can see this is not new information. Right? We can remember when Russia invaded Ukraine. We know about the October seventh massacre. You know, all of these things, Israel's response to that Yep.
Dave Spano:The fall of Assad in Syria. You know, there's all of these things that have happened that have moved oil prices over time. And like I said, where we started, you know, we can go all way back to the nineteen seventies. I remember being in my dad's Buick and him just rolling down the hill to the gas station while there was lines
Brian Jacobsen:Oh, wow.
Dave Spano:Of people trying to get gas. And so, we have seen this before. We don't expect this to happen now, especially where The United States is as a oil exporter. We're in a much better position today than we were, but that is a really good point. It might not be about the price of oil, but perhaps how they distribute the oil through the Straits Of Hormuz.
Dave Spano:So we're gonna watch this closely. But to move on and see how the markets react is probably what people are more concerned about, you know, what's gonna happen to their four zero one k's or other investments as the prices move around. I think that's really the story.
Brian Jacobsen:It really is. And a lot of people have really written off investing in a lot of energy companies, it seems like, if you looked at how the stock prices have behaved relative to, like, tech companies. But I think this also highlights why you want that global diversification, which includes that sector diversification. Lot of these energy companies in The United States, you
Speaker 4:pointed out, we are now an oil exporter. So if you kind of look
Brian Jacobsen:at the history of refining in The United States, you know, on the East Coast, they might have to import oil from another country just because there aren't the pipes necessarily connecting them to where a lot of the oil production in The US is. Same thing in the Midwest. We might have to import from Canada as opposed to using domestic energy sources. So it's a part of the piping. It's also the history around the refining equipment because they're calibrated for certain qualities of oil.
Brian Jacobsen:Maybe this can also be a reminder about how international trade, oil production, it does become a national security issue. And this is where, you know, over the course of time, maybe this is a bit more of a wake up call in terms of, yeah, we do have to keep making progress on this, not just from an economic perspective, but also a national security perspective.
Dave Spano:No question. So we're gonna watch this, folks. And, of course, the other big news that we're going to pay attention to is really what the Federal Reserve will do with rates. And so they are getting a lot of pressure not only from economic news, but the bond market itself will put pressure on the Federal Reserve. And lastly, how this tax bill moves its way through congress.
Dave Spano:These are the three things that could be market moving over the next several weeks and months, and this is the reason why folks know what's in your portfolio, know why you own it, how much you're paying for it. There's a process that we can go through to make sure you understand.
Danny Clayton:It's easy. You head to our website and, yep, you can do it on a weekend. Just head to annexwealth.com and click that get started button. It begins the conversation between Annex Wealth Management and you, And we'll set up a meeting, we'll talk, we'll get to know you, your goals, and then we will move forward. It's a real shame when a marriage hits the skids.
Danny Clayton:It might be a bigger shame when it hits later in life. That's called the gray divorce and it's on the rise. We're gonna take a look at that next on Money Talk, the Annex Wealth Management show on six twenty WTMJ. Know the difference with Annex Wealth Management? We've discussed the gray divorce on this show for a long time.
Danny Clayton:It's not going away. In fact, some feel it may get worse as more boomers reach retirement age. And as we do in every case when we discuss this, we turn to Deanne Phillips, director of client learning and development, CFP, CDFA, a certified divorce analyst. Hello, Deanne.
Speaker 4:Hello, Danny.
Danny Clayton:Let's talk about those factors. What is contributing to the rise in divorce rates among Americans that are 65?
Speaker 4:Yeah. And, you know, instead of fighting over custody of the kids, elderly couples are more likely to argue over pension plans, retirement savings. So let's define great divorce for a moment. Technically, it starts at the age of 50, but those aged 65 and up are seeing the rate triple from nineteen ninety through COVID. Fifteen percent of divorces are in this age group, greater than the age of 65, and more than sixty percent are initiated by women mostly driven by empty nest syndrome and financial differences.
Danny Clayton:Now needless to say, this has to upend a financial plan. What's the impact on women?
Speaker 4:Okay. So there is, first of all, a sharp decline in the standard of living. Women's standard of living drops by an average of 45% after great divorce compared to only twenty one percent for men. This is due to factors like shorter work histories. Women are more likely to have to take time out of the workforce for caregiving, leading to lower earnings and savings.
Speaker 4:There's also household income reduction. So studies have shown that women's household income falls by 23 to 41% in the year following a divorce. And this is exacerbated for women over the age of 65, who often rely on their spouse's income, like their social security, and they may have limited time to feel they can recover financially. There are social security limitations. Divorced women can claim social security benefits based on their ex spouse's earnings, but this is limited to half of the ex's benefit, often insufficient to maintain their standard of living.
Speaker 4:Women's own benefits are typically lower as a whole due to gender wage gap and fewer working years. Then there's health insurance and long term care concerns and costs. Women losing spousal health insurance face higher premiums, or coverage gaps, especially critical before Medicare eligibility at age 65. Long term care insurance can be vital for aging women who live longer, and it becomes a significant expense post divorce. There are some things during the divorce process, if you have a joint long term care policy that can be done.
Speaker 4:So you should definitely try to address that while the marriage is still intact. And finally, you know, amongst all these also, there's lower re partnering rates for women. Only twenty two percent of women re partner after a great divorce compared to thirty seven percent of men. This can limit their ability to pool resources and recover financially.
Danny Clayton:You know, I was just reading a string on Reddit and women were talking about why they don't want to get remarried again.
Speaker 5:Sure.
Danny Clayton:And I thought of you. There was a line and everybody agreed with it. These guys are looking for a nurse or a purse. Yes. Had you heard that before?
Speaker 4:I have. I love that. And, know, of course, I go back to it all ages. A man is not a financial plan.
Danny Clayton:That's right. We're with Dianne Phillips, director of client learning development, CFP, CDFA, certified divorce financial analyst talking about the steady increase in gray divorces. Even successful women struggle with personal finance management post divorce. Maybe that's just not in their wheelhouse.
Speaker 4:Well, historical division of financial roles plays into this. Many women, including high earning professionals, historically deferred financial oversight to their spouses. A 2021 survey found that sixty one percent of women, including very successful ones, leave major financial decisions to their partners. Post divorce then, they're thrust into managing a complex portfolio potentially. Divorce is emotionally taxing, and for women over the age of 65, the transition to solo financial management can be overwhelming.
Speaker 4:Studies can indicate women are more likely to experience decision fatigue post divorce, impairing their ability to navigate budgets, taxes, or even investment strategies effectively, even if they excelled in professional settings.
Danny Clayton:We don't recommend going it alone.
Speaker 4:Right.
Danny Clayton:We've got plenty of resources we can hook people up with, but some do. There's gotta be DIY downsides.
Speaker 4:Do it yourself downsides. Yeah. Well, inadequate asset division knowledge post divorce, particularly mishandling of a QDRA, which is a qualified domestic relation order, and leaving themselves cash strapped, making poor investment decisions post divorce in an effort to be conservative, and then they become too conservative and can't manage to make their budget work, tax, social security missteps, even underestimated expenses can come into play. This is where having a guided counselor or advisor can really help you. Just a reminder that we give thirty minute consultations to the public, not just our clients.
Speaker 4:We are open from an educational point of view to help guide you and help you with resources.
Danny Clayton:Deanne Phillips, Director of Client Learning and Development, CFP, CDFA, a certified divorce analyst.
Speaker 4:Thanks for having me, Danny.
Danny Clayton:We're back. Hey. Webinar next Wednesday. It's a big one too. It's instant insight the Fed and the markets.
Danny Clayton:As Brian Jacobson has taught me, it's sometimes not so much the announcement. It is the the statement from from Powell. So you're gonna digest that and then give it back to us in form of a webinar, and that happens on Wednesday, 04:00 eastern, 03:00 central. Details at annexwealth.com. Just look for the events tab, and we can hook you up for that.
Danny Clayton:I'm Danny Clayton. Brian Jacobson's our chief economist, Day Spano, our CEO.
Dave Spano:You know, one of these conversations that all ties together with instant insights is really a bigger picture, a macro picture, Brian, and that is really the amount of the debt that The United States holds today, $36,000,000,000,000. About 9,000,000,000,000 of that comes due, if you will, because they're bonds. Right? Yep. They come due and they have to, like all of us, refinance their debt, and they have to refinance it at current interest rates.
Dave Spano:So 9,000,000,000,000 is going to have to be refinanced in the current debt environment and interest rate environment, and that is really a big deal because for many, many years, we had ZERP, zero interest rate policy. And so these bonds that are coming due, Brian, are going to have to be paid at a much higher interest rates, and that is the reason why we pay so much attention to the short term interest rate because it does drive the longer term rates as well.
Brian Jacobsen:Oh, it does. And just for some perspective on that, so the average interest rate for US government debt right now is around, like, 3.4%. And when we look at a ten year treasury yield at about 4.4, 4.5%, whatever it might be, that interest cost is likely to go up. Back in February, the average interest rate on government debt was 1.5%. So we've gone from 1.5% as far as the average cost of the debt all the way up to about 3.4%, and it looks like it's going to continue moving higher.
Brian Jacobsen:The treasury secretary, he testified before congress this past week where he had pointed out that even in this environment where they're working on the budget, they've got the doge cuts, we even have tariff revenue, we're still likely going to have a deficit of about six and a half to 6.7% of gross domestic product. So, you know, those deficit numbers, things are getting worse. They're not getting better, and a good chunk of that is the interest cost. I think you've pointed this out in the past a few times when you look at the line items about what the government spends on. The second biggest expenditure is interest cost on the debt, and that used to be more towards the bottom end of the list when we're in that ZERP environment, the zero interest rate environment.
Dave Spano:And you think about what that means. The US debt servicing cost now is 18% of tax revenues. So about 20%, one in every $5 that they collect from taxes goes to that. And so that servicing cost continues to get bigger. And why is that concern?
Dave Spano:Doesn't matter if you're Republican, a Democrat, an Independent, anything, is it does begin to squeeze out other parts of the spending out of the budget. And so that's why we pay so much attention to it. So if you think it's not a big deal, well, it means that things like transportation and education and right down the line are going to get squeezed because more money goes to servicing the debt. And it really all happened when the ending with the period in 2022 when we had that spike in inflation. That inflation spike really stopped quantitative easing, which was this forcibly lower rates that we had since 02/2008, 02/2009, great financial crisis issue.
Dave Spano:And so these higher rates are really something to pay attention to because it seems like this is now the new normal.
Brian Jacobsen:Yeah. And it it can't stay that way. We know that there's this thing called Stein's law. So from Ben Stein, famous for win Ben Stein's money, he was also that professor in Ferris Bueller's Day Off, who said, you know, Bueller Bueller. His dad was a rather famous economist during I think it was during the Nixon administration where Stein's law is that if something can't continue, it will stop.
Brian Jacobsen:And so I think that's what a lot of the conversation is now is how do we get this to stop? If treasury secretary Bissant is correct, whereby the end of the Trump administration or sometime through it, we get to something closer to like a four or 3% deficit, that then becomes sustainable. It is likely then to pull interest rates lower because you don't have as much of the issuance from the federal government, and then you also lower that interest cost, which is a huge part of that's driving expenditures right now.
Danny Clayton:Brian Jacobson is our chief economist, taught me about Stein's law and also the lipstick index earlier this week. That's right. Yeah. Dave Spano is our CEO. Financial planning at every level, Annex comprehensive wealth, Annex private client, Annex ignite.
Danny Clayton:We're gonna tackle your retirement challenges with the precision of a surgeon, the heart of a teacher, we do it as a family fiduciary. That's important. It is time for us to talk. Annexwealth.com. Click that get started button.
Danny Clayton:Bottom of the hour, time for news. Let's go to the WTMJ breaking news center. We're back. You know, sixty minutes each week for this show. It's never enough to explain everything we do on behalf of our clients.
Danny Clayton:It's time to experience everything we do as a client. Put things in order that starts at annexwealth.com clicking the get started button. Why hire a professional? Brian Jacobson, our chief economist. I'll tell you this.
Danny Clayton:I hired an arborist recently to climb about 40 feet up in one of my trees to attach the endpoint of an antenna. I've got a ham radio license. And I went in. He he he finished. I went in and I told my wife how much it was.
Danny Clayton:She's like, that much? I said, I'm not paying him for the twenty minutes. I'm paying him for the twenty years he's been doing this.
Brian Jacobsen:And the courage.
Danny Clayton:Yeah. And the equipment and all the gear and all that stuff. Earlier in the show, I mentioned the lipstick index and we kinda laughed about it. Got a text that says, okay, you need to explain what the lipstick index is.
Brian Jacobsen:So this past week, it was really interesting hearing the earnings report from Victoria's Secret because the previous week, we heard from Ulta Beauty. And I think we can compare and contrast those earnings reports. So Ulta Beauty, they actually mentioned something related to the lipstick index, which was actually it's been around for a long time, but one of the CEOs or the children of the founder of Estee Lauder back in 2008 had said about the lipstick index where he noticed that their sales tend to go up for those lower cost luxury items during times of economic slowdown. And so that actually kind of created this lipstick index, and Ulta Beauty, they said that they were benefiting from this as consumers get choosier, that they are trying to find little luxuries without breaking the budget. Now, we also had almost like the the opposite of that with Victoria's Secret, where they were saying that, you know, the higher end consumer is cutting back, and they have noticed that their guidance is suggesting that with a slowing economy, they're expecting that the way on sales.
Brian Jacobsen:And when I listened to that, it reminded me of Alan Greenspan. Okay. So do you remember Alan going. Yep. So Alan Greenspan, former Federal Reserve chair, you wouldn't want to think of him in underwear in the same sentence.
Danny Clayton:Nope.
Brian Jacobsen:Right? I mean, maybe his wife would. I don't know. But in terms of back in the nineteen seventies, he was a consultant, and he used as an economic indicator, a leading economic indicator, underwear sales, where during recessionary periods or as we were approaching a recession, he noticed that men's underwear sales slowed down. These are things that people, they just buy, like, it's almost like an autopilot.
Brian Jacobsen:He he said that people would wait to replace their underwear as they anticipated an economic slowdown. And so there are all these really interesting economic indicators. So the lipstick index, you have the underwear index, and I'm thinking that when we're listening to earnings calls, I'm always kind of listening for, what's going on there? Another one that I really like, if you don't mind, is the baked bean index. Now, technically, it's more about canned goods because we actually got earnings reports from Campbell's soup.
Brian Jacobsen:Well, now they're called Campbell's a couple weeks ago. And they were saying it their sales were better than expected because people are eating at home more often, maybe they're choosing kind of lower cost items, but they're still purchasing the soup.
Danny Clayton:Who was part of the Fed? This is what I thought you were going. Who was part of the Fed that by the size of the briefcase he brought to the meeting?
Brian Jacobsen:Yes. So that was Alan Greenspan. Okay. So that's another great indicator. That's that was the briefcase indicator, but he caught on.
Brian Jacobsen:He knew that people were watching them the size of the briefcase that he was walking into. It was called the Eccles Building in Washington DC for their their meetings. And so that no longer became a reliable indicator of what he might do with monetary policy. The thought was that if it was a really thin briefcase that he already had his mind made up, this was kind of like no change in policy, nothing really controversial. If it was a thicker briefcase, paper spilling out of it, he was gonna make the case for like a rate cut or a change in rates.
Brian Jacobsen:Then they switched to the color of his tie. Sure. You know, your tie, does it reflect your mood? Is he going in? Is he in a cutting mood?
Brian Jacobsen:Or is he more in a holding mood? Or hiking mood?
Danny Clayton:If you've ever read the book Freakonomics, and I did, and I I don't go deep into this stuff, that that's kind of your world, but it's it's the hidden side of everything. Yes. And they kind of make the point that there's so many things that are involved. It constantly changes. I remember asking somebody here shortly after I started.
Danny Clayton:I said, is there ever a day or a moment where it's like, oh, everything's right. And he said, no. Yeah. It's always shifting.
Brian Jacobsen:Well, I've been keeping like a market diary for about the last fifteen years. And every day, there's an entry, and it is never nothing happened. Now, I don't keep that diary on Saturdays and Sundays typically, but during any trading day, there's always something that happens, something surprising, something newsworthy.
Danny Clayton:Well, and I think with this president, things do happen on Saturdays and Sundays, so maybe you need to buy another one.
Brian Jacobsen:That's right. I I I do it electronically now instead of my little notebooks.
Danny Clayton:Yeah. It makes sense. It's Brian Jacobson, our chief economist. This is Money Talk, the Annex Wealth Management Show. Cryptocurrency in your four zero one k, it might happen.
Danny Clayton:Some employees might be excited. Some employers might not be because of their fiduciary duty. What's going on? We put that question to our director of retirement plan services, Tom Parks, next on money talk, the Annex Wealth Management show on six twenty WTMJ. Know the difference with Annex Wealth Management joined by Tom Parks, director of retirement plan services, Annex Wealth Management.
Danny Clayton:Welcome back.
Speaker 5:Hey, Danny.
Danny Clayton:According to FINRA, the average number of investment choices in four zero one k plans between eight and twelve. Now that seems low to me, but we're not gonna argue with them, are we?
Speaker 5:Close enough for this discussion.
Danny Clayton:Options in investments for four zero one k's typically include a mix of mutual funds, target date funds, index funds, bond funds, sometimes employer stock. There are a couple notable exclusions, Tom. And the first is ETFs, and how come?
Speaker 5:You know, obviously there are exceptions to what we're talking about here, but broadly speaking, when you look at retirement plans, you're gonna find things like mutual funds, collective investment trusts, and similar investments, because those are priced once a day after the market has closed. So when you look at some of these big providers, they're managing money for literally millions of people and hundreds of billions, if not over a trillion dollars in some cases. That's a lot of people and a lot of money. And so with ETFs and stocks and things like that that trade, they fluctuate in value throughout the day. Tracking all of that stuff from a record keeping technologies perspective is just not practical.
Speaker 5:So you look at things that are priced once a day, broadly speaking.
Danny Clayton:Choices you don't see in a four zero one k. The first one there is ETFs, and the second is cryptocurrency. Now for some in the audience, it's a mystery investment. Tons of news coverage, lots of buzz, piles of confusion, plenty of skepticism.
Speaker 5:All of those things, Danny. Yes. And even more now.
Danny Clayton:And to others, it is seen as a pathway to riches or at least the moon. Crypto millionaires have been created and destroyed by the volatility of a currency. It's very much a modern phenomenon that has been debated and argued over for as long as it's been around.
Speaker 5:It really took off, Danny, in 2020 when Bitcoin in particular. So when we talk about cryptocurrencies, there are tons and tons of them out there. Most people think Bitcoin right away because that's the big one. And it really started to go up in value in around 2020 and has been on a wild ride ever since. This discussion has become more acute just in the past few years.
Danny Clayton:Now that might be changing with some news that broke recently. What's going on?
Speaker 5:When we talk about cryptocurrency in retirement plans, there was guidance from the Employee Benefit Securities Administration back in 2022, in a way discouraging plan fiduciaries from offering cryptocurrencies in retirement plans for a variety of reasons. That guidance was recently rescinded. They did not say, we therefore endorse doing this, or anything like that. All they did was say, we're gonna take away our suggestion that you avoid doing that.
Danny Clayton:Can of worms, Pandora's box. Is this gonna put companies in a tough position when some of their employees want a crypto option in their portfolio even though some of the wisest investing minds are undecided and they're suspicious? Wouldn't it be their right they can make the decision?
Speaker 5:So Danny, I've already been asked this question in an employee meeting, so it didn't take long. Yeah. It I don't think I don't know that it puts people in a tough spot because it's ultimately the plan fiduciary's responsibility to decide what they're gonna put into the retirement plan. And one of the guidance that you get from the Department of Labor is that when it comes to fiduciary responsibility, one of them is to minimize the risk of large losses. And that's where when you start looking at the fluctuations in cryptocurrency, people will say, yeah, but it's up now.
Speaker 5:And it's like, yeah, it's up now, but it was down, and it was up, and it was down. So depending on how you look at that volatility, it's something that people just need to be careful about. Yes, it'll put them in a tough spot because there are gonna be more conversations, but, you know, whatever. We're all big people, so we gotta deal with tough spots. That's life.
Danny Clayton:This is also the asset that people have, you know, came up with the phrase HODL, which is hold on for dear life, right?
Speaker 5:That's right, Danny. And, you know, I think that's the thing you look at. Is that the sort of thing you want to have as the foundation for your retirement planning? It's kind of
Danny Clayton:the question. I don't know if I've ever asked this. How does a company decide on what to offer in their 04/2001 ks?
Speaker 5:I am glad that you asked that question because there are some baseline industry best practices. It'll come down to the platform that you're working on, what's available, because most platforms, while very very expansive from an investment offering perspective, they're still limited. You've got that consideration. But then it comes down to your workforce and what type of workforce do you have. You wanna have a broad enough suite of offerings that there's something there for everyone.
Speaker 5:But you also don't wanna go overboard and have, you know, 8,000,000 things because then you've got paralysis by analysis and all that stuff. So it depends, you know, there's some basic foundations, but it's gonna vary from one player to the next.
Danny Clayton:Let's wrap this one up. What is your bottom line thinking on crypto in a four zero one k as a guy who's been doing this for a long time?
Speaker 5:Yes. I don't have anything against cryptocurrencies personally, but there are certain investments that, in my opinion, just do not belong in a four zero one k plan. You know, we you and I talked about private equity a little while ago. That's an ongoing conversation. But narrowly focused sector funds, art is a legitimate investment.
Speaker 5:I don't think a four zero one k plan is the right place for that. So I kinda put cryptocurrencies in that category. Not appropriate for four zero one ks plans, at least not for now, and I don't think necessarily anytime soon. The other thing is, Danny, I did a Google search looking for crypto mutual funds. There are very few in existence, so there aren't even really that many to pick from in the first place.
Speaker 5:So that is a naturally limiting factor as well.
Danny Clayton:Company owners, CFOs, HR professionals need a little help designing and navigating your company four zero one k. Tom and his team ready to roll.
Speaker 5:Always here and looking forward to some fun, Danny.
Danny Clayton:Tom Parks, director of retirement plan services, Annex Wealth Management. Thank you. Thanks, Danny. Hey. We're back in most of the way through the show, and it's been a really good one.
Danny Clayton:If you missed parts, catch the podcast at the top of the hour for the whole thing. Start to finish, no commercials, wherever you get your podcasts. This is Money Talk, the Annex Wealth Management show. On the show today, doctor Brian Jacobson, our chief economist, Dave Spano is our CEO.
Dave Spano:Thanks, Danny. You know, Brian, there was an article that was sent to you and I from Tom Parks, our four zero one k guru, talking about model portfolios this past week, and I thought that would be a great topic because the article said that so many financial advisers are using model portfolios and, you know, just made me think about what is in there and how long I've seen these model portfolios. I can go back to the early nineteen nineties when really these portfolios started to come about, and really what it is is an opportunity to have a good asset allocation, some diversification, but as always, it needs context.
Brian Jacobsen:It it really does. And the model portfolios, I think they really started from asset managers, the companies that manage the mutual funds and ETFs where they're like, hey. Here's some ideas about how you can use our strategies for your clients. And now there are also independent agencies, research firms that create them, so it might be what we would call adviser agnostic. So it's not like they're favoring, like, BlackRock or Vanguard or anything like that.
Dave Spano:And so, you know But I think it was American funds
Brian Jacobsen:that, you
Dave Spano:may may remember thirty, forty years ago that they said, you know, use our growth fund here, our income fund here, our fixed income, so on and so forth, and they put these asset allocations together now.
Speaker 5:It was
Dave Spano:all American funds, obviously, But that is something that we've seen for decades and decades. This is not a new concept, but it is interesting.
Brian Jacobsen:That's right. Especially since a lot of these companies, they're actually getting a little bit more sophisticated with how they're presented, the commentary around it, and maybe the support that they provide in terms of know, trading ideas. But these are, in a way, kind of cookie cutter options sometimes. They I always view them as being a good starting point, but not the ending point, and they're not necessarily always appropriate for every client. I think you've seen over the years how clients come in.
Brian Jacobsen:They might have one portfolio, and then how do you get them to whatever that target is? And number one, should that target be a model that is taken off the shelf, or should that model be customized, or should it be bespoke? And then how do you get from point a to point b? Instead of just ripping off the Band Aid, paying all the taxes on some low cost basis holding that you might have just to get into this model, that doesn't really seem like that's putting the client first.
Dave Spano:And you really think about, you know, someone comes in and they have a bag full of statements that they've accumulated from, right, from a broker, from an insurance company, from a bank, and they go, what do we do with all of this stuff? And so, really, it starts with trying to put everything together and see what the portfolio looks like. But, you know, there are some benefits to these model portfolios such as simplicity and, you know, having diversification and perhaps being cost effective. One of these things that we consider as a downside, and sometimes it's lack of transparency and lack lack of control. Mhmm.
Dave Spano:So the first thing you wanna do is when you bring in the portfolio and say you've inherited some shares of a utility from grandma, there is a low cost basis stock in there, for example. We need to understand it. So there are some pros and some cons, but the first thing that we do is say, what is in your portfolio? And that's the reason why I say it, and why is it there? So if if you have an old utility stock or an old telephone stock, for example, that you've had for a long time, what is the cost basis?
Dave Spano:Why is it there? How much are paying for
Brian Jacobsen:Yeah. And that's part of what we sometimes call transition planning, where you look at it, can we put restrictions on it to make sure that we're not necessarily taking that tax hit right away? Or sometimes it does make sense to take that tax hit right away because if you're in the you know, if you look at capital gains rates and are you in the 0% bracket? Are you in the 15%? Are you in the 20%?
Brian Jacobsen:Are you in the level where you're gonna have to pay that interest income tax, the 3.8%? Right? There's all these different considerations. Sometimes you do wanna pay the taxes sooner rather than later if you can do it at a 0% rate or at a 15% rate. But then you also raise that really great point about, I think, the transparency.
Brian Jacobsen:Right? Can you actually meet with the people and understand the thinking behind how that portfolio is designed, and then what is it likely going to deliver? Is it aligned with your goals? Or is it just something that was taken off the shelf and there isn't necessarily kind of a great story or narrative around how it is designed and then how it's managed.
Dave Spano:Yeah. You really hit on all those points. So the tax implications, the fees and expenses. Right? Who's putting these things together?
Dave Spano:So there's some things that you should not ignore, and those are your personal circumstances. Make sure that you're monitoring portfolios and performance and not making an emotional decision. We can help you through this process, folks. We all have a system to go through to say, this is what you own, line by line. We walk through it and say, this is a hold.
Dave Spano:This is a sell. This is perhaps a better idea. And we don't make emotional decisions. And then we say, this is what it could look like. And as Brian started the conversation, this is how we transition over.
Dave Spano:It's thoughtful. We put it on the screen. It is part of our initial conversation. You can get that by contacting us today.
Danny Clayton:Starts at our website at annexwealth.com. Click on that get started button. Brian Jacobson, our chief economist. Thank you.
Brian Jacobsen:Thank you.
Danny Clayton:Dave Spano, CEO. Thank you.
Dave Spano:Thank you.
Danny Clayton:Good show, guys. Hey. June. We're not there yet, but the halfway point of 2025 is July 2. We got a pretty good picture how this year is gonna go, but there's always a surprise.
Danny Clayton:Right? Are you set? Can we help? We're ready to talk. Our website, annexwealth.com.
Danny Clayton:Click that get started button. Thanks for listening. Have a great week. We'll see you next Saturday, 10AM right here on money talk, the annex wealth management show on six twenty w TMJ.