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From Record Highs To Real-World Tax Moves · HPK Provident Advisors: The Weekly Bull

• 0:02
  SPEAKER_00: Welcome to HPK Provenent Advisors Friday Live on this Friday, December 5th, 2025.
• 0:11
  SPEAKER_00: Yeah, we're already into December.
• 0:14
  SPEAKER_00: Time flies, Mike.
• 0:15
  SPEAKER_01: It really does.
• 0:16
  SPEAKER_01: It's amazing.
• 0:17
  SPEAKER_01: I don't know where this week went, to be honest.
• 0:20
  SPEAKER_00: Well, it's because everybody's shopping, and why don't you start shopping?
• 0:23
  SPEAKER_00: Oh my gosh, I don't have much time.
• 0:25
  SPEAKER_00: What do we do?
• 0:26
  SPEAKER_01: Amazon box that's showing up in my house every day.
• 0:28
  SPEAKER_00: Oh, I love it.
• 0:29
  SPEAKER_00: Amazon is one of my favorite.
• 0:31
  SPEAKER_00: What an incredible service they provide.
• 0:32
  SPEAKER_00: Uh, so what we do every Friday, 12 30 p.m.
• 0:35
  SPEAKER_00: Eastern Standard Time on Facebook, uh, one, two, sometimes all three partners of HPK Provenant Advisors.
• 0:41
  SPEAKER_00: We have offices in the Pittsburgh area, which is where I'm located, on the Atlantic coast of Florida, which is where Mike is located, and then another office on the, I guess that's the Gulf Coast of Florida over in the Sarasota area.
• 0:57
  SPEAKER_00: Uh so we get on uh 12.30 p.m.
• 0:59
  SPEAKER_00: Eastern Standard Time, Facebook.
• 1:01
  SPEAKER_00: Talk a little bit about the markets, talk a little bit about financial planning, just share ideas on what's going on in the financial world.
• 1:08
  SPEAKER_00: Um, so Mike, thanks for joining us.
• 1:10
  SPEAKER_00: You know, and the other thing I should say is throughout the week, we put out uh social media posts on Monday uh when he's available on not traveling.
• 1:20
  SPEAKER_00: Mike uh puts out uh kind of the week ahead, what's going to go on in the markets, uh some you know the announcements that we're expecting and that type of thing.
• 1:27
  SPEAKER_00: Uh Tuesdays on social media is Tax Tuesday, so we put out some things.
• 1:31
  SPEAKER_00: Uh we although we don't give uh tax advice, we don't give tax or legal advice.
• 1:36
  SPEAKER_00: We don't prepare tax returns, we don't prepare legal documents either.
• 1:41
  SPEAKER_00: Uh, but on Tuesdays uh on Tax Tuesday, the content is how taxes affect your investments.
• 1:49
  SPEAKER_00: Uh wealth management uh wealth building Wednesday is you know how to really build up.
• 1:57
  SPEAKER_00: A lot of people call it a nest egg.
• 1:58
  SPEAKER_00: I don't like nest egg.
• 1:59
  SPEAKER_00: I don't like that concept.
• 2:00
  SPEAKER_00: You know, eggs are fragile, nests fall out of trees.
• 2:03
  SPEAKER_00: How to how to you know begin building wealth uh towards your goals and your dreams.
• 2:09
  SPEAKER_00: And then think ahead Thursday.
• 2:10
  SPEAKER_00: Those are things just to, you know, contemplate.
• 2:14
  SPEAKER_00: Maybe it's not applicable to you now, maybe it's applicable to somebody that you know or somebody in your family, uh, but maybe it'll be applicable to you at some point in your life.
• 2:24
  SPEAKER_00: And then Friday, we put it all together here on Friday Live.
• 2:27
  SPEAKER_01: Yeah, and you can view that on Facebook as we're on right now, or it also goes out to LinkedIn, YouTube.
• 2:33
  SPEAKER_01: Um, I think that's it, right, Brian.
• 2:36
  SPEAKER_00: I think so.
• 2:37
  SPEAKER_00: I think so.
• 2:38
  SPEAKER_00: We've got a pretty uh pretty comprehensive uh um uh strategy, uh comprehensive visibility, I should say, uh, across social media.
• 2:50
  SPEAKER_00: So uh so enough about what we're doing here and let's get right into it.
• 2:54
  SPEAKER_00: Mike, talk a little bit about the markets, what went on this week, and um what you're seeing, what you like, what you don't like, what concerns you, what makes you happy.
• 3:04
  SPEAKER_01: All right, let me pull up the chart here if I can.
• 3:06
  SPEAKER_01: I clicked it, but it is oh, okay.
• 3:11
  SPEAKER_01: Gotta go to this setting.
• 3:12
  SPEAKER_01: Gotta remove this first.
• 3:14
  SPEAKER_01: Sorry for the technical difficulties.
• 3:16
  SPEAKER_01: There we go.
• 3:16
  SPEAKER_01: Well, it's been a while since I said it, but we touched interday highs today on the SP 500.
• 3:23
  SPEAKER_01: Um, unfortunately, we pulled back from that level, so we'll have to see how we go the rest of the day, whether we can get a record high close or not.
• 3:32
  SPEAKER_01: Um, we're not far from that, but we'll see.
• 3:34
  SPEAKER_01: What led us here this week?
• 3:36
  SPEAKER_01: Actually, before I before I go into that, let me just click on a couple of different things I like to look at.
• 3:42
  SPEAKER_01: Um so let's see here.
• 3:45
  SPEAKER_01: Internationals, um, they're having a good year, but I think of late the SP 500 is actually outperforming.
• 3:53
  SPEAKER_01: So a lot of that's tied to the dollar.
• 3:55
  SPEAKER_01: When the dollar declines, foreign assets become more valuable, and vice versa.
• 4:00
  SPEAKER_01: Um, I like to look at a lot of the fixed income metrics.
• 4:04
  SPEAKER_01: So I'm trying to find my fixed income section here.
• 4:07
  SPEAKER_01: Um we're probably gonna get a rate cut uh next week.
• 4:12
  SPEAKER_01: Odds are for a 90% chance of a 25 basis point cut.
• 4:16
  SPEAKER_01: Um markets think it's gonna be a little more hawkish, indicating that future rate cuts are gonna be a little more uncertain.
• 4:21
  SPEAKER_01: You can see by the the two-year here, which is kind of a good indication of what the bond market is thinking in terms of the Fed.
• 4:30
  SPEAKER_01: Um, so it remains low.
• 4:32
  SPEAKER_01: It is up a little bit on the week.
• 4:34
  SPEAKER_01: Um, the 10 year, on the other hand, is kind of the same story.
• 4:38
  SPEAKER_01: I think uh I don't know if if if the long end is going up.
• 4:43
  SPEAKER_01: I mean, the we'll get into the economic data, but I would say that the economic data overall has been a little weaker.
• 4:51
  SPEAKER_01: So I don't think that's really driving the long end.
• 4:54
  SPEAKER_01: Maybe it's the the announcement that the most likely next Fed chair is gonna be Kevin Hassett, who's a little more dovish, um, meaning we're more likely to get some accommodated monetary policy.
• 5:07
  SPEAKER_01: So maybe that's just showing the inflation picture might be a little higher going forward.
• 5:12
  SPEAKER_01: Um, I also like to look at high yield spreads.
• 5:15
  SPEAKER_01: We were pushing with a breakout level, but fortunately those have have pulled back over.
• 5:20
  SPEAKER_01: And then uh I'll mention it right now because I I wrote um, speaking of the blog posts, um why it was my Thursday post, and it's why the calls for small cap outperformance never seem to transpire.
• 5:34
  SPEAKER_01: Um I'm not even gonna pull up a chart.
• 5:37
  SPEAKER_01: They are doing well this week, but my point in that is the calls don't outperform on a sustainable basis.
• 5:44
  SPEAKER_01: It's usually sometimes we get up to a month or two, but usually it um kind of reverts back to the big cap tech stocks and the the big companies and the SP 500.
• 5:55
  SPEAKER_01: And my my comments on that are kind of revolving around one, the makeup of the index.
• 6:01
  SPEAKER_01: It's a lot of companies in there are unprofitable, so that's one headwind.
• 6:06
  SPEAKER_01: Um in the past, companies went public a lot sooner.
• 6:09
  SPEAKER_01: So now when we have good companies coming to the market, they're a lot more established and they end up jumping right into that mid-cap section or even larger.
• 6:18
  SPEAKER_01: The market caps are very large by the time they come out, and then it's also subject to um just the way index works.
• 6:27
  SPEAKER_01: If a company is truly doing remarkable in the small cap space, it's not gonna stay there forever.
• 6:32
  SPEAKER_01: The market cap's gonna grow as price grows and earnings grow, and they're gonna bump up to the next level.
• 6:37
  SPEAKER_01: So that's kind of my theory around that.
• 6:39
  SPEAKER_01: Um, over the last, I mean, pretty much since I've been in the business, there's I don't, there's never been, there hasn't been any sustainable period of small cap outperformance.
• 6:48
  SPEAKER_01: So maybe I'm a little biased to the time frame I've been in, but it it doesn't seem to to pay to take on that extra risk.
• 6:57
  SPEAKER_01: We do have a little bit of small cap exposure.
• 6:59
  SPEAKER_01: We actually we actually access that through an ETF that focuses on more of the profitable companies.
• 7:06
  SPEAKER_01: So we're taking one of those legs out.
• 7:09
  SPEAKER_01: Um, so that was my article there.
• 7:11
  SPEAKER_01: I'll I'll get back to the market here and the economy.
• 7:14
  SPEAKER_01: Um, we had a lot of jobs data come out this week.
• 7:17
  SPEAKER_01: We still haven't gotten the the Bureau of Economic Labor Statistics, the main data coming out for November.
• 7:23
  SPEAKER_01: Usually we would get that today.
• 7:24
  SPEAKER_01: I know.
• 7:25
  SPEAKER_01: Very sad.
• 7:26
  SPEAKER_01: Um, but we've had some other data.
• 7:28
  SPEAKER_01: ADP came out for November, it showed a 32,000 job loss.
• 7:33
  SPEAKER_01: That marks out of the last six readings, four have been negative.
• 7:37
  SPEAKER_01: So some weakness there.
• 7:39
  SPEAKER_01: Um, that's pretty consistent with we got the ISM manufacturing numbers, which showed the employment situation also declined.
• 7:46
  SPEAKER_01: And although the ISM services employee component did increase, it's still in contractionary territory.
• 7:52
  SPEAKER_01: And then to go along with that theme, we got um the Challenger jobs report showed layoffs for November were 71,000.
• 8:01
  SPEAKER_01: And we're actually up 1.1 million in layoffs in uh in the current years, and that's the highest level since 2020.
• 8:10
  SPEAKER_01: So not a great sign there.
• 8:12
  SPEAKER_01: Um but on the on the other hand, jobless claims came in under 200,000.
• 8:17
  SPEAKER_01: So I don't know if that's just some Thanksgiving week distortion or what's going on with that.
• 8:23
  SPEAKER_01: So I'm really anxious to finally get the November official job report.
• 8:28
  SPEAKER_01: Um, I don't, it's gonna be after the Fed meeting, which is unfortunate, which will take place on Tuesday and Wednesday.
• 8:35
  SPEAKER_01: Um, besides that, um, I mentioned ISM manufacturing and services.
• 8:40
  SPEAKER_01: Uh, the headline number ISM manufacturing was weak.
• 8:44
  SPEAKER_01: Um, new orders was also very weak.
• 8:47
  SPEAKER_01: Services had a nice uptick, but new orders were also down.
• 8:52
  SPEAKER_01: And then we got uh the consumer um Michigan Consumer Confidence Report was uh uptick, um, and the inflation expectations came down.
• 9:02
  SPEAKER_01: So those are all good things, and then we got the September PCE number, which is the the Fed's preferred reading.
• 9:08
  SPEAKER_01: Core came in pretty much in line.
• 9:10
  SPEAKER_01: We're at we're sitting at 2.8% on a year-over-year basis.
• 9:14
  SPEAKER_01: So still elevated.
• 9:16
  SPEAKER_01: Um, I think there's more more risk to the I don't know, I'd say there's more risk to the labor mandate at this point.
• 9:23
  SPEAKER_01: So I'm in full support of a rate cut for next week.
• 9:27
  SPEAKER_01: Um I think they need to be consistent with the cutting schedule.
• 9:32
  SPEAKER_00: I think everybody's in favor of a rate cut, aren't they, Mike?
• 9:35
  SPEAKER_01: Yeah.
• 9:38
  SPEAKER_00: Now a lot of these things uh you can find uh right here on our HBK Provenant Advisors uh webpage.
• 9:45
  SPEAKER_00: If you go over to resources and blog, you can find a lot of those uh commentary.
• 9:50
  SPEAKER_00: There's Mike's uh small cap commentary.
• 9:52
  SPEAKER_00: Um you had some stuff about the IA AI valuations, Mike.
• 9:59
  SPEAKER_00: You want to expand on that a little bit while we're on the topic of uh Yeah, so I think that was the Wednesday post.
• 10:06
  SPEAKER_01: Um they make a little headline comment that um should you be more concerned about grocery store prices or AI prices or something like that.
• 10:15
  SPEAKER_01: Basically, they're just comparing um there's there's a big box retailer um that does like the wholesale, you know, the ones I'm talking about.
• 10:24
  SPEAKER_01: Um a lot of people buy giant popcorn and stuff like that.
• 10:29
  SPEAKER_01: But, anyways, the article is talking about that type of company is trading at like 41 times forward earnings, while one of the well, probably the biggest and most um innovative and market-changing company in tech is trading under 30 times.
• 10:47
  SPEAKER_01: So, does that really signify a bubble?
• 10:49
  SPEAKER_01: Their argument is of course not.
• 10:51
  SPEAKER_01: They also compare it to there's a lot of talk about is this like the dot-com bubble?
• 10:56
  SPEAKER_01: They go into the the different metrics about a lot of those companies being cash flow negative in around the the start of that decade, and about half of them were expected to go bankrupt in the next 12 months.
• 11:09
  SPEAKER_01: That's obviously a different picture than we have today.
• 11:11
  SPEAKER_01: The ones that are doing most of the spending and making most of the money have very strong income statements, balance sheets, are very profitable companies.
• 11:22
  SPEAKER_01: So they're just talking about that dynamic being different.
• 11:25
  SPEAKER_01: Maybe we'll get there eventually, but we're certainly not at the end of that bubble if it's any indication of the makeup of 2020 and 2021.
• 11:36
  SPEAKER_00: Yeah, that was uh 2000, 2001, 2002.
• 11:40
  SPEAKER_00: That was certainly a rough period.
• 11:42
  SPEAKER_00: Uh, that was after the dot-com.
• 11:44
  SPEAKER_00: And of course, everybody at the time, you know, they could buy a company that nobody ever heard of, and it, you know, up a hundred percent for a couple of years straight, and then it disappeared in the next couple of years.
• 11:54
  SPEAKER_00: So I've been hearing a little bit in our our client conversations about it kind of feels the same.
• 11:59
  SPEAKER_00: But Mike, you bring out some great points as to why it's not the same.
• 12:03
  SPEAKER_00: It feels the same because it's technology related, it's a new technology.
• 12:07
  SPEAKER_00: Um, you know, did the internet change the world?
• 12:10
  SPEAKER_00: It certainly did.
• 12:11
  SPEAKER_00: Uh, did a lot of the companies that kind of started out of the gates and had a uh a new fancy toy for everybody, did they make a lot of money for a couple years?
• 12:19
  SPEAKER_00: Well, not made that their stock go up.
• 12:21
  SPEAKER_00: They didn't make money.
• 12:22
  SPEAKER_00: That was the problem.
• 12:23
  SPEAKER_00: Did their stock go up a lot you know a lot for a couple of years and then just tank it did?
• 12:27
  SPEAKER_01: Yeah, that's amazing.
• 12:29
  SPEAKER_01: Some of those companies that were leaders in that time are still not backup level stock price-wise.
• 12:36
  SPEAKER_00: Well, you know what?
• 12:36
  SPEAKER_00: Yeah, what was amazing about yeah, so back then it was the internet, the internet.com, and now it's AI, uh, artificial intelligence, of course.
• 12:45
  SPEAKER_00: And uh, will these things change the world?
• 12:47
  SPEAKER_00: Yeah, I would think yes.
• 12:49
  SPEAKER_00: Uh, but hopefully they'll change the world in a more sensible trajectory where they do have a great product and they're earning money and things along those lines.
• 12:59
  SPEAKER_00: So there are some similarities in in that regard, and that this is you know changing how um you know we do business and uh changing how we shop.
• 13:09
  SPEAKER_01: And and now we're starting to see the AI impact, um, especially technology companies in terms of employment.
• 13:16
  SPEAKER_01: A lot of them are announcing restructuring where they're not needing as many employees thanks to AI.
• 13:21
  SPEAKER_01: So I'm very curious to see how that shapes out going forward, whether that's gonna be a sizable impact in the labor market.
• 13:29
  SPEAKER_01: And then if if it's a big portion of the labor market that we don't necessarily need workers for, I'm not saying that's gonna be the case, but then then what happens?
• 13:37
  SPEAKER_01: Do is it gonna be government stimulus checks?
• 13:43
  SPEAKER_01: Or maybe like maybe like an AI tax on companies?
• 13:48
  SPEAKER_00: Well, I think you know, we're gonna figure it out.
• 13:50
  SPEAKER_00: Uh, you know, we have a history of figuring out when the car came out, everybody that was making uh you know buggies for horses, they said, well, let's just hear we're all gonna get laid off, and everybody figured it out, and we had cars.
• 14:01
  SPEAKER_00: Um, so they uh but there is a transition period where there are some jobs that AI can replace.
• 14:08
  SPEAKER_00: And um, but uh, you know, I think we're adaptable and uh we're gonna figure that out.
• 14:16
  SPEAKER_00: You know, it's it's you know very similar to robotics and manufacturing, and everybody said the robots are gonna take over and nobody's gonna have a job.
• 14:22
  SPEAKER_00: Well, there were some period of time that people that had jobs that robots took over and started doing those jobs uh in the manufacturing, and they did have jobs for a while, but then you figure it out.
• 14:32
  SPEAKER_01: Yeah, then it it likely creates other jobs.
• 14:35
  SPEAKER_00: I should hope so.
• 14:37
  SPEAKER_00: I should hope so.
• 14:38
  SPEAKER_01: Well, you're you're going on our website, which goes through our blog post of the week.
• 14:42
  SPEAKER_01: We also do some things considered social posts that just go out to like Facebook and LinkedIn um that don't necessarily show up on our website.
• 14:50
  SPEAKER_01: So this is my dog Midas.
• 14:51
  SPEAKER_01: He helped me pick out a Christmas tree this week.
• 14:53
  SPEAKER_01: So we got that set up.
• 14:54
  SPEAKER_01: Still need to put the lights on.
• 14:56
  SPEAKER_01: Uh, Tuesday, you want to talk about your I think blog posts.
• 15:01
  SPEAKER_01: So I think this one is on the website.
• 15:04
  SPEAKER_01: I found it very fascinating.
• 15:05
  SPEAKER_01: It's a topic that we discuss with clients every year that have those legacy mutual fund commissionable accounts that have large capital gains.
• 15:13
  SPEAKER_01: So I'll let you take it away from here.
• 15:15
  SPEAKER_00: Yeah, there's always confusion this time of year uh about how uh you know that how mutual funds are taxed.
• 15:24
  SPEAKER_00: And there's really two kind of separate taxes you got to think about.
• 15:28
  SPEAKER_00: Uh most people recognize that when you buy an investment, you buy a share of an investment, then if it grows in time, when you sell that, if it has grown uh from when you originally bought it, let's say you bought it for 10 and you sell it for 13, well, you made$3 between when you bought it for$10 and sold it for$13, that's capital gain.
• 15:49
  SPEAKER_00: Uh if you uh hold that share for less than a year, that's a short-term capital gain, more than a year, it's a long-term capital gain.
• 15:57
  SPEAKER_00: So most people recognize that.
• 15:59
  SPEAKER_00: If I buy an investment, say for$10 and I sell it for$13, there's a gain and there's a tax on that.
• 16:05
  SPEAKER_00: So most people get that.
• 16:06
  SPEAKER_00: But within mutual funds, there's another type of capital gain that comes out and usually comes out in late November, early December.
• 16:14
  SPEAKER_00: And what happens, if you think about it, when you buy a mutual fund, you're buying a basket of some sort of investment, a stock or a bond.
• 16:21
  SPEAKER_00: But I'll use a stock example.
• 16:23
  SPEAKER_00: So you're buying a piece of a basket of stocks.
• 16:26
  SPEAKER_00: And there is a portfolio manager that buys and sells stocks within that basket all year.
• 16:32
  SPEAKER_00: And if they're doing well, there's gains.
• 16:35
  SPEAKER_00: And everybody has to share in those.
• 16:36
  SPEAKER_00: Those mutual funds cannot retain those gains within that basket.
• 16:40
  SPEAKER_00: So they have to give out a little piece of what's gone on in the basket to everybody.
• 16:44
  SPEAKER_00: And at the end of the year, uh, they distribute these capital gains.
• 16:48
  SPEAKER_00: Some people take them in cash and some people reinvest them to buy more shares.
• 16:51
  SPEAKER_00: And so the observation often is hey, wait a minute, I didn't sell my investment.
• 16:55
  SPEAKER_00: Why do I have a capital gain?
• 16:57
  SPEAKER_00: It's because of what was going on in the basket.
• 16:58
  SPEAKER_00: You didn't sell your piece of the basket.
• 17:01
  SPEAKER_00: You were still holding on to it, but what was going on within there was buying and selling of securities that did well.
• 17:08
  SPEAKER_01: And uh there's a capital gain.
• 17:10
  SPEAKER_01: It usually occurs when the fund's doing well, but it can also occur in a down year.
• 17:16
  SPEAKER_00: You absolutely, yeah.
• 17:17
  SPEAKER_00: I mean, you can have you can have a mutual fund that you bought for ten dollars and now it's a nine dollars.
• 17:21
  SPEAKER_00: And you say, well, you know, I if I sell it now, I'm gonna lose money because I bought it for$10 and it's only worth nine right now.
• 17:28
  SPEAKER_00: But what's going on within the basket could be still positive things on a net uh basis.
• 17:35
  SPEAKER_00: And you could say, wait a minute, my mutual fund went down for the year, but yet at the end of the year, they still kicked out a capital gain to me.
• 17:42
  SPEAKER_00: That is that is very possible, and that is very painful.
• 17:44
  SPEAKER_00: And I those conversations are not fun, but it is possible.
• 17:49
  SPEAKER_00: So the post was really about the, you know, when you're thinking about the taxation of mutual funds, there are to two kinds of components you've got to look at.
• 17:58
  SPEAKER_00: One is when you buy a share of the mutual fund and when you sell a share of the mutual fund, but there could be capital gains while you still hold the mutual fund.
• 18:07
  SPEAKER_00: And so there's some more details on that.
• 18:09
  SPEAKER_00: But we get those questions all the time.
• 18:11
  SPEAKER_01: Um and then most of our client base is in our managed accounts where we don't have to necessarily worry about that.
• 18:19
  SPEAKER_01: It's more of what we're personally buying and selling, whether kind of the same structure, but we have more control over it.
• 18:28
  SPEAKER_00: You know, and I and I'll throw out a little teaser, maybe or elaborate on this at some other point, which um with exchange traded funds, Mike had mentioned that we do have some ETFs exchange traded funds in our portfolios.
• 18:40
  SPEAKER_00: Uh, they're kind of an interesting animal because you can get a basket of securities by buying an exchange traded fund, but most of them are designed that they do not have those capital gain distributions at the end of the year.
• 18:55
  SPEAKER_00: Um so that's kind of an interesting um uh benefit for some is that, hey, I know my you know, potential taxation of this exchange traded fund is just the difference between when I buy it and when I sell it.
• 19:12
  SPEAKER_00: Is it higher?
• 19:12
  SPEAKER_00: That's capital gain.
• 19:13
  SPEAKER_00: If it's lower, it could be a capital loss without these additional annual distributions.
• 19:19
  SPEAKER_00: Uh so just something to consider.
• 19:20
  SPEAKER_00: That's probably something uh we could we could focus in on a Friday live at some point.
• 19:25
  SPEAKER_00: How they work, how they are dealt with.
• 19:26
  SPEAKER_01: A lot of the the capital gains rates that we were seeing for our clients in those mutual funds were anywhere from five to twelve percent of the value of the account.
• 19:36
  SPEAKER_01: Um, in our managed accounts, we we try to stay below two percent in any given year.
• 19:42
  SPEAKER_00: Well, it's uh you know that the the the um well tune in on tax tax Tuesdays because we cover a lot of these topics.
• 19:51
  SPEAKER_00: I you know that is uh it's it's very in-depth the taxation of investments and what the uh considerations uh should.
• 20:00
  SPEAKER_00: These.
• 20:00
  SPEAKER_00: But for today's purposes, uh, there was conf there continues to be some confusion about wait a minute, I never sold my shares of my mutual fund, and yet I have a capital gain bill.
• 20:09
  SPEAKER_01: Yes, that can happen.
• 20:11
  SPEAKER_01: Along this strategy, we we were discussing it a little the other day.
• 20:14
  SPEAKER_01: You want to give a brief summary of the direct indexing in terms of taxes and how those work?
• 20:21
  SPEAKER_00: Yeah, so there and this has become more and more popular over the last few years.
• 20:25
  SPEAKER_00: Uh, the idea with direct indexing is um, and I'm gonna use the S P 500 as an example.
• 20:33
  SPEAKER_00: So the SP 500 is an index, and uh on the surface it's the 500 biggest SP 500 actually has a little bit more than 500 stocks in it.
• 20:44
  SPEAKER_00: Uh, but the idea is well, how could I get a similar return to the S P 500 with less of the potential tax consequences in it?
• 20:56
  SPEAKER_00: And so what happens is there's some asset managers that what they will do instead of having all 500 stocks in your portfolio, and if you have these direct indexing, you're actually owning individual stocks that a manager is buying for you.
• 21:11
  SPEAKER_00: Instead of having all 500, let's have 150 or 200 stocks in all the different sectors of the S P 500, right?
• 21:21
  SPEAKER_00: In the S P 500, you've got financial companies, you've got healthcare companies, you got consumer staple companies and manufacturers and that kind of thing.
• 21:29
  SPEAKER_00: Instead of owning all 500, let's own 150 or 200 so that we could possibly get close to the overall performance of the SP all 500 by just owning 200.
• 21:42
  SPEAKER_00: Well, why would you do that?
• 21:43
  SPEAKER_00: If you only have 200, uh, then that means you got 300 other stocks on the bench.
• 21:49
  SPEAKER_00: If one of your 200 that you're actually owning in what they call a direct indexing, isn't doing well, portfolio manager could sell it to you, sell it out of there uh at a loss, realize a loss for you, and then go into the bench of the 300 and pick a similar, not the same, but a similar company in that sector.
• 22:08
  SPEAKER_00: So maybe it's a healthcare company.
• 22:10
  SPEAKER_00: One of the healthcare companies, you don't own all healthcare companies that are in the S P 500.
• 22:16
  SPEAKER_00: You own a couple of them.
• 22:17
  SPEAKER_00: One is a doing well, sell it, realize a capital loss, take another health company off the bench and put it in there.
• 22:23
  SPEAKER_00: And so that you're kind of getting hopefully uh similar.
• 22:27
  SPEAKER_00: It won't be the same performance as the SP 500.
• 22:31
  SPEAKER_00: So it is a way to access uh an index uh with some uh tax thought to it.
• 22:39
  SPEAKER_00: Uh, of course, you own the SP 500, you own those companies and whatever dividends they're kicking out.
• 22:46
  SPEAKER_00: And I mean, that's what you own.
• 22:47
  SPEAKER_00: With the direct indexing, hopefully you're trying to, you know, get uh like performance, uh, but more thoughtful on the taxation.
• 22:57
  SPEAKER_00: I'm a huge fan of the idea.
• 22:59
  SPEAKER_00: Um uh and we have seen it work very, very well over the last couple of years.
• 23:04
  SPEAKER_00: Last couple of years, the market has done well.
• 23:07
  SPEAKER_00: And uh, for some of the folks that we work with where direct indexing makes sense, uh their overall account value is going up, and sometimes they're reporting losses.
• 23:17
  SPEAKER_00: And so we were talking about mutual funds.
• 23:20
  SPEAKER_00: Sometimes your mutual fund can go down, but you have capital gains.
• 23:23
  SPEAKER_00: You say, How the heck did that happen?
• 23:24
  SPEAKER_00: Let me explain that.
• 23:25
  SPEAKER_00: Uh, with this direct indexing concept, you can look and say the overall value of my portfolio went up, but yet I got a statement to give to my tax preparer that says I had a capital loss in there.
• 23:36
  SPEAKER_00: Um, so it's a really interesting uh strategy.
• 23:39
  SPEAKER_00: If you have any questions on that, again, it's becoming much more popular.
• 23:43
  SPEAKER_00: Um, you can always contact us.
• 23:45
  SPEAKER_00: Um, I will pull up our contact number here.
• 23:48
  SPEAKER_01: Now, a client of ours listening to this that has those large capital gain distributions every year, they may be asking, well, that sounds really good.
• 23:56
  SPEAKER_01: Why don't we do that?
• 23:58
  SPEAKER_01: The problem is you have embedded gains in the underlying mutual fund.
• 24:02
  SPEAKER_01: So it would be a big taxable event to sell all of it and put it in this strategy.
• 24:07
  SPEAKER_01: Now, there's ways to spread that out over years, but um, that's the reason.
• 24:13
  SPEAKER_00: It is the reason.
• 24:14
  SPEAKER_00: Some of those people bought uh you know mutual fund shares at$2, and now those mutual fund shares are worth$32.
• 24:20
  SPEAKER_00: And so if you sell all of them right now and say, I don't want that annual capital gain that the portfolio manager is pushing out to you, to me.
• 24:28
  SPEAKER_00: So I'm gonna sell my mutual fund while you bought it at two, it's worth$32 if you sell it, and you got a$30 gain there.
• 24:34
  SPEAKER_00: And so we got to kind of balance that.
• 24:37
  SPEAKER_01: Yeah.
• 24:37
  SPEAKER_01: And especially if, like we were talking about, if those clients don't need the money necessarily, it's just gonna be passed on to the beneficiaries, you're gonna get a stepped up cost basis in the unfortunate event of your death.
• 24:49
  SPEAKER_00: So well, it's gonna happen at some point.
• 24:52
  SPEAKER_00: And um, yes, there is an important concept outside of retirement accounts, outside of IRAs and 401ks and Roth IRAs, that kind of thing, uh, there is a concept where um for physical property, so it could be shares of mutual funds, could be a house, uh, that when you're not here and you pass that on to your heirs, the uh tax clock, if you will, gets reset.
• 25:17
  SPEAKER_00: And that's called a step up in basis.
• 25:19
  SPEAKER_00: So, in that example, when I was saying somebody bought a uh mutual fund share for$2 and now it's worth$32.
• 25:26
  SPEAKER_00: And when they're not here, let's say they give it to a child, uh, that child's tax clock starts at$32, the$32 mark, and then moving forward, they are no longer responsible for that$30 of gains uh that their parent had that was associated with their investment.
• 25:47
  SPEAKER_00: So you buy it at two, you it's an hour$32, you pass away, you pass it along to a loved one, and their tax clock, if you will, starts at 32, not at the original two.
• 25:59
  SPEAKER_00: So we got to be mindful of that.
• 26:02
  SPEAKER_00: Boy, we got deep into the taxes today, Mike.
• 26:07
  SPEAKER_01: Brian, job changing is very common in today's world, especially with the younger generation.
• 26:13
  SPEAKER_01: What happens to your 401k when you you change jobs?
• 26:17
  SPEAKER_00: Well, this is a big one.
• 26:18
  SPEAKER_00: You know, um this is we probably get this question uh I uh it's about once a week.
• 26:24
  SPEAKER_00: Uh in the most basic terms.
• 26:28
  SPEAKER_00: And uh, you know, we have some things that we could send out to you that explains this a little bit more.
• 26:33
  SPEAKER_00: In the very most basic terms, if you have a retirement plan at a former job and you leave, what do I do with that old plan?
• 26:42
  SPEAKER_00: Here are your choices.
• 26:44
  SPEAKER_00: And uh like everything we do in financial planning, these are very, very personal choices.
• 26:50
  SPEAKER_00: And so if you're in a department that gets eliminated and you all leave, let's say there's 10 of you, and they say, well, you know, this department doesn't no longer exist.
• 26:59
  SPEAKER_00: Everybody go find a new job.
• 27:01
  SPEAKER_00: All 10 of those people are gonna have a different choice for themselves on what to do with that old retirement plan.
• 27:09
  SPEAKER_00: So this cannot be a blanket statement.
• 27:11
  SPEAKER_00: This is very personalized.
• 27:13
  SPEAKER_00: But with that said, in general, the choices are one, take all the money out, which is usually a really bad idea because if it's a traditional structure where you get a tax deduction on the way in and it grows tax deferred, if you take that money out, it's all taxable right away.
• 27:30
  SPEAKER_00: And if you're under the age of 59 and a half, um, and there are some other rules around this.
• 27:37
  SPEAKER_00: So, you know, other folks in our profession are say, Well, you're missing this one caveat.
• 27:41
  SPEAKER_00: I know I am.
• 27:42
  SPEAKER_00: But in general, um, if you take all of that money out and you're under 59 and a half, um you would pay taxes on all of that in the year that you take it out plus a 10% penalty.
• 27:55
  SPEAKER_00: So one choice is to take it all out and go spend it.
• 27:58
  SPEAKER_00: Uh oftentimes, not for everybody, oftentimes uh a pretty poor choice.
• 28:03
  SPEAKER_00: Uh if the account is large enough, you can just leave it there.
• 28:08
  SPEAKER_00: You know, just you know, that's fine.
• 28:10
  SPEAKER_00: I'm gonna leave it there.
• 28:12
  SPEAKER_00: You know, if you're in a 401k or something that you had contributed to, that prior company, your prior employer cannot go in there and just take your money.
• 28:21
  SPEAKER_00: Um if they are matching what you're putting in there and there's a vesting schedule, right?
• 28:26
  SPEAKER_00: I'll match you 3% of what you put in, but you got to stay 10 years.
• 28:30
  SPEAKER_00: You might lose some of that.
• 28:31
  SPEAKER_00: But the money that you put into that account, they can't just go in and say, Oh, you know what, we need to pay our CEO, so we're gonna take money out of Mike's account here and give it to the CEO.
• 28:40
  SPEAKER_00: They can't do that.
• 28:41
  SPEAKER_00: Uh, some of these companies have a provision that says if your account's$5,000 or higher, you know, some number, you can leave it here.
• 28:49
  SPEAKER_00: If it's under that, then you've got to take it out.
• 28:52
  SPEAKER_00: Uh so keep that in mind as well.
• 28:53
  SPEAKER_00: But so you could take it all out, pay taxes, maybe pay a penalty.
• 28:57
  SPEAKER_00: Uh, you could just leave it there and say, hey, you know, I'm gonna uh consider that as part of my overall portfolio.
• 29:04
  SPEAKER_00: If you get a new job and that new employer allows you to roll a roll over from the old plan into the new plan.
• 29:12
  SPEAKER_00: So let's say you had a 401k, you go to a company, has another 401k, you start contributing to that.
• 29:17
  SPEAKER_00: A lot of those uh 401ks at the new job will allow you to take the old one and just dump it into that one.
• 29:23
  SPEAKER_00: Oftentimes a really, really, really good choice.
• 29:26
  SPEAKER_00: Uh then the final option is uh you leave that employer, you got a 401k there, you don't want to cash it out and pay the taxes of a 10% penalty.
• 29:34
  SPEAKER_00: Maybe you don't like that company anymore, which would be certainly understandable, and you don't want them, that money to be under their plan, you could take that out and put it into an individual retirement account on IRA.
• 29:46
  SPEAKER_00: By the way, IRA actually stands for individual retirement arrangement, uh, but it's been called an individual retirement account.
• 29:54
  SPEAKER_00: So you could roll it out of that old 401k without any tax consequences if you do it right, uh, and put it into an individual retirement account in your name, and you can invest it any way you like.
• 30:06
  SPEAKER_00: So cash it all out and pay the taxes.
• 30:09
  SPEAKER_00: You could leave it there, you can move it into the new plan if you get a new job and they have a similar type retirement plan, or you could take it out and put it into your own account in your name.
• 30:19
  SPEAKER_01: And correct me if I'm wrong, but you only get one rollover per year, correct?
• 30:24
  SPEAKER_00: Well, you know, that depends.
• 30:26
  SPEAKER_00: Uh so there are uh two types of rollovers.
• 30:29
  SPEAKER_00: So this is that kind of last scenario that I was talking about.
• 30:32
  SPEAKER_00: If you take it out of the old plan from your old company and you put it into an individual retirement account, uh there's two ways to do that.
• 30:42
  SPEAKER_00: There's direct, which means that old retirement plan sends it to the custodian, our custodian who we work with, for example, is LPL Financial, sends it to them directly.
• 30:55
  SPEAKER_00: You never get a check in the mail.
• 30:56
  SPEAKER_00: The check is not in your name.
• 30:58
  SPEAKER_00: That's a very important.
• 30:59
  SPEAKER_00: That's a direct rollover.
• 31:01
  SPEAKER_00: That's a direct uh trustee, your old company to trustee, in our example, it's LPL transfer.
• 31:08
  SPEAKER_00: You could do as many of those as you want in a year.
• 31:11
  SPEAKER_00: Here's where you here's what you want to be very careful of, and this is an indirect rollover, uh, which means your old companies plan that 401k send you a check in your name.
• 31:25
  SPEAKER_00: It just says, Michael Kutch, here's your money, and it comes to your mailbox.
• 31:31
  SPEAKER_00: If that happens, then you have 60 days to get that into another retirement plan, an IRA, the new 401k, things along those lines.
• 31:41
  SPEAKER_00: That type of uh rollover you can only do once in a year.
• 31:47
  SPEAKER_00: So you got to be very careful about that.
• 31:49
  SPEAKER_00: We avoid that.
• 31:50
  SPEAKER_00: Our approach that doesn't make it right or wrong, you do whatever you want.
• 31:54
  SPEAKER_00: Our approach is to avoid that at all costs.
• 31:57
  SPEAKER_00: Uh, because of that 60-day claw, people say, Well, I got a lot of time to get it in there.
• 32:01
  SPEAKER_00: You'd be surprised at how many people miss that 60 days, and then it becomes all taxable in that moment.
• 32:06
  SPEAKER_00: Um, so we really try to avoid that unless it is specifically requested by somebody.
• 32:13
  SPEAKER_00: Um and there could be scenarios where that would make sense, but again, that's why it's very personal.
• 32:21
  SPEAKER_00: But in general, uh, that's where that uh once per year you can do a direct rollover.
• 32:28
  SPEAKER_00: If it check comes into your name and you got 60 days to get it somewhere, you can do that once per uh year.
• 32:34
  SPEAKER_00: That's not calendar year, by the way.
• 32:36
  SPEAKER_01: So you gotta be careful with that.
• 32:38
  SPEAKER_01: Some key considerations to look at when you're determining what the best option is for you.
• 32:44
  SPEAKER_01: Um, look at cost, look at fund or investment availability.
• 32:49
  SPEAKER_01: I'd say those are probably the two main ones.
• 32:51
  SPEAKER_01: Um sometimes ease of consolidation is important for people, they want to have everything in one place.
• 32:58
  SPEAKER_01: Absolutely.
• 32:58
  SPEAKER_00: Sometimes that's why it's you know, that's why it's a such a personal decision.
• 33:02
  SPEAKER_00: Some people say, I don't want to take my old plan and put it into my new plan.
• 33:06
  SPEAKER_00: I like the idea of having two accounts.
• 33:08
  SPEAKER_00: I'll put my bonds in that account and stocks in that account.
• 33:10
  SPEAKER_00: Hey, that's a very personal decision.
• 33:12
  SPEAKER_00: Other people say, I don't want to get two statements every year.
• 33:14
  SPEAKER_00: I get a statement from the old company, I get a statement from the new company.
• 33:18
  SPEAKER_00: And, you know, again, like I said, if there's 10 people in your department that leave, all 10 of you are gonna make a different choice uh on what to do.
• 33:25
  SPEAKER_00: And uh because it's a very personal choice.
• 33:28
  SPEAKER_00: So you shouldn't sit around and have happy hour with those 10 people and say, hey, what'd you do?
• 33:32
  SPEAKER_00: Oh, I'm gonna do that as well.
• 33:33
  SPEAKER_00: You really need to look into all of your choices.
• 33:36
  SPEAKER_00: Um that's uh what again we could probably do a whole Friday live on just that.
• 33:44
  SPEAKER_00: Maybe we'll possibly know what are the choices, the bottom line, you take it all out, get taxed, pay the penalty if the penalty is applicable, leave it there, move it to a new plan if you get a new job and you're starting to contribute to a new plan, or put it into an individual retirement again.
• 34:04
  SPEAKER_00: That's the base, that was the that was the 30-second answer of the Brian.
• 34:10
  SPEAKER_01: You may have gotten over that 30-second mark.
• 34:13
  SPEAKER_01: I know the video itself was only about a minute and a half.
• 34:16
  SPEAKER_01: I think you went into much more detail than that.
• 34:19
  SPEAKER_00: Did well, you know, it's again, it's it's a very personal choice.
• 34:23
  SPEAKER_00: And I was kind of bashing the idea of getting the check in your name, but you know, there are reasons to do that.
• 34:29
  SPEAKER_00: You know, some people want to do a, you know, you can do a Roth conversion at that point.
• 34:33
  SPEAKER_00: Take it out of the traditional and then you go ahead and pay taxes on it, and then you put it into a Roth at that time.
• 34:39
  SPEAKER_00: And now you have a Roth account, but you got to pay taxes in that transition.
• 34:43
  SPEAKER_00: And so sometimes that could make sense, but we really got to dig into it.
• 34:48
  SPEAKER_01: All right.
• 34:49
  SPEAKER_01: Well, we're coming up on 35 minutes, so we should probably wrap it up.
• 34:52
  SPEAKER_01: But I want to note that we do have our webinar on taxes next week, next Thursday at 5 p.m.
• 34:58
  SPEAKER_01: So there's a register button on our Facebook page, on our website.
• 35:02
  SPEAKER_01: Um, so make sure you join that.
• 35:04
  SPEAKER_01: Brian's gonna give some very valuable tips on how to how to increase your after-tax money in some other areas around that topic.
• 35:12
  SPEAKER_01: And then keep an eye right on our events there.
• 35:16
  SPEAKER_01: So and that's our new pop-up if you want to be a member of our mailing list.
• 35:21
  SPEAKER_00: Uh see, there it is, the tax journey.
• 35:23
  SPEAKER_00: But again, we don't give tax or legal advice.
• 35:25
  SPEAKER_00: These are this is informational.
• 35:27
  SPEAKER_00: We're gonna talk a little bit about uh how taxes affect each and then the journey part is each phase of your life.
• 35:34
  SPEAKER_00: Um, you know, if you're 23 years old and you're getting your first job, you don't really want uh necessarily want tax guidance from your parents and your grandparents.
• 35:44
  SPEAKER_00: They're at a different, very different phase of their life, and taxes are um uh different considerations than what you would have as a 23-year-old with with a new job.
• 35:56
  SPEAKER_00: Uh and so that's kind of the journey concept, it's things to think about in each phase.
• 36:01
  SPEAKER_01: So all right.
• 36:03
  SPEAKER_01: Well, keep an eye on 6890 on the SP 500, which would mark a new closing high.
• 36:10
  SPEAKER_01: We pulled back from there, so we'll see.
• 36:12
  SPEAKER_01: Make sure you pay attention to the Fed meeting next week, and we'll be back on Friday as always to discuss it.
• 36:17
  SPEAKER_01: And I just want to note that I talked about um Kevin Hassett as a potential Fed pick.
• 36:24
  SPEAKER_01: I would love to see Rick Reeder in there.
• 36:26
  SPEAKER_01: He's there, he's one of the potential options.
• 36:30
  SPEAKER_01: He's very smart guy.
• 36:32
  SPEAKER_01: He's on the fixed income side.
• 36:34
  SPEAKER_01: Um, I would love to see him or Jeffrey Gunlock.
• 36:37
  SPEAKER_01: I'm a big fan of him as well.
• 36:38
  SPEAKER_01: Oh my god, that's an interesting this time around.
• 36:42
  SPEAKER_00: That is a very interesting.
• 36:43
  SPEAKER_00: I that that might be my vote right there.
• 36:46
  SPEAKER_00: Not that I get a vote, by the way, but or maybe Neil Dutta.
• 36:50
  SPEAKER_01: I'm a big fan of his economic perspective.
• 36:56
  SPEAKER_00: Perfect.
• 36:57
  SPEAKER_00: Well, we get some important disclosures.
• 36:59
  SPEAKER_00: These are key things to understand about how we operate here.
• 37:02
  SPEAKER_00: So uh everybody have a wonderful Friday.
• 37:04
  SPEAKER_00: We'll see you next Friday, 12 30 p.m.
• 37:06
  SPEAKER_00: Eastern Standard Time on Friday live with HBK Provenate Advisors.
• 37:12
  SPEAKER_00: Security is offered through LPL Financial LLC member FINRA and SIPC.org.
• 37:17
  SPEAKER_00: Advisory services offered through LPL Financial LLC, a registered investment advisor.
• 37:23
  SPEAKER_00: Brian Peluso, Michael Kutch, and David Harper are registered representatives of LPL Financial LLC.
• 37:29
  SPEAKER_00: Content discussed is for informational purposes only and not intended as an offer or solicitation to buy or sell any security or investment strategy.
• 37:38
  SPEAKER_00: Any opinions expressed are those of the authors and do not necessarily reflect the views of LPL Financial or its affiliates.
• 37:44
  SPEAKER_00: All investments involve risk, including the possible loss of principal.
• 37:48
  SPEAKER_00: This communication may include links or references to third party websites.
• 37:52
  SPEAKER_00: These links are provided as a convenience only.
• 37:55
  SPEAKER_00: LPL Financial and its representatives are not responsible for the accuracy or content of such sites.
• 38:00
  SPEAKER_00: Brian, Mike, and David and HBK Profident Advisors may only transact business in states where they are properly registered or exempt from registration.
• 38:09
  SPEAKER_00: Please contact such