The X’s & O’s
Today we’ll talk about some topics related to your money, finances, and retirement that should get way more attention and excitement. Let’s give these underdog concepts the love they deserve on this episode.
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Brent Pasqua, Matthew Theal and Joshua Winterswyk
Matthew Theal: Welcome to the Retirement Plan Playbook. I’m Matthew Theal, financial advisor at RPA Wealth Management. I’m joined as always by Joshua Winterswyk. Josh, how are you doing today?
Josh Winterswyk: Doing well, Matt.
Matthew: Thank you, Josh. Great to see you. Brent? How’s it going today?
Brent Pasqua: Excellent, Matthew. I’m excited for the show.
Matthew: Yeah, me too. We have a great show on deck today. We’re going to talk about underdog financial concepts. But what really got us started for this show is thinking of some of our favorite underdog moments. When I think of underdog moments, I think of the USA hockey team, 1980 “miracle on ice”, I know they made a great Disney movie about it. Who starred in that movie? Was it Mel Brooks? Kurt Russell?
Josh: Oh yeah, Kurt Russell.
Matthew: Was it Kurt Russell? Yeah, it was Kurt Russell. Yeah, you’re right. That was a great movie. Brent, what was your favorite underdog moment? What do you think about?
Brent: I think the one that comes to mind is one that was more recent, and that was Tiger Woods winning the Master. I mean, the guy hadn’t won in 11 years, he had all those personal issues going on with his life, he had his body issues, these injuries with his back, stepped away for years, and then all of a sudden comes back out of nowhere and wins the major. Nobody thought he would ever win again, or most people didn’t.
Josh: Yeah, it was awesome to watch, too.
Brent: It was.
Josh: And just to see all of that struggle. Just quite an accomplishment from him and quite the underdog in that situation.
Brent: There’s nothing like Sunday when Tiger’s in the hunt.
Josh: It’s must-watch TV.
Josh: And I’m not a huge, big, golf guy, but… Matt, did you watch that? That Sunday?
Matthew: I did, it’s the only golf I’ve probably watched in 20 years.
Matthew: I mean, Tiger makes the red shirt cool.
Josh: Yeah, he does.
Brent: It was good to see him back at the top.
Matthew: Another cool underdog sports moment on the topic for me would be in the Super Bowl… I don’t remember what the number is, they’re all pretty high Roman numerals, but the Giants-Patriots Super Bowl, you guys remember that? When the Patriots were undefeated…
Brent: David Tyree?
Matthew: Yeah, David Tyree, he made that crazy catch, and the Giants upset them, I think Osi Umenyiora and Michael Strahan were basically eating Tom Brady’s lunch all day?
Brent: Yeah, I think it’s only the Giants twice, and then the Eagles have been the only ones to beat the Patriots in the Super Bowl, right?
Matthew: Yeah, our Rams gave it a good shot last year, but that was…
Josh: I don’t know if I would say that was a good shot.
Brent: That was not a good shot, Matt.
Matthew: Yeah, we were in the Super Bowl.
Josh: I think that Patriots were undefeated throughout the regular season and, obviously, the playoffs…
Brent: That’s right.
Josh: But they were undefeated through the regular season when the Giants beat them, making it even more of a big underdog story.
Brent: Yeah, I mean, that catch was the turning point.
Matthew: Yeah, it was. Josh, what’s your favorite underdog moment?
Josh: When we talked about it earlier, I tend to always lean US soccer, because we’re kind of an underdog story, but one that was just more recent was the boxing match, with Anthony Joshua and, I believe his name is Ruiz, yeah, Andy Ruiz Junior? Anthony Joshua was two-time champion, he held two different world title belts, and Anthony Ruiz looks like he hadn’t trained at all for the fight, and walked in there and knocked Anthony Joshua out, and it… just looking at the guys, it looked like an underdog story, that Anthony Ruiz didn’t have a chance to beat Anthony Joshua, just because he’s so huge. But that was quite an underdog story, if you guys watched that.
Brent: Is Anthony Joshua American?
Josh: He’s British.
Josh: Yeah, he’s a British fighter. And I think that he was on his way to fighting the other champion, and Anthony Ruiz Junior, who no one’s ever heard of, ended up going in there and ruining his big payday or his big fight with, I think it’s like [Dante Whittaker 00:03:36], I think, or something like that.
Brent: That probably cost some Pay-Per-View dollars.
Josh: Oh, yeah, yeah, yeah. Boxing’s probably pretty upset that that underdog story happened.
Matthew: Yeah, that was an interesting one. I know even the betting markets were a little bit shocked. I think they thought the match was fixed, right?
Josh: Yeah, yeah. Just a big underdog. Vegas, I think, took a big hit with him losing, but…
Matthew: Wow. Wow. So, moving on to the financial concepts, we have three picked out for today as our underdog concepts. And these are things you want to really be considering in retirement. Our first concept is liquidity, followed by predictability, and lastly we’ll talk about simplicity. And we’re going to give, really, details about what they all mean. Josh, what does liquidity mean?
Josh: Matthew, liquidity to me just means how fast you can get your money out of your pocket. And, in other words, how fast you can convert an account into cash, or get it to where you can spend it. And an example of this is your checking account. The money is in cash already, you have a checkbook and a debit card, or you can pull out cash and spend it that way, but there’s no penalty, there’s no tax implication, and that money’s just readily available for your consumption.
Josh: And savings accounts are the same. Savings accounts can be accessed and moved around and they’re already in cash, so they have, ultimately, tons of liquidity, or if you’d like to say 100 percent liquidity. And then you can probably even group in some investment, or products, that have high liquidity. Short-term CDs. One-month, three-month, even six-month CDs, or less than a year, also have pretty high liquidity, so…
Matthew: Now, do you have to pay a penalty on those short-term CDs?
Josh: You do, yeah. And most of the time, it’s some percentage of the interest earned. So, if you didn’t know what the penalty was on your CD, it’s some sort of calculation of what you’ve earned on the CD of whatever rate it was renewed at.
Matthew: Yeah. So, essentially, liquidity is how fast you can convert your money to cash, and if your money’s at a bank, essentially if the bank’s open, you can probably get it out. Some other things that people don’t think of on the liquidity side is actually mutual funds, stocks, and bonds are quite liquid.
Matthew: And mutual funds are pretty unique in that they only trade at the end of the day. So that means when you’re placing in a trade in your brokerage account or your retirement account to purchase a mutual fund, you are buying that fund at the close of business. So you actually also sell that fund at the close of business that day. So you get the money in your account, or do you get the money taken out of your account? They settle on what we call in the industry, to use a little jargon, as T-plus-one. So trade in one day, the next morning the cash is in your account, and you can withdraw it from there.
Matthew: On the other side, the stocks and bonds, they settle on… they used to settle T-plus-three but now they settle T-plus-two, so you place the trade that day, it takes two days to settle. Well, that’s still fairly liquid, compared to some of the other investments. So Brent, you have anything to add on the stocks, bonds, or mutual funds?
Brent: No, I think the only thing would be is, so if you’re trading your stocks and you need your money, how liquid… how long would it be before the person could actually start spending money?
Matthew: Oh, right. That depends on the bank and the way you transfer.
Brent: So generally, the liquidity that you’re talking about is a two to three-day process.
Matthew: Right. To get your actual money, let’s use a wire, right?
Matthew: A wire is instant.
Matthew: A lot of the major banks, JP Morgan and Bank of America, Wells Fargo, they’ll have quicker processing times if you’re moving from a large broker, like Charles Schwab, TD Ameritrade, Fidelity, but some of the smaller banks or credit unions are going to take a little bit longer to process. Josh, you have anything to add?
Josh: No, just that technology has helped with that liquidity with them, too. With allowing it to be transferred through ACH and electronic transfer when, by not even having to do a wire… I mean, a lot of times before, your only option might have been a check, and you would have had to wait one to two weeks to complete the trade, process the check, and get it mailed to you. So, just technology has made the stocks, bonds, and mutual funds… the liquidity time has increased, or gotten better.
Matthew: Yeah. Not to go down a rabbit hole, but I think that’s one of the whole promises about cryptocurrency and Bitcoin, right, is its instantaneous settlement and liquidity.
Josh: Mm-hmm (affirmative).
Matthew: Moving on though, what are some examples of some non-liquid investments? Josh?
Josh: Just start with retirement accounts. With the increase of popularity with retirement accounts, we’re seeing so many people with IRS 401ks, and different compensation plans, and not knowing how liquid they are, I think that’s a good place to start.
Matthew: Yeah, I think this is a real controversial one. Why do you guys think that retirement accounts are non-liquid? Because I think a lot of people think, “oh, I have maybe 50 thousand, 100 thousand, in my retirement account, I could take a loan, I could press withdrawal right here on the screen and get my money,” how’s that not liquid?
Josh: Well, again, it’s how fast you can get it into your pocket. So, with a retirement account, depending on the retirement account, because all of them have kind of their own rules, especially with withdrawals and rollovers and stuff like that, but it could be anywhere from one week to a month or even more before you actually get your hands on the money, because of the processing time, not only with the 401k, but maybe your HR department, even the fact liquidity-wise with the loan, you’re only able to loan so much from the 401k. So thinking you can loan the 100 percent balance from the 401k is also inaccurate. So time-wise, from getting the 401k account into your pocket to be able to spend it, is not as quick as a checking-savings account, so obviously it’s not as liquid, or doesn’t have that great a liquidity to it.
Matthew: Right. And also, if you withdraw before you’re age 59 and a half, you’re going to get stuck with that 10 percent penalty.
Josh: Yeah, and that’s a completely… another issue with the 401k and IRS.
Matthew: Yeah. Moving on, another one that people don’t realize when they purchase these is annuities are very ill-liquid. Brent, what do you think about annuities and liquidity?
Brent: Annuities do create many challenges if you’re trying to take your money out. First of all, they have limited accessibility to it, so generally these contracts only allow you to have anywhere from five to 10 percent free withdrawal from them.
Matthew: Sorry to cut you off, Brent. What do you mean when you say “free withdrawal”?
Brent: So most of the annuities out there will allow you to take out five to 10 percent, and generally it’s usually around 10 percent, of the account, or what they call accumulation value. So if you have $100,000 dollars in your annuity, you’re allowed to take out, based on the contract rules, if it’s 10 percent, $10,000 dollars out of the contract. Now, if you wanted to take out that $10,000 dollars, most companies make you do it by form, or by phone call. Many of them send out a check. So you could be waiting a week, two weeks, just to get your 10 percent out of your contract.
Matthew: Are there any penalties involved when you’re withdrawing money from an annuity? Do you forgo interest, or anything like that?
Brent: If you’re going above the free withdrawal limits, then yes, you pay a surrender charge. Plus they have something called market value adjustment that could also increase the penalty that you’re paying.
Matthew: Can you explain surrender charges? This is something that’s a little new to me.
Brent: So when you sign up for an annuity contract, you have a surrender charge if you take out more than what your allowable amount is on that free withdrawal. So some contracts will have five, 10, 15, up to 20 percent surrender charge. So if you take out above the 10 percent allowable free withdrawal, then you could be paying a 10 or 15 percent penalty.
Matthew: Wow. So, essentially, to access your money, you could be paying a fee of anywhere from 10 to 20 percent.
Brent: Correct. On the amount that you’re above the free withdrawal amount.
Matthew: Wow. Anything else to add on annuities, Joshua?
Josh: No, I think Brent explained it well. And just the surrender fee charges are alarming.
Brent: Yeah, the insurance companies do not work like the custodians, where you can get access to your money in a rather quick manner. A lot of it’s done by old technology checks, phone, processing days, it’s a long process.
Matthew: Yeah, totally. Anything else to add on the non-liquid investments?
Josh: What would some of the solutions be?
Matthew: You know, that’s a great question. Joshua, I think a good solution, and you can correct me if I’m wrong, would be just to have a proper emergency fund.
Josh: Yeah, absolutely. And I think we’ve even talked about emergency fund in a different podcast already, but I had kind of a shocking statistic that I saw come across my Twitter, and it said, “just 40 percent of Americans are able to cover an unexpected thousand-dollar expense.”
Josh: And when I first read that, I was like, this is very alarming, because we all have emergency expenses that come up, I think we share stories about things that come up that we have to pay for, and so I think this is kind of also why we’re talking about the liquidity issue is, where’s that money going to come from if we don’t have an emergency fund? And so a solution of having at least three months of living expenses saved in a completely liquid account, like a savings or money market, can really help with the liquidity concerns in the future for anything that may arise, or emergency and stuff like that. So we just feel very strongly about emergency funds and how valuable they can be, and it’s also very underrated.
Matthew: Yeah, and to put some math behind what you’re talking about, say your expenses are $5,000. Three month’s expenses would just be having $15,000 dollars saved. And I know that sounds like a lot of money, but you work up over time, you put $100 dollars away a month, or a little more, and before you know it, in a few years you’ll have that $15,000 saved, and you won’t be a statistic like you just mentioned.
Matthew: Moving on to our next topic, this one is predictability. And what we mean is, predictability in a retirement. Maybe seeking out those guaranteed returns. Brent, what’s predictability mean to you?
Brent: Predictability means seeking out and getting or receiving guaranteed returns in an uncertain time or world. Let’s say, for example, you had $500,000 dollars, just to make numbers simple, and you were you receiving a two-and-a-half percent return, whether on a savings account or CD. That would give you, so that you would know, $12,500 dollars every year, basically $1,041 a month, you would know would be coming in every single month. And if you really knew what your budget was, and you only needed a thousand dollars a month, and you were able to live your lifestyle off that thousand dollars, having that money predictable, and coming in every month, would make things a lot easier.
Matthew: Yeah, certainly it would. And what you’re describing is very similar to probably how a bond works, right? So most people don’t know this, but the bonds are actually really predictable, and it’s really easy to know your rate of return if you do the simple thing of just buying the actual bond and holding it.
Matthew: So let’s say you put a million dollars into a bond. We’ll call it a US government bond, and the interest rate is five percent. So what that means is, you’re going to get $50,000 dollars a year in interest over the term of the bond. So let’s say it’s a 10-year bond, so you get $50,000 every year for 10 years. Then, at the end of the bond, you will get your money back. You’ll get your million dollars. So you made $50,000 per year for 10 years, so how much would that be… you made $500,000, and then you get your million back.
Matthew: So your rate of return is already known when you go into it, as long as you hold it until maturity.
Brent: Is this kind of how the previous generation used CDs?
Matthew: Yeah, very similar to that. And this is actually, probably the perfect retirement scenarios, right? You’re creating that predictability, you have $50,000 coming in, you have 30, $40,000 a year from Social Security, get your, call it $80,000 a year in income, that’s what you have to live on.
Brent: Yeah, I think a lot of people’s mentality is, they don’t want to spend their principal of their assets that they’ve saved.
Matthew: Right. Yeah, they don’t, and that’s the beauty about bonds, here. Because, in a bond, yeah, sure, you’re locking up your principal for the term of the bond, but you’re getting it back at the end.
Brent: Right. And I think a lot of people… you hear stories about the 70s, or periods of time in history where bond interest rate or CDs rates were at these levels where people could really have a nice income stream every year from them.
Matthew: Yeah, totally. So, anything else to add on the predictability side?
Matthew: All right. So let’s move on to what’s non-predicable. And, so far we’ve really talked about some boring concepts, right? CDs and bonds? Josh, are stocks predictable?
Josh: No, no, yeah. A little bit more excited than the CDs and the bonds that you guys were just discussing. But obviously, more exciting, less predictable, and can be a lot more volatile with the stocks. And also, if we’re talking about junk bonds as well. So I think we can kind of dip into that today.
Matthew: Yeah, so junk bonds would be a low-rated company. Let’s actually use everyone’s darling of a company, Tesla. Tesla issues junk debt. They have a low credit rating. And what that means is, essentially, there’s a higher than likely chance they’re going to default on their loan, which would make your bond useless, that means you actually don’t get your money back. You only get your money back if the bond doesn’t default.
Josh: Well, I think Tesla would probably call them high-yield bonds, though. Not… they don’t call their own bonds “junk bonds”.
Matthew: That’s true, yeah. But they are considered junk bonds. And then on the stock side, we see a lot of people come in here, and they want big returns.
Matthew: And they want to chase the hot stock, they want to buy Snapchat, they want to buy Facebook, they want to buy Uber, today the hot stock is Beyond Meat, and they want to dump their whole retirement savings into that. But it’s just not a way to do it. You want predictability in retirement. And your time to make your nest egg is over.
Brent: Can people use their dividends as somewhat predictable income?
Matthew: Yes and no. Dividends aren’t predictable. The company controls the dividend, they can cut it at any time. And also, dividend returns aren’t a great use of a company’s capital.
Matthew: Essentially, if a company is paying you a dividend, it means they’re not investing in their own company.
Matthew: So they have nothing better to do than pay out their shareholders.
Josh: And which would kind of favor, why don’t we lean towards that predictable interest rate?
Brent: So as my dad has gotten closer to retirement, one of the things that he would always call me and ask me, he’s like, “hey son, when I retire, how much is my portfolio going to give me in income?” And for a long time I was trying to figure out what he was really asking, but what he was trying to figure out… he obviously wanted to know what his income is going to be, but I think a lot of people have this misunderstanding that their whole portfolio is going to give them this fixed income for the rest of their life. And it doesn’t always work like that.
Brent: One of the things that you can look at is, if you are going to go into a savings rate, or CDs, you’re probably going to have to give up some return, and sacrifice long-term returns, for that predictability. Which, if you can get a decent, predictable return off of your portfolio, and you know it’s going to be guaranteed, and that fits in with your budget, that may not be a bad plan. If it works within your plan. But if you’re going to be in stocks and bonds, and you’re going to have a diversified portfolio, it’s probably not going to be as predictable as if you were just getting a one or two percent return in a savings account.
Josh: Would you say it’s kind of like, when you’re bowling, and you put the bumpers on? It kind of lessens your margin for error?
Matthew: That’s a great analogy. I bowl with the bumpers on.
Josh: I would imagine you did.
Brent: When we go bowling with my kids, we put the bumpers on for them.
Matthew: But what about you? I’m sure you’re hitting the bumper lane, too.
Brent: Yeah, I hit the bumper lane also.
Matthew: Yeah, it’s fun. It makes the sport a little better.
Matthew: Josh, anything final to close with?
Josh: No, just if we’re looking at predictability for retirement clients… we’re at a conference, and I just heard this quote from Professor Bob Merton, and he had mentioned that when retirees look at their nest egg, or their lump sum as this dollar amount, so let’s just call it a million dollars that I’ve saved entering retirement, and the mindset is we need that money grow, and we want that million dollars to grow to one-point-two million, or one-point-three million.
Josh: But the reality is, in retirement, that one million is going to turn into your income stream. And looking at it of how much do I want my income to change in retirement? Instead of looking at the dollar amount of the lump sum. So, how much income is the lump sum going to create me? But then, how much variance do I want in my income through retirement? And that’s where I think that predictability can help with decreasing, like we talked about the guard rails, or decreasing that variance in the income, and really looking at your lump sum pot of money more of your income for the rest of your life, and when we change that, and adding some predictability can really help.
Matthew: Yeah, I love that, and I love Professor Merton, he’s one of the great retirement researchers. Essentially, to summarize this topic, I would say if you’re getting ready to retire, don’t put your retirement nest egg into pot stocks or the hot tech stock. Leave that for the kids.
Matthew: Moving on, our final topic, underrated financial concept, is simplicity. And simplicity’s an interesting one, right? Because everyone seems to think if they make things more complex, it’s better. But that is not true. Simple strategies will out-perform complex strategies all of the time. So what do we mean by simplicity?
Matthew: Well, let’s just start with your financial life. Why do you keep multiple checking and/or savings accounts? Or have multiple IRAs? I know this is something all of us see. Why do you think people do that, Brent?
Brent: They do that because they go back to the old strategy that was done 10s and 10s of years ago, where grandma had an envelope for clothing, grandma had an envelope for food, she had an envelope for travel, and so she would separate all of her different envelopes out for things that she was budgeting for, and then as things became more electronic, they took those envelopes and they started using them for checking accounts. And now they have multiple checking accounts at different banks, in different places. That’s one reason.
Brent: The other one is, some people just like having multiple accounts at many different places.
Matthew: Yeah, I think they fear the whole [Bankron 00:22:53], right? Chase, Bank of American goes under, I’m going to keep half my money at Wells, half my money at Bank of America, and the other half at the credit union.
Josh: Yeah, don’t put all your eggs in one basket.
Matthew: Yeah. Little do they know, in 2008 when the financial economy almost collapsed, the banking system, every bank almost went under.
Matthew: And if that happens, we have a ginormous problem, and the money in your bank probably isn’t going to help you.
Josh: And a long line at the FDIC insurance window.
Matthew: Yeah, a lot of people calling FDIC.
Josh: Yeah. And I think that the banks are guilty of this, of selling multiple checking accounts and savings accounts. It’s like the summer saver, or the vacation fund, or the Christmas savings account, and then it just led to this multiplying of bank accounts, and the bankers are kind of pushing that, and obviously they have revenue behind it that’s being generated, so they’re to blame too.
Matthew: Well, didn’t you used to work for a bank after college?
Josh: I did, yeah. Yeah.
Matthew: Now, I mean, correct me if I’m wrong, but didn’t the personal bankers, or the bank sales department, don’t you make more money the more checking and savings accounts you open?
Josh: Yeah, and depending on if they’re older products. There was some incentive to that. I didn’t really believe in that, with turning over accounts that just… if it’s not benefiting the client. And a lot of people in a lot of the branches that I worked at had that mentality. But it’s just hard because they do generate revenue for the bank, and there’s incentive behind it, so they are promoting opening up multiple accounts.
Brent: And there could be pretty high fees if you don’t carry a minimum balance that’s required for the checking account, right?
Josh: Yeah, and that can be detrimental to the person. They open up an account, they use the money that they originally started with it, and now all of a sudden there’s a fee for that account which the bank’s generating revenue from.
Brent: Right. And if you had two, three, four checking accounts at different institutions, and you weren’t carrying the minimum, I mean, that could be a pretty significant cost every month.
Josh: Yeah, and I think that’s kind of leading into that next topic of consolidating, because the more money you have at one bank, usually, the more benefits and perks that you have. So instead of having $10,000 dollars at three different banks, having $30,000 dollars at one bank could actually provide you more benefit.
Matthew: Yeah, totally. And the other thing besides checking and savings accounts that people seem to have multiple accounts of is really any type of retirement account. And now, I understand how this is happened. It’s really probably a product of the 401k marketplace, right? You start a 401k at one employer, maybe you get laid off or you transition five years later, you open up another 401k, and before you know it you have three or four 401ks, maybe you have a couple IRAs lying around. But in most instances you can actually roll those together and create one account. Anything on the retirement accounts to add, boys?
Brent: No, I think just if you have an IRA, you probably don’t need an IRA at each different custodian, like people will do with checking accounts. You have one IRA under one brokerage account, or whatever institution that you’re at, and you don’t need multiple accounts.
Josh: How often do you see that, Brent? I know just with your experience with your financial advising career, how often do you see there being multiple, multiple accounts?
Brent: More times than there are with people who just have one IRA. They have an IRA at the bank, they have an IRA at the custodian, they have a stock account that they do on their own that they have an IRA, they have an IRA with their advisor, and now they have three or four IRAS, and they really don’t understand what each one is doing. And they all should be complimenting each other, each IRA, they’re all working in different directions, and nothing’s actually working together.
Josh: Right. I think you even saw a life insurance policy in an IRA one time.
Brent: Yeah, that was a complete anomaly, and it was just a bear to get situated between all the insurance company and the custodian.
Josh: Causing even more complexity.
Brent: So much more complexity.
Matthew: I’m probably going to disgrace my CFP marks, but I didn’t even know it was possible to buy life insurance in your IRA.
Josh: I didn’t either, until he showed me that statement.
Brent: Yeah, it was done a long time ago, and I think some of the rules have obviously changed since then, but it created a lot of complexity for the client.
Josh: Interesting learning process with that one.
Matthew: Moving on to the next one, the other kind of thing we see people do, where they’re not keeping it simple and they’re making it complex, is they’re hiring multiple advisors, right? And the way they kind of do this is… I know people have told us before, “I’m going to give you $50,000, I’m going to give the guy at JP Morgan $50,000, I’m going to give the guy at Waterfront $50,000, and I’m going to give my brother-in-law $50,000, and whoever makes me the most money at the end of the year is going to be my advisor and they’re going to get it all.”
Brent: Yeah, you know what that’s called?
Brent: A failing plan.
Matthew: Josh, anything to add on the multiple advisor front?
Josh: No, it just goes against a lot of what we believe in with strategy. I mean, you just have four captains driving one boat. There’s going to be conflict. There’s going to be issues with… you know, you want one captain driving the boat so you can kind of get to that island together and safe and on time, and having four captains can obviously cause a lot of conflict.
Brent: Yeah, I mean, just on the surface, I had a client ask me, hey, can we sell some of this stock positions that he had in his portfolio, and he had multiple advisors, and then it was, hey, well, you’re going to have capital gains here, and what’s going on in your other portfolios? And he couldn’t answer that question. So from a tax perspective, it creates so many complexities, and it is different captains driving one bus, and everybody’s going in a different direction.
Josh: Yeah, and that’s a great point on the taxes, too. Because who knows what’s going on in the other portfolios, and there’s so many implications. Great point.
Brent: It all comes down to planning. You got to have one plan, and you need to be going in one direction.
Matthew: Yeah, I agree. What’s the solution for simplicity? What can people take home from this topic?
Brent: I think the solution for simplicity is to create a financial plan, to know what your goals are, and be able to consolidate and simplify everything, and then be working with one advisor on it.
Matthew: Yeah, I agree. Consolidating those accounts is a good start. Not having multiple accounts at multiple places makes a lot of sense. Josh, you have anything to add?
Josh: Yeah, and just making sure that those plans are based around your goals, and I think that will help drive the simplicity. So if you’re really sitting down and looking at short-term and long-term goals, and then coming up with a plan to consolidate and simplify, it all kind of falls in line and makes it easier to manage.
Matthew: Yeah, I agree. You know, I will ask you guys, because we are talking about this and we want to kind of talk our book here, do you have multiple accounts at multiple places? Joshua?
Josh: Actually, on the retirement side, I have my 401k and my IRA. And… so, I mean, no, as far as consolidation. Bank accounts, just two different banks. And probably in the future I could even listen to this podcast and consolidate those down into one, too. But not as much as, when you first asked me this question that I was afraid of before I thought about it, but what about you, Brent?
Brent: No, I keep everything pretty much all consolidated. I have one IRA, I have one brokerage account, and then I just have my checking and savings. So I keep it pretty simple.
Matthew: Yeah, so I have to admit, when we were doing this, I realized I was guilty of this on the savings account side. So I have a high-yield savings account with Marcus, where I keep the majority of my emergency fund, and then my wife and I have a joint savings account at Chase that we put the money in that we got from our wedding. And then I also have a very small savings account at Chase that I move money in and out of when I have excess in my checking. So I guess I should close that one at Chase.
Josh: We’re going to have to talk after this podcast.
Matthew: Yeah, I need to take my own advice and consolidate.
Brent: Yeah, keeping it simple just makes it so much easier. And then if you have so many multiple accounts, you’re getting so many tax forms at the end of the year, too. And then you’ve got to keep the envelopes and give them all to your tax guy, does it really benefit you to have that many accounts?
Matthew: That’s a great point in that the tax man’s so busy, he’s probably going to forget one and mess it up, you’re going have to redo your return, it’s going to be a mess. It’s not going to be fun.
Brent: Yeah, it’s just not worth it.
Matthew: Anything else to add today, boys?
Josh: No, I think… some great topics. And a lot of underdogs under there.
Matthew: Yeah, definitely. All right. Well, thank you for joining us on the Retirement Plan Playbook. I’m Matthew Theal, I was joined by Joshua Winterswyk and Brent Pasqua. You can learn more about us by visiting us at our website, www.rpawealth.wpengine.com. Thank you, and have a great day.
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