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Money Monday with Brian James · Brian Thomas

0:00
Speaker 1: Bryan Thomas always enjoying this segment every Monday at eighty
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Speaker 1: a five with Brian James from Allworth Financial financial planner.
0:05
Speaker 1: He is and I appreciate all Worth loaning him out
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Speaker 1: for a little time to give us some right information
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Speaker 1: about the well investing generally speaking in money matters. Welcome back,
0:13
Speaker 1: Brian James. Happy Monday to you, my friend.
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Speaker 2: And thank you for having me. Mister Thomas, good morning
0:18
Speaker 2: to you as well.
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Speaker 1: Oh he's enjoyed. And I mean I normally don't throw
0:21
Speaker 1: your curve balls. I do have your topics and amer
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Speaker 1: it comes. Okay, here we go. No, this isn't a
0:25
Speaker 1: difficult one, I don't think. But yeah, we've talked about
0:27
Speaker 1: the price of gold, you know and sober before. But
0:30
Speaker 1: what the hell I mean this there is to illustrate you.
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Speaker 1: Don't don't play catch up or be that guy who
0:35
Speaker 1: tries to buy things after the giant surgeon price, because
0:39
Speaker 1: you're gonna get burned. I guess a lot of people
0:41
Speaker 1: got burned on gold Man it the range for fifty
0:44
Speaker 1: two weeks. I'm looking at the journal five hundred and
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Speaker 1: sixty two dollars and twenty six an ounce, and at
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Speaker 1: one point within this calendar year, it was trading at
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Speaker 1: twenty eight hundred dollars. It lost like geez, six eight
0:56
Speaker 1: hundred dollars over the past day or something. What the
0:58
Speaker 1: hell happened? What's this all about? If you can feel it?
1:00
Speaker 1: If you can't, then you know we can just move on, Brian.
1:03
Speaker 2: Well, eventually, you know, this is what we always talk about, Brian,
1:06
Speaker 2: because the gold is worth nothing more than what the
1:08
Speaker 2: herd says it is. So you know, I want to
1:11
Speaker 2: want to adjust the time old phrase of catching a
1:14
Speaker 2: falling knife. Well, this is like trying to catch a
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Speaker 2: rising knife too. There's nothing to look at to say
1:20
Speaker 2: that the gold should be worth this should be worth that.
1:23
Speaker 2: It's simply the herd wants to rush into it. And
1:25
Speaker 2: eventually the herd is going to turn. And I got
1:27
Speaker 2: to think there's some smart money involved in this that
1:30
Speaker 2: knows that the herd is going to move, and they
1:32
Speaker 2: have ways of taking advantage of that and then pulling
1:35
Speaker 2: the rug out from under everybody. Because again, gold has
1:38
Speaker 2: no way to say, here's this new product we're inventing,
1:41
Speaker 2: or here's a new market we're getting into, or we're
1:43
Speaker 2: going to cut expenses this way, and that's going to
1:45
Speaker 2: make profitability different. That's what the public stock market do.
1:48
Speaker 2: That's what publicly traded stocks can do to inflate their value.
1:51
Speaker 2: We're seeing it in the tech industry now, whether they're
1:53
Speaker 2: laying off tens of thousands of people, which is that's
1:56
Speaker 2: not a good thing if you're want of those people.
1:58
Speaker 2: But that's a lever that a company can pull to
2:00
Speaker 2: maintain its profit margin. Gold has no profit margin. It
2:03
Speaker 2: is worth nothing more than what the herd says when
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Speaker 2: it stampedes in or out. And we've just seen the
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Speaker 2: stampede leave the car out.
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Speaker 1: So if I can draw a parallel, please call me
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Speaker 1: out as dead wrong. Is this kind of like a
2:14
Speaker 1: meme stock kind of thing where you can get people
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Speaker 1: to just pile on a start buying like game Stop,
2:19
Speaker 1: just because well it's a mean thing and it's going
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Speaker 1: up even though the company itself has zero value.
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Speaker 2: You know that has a great, great point And I
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Speaker 2: had not thought of it until this would be a
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Speaker 2: perfect meme stock. There's no insider trading. Gold doesn't have
2:31
Speaker 2: board meetings that somebody may have caught wind of or
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Speaker 2: seen a secret email or whatever. It's just something that
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Speaker 2: you can attract people to buy, no different than crypto
2:39
Speaker 2: when we have coins come out related to really nothing
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Speaker 2: important in history, but the herd will chase it. And
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Speaker 2: I would say, if you're somebody who is willing to
2:49
Speaker 2: manipulate these markets to manipulate the buyers, this is a
2:51
Speaker 2: probably good place to get away with it. Ernie, I
2:54
Speaker 2: think you've uncovered a conspiracy brand.
2:56
Speaker 1: I have, which is why you keep your money and
2:59
Speaker 1: have it managed by a prudent financial planner who's sitting
3:01
Speaker 1: on your side of the table. Is your produciary duty,
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Speaker 1: and you don't try to play the market because you're
3:06
Speaker 1: never going to be able to catch up. Stick it
3:07
Speaker 1: in there now. I guess the other parallel or correlaor
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Speaker 1: to this may be maybe not at Bitcoin tanked as well.
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Speaker 1: And I've never had any faith in bitcoins or any
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Speaker 1: other of the cryptocurrencies, just because it's like peace of
3:19
Speaker 1: God for me. But you know that one also fell down.
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Speaker 1: It was supposed to go to one hundred thousand dollars
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Speaker 1: and it lost I don't know, ten twelve thousand dollars
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Speaker 1: the other day or something.
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Speaker 2: Yeah, So there was negative news that President Trump nominated Kevin.
3:31
Speaker 3: Warsh as a federal Reserve Chair.
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Speaker 2: We're going to talk about him here in a little
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Speaker 2: bit anyway, and he's kind of a hawkish pick that
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Speaker 2: generally supports tighter monetary policy stronger dollar.
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Speaker 3: A stronger dollar.
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Speaker 2: Can suck liquidity out of things like crypto. So that's
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Speaker 2: part of the reaction to this that people think the
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Speaker 2: demand may fall because the government may pivot slightly away.
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Speaker 3: And I would say this is Trump is all about
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Speaker 3: interest rates.
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Speaker 2: He wants them to be at zero as soon as possible,
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Speaker 2: and that is more important than supporting the crypto markets.
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Speaker 2: Although President Trump has said he is a major supporter
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Speaker 2: of crypto but not last week.
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Speaker 1: Okay, fair enough, And since the first topic is or
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Speaker 1: was the FED chair? I keep reading articles about the
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Speaker 1: value of dollar or the dollar devaluation and dollar having
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Speaker 1: a dollar being a strong, fat currency for some reason, devaluation,
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Speaker 1: I guess is a good thing. Sometimes that doesn't sound
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Speaker 1: right to me. Brian James, Well, it.
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Speaker 2: Depends on what you're trying to buy. If you're it
4:26
Speaker 2: depends on which side of transactions you are. When it
4:29
Speaker 2: comes to this global economy that we pretty much still
4:32
Speaker 2: live in, even though the world doesn't work that way.
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Speaker 3: So investors are worried about structural dollar.
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Speaker 2: Devaluation because of of course our US deficits rising federal
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Speaker 2: debt servicing costs with interest rates going up, and of
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Speaker 2: course political pressure on the FED to ease policy, and that,
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Speaker 2: of course is something that we've dabbled with that in
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Speaker 2: the past, right, We've had presidents lean on the FED chair.
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Speaker 3: Nixon did it right before the election.
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Speaker 2: That never happened because because he got thrown out of office,
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Speaker 2: but that led to stagflation, and so I think people
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Speaker 2: are a little spooked by that. And this is why
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Speaker 2: we saw golden crypto rally so hard into the end
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Speaker 2: of the month, right up until last week, until we
5:11
Speaker 2: pulled the rug with the nomination of Kevin worsh We're
5:13
Speaker 2: not the nomination, but the we really like super like Kevin, right,
5:16
Speaker 2: I guess is what he's trying to say.
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Speaker 1: The gold star candidate currently exactly.
5:20
Speaker 3: Yeah.
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Speaker 2: So, but last year, a dollar devaluation didn't save crypto
5:23
Speaker 2: because the short term reality was better than the long
5:26
Speaker 2: term theory. Last week, the dollar strengthened, not weakened, after
5:30
Speaker 2: the news pointed to a more hawkish FED path because
5:32
Speaker 2: when the dollar rises, liquidity tightens globally and that means
5:35
Speaker 2: speculative assets tend to fall.
5:37
Speaker 3: So we saw all those things come together.
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Speaker 1: Last week, all right, And in a Federal Reserve chairman
5:41
Speaker 1: have always enjoyed pretty much rock solid independence. And I
5:45
Speaker 1: always think of the Carter administration in that Porteria of
5:48
Speaker 1: time because Jimmy Carter was just just pleading on with
5:53
Speaker 1: knee pads to beg the Federal Reserve chairman to lower
5:56
Speaker 1: the interest rates. And that didn't happen because the massive
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Speaker 1: inflation going on. But it didn't work for Carter. And
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Speaker 1: I'm just wondering, historically speaking, Donald Trump screaming and yellow
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Speaker 1: buck at the interest rates lower. Because Kevin wash happens
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Speaker 1: to be the current gold Star candidate likely nominee, is
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Speaker 1: Donald Trump going to be able to manipulate him? I mean,
6:14
Speaker 1: if I can use that word, it's not a pejorative,
6:16
Speaker 1: but is that that's kind of what it boils down to.
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Speaker 2: Yeah, I mean, I think that's what it boils down
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Speaker 2: to to Absolutely everybody he's put in place, is it's
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Speaker 2: somebody he can control to do his bidding.
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Speaker 3: Otherwise he wouldn't be attacking the current Fed chair that
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Speaker 3: he put in place. By the way, let's not forget
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Speaker 3: that true.
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Speaker 2: Jerome Powell was put in place by Trump, and Trump
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Speaker 2: now wants to apparently ruin him personally as well as
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Speaker 2: get him out of the seat.
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Speaker 3: But whatever. So I can't imagine he's going to put.
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Speaker 2: Somebody in who is not going to who is not
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Speaker 2: going to do his bidding per se, because that is
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Speaker 2: just not the history there, and he doesn't. He's not
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Speaker 2: somebody who likes to give up any control at all.
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Speaker 2: So it would shock me if they were the case.
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Speaker 1: All right, So let's say Donald Trump's you, Hey, you know,
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Speaker 1: Kevin I made you Federal Reserve chairman. You better damn
6:55
Speaker 1: well lower the interest rates. Interest rates lower, and the
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Speaker 1: inevitable happens, which is predictably that inflation goes up.
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Speaker 3: Right Yep, Yes, absolutely what we're looking at.
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Speaker 1: So I guess, if you could guess, and I know
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Speaker 1: you won't know, how quickly do the markets react? How
7:10
Speaker 1: quickly does inflation go up after interest rates are lowered?
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Speaker 1: In other words, when are we going to see this
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Speaker 1: disaster that many people are predicting if they do lower
7:20
Speaker 1: the interest rates too much? And then at that point
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Speaker 1: I presume even Kevin Walsh would reverse course and raise
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Speaker 1: interest rates to deal with rising inflation. But that cycle
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Speaker 1: takes a while, doesn't it.
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Speaker 3: It absolutely does. So it takes a while.
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Speaker 2: Inflation usually responds with a lag of about six to
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Speaker 2: eighteen months. It's not immediate, and it almost never shows
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Speaker 2: up in CPI the same quarter rates are cut. So
7:40
Speaker 2: what happens is we get our big announcement that yes,
7:42
Speaker 2: we have a person in there who made a decision
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Speaker 2: and rates made a move somehow, but it doesn't actually
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Speaker 2: trickle through for half a year, year and a half
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Speaker 2: from now, and so it takes a while for the
7:51
Speaker 2: headlines to match up with what people are thinking in
7:53
Speaker 2: the moment. So if you know fedchair Powell or future
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Speaker 2: FED share potential FED chair Warsh make a decision the
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Speaker 2: press and it doesn't agree with there'll be a lot
8:02
Speaker 2: of headlines and a lot of vitriol about it now,
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Speaker 2: and that will drive short term chaos, of course, but
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Speaker 2: the long term won't show up for a half year
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Speaker 2: to even longer.
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Speaker 1: All right, Well, in the interest of not running over,
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Speaker 1: we'll just take a brief slice off of this segment
8:16
Speaker 1: because we're gonna be talking about Trump child savings accounts,
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Speaker 1: and we'll give Brian James an opportunity to talk me
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Speaker 1: out of thinking it's a good idea. Maybe it is
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Speaker 1: a bad idea. I don't know. Trump Child savings accounts
8:26
Speaker 1: coming up next. Then we're gonna learn about the idea
8:28
Speaker 1: of using four to oh one k's for housing down payments,
8:31
Speaker 1: which I think sounds like a really bad idea. It's
8:34
Speaker 1: fourteen more with Brian James and Money Monday after these words.
8:38
Speaker 3: Fifty five KRC and k City.
8:41
Speaker 1: Talk Station is Money Monday with Brian James every Monday,
8:44
Speaker 1: beginning at eight h five. All right, Brian pivoting over
8:47
Speaker 1: the Trump savings accounts. I again thought it was a
8:49
Speaker 1: good idea. It certainly since the kids can't access the
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Speaker 1: one thousand dollars. This is the this starting dollar map
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Speaker 1: that comes from the government, goes to an account, take
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Speaker 1: it out until eighteen it's going to compound the interest
9:03
Speaker 1: compounding over eighteen years. It really is a great illustration
9:07
Speaker 1: of the beauty of compounding, which I know you embrace,
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Speaker 1: Brian James, but also gets children maybe perhaps interested in
9:13
Speaker 1: watching the growth of that money. There's also an opportunity
9:16
Speaker 1: for employers and family members to add to that, and
9:20
Speaker 1: there's also this philanthropic reality out there. I know Michael
9:24
Speaker 1: and Susan Dell Foundation already promised six point two five
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Speaker 1: billion dollars to give about two hundred and fifty bucks
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Speaker 1: extra for these accounts, at least for twenty five million
9:33
Speaker 1: American children in certain income qualified zips. They're allowed to
9:36
Speaker 1: give to whoever they want. But this is a great
9:39
Speaker 1: place to park it because it's going to add to
9:41
Speaker 1: that ROI am I missing something in this Brian James
9:45
Speaker 1: thinking it's a good idea.
9:47
Speaker 3: No, I mean I don't hate it.
9:48
Speaker 2: I wonder how it's going to be because this is
9:50
Speaker 2: remember that these are only going to children born between
9:53
Speaker 2: twenty twenty five and twenty twenty eight. Yeah's going to accidentally,
9:56
Speaker 2: yeah the Trump term here, and so we're gonna have
9:59
Speaker 2: this class of people who had this, and then some
10:01
Speaker 2: poor kid will have born born January twenty first, twenty
10:04
Speaker 2: twenty nine and will not have it. So what does
10:06
Speaker 2: that mean sixty five years from now when all these
10:08
Speaker 2: kids are retired. I mean the I like the idea
10:12
Speaker 2: of setting up something that, first of all, you don't
10:14
Speaker 2: have a choice about. Right, it's going to be invested
10:16
Speaker 2: all in the stock market. They even put the math
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Speaker 2: in the announcement from the Treasury basically assumes ten percent
10:24
Speaker 2: rate of return. There's just a little nugget in here
10:26
Speaker 2: that says one thousand dollars could turn into a half
10:28
Speaker 2: million dollars by retirement. So they're literally saying a new
10:31
Speaker 2: born today, and I did the math, that's a ten
10:33
Speaker 2: percent rate of return. They don't cite that, which is
10:36
Speaker 2: interesting because if I'm going to say anything like that,
10:38
Speaker 2: I have to show the math and all that other stuff.
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Speaker 1: Historically, historically it's more like eight, right, I mean, if
10:43
Speaker 1: we're really going to be serious about this, I mean, truthfully, no.
10:46
Speaker 2: The stock market has average ten percent. If you do
10:49
Speaker 2: the math, that means that is over the longest of
10:52
Speaker 2: long periods of time. But that includes two thousand and
10:54
Speaker 2: eight and all that. But people who don't understand the
10:57
Speaker 2: history will simply assume that I should get ten percent
10:59
Speaker 2: every year. It's like some years you're going to lose
11:01
Speaker 2: twenty five percent. Yeah, but the next year it's going
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Speaker 2: to return an extra thirty five and then get back
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Speaker 2: to normal.
11:06
Speaker 3: And over the longest periods of time.
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Speaker 2: Yes, the stock market has average ten percent, And so
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Speaker 2: I guess it's not incorrect to say that the one
11:14
Speaker 2: thousand dollars growing for sixty five years. I'm assuming that's
11:16
Speaker 2: the age meeting that they mean by retirement. That's usually
11:18
Speaker 2: what the government thinks of. But they don't mention that either. Well,
11:21
Speaker 2: that will grow mathematically to a half million dollars.
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Speaker 1: It sounds me like with this with regard to this
11:26
Speaker 1: eligibility Paer, between January one of last year and December
11:30
Speaker 1: thirty first of twenty eight, they've taken a play out
11:33
Speaker 1: of the typical playbook. You create a government program, maybe
11:36
Speaker 1: like temporary assistance with insurance payments because of COVID nineteen,
11:41
Speaker 1: and once those are in play, they time when it
11:43
Speaker 1: comes time to disappear, pursuit to the deadline at which
11:46
Speaker 1: we all knew ahead of time they were going to
11:48
Speaker 1: disappear people well and nash teeth, and it becomes an
11:50
Speaker 1: election issue to keep that in place. So wait for
11:53
Speaker 1: it coming into twenty twenty eight, that people see this disappearing,
11:56
Speaker 1: aren't going to start screaming about where's my slice for
11:58
Speaker 1: my child? And then they'll make it permanent. Brian James.
12:01
Speaker 3: That's yes, that's something called the sunset.
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Speaker 2: And basically every I think every tax reform we've put
12:06
Speaker 2: in place, nobody can commit to it for the rest
12:08
Speaker 2: of our lives.
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Speaker 3: So everything has a sunset date.
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Speaker 2: And then what that does to my financial planning software
12:12
Speaker 2: is I have a little flip button that says, do
12:14
Speaker 2: we assume the sunsets?
12:15
Speaker 3: Or we do do we assume this is not so it.
12:17
Speaker 2: Does introduce questions, But to sum it up, I do
12:20
Speaker 2: like the concept, and it does force people. Yeah, you're
12:22
Speaker 2: gonna invest in the stock market, and darn it, you're
12:24
Speaker 2: gonna like it because you have no other choice. That's
12:26
Speaker 2: gonna force people to ride it out. It will force
12:28
Speaker 2: people to see the ups and downs. It's very important
12:31
Speaker 2: for every investor under the sun to ride out a
12:33
Speaker 2: full market cycle way up, way down, and then way
12:36
Speaker 2: back up again. That it takes probably five years for
12:39
Speaker 2: somebody to truly truly see that. This will force people
12:42
Speaker 2: into a situation where they have no choice but to
12:44
Speaker 2: stare at it. I don't think that's a bad thing.
12:45
Speaker 1: Okay, And you pointed out these these this money, these
12:49
Speaker 1: funds individual owned by these individual children are gonna be
12:52
Speaker 1: placed in what broad stock market index funds? Do we
12:55
Speaker 1: get the does the public the the the Let's say
12:58
Speaker 1: the parents are guardians, they have any choices to where
13:01
Speaker 1: the specific allocations are made, like we do in our
13:03
Speaker 1: respect to four to one case.
13:04
Speaker 3: Brian, That's what I'm getting at. I don't believe there's
13:07
Speaker 3: much option at all now.
13:08
Speaker 2: Granted you can't set these up until this coming July,
13:11
Speaker 2: so we don't know exactly how to push them.
13:12
Speaker 1: Okay.
13:13
Speaker 3: The only thing that's out.
13:14
Speaker 2: There right now is when you do your taxes, you'll
13:16
Speaker 2: notice you have the option to reserve a spot, and
13:19
Speaker 2: I'm not exactly sure what that means. If you had
13:20
Speaker 2: a baby, then then you have a spot, So I'm
13:22
Speaker 2: not sure what the point of that is, but that's
13:24
Speaker 2: where you'll see references to it, and there have been
13:26
Speaker 2: about a half million reserved so far. But as people
13:29
Speaker 2: are just starting to do their twenty five.
13:30
Speaker 1: Taxes, great, well, there's an IRS form forty five forty
13:34
Speaker 1: seven where parents right there now can initiate this process
13:37
Speaker 1: if there's a portal for it, and I'll let folks
13:39
Speaker 1: who well it might be eligible for it seat to
13:42
Speaker 1: doing that. And I guess the other component of this
13:45
Speaker 1: is traditional five twenty nine plans. Now you're not obligated
13:49
Speaker 1: to open one of those, but don't those offer more
13:51
Speaker 1: of that flexibility that you and I were just talking
13:53
Speaker 1: about in terms of where the money is invested.
13:55
Speaker 2: Yeah, I mean the big thing here about the Trump
13:57
Speaker 2: accounts is the three thousand bucks from the federal government.
14:00
Speaker 2: Everything else about it you can do on your own.
14:01
Speaker 2: You can take a thousand dollars and throw it into
14:03
Speaker 2: mutual fund and sit on it for sixty five years.
14:05
Speaker 2: You'll get the same outcome. Remember, the Trump accounts will
14:08
Speaker 2: be taxable on the way out, so you're not necessarily
14:11
Speaker 2: getting the best possible treatment. As matter of fact, I
14:14
Speaker 2: would say if you're looking to put money away, take
14:17
Speaker 2: your Trump account if you've got a kid in this
14:19
Speaker 2: date range.
14:19
Speaker 3: But if you're looking to put money away, do a
14:21
Speaker 3: five to twenty nine.
14:21
Speaker 2: Plan and learn learn learn about how they are not
14:24
Speaker 2: only for college anymore. Those can become wroth Ira contributions.
14:28
Speaker 2: That's tax free dollars.
14:29
Speaker 3: Brian.
14:29
Speaker 2: You put the money in now, and you can invest
14:31
Speaker 2: it in broad market indexes just like the Trump accounts.
14:34
Speaker 3: Let it grow forever.
14:35
Speaker 2: If it sits there for fifteen years, you can use
14:37
Speaker 2: up to thirty five thousand dollars as future wroth Ira contributions,
14:41
Speaker 2: which will Yeah, that's a new rule to win in
14:43
Speaker 2: place in twenty twenty four in response to the fact
14:45
Speaker 2: that people were saying, I don't want a fund a
14:47
Speaker 2: five twenty nine because I have no idea if this
14:49
Speaker 2: newborn is going to go to college at all. Okay, fine,
14:51
Speaker 2: let's make it a retirement account so you can basically
14:53
Speaker 2: effectively fund a wroth IRA from day one of a
14:56
Speaker 2: newborn's life, actually technically before certainly.
15:00
Speaker 1: But like you always say, it's like investing in a
15:02
Speaker 1: four oh one K if you got an employer match.
15:04
Speaker 1: Never ever ever walk away from free money. So at
15:07
Speaker 1: least do whatever minimum obligation you need to get an
15:09
Speaker 1: employer match. And of course five twenty nine may be
15:12
Speaker 1: a better way of investing for your child's education given
15:15
Speaker 1: what you just pointed out, which I didn't know that
15:16
Speaker 1: flexibility we now have with it. But go ahead take
15:20
Speaker 1: the Trump money, but also separately open a five twenty.
15:23
Speaker 2: Nine absolutely and fund your own retirement before you worry
15:26
Speaker 2: too much about your kids. You're not going to do
15:27
Speaker 2: them any good if you're on their couch when you're
15:29
Speaker 2: ninety five.
15:30
Speaker 1: You know what, Brian James, in my personal experience, that
15:32
Speaker 1: is solid gold, solid gold, recommendation, because that's the way
15:38
Speaker 1: my wife and I approached it. You know, we didn't
15:40
Speaker 1: start socking away in a separate college education funn although
15:42
Speaker 1: they did have five twenty nine, we didn't really contribute
15:44
Speaker 1: that much to it, but we took care of our
15:46
Speaker 1: own retirement needs, and by the time the kids got
15:49
Speaker 1: the college age, we had enough that we can manage
15:52
Speaker 1: the college expenses. And I never thought I would ever
15:54
Speaker 1: see a day where that was possible, But it does
15:56
Speaker 1: really work out that way.
15:57
Speaker 3: Compounding us the magic of compounding. Brian Thomas.
16:00
Speaker 1: Amen to that, Brian James. One more with Brian James.
16:02
Speaker 1: How good is of an idea? Is it to use
16:04
Speaker 1: your four oh one case? Speaking of which for a
16:06
Speaker 1: housing down payment? We'll hear what Brian has to say
16:09
Speaker 1: about that. I think I can guess eight twenty five
16:11
Speaker 1: right now, if you have KCD Talk Station.
16:13
Speaker 2: Fifty five KRC the simply.
16:15
Speaker 3: Money Man, it is station.
16:19
Speaker 1: Eight twenty seven. Here if you have KCD Talk station
16:22
Speaker 1: Brian Thomas with Money Monday's Brian James doing what we
16:25
Speaker 1: call Money Monday, a few segments of money related topics.
16:28
Speaker 1: And it wasn't I guess it was just like last
16:30
Speaker 1: week or so, the National Economic Council Director Kevin Hassett
16:34
Speaker 1: suggested that, well, we're going to allow people to take
16:36
Speaker 1: money out of their four oh one case and use
16:39
Speaker 1: that for a down payment on a home. Now, I
16:42
Speaker 1: understand home prices going through the roof, and of course,
16:45
Speaker 1: if you've got to come up with is it still
16:46
Speaker 1: twenty percent down, Brian, to buy a house. It's the
16:49
Speaker 1: biggest tough road to hoe to deal with when you
16:52
Speaker 1: want to buy a house, because I remember when we
16:55
Speaker 1: bought our first house and we scraped up every little
16:57
Speaker 1: dollar we could find and meet that twenty percent down.
16:59
Speaker 2: Yeah, it is still that the that's not a hard
17:02
Speaker 2: bar you got to get over. But if you want
17:04
Speaker 2: to avoid mortgage insurance, which basically means paying your bank
17:07
Speaker 2: because your bank thinks you're a little riskier if you
17:09
Speaker 2: cannot put the twenty percent down, you got to buy
17:11
Speaker 2: mortgage insurance, and then you have to refinance usually to
17:14
Speaker 2: get out of it. Sometimes you can get out of
17:15
Speaker 2: it without that once you hit that point of equity.
17:18
Speaker 3: But yeah, that's still the case.
17:20
Speaker 2: And so what we're talking about today is the ability
17:23
Speaker 2: to borrow or to pull money out of your four
17:25
Speaker 2: oh one case, still be taxable. You're not avoiding taxes,
17:27
Speaker 2: We'll never do that, but you'd be avoiding the ten
17:30
Speaker 2: percent penalty, and you'd be allowed to do it in
17:32
Speaker 2: the first place to gather money to make that down payment.
17:36
Speaker 2: This is something, as you mentioned, this was thrown out
17:38
Speaker 2: there as a hey, let's think about this. But it
17:40
Speaker 2: does seem to have been pretty well shelved here. I
17:42
Speaker 2: don't think I think this is going to go quietly
17:44
Speaker 2: into that good night because the President just said he
17:46
Speaker 2: doesn't like it. Yeah, and part of what he's saying,
17:50
Speaker 2: you know, President Trump may simply be reacting to what
17:52
Speaker 2: the market is currently doing. Obviously, we're at an all
17:54
Speaker 2: time high, and we've been running really for three years
17:57
Speaker 2: now with good markets, and he's simply saying, well, why
18:00
Speaker 2: would I want to suck a bunch of money out
18:02
Speaker 2: of the market, And then that could have an impact
18:04
Speaker 2: over time when people pulling money out of the capital
18:06
Speaker 2: markets and sticking them into ill liquid assets like houses.
18:10
Speaker 2: Good idea maybe to get the job done, but at
18:12
Speaker 2: the same time, all that's gonna do is pump up demand.
18:15
Speaker 2: It's not unlike what we did with student loans over
18:18
Speaker 2: the past thirty years that resulted in higher tuition.
18:20
Speaker 1: Yeah, you know in pump up demand is is kind
18:23
Speaker 1: of the elephant the room that I wasn't thinking about.
18:25
Speaker 1: I would just think about your regular and broader point,
18:27
Speaker 1: which is, well, you know what you have lost. Not
18:30
Speaker 1: only do you have to pay the taxes as you're
18:32
Speaker 1: pulling that out, you've lost that long term return on
18:37
Speaker 1: investment that the compounding interest does. I mean you're taking
18:39
Speaker 1: away the point of the four to one k by
18:42
Speaker 1: doing that.
18:43
Speaker 2: Yeah, that's really a massive sacrifice, and it's Owning a
18:46
Speaker 2: home is not a bad thing. But houses don't believe
18:49
Speaker 2: your you know, the advice you might be getting from
18:51
Speaker 2: your older relatives that comes out of the fifties and
18:53
Speaker 2: sixties that says a house is the greatest.
18:55
Speaker 3: Investment you can buy. A house is a terrible investment.
18:58
Speaker 2: If you do the math of what you have to
18:59
Speaker 2: pay for home via the price itself interest, replacing the
19:03
Speaker 2: hot water, heater, property taxes, all that stuff over time,
19:06
Speaker 2: Houses are an absolutely awful investment that we all kind
19:08
Speaker 2: of have to have a solution for because otherwise you're
19:10
Speaker 2: paying rent and there for inflation every year. But that's
19:14
Speaker 2: not the way to think about it. The way to
19:16
Speaker 2: think about it is, I need to make sure it
19:17
Speaker 2: fits my budget. All of those things I just described
19:20
Speaker 2: have to fit the cash flow, including wherever my down
19:24
Speaker 2: payment is coming from. That has to not disturb my
19:26
Speaker 2: retirement that maybe thirty years off. But that's why again,
19:29
Speaker 2: this is why I have a job. Let's figure out
19:31
Speaker 2: what can I get away with now so that it
19:33
Speaker 2: don't disrupt things thirty years from now. I know what
19:35
Speaker 2: I can afford right now that I can write a
19:37
Speaker 2: check for. But can I afford it not now but
19:39
Speaker 2: thirty years from now.
19:40
Speaker 1: That's the harder question to answer as a financial planner.
19:43
Speaker 1: And I understand your process. You run through computer modeling
19:48
Speaker 1: all the gazillions of different scenarios for people as they
19:51
Speaker 1: are putting away money in their four oh one cas.
19:53
Speaker 1: If the market goes sideways, if it goes up, it
19:55
Speaker 1: performs this way, that way, nine gajillion ways of slicing it.
19:59
Speaker 1: So he give some people. You give people some comfort
20:01
Speaker 1: level as to where they are going, where they want
20:04
Speaker 1: to be, and are they on the right track. I
20:05
Speaker 1: understand all that. One of the things that's always bothered me,
20:08
Speaker 1: and when I see when we start talking about a
20:10
Speaker 1: well a devalued currency, the fiat currency problems generally speaking.
20:15
Speaker 1: And then there's that pesky thing you just brought up,
20:17
Speaker 1: which raised this to my attention, made me want to
20:19
Speaker 1: ask you taxes. You're going to pay taxes on your
20:21
Speaker 1: four oh one K when the money comes out. That's
20:23
Speaker 1: why I think ROTH is probably a better way. But
20:27
Speaker 1: my worry, and it remains a worry because I'm not
20:29
Speaker 1: withdrawing any money from a four to one K yet,
20:32
Speaker 1: is that we're gonna have some calamity befall us, you know,
20:35
Speaker 1: not maybe not a great depression, but it's gonna be
20:37
Speaker 1: something pretty bad, global war whatever, and somebody's gonna start
20:41
Speaker 1: salivating over the rate at which they tax the withdrawals
20:44
Speaker 1: from four oh one k's, and it may turn into
20:46
Speaker 1: some rapacious nineteen fifties level of course waited for how
20:51
Speaker 1: much money you have, But they're going to go after
20:53
Speaker 1: all this money that we've been diligently saving under the
20:55
Speaker 1: promise we can take it out. But since the tax
20:57
Speaker 1: rate doesn't isn't known fifteen years from nowur whatever, it
21:00
Speaker 1: could be literally anything.
21:02
Speaker 2: Brian, Well, I think the fundamentally, I think I think
21:05
Speaker 2: you're exactly right. The fundamentally, the thing that this country
21:07
Speaker 2: has done better than any other country on the face
21:09
Speaker 2: of the earth and the history of all time is
21:12
Speaker 2: crowdsource economic development. We have done absolutely everything we possibly
21:16
Speaker 2: can to entice people to go find every unnailed down
21:20
Speaker 2: dollar they can and invest it in some kind of
21:22
Speaker 2: capital venture. We did it with what you're referring to
21:24
Speaker 2: is the way we did it by enticing people to say, hey,
21:27
Speaker 2: you know, I don't need this pension because the stock
21:29
Speaker 2: market will grow faster. So pensions all went away over
21:32
Speaker 2: the decades, and now we take little chunks of our
21:34
Speaker 2: paychecks and we invest them in other people's businesses. That's
21:37
Speaker 2: what the stock market is. And historically that has worked,
21:40
Speaker 2: even inclusive of some of those calamities that you mentioned,
21:42
Speaker 2: like twenty and eight in twenty twenty two, don't forget
21:45
Speaker 2: that not that long ago. So all of that does
21:47
Speaker 2: still work. That's why we're where we are. But as
21:50
Speaker 2: you just mentioned, you're also a sitting duck. For you know,
21:53
Speaker 2: your four O one K has never been taxed. All
21:55
Speaker 2: they have to do they're not going to confiscate your money.
21:58
Speaker 2: Nobody's going to swoop in and take large chunks of
22:00
Speaker 2: your four oh one k. They're just going to bump
22:02
Speaker 2: ordinary income tax rates up a little bit at a time.
22:05
Speaker 2: And that's what's gonna happen, you know, over over the
22:06
Speaker 2: decades as we have to deal with our fiscal irresponsibility.
22:10
Speaker 2: At some point, you're kind of a sitting duck if
22:12
Speaker 2: you only have that pre tax pile of money. My
22:15
Speaker 2: personally speaking, the way I'm dealing with this, my wife
22:17
Speaker 2: and I are only doing ROTH contributions in our four
22:19
Speaker 2: oh one ks. Now, that didn't exist when we first
22:21
Speaker 2: started thirty years ago. It does now. I got to
22:23
Speaker 2: bite the bullet. But I know I'm talking thirty forty
22:25
Speaker 2: years of compounding, so I don't care. The math still
22:27
Speaker 2: favors it.
22:28
Speaker 1: Yeah, and you know that the ship has sailed for me.
22:30
Speaker 1: First off, the employer doesn't offer the Roth version. And second,
22:33
Speaker 1: I'm sixty and the idea of me contributing for the
22:36
Speaker 1: next twenty thirty years, yeah.
22:38
Speaker 2: Sneaking up on conversion time to do that math for
22:40
Speaker 2: that that low income window you'll have.
22:42
Speaker 1: I am gonna have to talk to somebody about that
22:44
Speaker 1: convert real quick, since you only have a minute left.
22:46
Speaker 1: What's the conversion thing? How does that work?
22:48
Speaker 3: Sure?
22:48
Speaker 2: So what we're talking about there is roth conversion. So
22:50
Speaker 2: if you have that bucket of pre tax dollars, which
22:52
Speaker 2: if you started a four oh one K thirty years ago,
22:54
Speaker 2: I guarant darantee you do because I do the only choice. Yeah,
22:57
Speaker 2: most people do. Uh. So what you can do is
22:59
Speaker 2: you can and convert. You can say yes, IRS, I
23:01
Speaker 2: would like to pay you taxes on this. You know,
23:04
Speaker 2: maybe maybe it's one hundred thousand dollars and then you're
23:06
Speaker 2: in a twenty percent bracket. Remember this would be on
23:08
Speaker 2: top of whatever your bracket already is via salary, So
23:10
Speaker 2: maybe you're let's call it twenty five percent bracket. Then
23:14
Speaker 2: you would be writing a check purposely voluntarily to the
23:16
Speaker 2: IRS to free up one hundred thousand dollars and keep
23:19
Speaker 2: it invested in the market. Then it would grow tax
23:21
Speaker 2: free forever. The longer you can let it go, the better.
23:23
Speaker 2: But the reason I'm hinting this to you, Brian, is
23:25
Speaker 2: because someday you'll retire and it will be you will
23:29
Speaker 2: have some years where you don't have salary, neither of
23:31
Speaker 2: you is working, So your lowest bracket you've had in decades,
23:34
Speaker 2: and it will be well before age seventy five, which
23:36
Speaker 2: is when you will start being forced to pay taxes
23:39
Speaker 2: via requirementum distributions. That's the window that I was referring to.
23:43
Speaker 2: That's when you want to look to do conversions. So
23:44
Speaker 2: what you might be doing is piling up cash on
23:47
Speaker 2: the side somewhere with the intent of paying taxes when
23:50
Speaker 2: your income is lower than it's been in decades.
23:52
Speaker 1: All right, that make actually makes sense to me, And
23:55
Speaker 1: I'm an idiot. Brian James, good job, appreciate you will well,
23:58
Speaker 1: I have a job, say, I know, and that's why
23:59
Speaker 1: I love having the show. Brian James. Trying to keep
24:01
Speaker 1: us on the right path. Brian James will do this
24:02
Speaker 1: again next Monday. Thank you for showing up every money
24:05
Speaker 1: and offering the stage wisdom and looking forward to doing
24:07
Speaker 1: it again next week. Have a great week, my friend.
24:09
Speaker 3: We will talk to you when it is seventy five
24:10
Speaker 3: and Sunday next week.
24:12
Speaker 1: Maybe a little optimistic, Brian, but at least for going
24:15
Speaker 1: in the right direction.
24:16
Speaker 3: Thanks brother.
24:17
Speaker 1: Eight thirty five efty five Curiousity