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Untucked Episode 86

Click here to listen to our reactions to Charles Schwab’s Modern Wealth Survey in our newest Coach’s Corner segment

Click here to listen to the full Untucked Episode 86. You can also listen on Apple, Spotify or Google podcasts.

Untucked Episode 86 – Schwab Modern Wealth Survey

Meghan Tait: [00:00:00] Coach’s corner Um, so we’re going to talk about the Charles Schwab Modern Wealth Survey. Uh, Schwab conducted this survey in March of 2023 and, uh, surveyed a national sample of Americans aged 21 to 75. Survey covered a lot of ground, so we’re going to pick a few specific topics that we want to cover.

Anywhere in particular you guys want to start?

Mike Traynor: I, I don’t like surveys in general, and, you know, they all do the same ones, Schwab and Fidelity and Bangor, they all put out the same thing, which is like, we surveyed people about how much they feel it takes for them to feel wealthy, and yada yada yada, I guess the one thing that stuck out to me was, When they talked about, um, the differences between generations when it comes to maybe the use of social media, specifically to use it to make investment decisions or follow other [00:01:00] people’s advice on social media or not.

Like, anyone would predict that younger generations are going to be way more up to scale than older. But I still was surprised at the level of engagement that younger people have with financial advice on social media and specifically they are following advice from people on social media to do things.

Um, so for example, uh, you know, 60% of Gen Z. Follows influencers around about who share financial advice, but yet also fit almost the same percentage makes purchases based on what I see my friends and other influences sharing on social media, which is very concerning to me and, um, a red flag to say the least, because we’ve talked before about some of the garbage that’s out there.

There may be some good. There are there. There are good things [00:02:00] out there being shared, but I think it’s in the minority

Jeff Mastronardo: for sure. It’s in the minority. And that’s but that’s the way that generate this generation is being raised. I mean, my kids are being raised. By their parents to be good human beings, but they’re getting their information from social media, right?

Like how to lift, how to eat, how to clean your house, how to, like, do everything. It’s all following people that do not have to show any credentials whatsoever. My son’s following people that lift and, oh, I have to eat, drink creatine and take pre workout. Like, dude, you’re 14. Like, you don’t have to do… You shouldn’t do any of that stuff.

So, and we’re seeing the same thing in the financial world with people that have no credentials whatsoever, but are telling the entire world, this is how you generate wealth and

Mike Traynor: this is what you should do. of those things are predictably things like crypto. Stop, [00:03:00] um, flip real estate, you know, those sorts of things, which are absolute jokes of pieces of advice to give the masses.

And how many times

Jeff Mastronardo: have we even seen, um, what’s her Susie Orman and the guy who started FUBU, uh, I forget his name. Oh, the guy from shark tank. Yeah. Like, I mean, we’ve seen them with social media posts that they posted with information that was just dead. Yeah.

Mike Traynor: Or math that was totally wrong. Math was

Jeff Mastronardo: completely off.

And it’s probably like being edited and clipped where it’s like, they just brain farted and said it because they just speak so much and spew so much opinion and bullshit all the time that yeah, you’re bound to like say something that’s wrong, but people watch it. And people follow it and then people believe it.

Oh, if I put a hundred, a hundred dollars away a month for the, between 25 and 65, I’ll have 6 million. Like, no, you’ll have like 25, 000.

Meghan Tait: Yeah. I mean, but I think, and we’ve talked about it [00:04:00] before and these surveys really just reiterate the point. Like. Social media is here to stay, right? Like, we can talk about how, um, how poor the advice is, or how, you know, not applicable it is to the vast majority of people, or how wrong some of the things that are being talked about or advised on are.

But TikTok’s not going anywhere, Instagram’s not going anywhere, Twitter and Facebook aren’t going anywhere, like, I shouldn’t say Facebook, I think that makes me a boomer, but like, um, you know, there, there has to, we have to start, I’m not saying the three of us, but generally, like, if this is going to be a platform or these are going to be platforms in which people are seeking advice, the people who do it the right way have to have a presence there.

And it’s not going to drown out the noise of all of the other, you know, other people who are saying the wrong things, but we can equate that to TV and the news cycle, right? There’s a lot [00:05:00] of, there’s a lot of outlets that say or, you know, exaggerate things and I mean, the, the advisors and the firms that are doing it the right way have to build.

Online social presences even though we hate it and we cringe about it Like it’s critically important if this is how people are going to absorb information

Mike Traynor: true, and i’m gonna whine now because What’s just amazing is how heavily regulated we are In terms of what we can say publicly and, you know, what we can say, really anywhere and the amount of garbage that can be shared and monetized, frankly, on social media by people who have no accountability to regulators is just unacknowledged.

Amazing that this is what our sec and our regulators are, are doing. They don’t have no clue whatsoever about technology first and foremost, because [00:06:00] they’re a bunch of 71 year old old people mostly. Um, but it’s really something that should be talked about more. Um, I don’t know who or how or where, where, why, but it’s just a, it’s a real problem because they fly under a, there’s like, the radar is so high that you can fly under in terms of.

You can go out there and give financial advice and with no repercussions. And then you get views and clicks and revenue and all that. It’s just, it’s just insane.

Meghan Tait: It’s not whining. That’s the reality of it. It’s just, and maybe that’s where as advisors it’s like. It’s a complete uphill battle, right? Like, it’s daunting to think about, okay, we’re gonna spend time, energy, and resources doing it this particular way because we have to, but then 99% of the other information doesn’t have to adhere to the same rules and regulations.

It’s like, well, [00:07:00] why even start? But I guess, again, back to my point, it’s just like, if we do nothing, then we’re also at a, like, leaving consumers, they’re at a disservice because they don’t have access to people and firms like ours who, I’m saying do it the right way, follow the rules, for lack of a better term.

Right.

Jeff Mastronardo: Why do these firms like Fidelity and Schwab and Vanguard, why do they produce these surveys? What’s the purpose of them? Because so many people want to know where they stand?

Mike Traynor: Yeah, that’s a good question. I think I don’t find any value in them. Yeah, I agree. I, I, I know what you mean. Um, are they for us

Jeff Mastronardo: or for the, or for the cons or they’re for consumers?

Meghan Tait: I think they’re more for advisors or more

Mike Traynor: for a little bit. Yeah. Probably more for advisors. But I’ll also say this, having worked in.

These kinds of places. There’s a lot of people in there that need stuff [00:08:00] to do. And I’m not kidding. Like there’s marketing departments full of people that do this stuff. And they feel really proud of their product. That this is what, you know, they’ve produced this phenomenal comprehensive survey showing this, that, and the other.

But, um, and then Schwab puts it out and Fidelity’s like, Whoa, hey, you guys got to do the same thing. Vanguard, you got to do this. You know, they all, that’s why there’s three of them or 10 of them or whatever it

Meghan Tait: is. I know the information seems very common sense to us, but if you think about the majority of, and I’m going to say like older school financial planning firms that are run by, you know, people like 60 plus, Right, like we have a multi generational office with people kind of ranging in age.

So there’s an awareness of I think some of the more modern technological features of life that a lot of firms, older firms, maybe don’t have. [00:09:00] So I do think some of this would be more valuable to like a 62 year old planner who’s like how do I think about bringing in younger clients or something like that.

Maybe

Mike Traynor: and also though it is targeted towards Individuals because I’ll, I’ll reference one of the slides here, the title of which is about a third of Americans have a documented financial plan, and those who have one feel more in control of their finances. Well, guess who sells booklets and of financial plans to people?

Um, Fidelity, for example, will give you a 55 page bound quote unquote financial plan and say, here it is, now don’t you feel better about yourself? And it’s, it’s worth the paper it’s printed on, right? I mean, the documented financial plan thing, I think we should debate, Jeff. Because I think,

Jeff Mastronardo: go ahead. I think if someone’s going to go to a Fidelity or Vanguard and get their boilerplate documented financial [00:10:00] plan.

I would have to guess that that couple or person is probably doing better than the people that aren’t at least taking that step. Okay. Fair enough. As, as boilerplate as they are, it, it, it, it, it shows me that their, their wheels are at least turning and they’re, they want to get more information and they want to improve their situation.

They’re, they may do a few things a little bit better than the person who doesn’t do that. If they’re not getting like a true document, a financial plan, like what we give people, or were you saying like, we

Mike Traynor: don’t even give people? Because a financial plan is not a document. It literally changes by the.

Month and year and, uh, ever,

Jeff Mastronardo: forever. Right. The concept of a financial plan is always changing. Correct. But you gotta start somewhere. And we start with a financial plan for people.

Mike Traynor: But we don’t hand them a binder that says, Here’s your financial plan. We literally

Jeff Mastronardo: hand them a binder that says, Here’s your financial plan.

[00:11:00] No,

Mike Traynor: that’s not how it

Jeff Mastronardo: goes. That’s exactly what we do. Like, here’s how we’re going to start your financial plan. You’re going to sell all these assets over here. You’re going to buy all these assets over here. You’re going to go talk to this attorney and get a will. Like, we literally hand it to them.

Mike Traynor: But that’s one piece of the process of planning.

Planning. It’s not a plan. It’s not a noun. It’s planning. It’s a, it’s a, it’s action, right? So what

Jeff Mastronardo: do we hand people? What do we call those? You

guys

Meghan Tait: are agreeing.

Jeff Mastronardo: Kind of, but. I agree. But like to say we don’t give people a document, a financial plan to start their planning. Is wrong. We absolutely do. We, we give

Meghan Tait: documents and we give, we give advice and we give guidance in the form of a physical Sure.

Handout. I, but it’s not the full plan in

Mike Traynor: one book. It’s not. Yes. Megan’s making my point. I am, I am comparing this to what Fidelity says. Okay. We wrapped up your, you’ve, we’ve, you have your financial plan, you have the intake of all the information. Here is your financial plan. Here’s the have a nice day.

That’s the

Jeff Mastronardo: [00:12:00] distinction. It’s like people think they got their financial plan. And now they’re good to go. Yes. And then it goes back to like these other people that think like, okay I got that i’ll just come back in five years and like redo my financial plan. Yeah, right Okay. Well, what did you do between years one and five?

Right? Yeah

Mike Traynor: We’re saying the

Jeff Mastronardo: same

Meghan Tait: thing. Okay, so generally speaking, we didn’t feel like this survey gave us a lot of new or valuable information. It kind of just validated the way we think anyway. Yeah. Old

Jeff Mastronardo: people don’t use social media, young people do. Got it.

Mike Traynor: Right. And it’s a lot of like the value of time versus the value of like your financial assets.

Obviously, as you get older, time is more important than, you know, the money. Again, to us, you know, no brainer. We, we know this, but, um. I don’t know. Did

Meghan Tait: you guys have any, were you surprised by any of [00:13:00] the factors not having enough, or why people don’t engage in financial planning or why they don’t build a financial plan?

The first is the perception of not having enough money. Feeling like it’s too complicated, not having enough time, haven’t had a major life event, or probably too expensive. You’re like, check, check, check, check. Like, duh. Yeah.

Jeff Mastronardo: It’s exactly why people don’t do it. Yeah. Yeah. Yeah.

Mike Traynor: Yeah. And again, across demographics, it, it skews as you would

Jeff Mastronardo: expect.

But it’s, it’s like, that’s exactly why people don’t eat better. Right. It’s too expensive. It takes too much time. Like, yeah, it’s why we don’t do a lot of things in life. Like, thank you for identifying why I don’t do the things I should. You nailed it.

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Untucked Episode 85

Click here to listen to our Coach’s Corner segment on the debt ceiling and the case for international diversification.

Click here to listen to the full Untucked episode 85. You can also listen on Apple, Spotify, or Google podcasts.

Untucked Episode 85 – Debt ceiling & international diversification

Meghan Tait: [00:00:00] Um, so we figured we’d get started. We’ll, we’ll do a Coach’s Corner article in a minute, but just, um, being that the debt ceiling, um, topic has been one, um, we’ve discussed a lot with clients. We’ve figured it would make sense to maybe talk a little bit about how we’ve been handling some of the questions and concerns that have, have come our way.

Jeff Mastronardo: What do you got, Jeff? I just have a problem with the whole debt ceiling discussion. And, and I guess what I mean by that is, It was on the news like every night. It’s all people were talking about. And I look at that situation and I’m just like, don’t we know that they’re going to raise the ceiling or they’re going to do something so that the government doesn’t default, so the treasuries don’t like, don’t we know that that’s going to be the eventual outcome?

So number one, like why is it a news story every night? Why is everyone talking about it? Why [00:01:00] is everyone upset about it when, especially like, you know, you can’t do anyth. Like if you’re gonna sit there and watch the news all weekend, which my father-in-law did on Memorial Day weekend, and he wasn’t hot about it, but he was certainly like into it.

I mean, he is in his seventies. You’re in your seventies. Like what? Why do you care? You can’t change what’s going to eventually happen, which is most likely gonna be they’re gonna raise a dead ceiling. We have this talk every two years or every time this comes up, like why do we care so much when we know it’s eventually they’re gonna figure it out?

It may end up in something bad happening, it may not, but in the end, 5, 6, 7, 8 years from now, it’s going to be meaningless in the grand scheme of things. I just don’t understand why people care so much.

Meghan Tait: I, I feel like that’s the tact we’ve taken in a bit of a different way with clients, right? So the concerns that our clients are bringing to us are the big ones related to.[00:02:00]

Well, if they don’t raise this debt ceiling limit, then our Medicare can possibly go away, or our social security payments could, could go away. So I think our job is to, like we’ve talked about in past episodes, kind of about empathizing with people in those situations is listening to them and hearing them and then reminding them, as you said, Jeff, that you know, um, there’s not a lot we can do or to, to, to kind of force or change this outcome.

I feel like most things now, it’s inherently political and people get worked up and upset about it because they feel strongly one way or the other about the administration in place, the people making these decisions. So I don’t know that like the actual debt ceiling beyond those men, those mention I just made about Medicare and social security, like I don’t think anybody really, truly understands.

How it works, what it means. I just think it’s another reason for people to [00:03:00] either voice their support of a co, a political point or, and more, you know, probably more frequently, um, voice their opposition of it and it being used as an excuse for people to criticize the government very, very generally. So, um, I think I agree with you completely, Jeff, in that it’s, it’s.

Not even on my radar a little bit in terms of something I think about care about or am remotely concerned with, but our job is to help alleviate some of those concerns in whatever way we possibly can when they’re presented to us. And that’s kind of what we’ve been dealing with over the last few weeks.

Yeah. Meg,

Mike Traynor: you’re a hundred percent right on the political angle because you know, There’s people who feel very strongly about where the money is being spent that actually like adds to the debt, whether it’s Ukraine or subsidies for this or that, or entitlement, [00:04:00] whatever. Um, and lots of people are incredibly, always incredibly worked up about that.

Yeah. Um, so, um, but I do think. You know, Jeff, your point is right, it’s two years from now, we’re gonna be talking about it again, because that’s what they did is they put it out to 2025. Yeah. And um, and yeah. And at that point in time there’s gonna be a, a, a resolution to it and people will be, but, but you know, remember, like the financial news has to yell and scream about whatever is going on.

And this is the front and center issue. Or has been the front center issue in Washington for the past whatever number of weeks because of the deadline and everybody fighting with one another about how best to deal with it. And, and, and the people on the on TV have have to have something to talk about and, and get everybody riled up about.

You’re right. Yeah.

Jeff Mastronardo: It just drives me crazy and I have to, I have to [00:05:00] live two lives, right? I have to be empathetic with our clients. Mm-hmm. Which I am. Yes, you are. Like, I’ll say to them, whether it’s the debt ceiling, whether it’s money markets, g breaking a dollar, whether it’s uh, Donald Trump getting reelected or, or whatever the heck is the, what do they call the apocalypse Dejour, I have to say.

Look. You know, there, there really is no correlation between which, which party gets elected president and what the market’s gonna do. Um, I understand that like you’re struggling with this right now, and what we’re gonna do is we’re gonna just kind of make sure that your plan is still rock solid and we’ll make any appropriate changes based upon what happens if we think that has to happen.

Personally, I’m like, The other way. Yeah. Like when I’m at a cocktail party, I’m like, you can’t do anything about it. It’s never gonna happen. Like I’m a, I’m a, I’m an r nothing guy. I’m always like, it’s never gonna happen. Yeah, right. Like the debt ceiling like that, that they’re never gonna not raise it. [00:06:00] Um, the, the, the money markets are never gonna break a dollar.

Like, I’m like, that’ll never happen. Which I know isn’t the right way to phrase it, because of course, like anything can happen. Yeah. Yeah. Yep. But even though anything can happen, when that anything does happen, we’ll figure it out. It may not be comfortable in the short term, but long term, like the world economies, they’ll figure it out.

Right. And it may not be like next month, but like it may be like two or three years from now,

Mike Traynor: there’s a lot of collateral damage when something major happens though, and that’s facts,

Jeff Mastronardo: and that’s when we adjust the plan or that’s when we make changes. That should be done.

Meghan Tait: But, but, and, and I, I, I’m, I agree. I operate the same way that you do.

I think it’s, it’s elements like this, you know, where there’s so much talk about it that people feel like, well, we know it’s coming, right? Like, shouldn’t we be doing something ahead of it? Right. Like [00:07:00] that, that’s, it’s not this surprise thing that drops down on us, right. The news cycle has been, Talking about this ad nauseum for however long.

So that’s where I think the concern comes in. It’s like, but why wouldn’t we do something? Right? Even if they’re going to certainly raise it, or even if there’s, there’s no precedent for that not happening, right? But what if this is the time? Right? That’s what people just keep coming back

Mike Traynor: to. Uh, one thing about the, so people have been talking about, The debt for so long.

Yeah. Because it has skyrocket whatever it is now, 30 trillion, right? The numbers number stupid. Maybe it was 15,000,000,000,010 years ago. I, I’m something like that. So, and yeah, it’s been, it’s ballooned because, you know, covid and, and the last three years specifically just been stupid. Um, I do, I will say, or reserve that when you have like x amount of dollars in debt, At one and a 5% [00:08:00] interest that the debt service is like pretty cheap.

That’s not a big deal. Now it’s a big deal. I’d say like at 5%, um, versus one and a half. It’s like any homeowner who has a 7% mortgage versus three. Um, it’s a massive difference and I think the concerns should be around the cost to service the debt going forward. Not the absolute level of it, but again, What are we gonna do about it?

What are we gonna do about it?

Meghan Tait: Right? And then what we’ve always done, which we actually talked about this in a pod like three years ago, which was crazy. Um, and it, it was maybe a little more of the technical explanation. Like, as long as our country continues to produce numbers that outweigh the debt servicing, then.

That’s balance, for lack of a better word, right? And like that’s what has continued to happen. And it’s what we as investors and probably more optimistic people believe will continue to happen. [00:09:00] And again, of course there’s a chance that it doesn’t and there’s a chance that there’s a circumstance that it implodes.

But h. We’re never, and we can’t predict it in the meantime. Right. The,

Mike Traynor: the arguments about where it’s spent are, whether it’s defense or entitlements or IRS funding, whatever, will continue to go on. Yes. Just like in a household, the arguments about where you spend your money on vacations or discretionary or, or, you know, hockey.

Yeah. Go on. It’s, it’s, it’s the same thing, but on different scale. And again, what you can do about it. Just go vote in the person you think is gonna change that and you know

Meghan Tait: that that’s it. Because I’m sure the person who says they’re gonna balance the budget is really gonna be able to do it, like, which we probably don’t want to get into right now.

Okay, so now we’ll get into Coach’s Corner. Um, The case for international diversification. This is an article from Ben Carlson, uh, who writes the blog, A Wealth of Common Sense. [00:10:00] Ben’s article covers the topic we discuss quite often with clients, why should one own international stocks? Most Americans suffer from home team bias, which makes us question why we would invest outside of our country.

Recent memory would confirm those thoughts because of the outperformance of domestic stocks since 2013, as stated in Ben’s article. Um, But it does. He does a nice job of reminding us that over longer timeframes, the returns of US stocks compared to international stock stocks are far closer than one might think.

Jeff Mastronardo: So two questions I’ll let you guys answer just to make sure I understand this clearly. So you say most Americans suffer from a home team bias. What that means is most Americans when they invest, they invest in America, in the United States, predominant United

Mike Traynor: States domiciled company. Yes. Predominantly just like French people.

Over invest in

Jeff Mastronardo: French. That was my next question. And that happens in every country. Yes. Every country, every person suffers from a home team bias. I,

Meghan Tait: I think that’s for the, probably fair. Yeah. Yeah. [00:11:00] And then

Jeff Mastronardo: the case for inter international diversification is basically the same case for diversification period.

Right? Period. Like, I shouldn’t invest all my money in large cap stocks. I should invest in large cap, mid-cap, and small cap. Because in theory, They’re going to perform differently. I will have the same, if not greater return, with taking less risk. Isn’t that like kind of the theory behind it?

Mike Traynor: Yes. Boiled down.

Yeah. Okay. Um, yeah, and, and it’s, it’s, to me it’s basically why in the world would you want to exclude, you know, Taiwan Semiconductor or Nestle or any company that is. Not us based. Like, why would you do that? These are, these are, there are plenty of successful companies that are going to do their thing. Um, and, and [00:12:00] it’s funny because like Bogel at Vanguard made an argument years ago when he was still alive that you don’t need to own non-US based companies.

Why? Because so much of the sales of most typical companies occur. Globally outside the us Sure. So you’re, you’re getting that diversification just by nature of owning, you know, Coca-Cola or whatever. Um, plenty of people argue against that, and I, I would, and, and, um, for the reason we just said, which is that there are certain periods where US stocks are going to underperform non-US stocks.

And why wouldn’t you want to have that? As part of your investment approach? Um, just like diversification. Jeff, like you said, Jeff, just, it’s the principle of being diversified, period. Um, and the same goes for bonds. You know, we, it’s not you, you shouldn’t just own US bonds. You should own bonds issued by non-US countries and, and we do that.

So, [00:13:00]

Meghan Tait: yeah, I felt like this, the reason I brought this article up is because, um, I’ve gotten this question more so with our younger clients. So people in kind of the, call it like 30 to 40 age range who have less investing experience, obviously than most of our, you know, retired clients and have experience in most of their investing.

Success, I’ll say, um, the outperformance of international or of domestic stocks just relative to the timeframes that Ben kind of outlines in this article. So it makes sense why they feel the way they feel, um, because their experience is short and it’s anchored to your stocks doing

Jeff Mastronardo: better. 2008 through 2021, the s and p did 11.

And internationals were 3.6. Yeah. So, so that’s a timeframe they’re living and investing it. Exactly.

Meghan Tait: So it, it makes sense why people are asking about it. And I just thought this was a good reminder of [00:14:00] why all of our portfolios maintain international stocks. Why we try to, you know, encourage people to invest internationally in 401ks or brokerage accounts or whatever opportunity they have.

Um, cause I do feel like it’s something younger, newer investors just don’t have. The longer term experience to feel confident in making those

Jeff Mastronardo: decisions. Yeah, no, I thought the chart that he pu that he published in that article where he shows the disparity over these different timeframes between 1970 and 2023, how inversely correlated, for lack of a better terminology, like when, when, when international’s up, domestic’s down, when domestic’s up, international’s down.

Like, and in and in and in big differences too, like they were like, Widely separated. So I thought that was really interesting to see. Um, and then showing that over that same period, like they performed the same, both asset classes perform 9.7 versus 9.6, so you’re get in the same return, but if you have different things doing well in different [00:15:00] timeframes, it’s gonna kinda level out or smooth out your ride a little bit.

Is there a kind of, so, so let me back up and say, we don’t ever just kind of think. Well, I think international’s gonna do better in the next three or four years, so let’s overweight that. No, we just decide we wanna add it to the portfolio. Is there like a magic number that you want to put as a, as a percentage of your port?

Let’s say you’re an all stock investor. What percentage of that portfolio should be international?

Mike Traynor: We kind of rule a thumb where around say 20%, roughly 20, 25% of whatever you have in stocks overall should be non-us.

Jeff Mastronardo: So, so if I, if I have a hundred percent stock portfolio, I want 20 to 25% of my international.

Mm-hmm. If I have a, if I’m a 50 50 person, that 50% what, 10% of that should be international. Yeah. Is that the right math?

Mike Traynor: That’s about right. Okay. Mm-hmm. You know, the other aspect of investing internationally is currencies. So currencies, um, [00:16:00] fluctuate obviously against each other all the time. And one of the big reasons, you just pointed out some stats about how, um, international maybe.

Way underperformed us in a time period. A lot of that has to do with like, the US dollar is strong relative to whatever other currencies are out there. Because remember, you sell a product in, you know, in Europe and, and it’s a US domicile com company. It has to be converted back to dollars to, to hit the p and l and based on what the currencies are doing relative to one another will have a huge impact on, on, um, the, the actual sales or whatever you wanna call it.

So, There’s a lot going on there, like underneath. But, um, we don’t, we don’t get into the weeds on that at all in terms of predicting or, or whatever, but it’s just a fact of international investing. You’re getting, you’re also getting currency diversification along, along with like company diversification that’s important.

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Untucked Episode 84

Click here to listen to our Coach’s Corner segment where we discuss all things gifting.

Click here for the full Untucked Episode 84. You can also listen to the full episode on Spotify, Apple, or Google podcasts.

Untucked Episode 84 – Gifting

Jeff Mastronardo: [00:00:00] What we got, Meg Coach’s Corner

Meghan Tait:. We’re gonna talk about gifting. Okay. And the transfer of wealth. So one of the more common planning scenarios we deal with is gifting both to people and charitable organizations. So what we wanted to discuss today is, um, how some of our clients choose to approach it. Some of the difficulties we often see in the conversation, and really the execution and maybe how we think some of those, um, difficulties or concerns can be lessened or alleviated.

Okay, so the reason this kind of came up is I recently met with a client who has more than enough money to be able to significantly and impactfully gift to family members, gift to organizations she’s passionate about, and she’s struggling with it. She’s struggling with it because she wants to. She wants to kind of [00:01:00] dictate how the money is used once it’s gifted.

She wants it to be, she uses the word responsibly. She doesn’t want it spent frivolously, and she’s struggling with. You know, kind of getting out of her own way, I guess, for, for lack of a better word, cuz it’s, it’s not at all a concern from a financial standpoint whether or not she can afford to do it.

But she is the daughter of, you know, great depression parents and has accumulated a ton of wealth, but just can’t really see through the gifting. Execution

Jeff Mastronardo: and it’s either gift with no restrictions or don’t

Meghan Tait: gift. That’s how we see it. Yeah, I mean the, the adding the restrictions just, we get to this place where people don’t do anything.

They keep talking about wanting to do it, but then they actually don’t do it.

Jeff Mastronardo: So you and I were talking about this and, um, the only solution I could think of, which I don’t think is a viable solution, right? If grandmom says to, to grandkid, I’m gonna gift you X amount of [00:02:00] money, uh, but I want you to use it responsibly and do this with it.

That’s not gonna work. So if the, the only other way I can think of is, is grandma is a part of those purchases. Like, Hey grandma, I’m gonna use your gift to buy a car. Well, grandma doesn’t want Johnny to go out and get a Corvette. Well then, okay, Johnny, I’ll go with you, like do some car research and I’m gonna go with you to the store and I’m gonna write the check.

That way she can control, you’re gonna get like a Kia instead of a Mercedes, but like, what, what, what grandparent? Who’s gonna do that? Right. Who, who’s gonna be involved in all of those Right. Decisions and, and just if you have enough money and your advisor tells you you do just gift or don’t. Yeah. Right.

If you feel like it’s gonna lead them to be irresponsible, then don’t. And I guess maybe now that I’m like thinking out loud as I talk, like that’s a real problem because if they don’t gift, then they’re gonna leave [00:03:00] more to the kids. And if you think they’re gonna be irresponsible when you give ’em 17 grand, well isn’t that more frustrating that they’re gonna be super responsible when you’re dead and you give them two and a half million, but I guess you’re dead, so who cares?

Yeah. I just won’t gift and then I’ll die and I won’t know what they did with it.

Meghan Tait: Yeah. Um. I, I, I, I don’t have, that’s it.

Jeff Mastronardo: Now I’m putting myself in their, in, like their spot. Like yeah, that’s a toughie. I guess I’d rather just give it to them and then be disappointed that they’re using it for whatever, but at least I, I, I was able to help them in some form or fashion while I was alive and watched him blow it on stupid

Meghan Tait: stuff.

I may be like oversimplifying it, but if it’s a genuine concern, having that conversation with the recipient of the gift. Like, Hey, I have an opportunity to help and I, I would like to see this money used thoughtfully or responsibly by whatever measure, or even if it’s just saying [00:04:00] those words like, aren’t most people like I.

Gonna be considerate of that. Maybe I’m giving too many people the benefit of the doubt, but like, I don’t know. In this case, like she’s talking about her grandchildren who are 30 years old, have kids of their own, like very likely the use is gonna be. You know, summer activities or paying the daycare bill.

Like I know that there are scenarios where the money is used incredibly irresponsibly. I’m not suggesting that it’s perfect all the time, but I guess in my mind, like you say how you feel to the person who’s gonna receive the gift and then you hope for the best.

Mike Traynor: Yeah, and I think, you know, Jeff, your, your example of the car is probably a little bit impractical to think grandmom’s going to the.

You know, Toyota dealer or whatever. But if it’s something like a down payment on a house, right, that’s specifically a check written that that’s part of that transaction, [00:05:00] it’s probably super helpful to the, to the kid or kids. Um, and that’s a great way to help somebody who’s younger, who otherwise maybe couldn’t afford to, to buy a house.

Um, Just writing a check though and giving, just giving money cuz you’d rather give it to ’em while you’re still alive. And the more substantial that check is, obviously the more problematic it it could be because it’s, um, at that point it might be spent fri frivolously or whatever. I don’t know. Um, to me I feel like the gifting thing, the smaller, the smaller gifts to me are.

Way more, way less should be, way less of an issue. I think when it comes to it, it’s really the encouraging, or not, maybe that’s not the right word, but, um, um, helping create potentially a situation where somebody just plays video games all day because they don’t have to get a job now [00:06:00] that there’s a lot of money come in their way or has come their way.

And maybe that leads into the other part of our conversation, which is, which is the, um, Where are we gonna talk about like the family planning, the family planning aspect, where there is a substantial inheritance, um, that may or may, may not be known about, and is it good or bad to talk about that as a family prior to that happening?

And yeah. What are the pitfalls there?

Jeff Mastronardo: Yeah, I’m a, I’m a big fan of having family generational planning discussions, right? Like, Mom and dad have a couple million bucks. They live very modestly. They have two kids. Those kids are gonna inherit two, 3 million bucks each. Um, I think, yeah, I, I think it’s, it’s in everyone’s best interest to have that conversation with, you know, son one and daughter one.

Like, look, we [00:07:00] we’re not going to go through our money. You’re gonna get $2 million at least when we die. Because I think that can help them now start to maybe modify their planning. Like maybe you don’t have to save as much in your 401k, or maybe you don’t have to struggle the way you’re struggling now because there is going to be an inheritance.

And we always tell people when we do our planning for people in their sixties, like you can’t bank on the inheritance. But I think that’s different. I think that that other generation didn’t have as much wealth as this generation does. So it’s like our clients will have like a million or 2 million bucks and they’re kind of on the cusp of being able to, to live comfortably.

And they may get an inheritance from mom for 400 grand, which can really kind of changed their life. Um, and we tell ’em, you can’t, you can’t bank on that. I’m talking about a bigger wealth transfer, um, to young, to a younger generation. I think it’s. It the, I think the conversation absolutely should be had.

Meghan Tait: Well, and, and the conversation. Maybe that’s what [00:08:00] we as Advi advisors can encourage to make what we were fir first talking about the gifting discussion easier, right? Like if there’s this open line of communication and mom and dad can say, Hey, you know, we don’t live your scenario. We don’t need our, a ton of our money.

We live very modestly. There’s going to be an inheritance. Well, maybe the kids are then raising their hands and saying, Like we need help with college funding in five years, so I don’t wanna wait 15 more for you to die. How about you contribute to your grandchild’s college education? Like maybe it allows for more, more opportunity to help while mom and dad are still here.

Cuz I keep coming back to that like, Wouldn’t you want to see if you could, wouldn’t you want to see your money positively benefiting your family? And to me, that opportunity should [00:09:00] outweigh maybe the one-off frivolous expense or the one vacation that you wouldn’t have sanctioned or you know, the upgraded car purchase.

Like to me, that opportunity. Maybe because we’ve now created that generational approach to the discussion, um, maybe it encourages more people to do it because I do believe a lot of the concern we talk about people having is a generational thing. The pe, the age of the, the demographic of the clients we see who can’t get over the hump are.

Like, I don’t think that’s going to be a perpetuated issue we deal with. Agree. I agree on. Does that make sense? Yeah, I agree a hundred percent. So maybe for now, the way that we can help again, like execute on these like thoughts or ideas is by having the rest of the family like actively participate in the conversation.

Jeff Mastronardo: I mean, I’ve, [00:10:00] there’s been many circumstances that I’ve personally been a part of where we’ve had those conversations. And it’s impactful when you, when you’re talking to mom and her boys and mom lives on her social security and a pension and has $400,000 in a Roth IRA and she’s 80 years old. Well, that Roth IRA shouldn’t be invested for the 80 year old.

Right. She’s never gonna use it. And I’ve, we’ve, we’ve had this conversation with clients. Yeah, let’s invest that 100% stocks for the next 10 years that you’re gonna be alive cuz it’s just. It’s going to grow more and it’s gonna be a bigger impact for these kids. Like that’s kids’ money. I’ve, I’ve said that a million times.

This is basically your kids’ money, so let’s invest it for them kids. Are you okay with that? And they’re always like, yes, let’s do that. Of course. Yeah. That’s why I just think it needs to be a bigger conversation. Um,

Meghan Tait: um, yeah, but my, I guess the issue I see most is that, The mom and dad [00:11:00] just don’t, they can’t wrap their brains or grasp the amount of wealth they have, right?

There’s the constant like, well, what if? What if, what if? And I can think of multiple scenarios where like, there isn’t a what if there isn’t a what if That could be put in front of me that I would. That would even concern me, right? So it it, it’s without concern that we can unequivocally say, give gift, invest for the kids and still doesn’t happen because

Jeff Mastronardo: those what ifs are never going to be something that’s just going to make you go.

Bankrupt. I mean, unless you were doing something really crazy stupid with your money. Right. But like, even like a concern that, like Mike brought up a few, a few months ago, like the, the, um, SVB debacle. Mm-hmm. And you know, your bank accounts and your money markets going below $1 share. Like, okay, but then that will get corrected and we’ll figure it out.

Right. The only [00:12:00] thing that’s like, the only thing that could happen that is a zombie apocalypse. So we, but we’re not, we’re not preparing for that. Right. Yeah. It’s, I think I agree with you, Meg. I think it’s generational. I think it will go away. I think the 60, the 55 to 60 year olds that we’re dealing with now Yeah.

Won’t have as big of a hangup when they’re 80. Yeah. I think they’ll get it unless they start going senile and like start losing their minds. Um, but that’s, it’s, it’s something that I think people should be talking about with mom and dad and with each other about their family’s wealth so that we can just be better at what we do.

Meghan Tait: Yeah, and, and I mean, we can only take it so far, right? We can only help, we can only help move the conversation. We can only give the ideas, but I mean, without someone willing to, to execute, it’s, it’s just a lot of talk. And I guess that’s where my frustration lies. There’s a lot of talk with certain situations recently for me, [00:13:00] and they seem like no-brainers and I don’t know how to.

Push anymore.

Jeff Mastronardo: Yeah. And I feel like there has definitely been more people that are willing to have that conversation. I feel like, yeah, let’s, 10, 15 years ago when I would say to someone, are you willing to like, you know, share some of this information with your kids and, and bring your kids in so they can understand the planet was like, no, I don’t want my kids to know how much money I have.

I, I feel like recently there’s been more acceptance of that. That’s true. I agree with

Mike Traynor: that. Mm-hmm. There is a threshold that just to before we leave this, yeah. Um, I feel like there’s a threshold of wealth at which it starts to be the, the, the issues become much more complicated. So talking about a few million bucks or right.

Five or 10 million. But when you’re talking about 5,000, you know, lots and lots of, of, of assets, you know, at that point you have real concerns about. Okay. Family planning. Our kids know that they’re inheriting just sure they don’t have [00:14:00] ever have to work. Their kids don’t have to work. How are we gonna get them to work?

How are we gonna create a work ethic in our, in our, their, our kids and their kids? And that, that kind of thing. So,

Jeff Mastronardo: um, I can’t help you with that. Michael. Yeah. What does Jay-Z say?

Meghan Tait: No money, no problem.

Jeff Mastronardo: Was that Jay-Z? No. Where’s that? Biggie? I think it was, I think it was, uh, uh, puffy, actually. Puffy and Mace.

Yeah, you might be right. I think Biggie was dead when that came out. His track was, uh, was added afterlife. Mm.

Meghan Tait: Should have consulted with the resident rap connoisseur. All right, well, no answers were found through that.

Jeff Mastronardo: Sorry.