2025 Money Moves: Taxes, Retirement Fixes, and Smarter Risk Strategies (Ep 104)
Start 2025 with a clear plan for your finances. This episode explores the investment indicators, upcoming IRS tax changes, and practical ways to manage risk in your portfolio.
Transcript - The following transcript was generated by a robot, so please excuse any typos or inaccuracies.
Brian Doe 0:01
Brian, welcome to 2025 we've got some interesting look ahead and look back items, and we will also use the recent fires in California as a metaphor for how to protect your portfolio.
Walter Storholt 0:25
back for another episode of Make the dough rise. I'm Walter Storholt alongside Brian doe, of course, certified financial planner at living worth, Wealth Advisors. Find us [email protected]
Speaker 1 0:16
It's time to make the dough rise the financial podcast with Brian doe,
Walter Storholt 0:35
for resources and how to book a call and get more information. Brian, great to be with you. Our first show of 2025. We made it to the new year, my friend. Yeah, happy New Year. Good. Good to be here, and Happy New Year. Do you get the whole month of January before? Yeah,
Brian Doe 0:48
why not? This is our first episode of the year. So, yeah. So let's do it. I like
Walter Storholt 0:52
that. I like that. That feels good. Did you enjoy the holidays? And has it been a good start to
Brian Doe 0:56
the year? It was good. And then last Friday it was, I guess we had a snow day in Georgia, which means the whole place shuts down. So Atlanta
Walter Storholt 1:05
was on the national news for all the craziness. It didn't seem like it was too bad, though, right? Well,
Brian Doe 1:11
interestingly, where we are is little further south, but we had more snow than they did to the north of us, up in Athens. I think maybe even I'm not sure about Atlanta, but we got a really heavy coating of snow here, nice, and it was, it was fun. In fact, I still have snow that has not melted in my yard, so it's giving me flashbacks to when I lived in Minnesota. It's kind
Walter Storholt 1:33
of funny. We bought a laptop for an employee, and it shipped out of Georgia, and it was supposed to make it in a day, and it has taken five days because of the snowstorm. It got delayed and didn't get on the truck in time, and then the weekend hit, and then it's finally, you know, getting there a couple of days later. But just kind of funny to see, snowstorm comes through, delays shipping, and one day turned into five, just like that. So real world consequences to the snow. Just
Brian Doe 1:56
for fun, I took my daughter out. I got the revved up the Land Cruiser, and it was, it was above freezing temperature, so the roads weren't super, super slick. You just had the slush and the snow, yeah. And so I took her out riding and skidding around on some of the ice, and she thought it was pretty sensational and nice dangerous. She thought I was putting her life at risk, but we're fine. Go play some trails for some people here, do it
Walter Storholt 2:19
in the right spots, and you're just fine, right? And plus, I think it's good to to experience those things I've whenever it snows, I try to get out and go get in a little trouble, because it then teaches you a little but not with like putting other people in danger, but I try to make it slide a little bit in safe places, so you get that feeling. It reminds you, you feel how long it takes you to recover the breaking differences. All that stuff as I think, good research, so to speak.
Brian Doe 2:43
Well, you know where your limits are, and yes, you've got your skills for how you're gonna react in it. And I tried to get Natalie to drive in it a little bit, but she, no, she wouldn't even venture to try it. So
Walter Storholt 2:55
yeah, I had Connie take my Jeep in our last snow, and then we'll get into our conversation here. But, and so then I took her car, and I even had to have a wake up call reminder of, Oh, her car breaks a lot differently in the snow than my jeep does. Okay, I've got to go a lot slower with her car, I guess, because it's lighter and the treads aren't as thick, and because it's front wheel drive, I don't know it just the braking was way different, and I almost went sliding out in front of a car into the street. Luckily, the main street was clear, so as soon as the tires hit the main clean road, I came to a stop. But it was a good reminder of like, Oh, wow. Okay, it's that it's that easy, and especially if it's an unfamiliar vehicle, to be careful. So anyway, if there's another snow for those of us in the south this year, there's a there's a disclaimer being extra careful this year. Well, you've lined up a great episode for us today, Brian, as we look, as you mentioned back and ahead in this new year, great scene setter, I think for 2025 here, not a resolution type episode, but you've got some good data and some good things to keep our eye on this year.
Brian Doe 3:55
Yeah, I just saw some fun things come across my radar that I thought I'd share with people that highlight some of the things that are good about the market. Or bad about the environment. And friend Bill Ackman, the billionaire hedge fund manager, actually had a really good suggestion that I liked. We'll talk about and then we'll do a quick pass on tax changes and where I see that going. And then we'll we'll end with some risk management topics. So to start with, I found a chart that showed the two best performing strategies for last year. And everybody spends all their time talking about what hedge fund manager or this strategy, that strategy, how did Warren Buffett do? But the two that actually performed the best was the Nancy Pelosi stock tracker. So if you had done all of Nancy Pelosi trades, her strategy was up 54% last
Walter Storholt 4:50
year, pretty good year, really good
Brian Doe 4:53
year. Now that was on top of a very good market. You know, we had, we had an excellent, you know, 20. Plus returns for all of the major indexes. So it was a great return year in general, very stable. We didn't have a lot of volatility to the year. Everybody should just go make a little note of remembering how they felt last year, because I got a feeling the ride ahead is going to be a little choppier. But you know, if you would, if you had just followed Nancy Pelosi his strategy, you would have beat all the professional money managers and hedge fund managers and all these people that are charging great fees for trying to deliver superior returns. The other one that I think is hilarious, if you've if you've watched CNBC ever. You probably know who Jim Cramer is, and that guy has been on TV for ever, and he's really dramatic, and he screams and puts on these, you know, big, big productions and all that stuff. But he has got to be the absolute worst stock picker on the planet. I even remember back in the late 90s, early 2000s he put out these recommended portfolios, and it was When Yahoo Finance was just coming out you could build these portfolios and track them and all that stuff. Fortunately, I didn't have a lot of real money to put into these strategies, because they were just terrible, like they would just crater and absolutely lose money. So they've created an inverse Kramer tracker or index, and so it basically takes everything he recommends and short sells it, or does the if he recommends selling it, they buy it. And his portfolio was the second best compared to Nancy Pelosi. So it was just, yeah, odd that we have a politician that has access to not inside information in that it's financial information that is only known by executives that's going to be announcement stuff, but but legislative and budgeting appropriation type of information, and they're able to use that information to make trades. And I think we'll continue to see that be a topic that there's certain people that are trying to get politicians out of the stock trading activity. Recently, Jimmy Carter's passing and his funeral and all they talked about how genuine and sincere he was about not having a conflict of interest. He sold his Peanut Farm before he was in office, just so he could never be accused of having a conflict of interest. Wow. Now today, no, I wouldn't advocate having to sell the family farm. And I think if politicians have exposure to the market, I think that's a good thing, because it aligns incentives. But it, in my opinion, it ought to be through just real broad market, et HUFs black box, you know, you can put your money in there, in and you can, you can buy the broad index, but being able to buy and sell individual stocks, when you sit on the energy subcommittee or the regulatory committee for financial services, or whatever it is, I think that's that's just wrong, and I don't know if we'll ever get that changed. Then on the other end of the spectrum, Jim Cramer, you've got media, entertainment, infotainment, as you know, packaged up to look like investment advice. And it's just, I think it's just a testament to some of the many things that are wrong with our entire system around investing, politics, media, and you know where you get information and trying to do the right thing,
Walter Storholt 8:43
investing should really be a lot more boring than it than it has become.
Brian Doe 8:47
Yes, yes, yeah, absolutely
Walter Storholt 8:51
amazing. That reverse Kramer index is pretty funny to follow whenever you and it's just whenever he makes a big prognostication about something, everybody's going, oh gosh, okay. Do the opposite. Everybody. Do the opposite. Oh, we're doomed. We're doomed. If you're invested
Brian Doe 9:04
in that, it's truly like, like, when he recommends or comments on stocks that I own, I'm like, no. You wonder if
Walter Storholt 9:09
that influences the market. Now, like, if he's recommending something, there's so much knowledge about his, you know, terrible picking, if it actually leads people to truly take enough action in the opposite direction actually drive prices or something, I don't know,
Brian Doe 9:22
in the short term, I think that's entirely possible, yeah, but I think doing the long term, his picks are just terrible,
Walter Storholt 9:28
yeah, yeah, for sure. Well, Brian, expand a little bit more on the the Bill Ackman item, because I think that's going to be, you know, something else to kind of to dive into here that you teased a moment ago.
Brian Doe 9:40
Okay, so this is another little tidbit I ran across, obviously with snow days and the New Year and holidays, I had a lot of time to watch YouTube videos and the like. And there was a clip of Bill Ackman talking about how, if you had a new child who was born, if we would create an account for them, that we would put 70. $1,000 in, make it where they can't touch it, make it tax free, you know, fund it, and they have to just leave it in a very like broad market equity index. Until age 65 everybody would have a million dollars. And you've heard me in the past talk about some kind of incentive system for having more kids and all that kind of stuff. But I really liked this one because it would cost $20 billion per year to do this. You were roughly talking $7,000 per child born. But look at the 10s of billions of dollars that we're spending on other programs. We've got shortages with Social Security Trust Fund, pensions have gone away. It's very difficult for people to save if they have to wait until they're in their 20s or 30s to start contributing to retirement accounts, if we would just do something that every new new child got a $7,000 Roth IRA account and funded and restricted access, everybody would have be on track to having a vested interest in the economy. They would feel like they owned assets, and they would have this roughly million dollar mark by the time they hit retirement. I think that would go a long way to making up for this loss of the pension system that previous generations were raised on. They called it three legged stool. You had pension, Social Security and personal savings. Well, pensions are largely gone as Gen X is hitting or exiting their peak earning years and beginning to retire. We're going to make that shift from the boomers who had fewer pensions to now Gen X is going to have even fewer pensions. Personal savings has been difficult. We've gone through the.com bubbles and the financial crises, and that just took a lot out of people's savings and ability to save along the way. So this is sort of a pie in the sky idea, but I actually liked it and thought it was a great idea.
Walter Storholt 12:09
I realize it's for a different issue, you know, solving a slightly different problem, but I like a solution like that a little bit more than the perpetual, you know, $1,000 a month for the rest of your life. What do they call that? The universal basic universal basic income? Yeah, I like this a little bit better than that, because it's kind of like, All right, we're giving everybody a fair the same starting point, no matter who you are, where you're using the
Brian Doe 12:33
advantage of the long time that they have by by starting early. Just doesn't take as much if you've got two or three compounding doublings before you actually hit earning and savings age? Yeah,
Walter Storholt 12:46
makes a lot of sense. And then you're not worrying about funding it from, you know, one worker funding somebody else's work and all those kinds of moving parts. Yeah, I like it. It all looks good. That'd be interesting when you hear more discussion about it, for sure over the years. I'll keep an eye on it, see if anything happens. Yeah, you never know. All right, so Pelosi indicator, Bill Ackman kind of prognostications, or at least idea. There we get to taxes. I think in 2025 too, both we can look back and forward, I think, in this regard. But, yeah, it's a big year for taxes, with the tax cuts possibly expiring, but also Trump back in office, and maybe keeps them going. Are you reading the tea leaves there at all? Yeah.
Brian Doe 13:25
So I think, well, so real quick they have started indexing the brackets and deductions for inflation now, so your standard deductions are going up about $400 for singles from 14 six to 15,000 so a little bit of an increase to the standard deduction married it's 22 two going to 30 or, I'm sorry, 29 to $29,200 going to 30,000 so an $800 increase for married filing jointly. So it's a little bit of tax savings there. And then the brackets are expanding a little bit. So the amount of income that's taxed at the 1012, 2224 and 32% brackets, those numbers are all going up. So if you look at the let's say the 22% bracket, a couple would have been taxed at you would cross into the 22% bracket at 94,300 that's got up about $3,600 so you'll have another $360 of potential savings there from in that particular income tax bracket. If you get up into the 32% bracket, the expansion is a little larger you're going from crossing into the 32% bracket at 394,000 instead of $383,000 to become so about $11,000 there that you know all this. These aren't huge numbers, but it's it keeps the tax. Code in up to date, I guess, with with inflation, and if you're getting cost of living, raises and things like that. But the bottom line is, if you're single, you make $100,000 in w2 income in 2024 your total federal bill is going to be 13,841 with these 2025, brackets, if you, unless you didn't have a cost of living adjustment, and you had made that save 100, 100,000 your tax bill will be 13,614 so about a $227 savings ripple that across millions and millions of people, and tax cuts and productivity increases are going to be a better method of getting the economy growing expanding, GDP, as opposed to austerity and higher taxes.
Walter Storholt 15:50
Interesting to look at, at some of those moving parts, and I feel like we're going to get constant news about taxes throughout the year.
Brian Doe 15:57
Yeah, and another example that is good for investors. If you have just capital gains and preferential dividend income, if you make 47,000 as a single or $94,000 jointly, you're actually going to have a 0% capital gains tax rate. So great, great opportunity there. Maybe if you're early retired, you haven't quite activated Social Security, you don't have to take money out of IRAs yet, you could be looking at a number of years where you could realize 100,000 ish dollars of capital gains and pay absolutely zero tax on it. So tremendous opportunity out there.
Walter Storholt 16:36
Yeah, that's something that bet a lot of retirees and pre retirees may not know about and something they could leverage there. Yeah,
Brian Doe 16:44
I get some people that are just kind of right in that magical little twilight zone for a few years, and do our best to make hay out of it. But ultimately, the at the end of the day, the best news is, you know, Trump's win will likely ensure a con, a continuation of these rates, and making these more, if not permanent, you know, definitely extending the the rates, as opposed to them sunsetting, and going back to the Obama era rates, which, yeah, I think would be very negative, have a very negative impact on on economic growth and solving the problems that we have at hand. What I'm hoping not only is that they will continue and extend these rates, but maybe we'll get some other goodies back, like the state and local tax cap of $10,000 of deductibility. Definitely have some people that are losing that deduction, it would be nice to nice to get back. So we'll say, I remain optimistic, but it's too early to tell exactly where, where this is all going to fall, but it'll be an interesting
Walter Storholt 17:53
year. Yeah. And I guess, sort of an extension of the tax conversation, there's some some news in the gifting realm as well.
Brian Doe 18:00
Yeah. So if you're doing gifting to children, grandchildren and the like, and hey, going back to the Bill Ackman idea, if you want to, if you got a new grandbaby or something, and you would like to set them up for that similar trajectory, the annual gifting exclusion has gone from 18,000 to $19,000 to a little bit of an increase, but that's been steadily creeping up. So you can give anyone in the world a $19,000 gift, and there's no tax to them, or gift tax to you. If you've got a combined spouse, each spouse could give $19,000 to one grandchild, one child, or anyone of $38,000, per year. So even
Walter Storholt 18:47
your own child. Is there an advantage to doing that as a gift? Yeah,
Brian Doe 18:52
because you can gift it to a child, they can then just say, hey, use this to fund savings or put this in a retirement account, or if they've got earned income and things like that that may qualify them for a Roth contribution or an IRA contribution, but they're just they're spread too thin to make the contribution. They can use the dollars you gift them to actually fund the account, because usually getting a lump sum, as opposed to cash flow, that people just never get around to doing it with, with monthly funding and things like that, bills creep in, expenses come up. So if you did drop a lump sum in people's lap, just say, hey, go, go, take this and put the $7,000 in a Roth or do put, you know, some into a long term, you know, stock equity, ETF, and just, just fund it and forget it. Put it in a separate account. You could put them on that track for that long term growth and compounding. Get the money out of your estate, which you know right now, the estate. Tax limits are so high, it's not affecting very many people. But you know, that could always change, and this goes ahead and get gets some of that money out of your estate, if that's a concern.
Walter Storholt 20:10
Interesting, I don't know how I've never asked this question before, and I don't think I've ever looked it up either. What is the is there an age limit for opening something like a Roth IRA, could you? Could you do that for a baby?
Brian Doe 20:21
The limit is you have to have earned income. So, yeah, you couldn't open up a Roth for a baby. We
Walter Storholt 20:29
would need legislation change to do something like Ackman, example, or, or if you just wanted to do this for a loved one, yeah?
Brian Doe 20:36
So, like, you could do it as a, as a custodial account with the parent, where it becomes the child's, you know, so you're gifting to your children, or you could give to your grandchildren. And I really like the custodial account, because you can actually accomplish a lot of the same things if you buy and hold a long term exchange traded fund. You've got tax deferral you're in charge of when you sell that, so you don't have to incur the taxes until you sell it. Then if they need the money for something like college, well, they may be in very low income years when they need to access that. Well, now that goes back to the 0% capital gains issue, and so they could have this money they invested as a young child or someone invested for them, it's grown nicely, and you've got long term capital gains you sell, realize the gains at very low income tax brackets. And it's actually as advantageous, or maybe even more so, than five to nines and and as Roth would still be better at the end of the day, but you have access to the funds in a custodial account, whereas the Roth has restrictions until 59 and a half. So there's pros and cons of each of those. But if the child is old enough that they're working and they have some earned income, maybe a few $1,000 it may be the full $7,000 if they're using that money for pocket money and spending money and stuff like that. They're not really getting it put away into the Roth well, they could use your gift to make the Roth contribution, because they qualify based on the income that they had. Does that answer your question?
Walter Storholt 22:15
It does. It's very helpful. Yep, absolutely excellent. Well, great coverage on everything so far, and you mentioned lessons from the California fires, which has just been terrible to watch here throughout the start of January, and as of our conversation today still continues to go on. And I know there's a lot of political back and forth and discussions and finger pointing going on right now in the midst of all of it, but we're always looking for silver linings or ways to learn lessons from things Brian and you've spotted several through this kind of recent disaster and issue in our country,
Brian Doe 22:49
it is a true disaster to see what's happening out there. It's awful, horrible. I can't I can't imagine being caught in the middle of that. But the same is true for hurricanes and tornadoes and floods and the like. It's just the risk of development and things like that. I think there's a number of things that exacerbated the problems. So we can armchair that all day long. That's not the intent. But as I watched what was happening with some trepidation, I don't I don't want to quite compare managing your portfolio to to a wildfire, dealing with a wildfire and by any means. But there were some stories that popped up where people had taken some actions in advance and were able to save their homes or do things to prevent this fire from spreading. And I thought, hey, this may translate into a metaphor for how you would look at or view steps that you could take in your portfolio to manage risk. So the first thing I did was I looked at our current risk models are popular in the industry that people use to build portfolios or construct financial plans, and one particular one is called the Monte Carlo simulation, and that before, yeah, yeah. And it's a cool tool that, actually, it's used in casinos, and it's basically a law of large number, real repetitive. If you run this game or this process for X number of iterations over time, you'll, you know, the house will win 5% or 10% whatever their margin is, and they can basically take a risk characteristic and profile of a particular scenario or game in the case of the casinos, and calculate what it would take to for the House to win over the long term, and then. Just you just run it, run it and run it and run it, and that's where you're going to get your margin. Well, somebody took that concept and applied it to portfolio management and said, Well, let's look at sequence of returns. You know, when you retire, what the market does over the next 2030, years in the order in which you incur those returns is going to be a big determinant of your total return. We've talked about that in the past. How you allocate and what volatility or standard deviation. I want to get too technical here, but the fluctuation in the portfolio mix that you use, well, you can combine those, those variables, and you can calculate the probability of you achieving your retirement success or failure, and success being not running out of money before you die. And it was, it was kind of a cool way of looking at things. And you could say, well, if I have this allocation, this volatility, this amount of withdrawals, I can be like, 90% certain that my portfolio will last until end of life. And that's that's great to an extent, but all you're doing is just taking a risk model and saying, Okay, well, this, we're going to expose you to this. And you know, hopefully you're in the 90 percentile. It doesn't really solve, you know, for the the customized and exact scenarios, expenditures and things that you want to do. So it has some shortcomings. It just says, Hey, here's, there's this risk scenario, we're going to apply it to you, and there's nothing real, tailored or customized there to, you know, protect or preserve your portfolio, cash flows, income into retirement. So then the the other one is much more simpler approaches. Well, what just what's your risk tolerance? What's your appetite for risk? Well, you can do a little question here says, Oh, I I'm kind of a more less risk averse, or no, I'm a very scared person, and so I can only take a certain amount of risk. Well, that may not be what you actually need to do. It's just, you know, sort of based on how you feel. Then that one, I think, obviously has some some shortcomings, or you have these crazy rules of thumb, again, we've talked about those in the past too, where it says, The older you get, the more bonds you should have, or, you know, something like that. Well, let's go back to my example with this fire. Owning real estate and property out there in Pacific, Palisades been a good investment. You know, if you had bought 510, 20, 3040, years ago, I mean, just tremendous appreciation to the value of those properties. But, you know, at the same time, you lived with this risk of of, you know, things potentially being wiped out by this fire. Well, that's the, you know, not exactly the same thing, but similar to what you're dealing with with your portfolio. You want to own these assets, and there is some risk in the short term of bad things happening. You know, market could drop. We all lived through the financial crisis. We all saw the.com bubble buzz. We all got a little scare from COVID When, when things rolled through. And if you had, you know, looked at some of these property owners that did not lose their homes. What did they do? Well, I saw some very clever people that said, Hey, I'm going to install this reverse pump system on my pool. I'm going to run sprinklers around my house and have a backup hose, and they spot put out fires, and miraculously, they were able to save their house. And one guy even saved his two neighbors houses by just putting out the as the brush fryers and sparks flying through the air spread, he was able to blast those out, probably taking a lot of risks, taking a fire zone like that. Maybe you would want to automate the system so it just sprays water in your in your absence. But there's these huge resources of water right there that, what maybe a couple $1,000 or a few $1,000 worth of pumps and hoses and sprinkler heads. You could have had a system in place that would have mitigated the risk or the damage. How you construct your home. A lot of those old homes were built back before anybody was as concerned or as much development was out there. They had wood trim, wood siding, wood framing, you could use a lot more fire resistant materials. Use stucco instead of wood and metal trim instead of wood trim. So a lot of those things could reduce the risk of losing your investment in that scenario. And there's a little 10. In Japan that is two or 300 years old, they have these old thatched roof historic Japanese houses, and they've literally installed water cannons that will spray and wet the whole village when there's a risk of a fire so and they make a spectacle every year of testing that system to make sure it works, make sure the reservoir is not dry. And it's almost like a tourist like event to come out for the day that they're going to turn the sprinklers on and wet down all the that touch. It
Walter Storholt 30:34
makes for some neat pictures, that's for sure. Yeah,
Brian Doe 30:37
it's really, really cool to see them. So the point is, is if you just come into a risk with a sober, thoughtful mindset and said, Hey, let's we have an extreme issue here, what could we do to mitigate it? You can oftentimes come up with with some clever solutions. So didn't you have some people that you work with that are out there.
Walter Storholt 31:02
I've got an a client who's right on the edge of the fires, very close to the Eaton fire. People maybe have seen that name in the news, and so they're watching everything closely, and they've had clients lose homes in these fires. But we're just talking to him about what it's like to live there and go through what they're going through right now. And he's got sprinkler systems. I don't know if they're quite as robust or crazy as you know that that Japanese system that you were describing in those pictures, but still, he's got sprinklers built into the roof that shoot, all, you know, aim to shoot all over the property and save the house if it ever gets into that situation. So, you know, it's untested, and it's not a guarantee, but it's, it certainly is, just like you're talking about, it's mitigating that risk in a physical way. For you know, it costs money to create those things, just like it is to put money into an insurance plan that's going to help you. This is just doing it in a insurance preventative maintenance, rather than insurance reactive measure. So, yeah,
Brian Doe 31:58
yeah, just as just a peace of mind, proactive approach. Yeah, it's
Walter Storholt 32:02
amazing to see that. And, yeah, we got to figure out something in these areas where this is such a risk, to maybe build better systems. And for being a rich country, we should be able to afford what it is to put these things in place, right?
Brian Doe 32:16
Yeah, just people don't. It's expensive. We got to use it, yeah, if you want to deploy some kind of system that, hey, you may never use it. If there's not a fire, you could go spend 1000s of dollars on this fancy system, yeah, that you never use, you know, so there's, there's a, there's a disincentive to, I
Walter Storholt 32:36
hate paying car insurance, but if I ever have to replace it, I'm going to be really glad I've
Brian Doe 32:41
got it. Yeah, you just have to look at it like an insurance cost. Well, the same thing would then apply to your portfolio if you take too much risk mitigation, bonds, CDs, cash, ultra conservative assets, you may miss out on some of that long term appreciation. If you just never bought a house in Malibu, then you're never going to have the kind of appreciation that they have out there. Maybe you can never afford a house in Malibu. That might be the wrong example to compare to. But if you're going to venture into areas where purchasing power can increase. You can keep up with inflation. You can get appreciation in your assets. You do need these short term risk mitigation approaches, and so it really comes down to time periods and inflation protection like those. Those would be the two main things that I would try to look at when you're designing the risk profile for your portfolio, as I looked at another chart that talked about different time periods. And so, hey, what's the market going to do today? Walter? What's the chance that it's going to go up or down, or, let's say, probability of a negative return for the stock market on any particular day. Any idea what that would be? Ooh,
Walter Storholt 34:08
I don't know. I mean, I guess my default would be 5050, but
Brian Doe 34:11
it's actually a little bit less, because over time, the market tends to go up, but on one particular day, your probability of a negative return is about 46% Oh, interesting. Okay, so it's slightly this is kind of like the Monte Carlo. It's slightly into your advantage. And so if you just play every day, you're probably gonna come out ahead. If you extend that to a quarter, what's the probability of a negative quarter 90 days down to 32% so your risk has dropped dramatically by just extending your time period to a quarter one year. It's down to 26% Well, that's that makes sense. About one out of every four years is down. Maybe three up years to one down year, four up years to one down year, something like that. Then if you get out to the. Be three, five and even 10 year time periods, your probability of a negative return drops to 10% over the five year period and 6% over the 10 year time period. So your probability of getting a negative return over a decade is single digits low. Well, what does that mean? How do I What does that mean for my portfolio? It means that assets that you don't need for at least 10 years can be relatively safely allocated to equities, put in something that will grow, increase your purchasing power, keep up with inflation. You're not guaranteed, obviously, to to have a positive return, but the likelihood of it being a negative or even a flat return, it's only happened in a couple situations, once during the Great Depression and then once during the from the peak of the.com bubble to the bottom of the financial crisis that there were, there was about a 10 year period there where the return was flat, maybe slightly negative on a price basis. How do you apply this? You simply create a essential spending budget, a lifestyle budget, an emergency fund budget. Tally up all those things and all the items that you want to protect and insure against and immunize from the market, then you build a very customized, very bespoke asset allocation that matches what you're trying to do over the next decade, and then you can safely and more relaxed, have a more relaxed approach, or less worrisome approach, to the equity exposure that you have, because you know You're going to let that run for 510, 15, maybe. Maybe 20 years the shorter term, things you're going to I mentioned inflation, so Treasury tips, inflation protected securities, maybe, maybe just some good solid CDs, Bond ladders and things like that. Would, you know, fill in the gaps for the 135, and 10 year time periods. And so if you put these things together correctly, what you will end up with is most people. Okay. Conventional wisdom says the older you get, the more bonds you have. I would argue that the day that you need the most bonds is the day you retire. That's the day that you have the most stuff lined up that you want to do, travel that you want to do, buy a second home you've got, maybe Social Security and pensions haven't kicked in yet, and so you're relying on yourself for the most funding and the most aggressive spending years of your retirement. So those are the days that you want to have the most conservative portfolio. On the flip side, if you're 99 and you're planning to age 100 and let's say that that just happened by by design. How much bond exposure Do you truly need for that last one year of your life? Well, just enough, probably to pay for maybe some long term care or extended stay or something like that. But if you've got a couple million dollars in assets. You don't need a million and a half dollars worth of bonds or cash or the like. You may need a few $100,000 but that, that would arguably be the most that you could possibly need to spend in that year. And so now you're really looking at investing the rest of your assets for the next generation. So it's just a very different approach to looking at risk, risk management, how to invest your portfolio, what allocation you're going to have. And, yeah, I just thought the the fire scenario and the different things that people were doing and what it costs, because there is a cost to having more conservative investments. That's a lower return over the long period. But if deployed correctly, you can get the long term appreciation. You can get the growth and things that you need but preserve your cash flow and preserve your lifestyle well into the first decade of retirement.
Walter Storholt 39:48
Great outline of a lot of moving parts on today's episode there, Brian, and thanks for making that comparison. Lessons learned from the California fires, but then looking at that risk management and different things that we. Do inside our own portfolio, to turn things in the right direction, protect against loss and all the in between conversations, of course, and we've got a good checklist of things to keep an eye on throughout the year, especially from the tax standpoint as well. So thanks for outlining all of that for us on today's episode. Happy to do it. Yeah, awesome. If you've got questions for Brian, by the way, want to dive into maybe the specifics of your plan. You know, we can cover some high level stuff here on the show. Give you some things to think about, but if you want to actually engage in the planning process with Brian, you can certainly do that, especially if you're looking to take control of your financial future. Maybe you're not sure exactly where to start. Well, an initial phone call with Brian is a great place. In fact, you can take advantage of a complimentary 15 minute call with Brian to gain clarity around your financial goals and prepare for that more secure and successful tomorrow. You can go to living worth.com and click book a call, and it's also a good time to remind you that Brian is also a Certified Financial Planner, professional meeting the highest standards of training ethics and always putting your best interests first, so you're gonna get that kind of help and assistance when you come in and meet with Brian again, talk to him in a complimentary 15 minute call to see if you're a good fit to work with one another and engage further. All you have to do is go to livingworth.com and click book a call. It's that easy, Brian. Thank you for all the help. A Happy New Year to you one more time, and we'll see you again in February. Yeah, likewise, looking forward to it. Thanks. Walter, sounds great. Have a good start to 2025 everybody. We'll see you again soon, right back here on. Make the
Speaker 2 41:33
dough rise. Make the dough rise is brought to you by living worth Wealth Advisors with a central office in Greensboro, Georgia, but serving the lake country and beyond. The podcast is available on Apple podcasts, Spotify and all your favorite podcasting apps. Subscribe today and never miss an episode. Just search for make the dough rise with Brian doe, you can also visit make the dough rise.com to listen to recent episodes if you'd like to contact the show or schedule a complimentary financial review with Brian and the team. Just go to make the dough rise.com, and get in touch through the website or call 706-451-9800, thanks for listening to make the dough rise.
Ben George 42:14
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