401(k) is approaching its 45th anniversary. How much should you be saving in your employer plan | TRANSCRIPT

Speaker 1:
Information presented on this program is believed to be factual and up to date, but we do not guarantee its accuracy, and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the options presented. Certified Advisory Corp is registered as an investment advisor with the SEC, and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

Speaker 2:
Stay tuned for On the Money, Central Florida’s most listened to financial call-in show, brought to you by Certified Financial Group in Altamonte Springs. It’s the only show hosted exclusively by certified financial planner professionals. Monday through Friday, their CFPs provide financial planning and investment advice for a fee, but on Saturdays, the advice is absolutely free, and has been for more than 30 years for their WDBO listeners. If you have a financial question you want answered by real fiduciaries, the lines are wide open. Call (844) 580-WDDO. That’s (844) 580-WDDO, and enjoy the show.

Casey:
Hello, and welcome to On the Money, brought to you by Certified Financial Group. For more than 30 years, the professionals at Certified Financial Group have been answering questions for listeners every week on WDDO. On the Money has become central Florida’s most listened to financial call-in program, and it’s the only call-in program where all of the hosts are certified financial planner professionals. Joining us today is Gary Abely and Joe Burke. Good morning, gentlemen. How are you doing?

Aaron Burke:
I hate to disappoint you today Casey, but Joe is not here in the hot seat.

Casey:
Oh, no.

Aaron Burke:
It is Aaron Burke today.

Casey:
Aaron Burke today.

Aaron Burke:
So for all those listeners who tuned in, I’m sorry, but you get to listen to me for the next hour, so I hate to be the bummer. But anyway, Gary and I are here to answer your questions regarding personal financial topics, anything having to do with your 401ks, which is what the topic of today is, IRA, personal investing, financial planning, investment planning, tax planning, long-term care planning. All that and more, Gary and I are here to answer those questions that the two of us and the other 14 certified financial planner professionals at the Certified Financial Group answer day in and day out, Monday through Friday, we come into our office and we meet with clients and answer these questions. But Saturday we are here to take your calls and answer them here for you online for absolutely no cost. So no cost to call us today, ask those questions that have been out on your mind, and Gary and I are the professionals here to do that for you today.
And we’ve actually had a great morning this morning. We’ve already been outside and we have done our 5K this morning. We were proud sponsors of the Tunnel to Towers 5K run that happened here in Altamonte Springs right down the street from our office over in Cranes Roost. And so, we have already done a 5K this morning, so we’re-

Gary Abely:
And the weather was beautiful.

Aaron Burke:
We’re geared up and we are ready to go. So we’ve got 5Ks, we’ve got 401ks. What other Ks do we got? We’ve got all sorts of stuff going on this morning. So we’re here to answer your calls, and it looks like somebody was super eager to get on the line here because I see that the phones are lighting up already. So do we want to kick over to our caller here, Casey?

Casey:
I haven’t screened that yet, you guys. If you guys can let me screen that, get his question, we’ll get him right on air in just a second.

Aaron Burke:
Okay. Absolutely. So let’s jump to the, you want to talk a little bit about our topic today?

Gary Abely:
Sure. The topic of the day is 401ks, so was it yesterday, the National 401k Day?

Aaron Burke:
401k day, yeah.

Gary Abely:
Right. And the history, so we’re coming up on 45 years. So 1978 was when the Act was passed by Congress, Section 401k. And it was kind of interesting. I was reading the history and Aaron and I were talking about it off-air. In 1981, the initial contribution limit was, believe it or not, over $45,000. It was later reduced to $30,000 in ’82, then reduced to $7,000 in ’86. I guess the government didn’t want us to pre-tax as much, and then it’s been adjusted for inflation since ’86, and right now it stands at $22,500.

Aaron Burke:
And I was kind of shocked to hear that. That is a massive amount in 1970.

Gary Abely:
I know.

Aaron Burke:
To be putting away $40,000 per year, that’s probably be equivalent of a couple hundred thousand dollars I think today, right?

Gary Abely:
Exactly. Yeah, that is amazing. So where it is today is $22,500, and if you’re lucky enough to be my age, but not Aaron’s age.

Aaron Burke:
Not yet, getting close.

Gary Abely:
You get to put away an extra $7,500. So the good news is most folks have the ability to pre-tax savings through their employer.

Aaron Burke:
Right.

Gary Abely:
And the advantage of doing that, of course, is not only saving but an automatic withdrawal from your paycheck, and you don’t miss it if you don’t see it.

Aaron Burke:
Right. Right.

Gary Abely:
I’ve often taught my daughters, I said, “The first 10% you’re going to pay yourself, and you’re going to pay yourself for later in life.” And the topic of the day was just how much do we need to save for our future? And tell me what you think, Aaron, in terms of the percentage of income most folks are going to need to replace once they hit the retirement age.

Aaron Burke:
How much do they need to replace?

Gary Abely:
Yes.

Aaron Burke:
I would say probably at least 60%.

Gary Abely:
Okay. And I’m going to say 70%.

Aaron Burke:
Okay.

Gary Abely:
But depending on 50%, 70%, whatever you want, if you need to replace 70% of your income, believe it or not, if you start when you have 40 years to save, so this would be somebody around 25, you need to be putting away about 12% of your pay. And not every employer matches. Not every employer has a profit sharing plan, so those that do obviously, take advantage of it, never, ever, ever not contribute and to not get that free money or the matching, right? But most people are going to find they’re going to need to be saving around 10% to reach that goal of replacing about 70% of their income.

Aaron Burke:
And it’s interesting, because if you get into the habit of saving so much out of your paycheck, you’re actually living off of less currently putting away more, which means that you’re only going to need to replace less of your income because you’re not used to spending that much, right?

Gary Abely:
Well, it could be, but keep in mind those last years of income, we tend to make more money as we grow, and then because we’re making more money, we tend to spend more money, too.

Aaron Burke:
That’s true, that’s true.

Gary Abely:
Yeah. So I think anywhere between 60-70% is a good goal. And for somebody who’s 40 years away from retirement, how much would you want to bet on Social Security 40 years from now?

Aaron Burke:
I think there’ll be something there, I just think you’re going to have to wait a lot longer to get it, will probably have to pay more in taxes in order to get something, and it’s probably going to be less than what the people that are currently getting it now are getting.

Gary Abely:
I think so, too.

Aaron Burke:
So yeah. The system’s going to change.

Gary Abely:
I think they’ll monkey with the cost of living adjustment, too.

Aaron Burke:
Oh, yeah.

Gary Abely:
I think we’ll keep our benefit, but the monies you get paid may purchase a lot less.

Aaron Burke:
I agree with you.

Gary Abely:
All right, Casey, what about John? Are we good to roll over to him now?

Casey:
Yeah, let’s take John from Orlando.

Gary Abely:
All right.

Casey:
He’s got two questions for you guys.

Gary Abely:
Great.

Casey:
One about revocable versus irrevocable and for tax purposes moving to become an LLC. John, you’re on with the certified financial planner professionals.

John:
Hey, guys, appreciate you taking the call.

Aaron Burke:
Sure.

John:
So let me just give you a little bit of background. For my mama’s house, well, my mama’s estate, we sat there and we had a revocable trust. On her passing back in October of ’22, basically it became irrevocable. Now we just sold her house in a cash sale, and right now it’s kind of in escrow kind of thing with the attorney.
And I’m kind of getting mixed… I need some education basically, where I was informed that we may need to do an LLC and get an EIN because there’s also mineral rights and oil and gas leases, that kind of thing, where we want that to live on in her memory to pass on down to the future heirs, that kind of thing. So I need to keep a bank account, open and then also be able to get that money into that bank account and then be able to pretty much distribute it throughout the heirs, that kind of thing. But it’s just a big question. Do we put that into a… Do we create an LLC and EIN numbers? And then, what do we do, 1099 everybody when we distribute it?

Gary Abely:
Well, good question, John. So you could form an LLC. The advantage of that is you can have different ownership percentages sharing in different percentages of profits. And so, of all of the heirs or family members. And let’s say you have some younger folks who aren’t earning as much as others, you could potentially save some taxes in how you allocate income.
I think the LLC idea potentially is a liability protection as well that may have been suggested. If you keep things in an irrevocable trust, a trust is taxed at much higher tax rates than an LLC, which is simply a flow-through entity. So whether you chose an S corp or an LLC, it would be likely one of those, not a C corp because C corps can have double taxation.
So I think you’re on the right page. I don’t think there’s anything wrong with moving those mineral rights into an LLC. I would look to see what is the profit potential here. Sometimes we spend so much money on legal and accounting fees, and if this is a viable ongoing business, then I think it makes sense, yes.

Aaron Burke:
Yeah. And real quick, John, my thought on the revocable versus irrevocable really goes to what are the terms of the trust?

Gary Abely:
Right.

Aaron Burke:
Does the trust allow for income distributions, that is allow for complete distributions of whatever assets are held within it? Does the trustee want to maintain their irrevocable trust and be making those distributions every year? Or was the trust meant to just pay out to the beneficiaries at your mom’s passing? And really, if it was, then you can basically shut down the irrevocable trust and transfer those assets to other places and eliminate the taxation issues that Gary is talking about.

John:
I’m trying to keep it as simple as possible, but as tax-free as possible. Basically, my older sister was the first trustee on the second, and she passed away like a month and a half, two months ago. And one of those things where the trust kind of needs to live on so we can pay out to the different relatives, that kind of thing, because we want it to live on in her memory and provide some income to everybody, not initially. Initially, it would be to the three families and then they can filter it down from their part on. But I’m just trying to keep it as simple as possible. I know I need to talk to a tax advisor, that kind of thing, but I’m just trying to get basic information on if I’m barking at the right tree or… Am I on the right…

Gary Abely:
Yeah, John, I definitely think you are. I think you are. And what Aaron is suggesting is the trust assets could be distributed to an LLC and the three families could be owners of the LLC if there’s an ongoing income interest. You don’t want to leave things in a trust just because of the higher tax rates, so you’re definitely on the right path. Where I think an attorney would be helpful is just making sure that in the transfer of ownership from the trust to an ongoing LLC that you’ve kept the correct ownership interest and you’ve protected any minority interests, any future heirs that were mentioned in the trust. So it’s probably worth getting some help from an attorney in that transfer process.

John:
Okay. Yeah, because basically it’s a one-third, one-third, one-third. And then, with the mineral rights, there’s times when oil and gas is pumping well, that kind of thing. There may be a $24,000 check coming in or it may be $200.

Gary Abely:
Right.

John:
So it’s kind of variable as far as going into a banking account and then being distributed from there. So then, from what I’m getting with the LLC, then we need to establish another banking account.

Gary Abely:
Sure. You would.

John:
And EIN numbers for the primary three, and then distribute it from the three entities that are part of the trust and then dividing it out how they feel.

Aaron Burke:
Yeah.

Gary Abely:
That’s exactly right. And they would be getting K-1s not 1099s for their ownership interest.

Aaron Burke:
Yeah. John, there’s lots of ways to do this and I suggest that you reach out to an attorney and maybe sit down with a financial planner as well to get some good advice, because lots of ways to skin this cat, but you are going up the right path here. So if you need assistance, call our office, check out our website. We can also refer you to an attorney as well.

Casey:
John, thank you for your call. If you want to be a part of the program here on the Certified Financial Group’s On the Money Show, you’ve just got to call (844) 580-9326. That’s (844) 580-9326, or you can even leave an open mic by tapping the open mic feature in the WDBO app. You’re listening to On the Money, where we’re planning tomorrow…

Aaron Burke:
Today.

Casey:
With the Certified Financial Group. We’ll be right back after the three big things you need to know.
Welcome back to On the Money, brought to you by the Certified Financial Group. Today joining us certified financial planner professionals, Gary Abely and Aaron Burke in for Joe Burke today. If you want to be a part of the program, all you got to do is call in folks, (844) 580-9326. Once again, that number is (844) 580-9326. Gentlemen, we’re going to go back to the phone lines here. We have a question from Greg in Apopka who’s got a question limits on Roth IRA contributions based on salary. Greg, you’re on with the certified planner professionals.

Greg:
Yes. Hi, good morning.

Aaron Burke:
Good morning.

Gary Abely:
Good morning.

Greg:
I want to find out, I’m trying to research it. It seems a little confusing. What are the limits on a salary to be able to still contribute to a Roth IRA?

Gary Abely:
Well Greg, what’s your marital status? Are you single or married filing joint?

Greg:
We’re married filing joint. Right.

Gary Abely:
All right. So if your combined income is below $218,000, then you can contribute to a Roth IRA. If it’s between $218,000 and $228,000, it gets phased out. And above $228,000, there is no ability to contribute to a Roth.

Aaron Burke:
Directly.

Gary Abely:
Directly. Now do you happen to have a 401k plan at your office, or does your wife have a 401k plan at her place of work?

Greg:
Yes, we both do. I’m retiring in December. And what you just said about the combined income, I’ve been contributing all this year to my Roth the maximum, like I have for years. But I think now what you just said puts me over the limit, so maybe I shouldn’t have been doing that.

Gary Abely:
Well, and a lot of people find that kind of after the fact. And you can take that money out of the Roth and do a mea culpa and take the earnings out as well. So the IRS does permit a correction without a penalty. So if you do find yourself over the limit, you can correct it.

Greg:
Yeah. We’re I think about $280,000 right now.

Aaron Burke:
Yeah.

Greg:
So maybe I better stop the contributions and switch it over to just a regular IRA. I can do that, correct?

Gary Abely:
You can, yes.

Aaron Burke:
Well, you still have this… Well, you can but it may not be deductible to you, or actually it won’t be deductible to you because you have a 401k at work and you are over the income limits to make deductible IRA contributions as well. So you can still make the contribution to an IRA, it’ll just be with after-tax dollars. So there’s some challenges there as well.

Greg:
Right. Right. And that’s what I would have them do with my Roth anyway. And I’m rolling over my 401k in January anyway from my work.

Aaron Burke:
Okay.

Greg:
So the more important thing is she’s going to continue working. She’s a few years younger so she would still be over the limit, I believe. Well, maybe not.

Aaron Burke:
Well, if your income gets cut in half then you both will probably be under the limit and then you both can make Roth IRA contributions because she could make one as the owner and then she can do a spousal Roth IRA for you as well. So then, you’ll be in the clear to do those Roth IRA contributions if you have the income to do it.

Greg:
Yeah. I think what I’ll do, and I’ll set up an appointment probably to come in and see one of you folks there anyway to kind of guide me a little bit better. I’ve been self-directing my stuff for about 25 years, but I think now is the time to make the switch and start getting some professional advice on some of these things.

Aaron Burke:
Absolutely.

Gary Abely:
All right, Greg, we’d welcome the opportunity to meet with you. And also for our listeners, for folks who want to ask a question specifically, we have Rodney Ownby off the air, and he can basically answer your personal questions you don’t want to ask on the radio at (407)869-9800.

Aaron Burke:
And that is our office number as well, Greg. If you want give our office a call on Monday, we’ll be happy to help you out. So thanks for the call.

Casey:
Thank you for the call, Greg. You can be like Greg folks, if you’re listening out there, you have questions for the certified financial planner professionals, here’s the number, (844) 580-9326. Once again, (844) 580-9326, or to make it simple for you, (844) 580-WDBO. You can also leave an open mic by tapping the open mic feature in our WDBO app. You’re listening to On the Money, where we’re planning tomorrow…

Aaron Burke:
Today.

Casey:
With the Certified Financial Group. We’ll be right back after news, weather, and traffic.

Speaker 2:
Welcome back to On the Money, Central Florida’s most listened to financial call-in show, brought to you by Certified Financial Group in Altamonte Springs. It’s the only show hosted exclusively by certified financial planner professionals. Monday through Friday, their CFPs provide financial planning and investment advice for a fee, but on Saturdays the advice is absolutely free, and has been for more than 30 years for their WDBO listeners. If you have a financial question you want answered by real fiduciaries, the lines are wide open. Call (844) 580-WDBO. That’s (844) 580-WDBO, and enjoy the rest of the show.

Casey:
Well, welcome back to On the Money, brought to you by the Certified Financial Group. For more than 30 years, the professionals at Certified Financial Group have been answering your questions for listeners every week here on WDBO. Joining us today, hosts for the Certified Financial Group, certified financial planner professionals, we have Gary Abely and Aaron Burke. Good morning, gentlemen.

Aaron Burke:
Hey.

Gary Abely:
Good morning, Casey.

Aaron Burke:
Nice to see you, Casey, or he is, Casey, I should say.

Casey:
Yeah. So guys, we were talking this morning, the topic of today’s show was 401k is approaching its 45th anniversary. How much should you be saving in your employer plan?

Aaron Burke:
Yeah. So Gary and I, 401ks are a very important topic that we deal with day in and day out with our clients, because it is one of the best savings vehicles that’s out there that you can put the most amount of money in for most people through your employer’s retirement plan. Now most people have 401ks. If you work for a for-profit company, you have a 401k.
But there’s also the other term out there, 403b, which we hear a lot, which is for usually nonprofits or governmental agencies, so maybe a church has a 403b. The school systems have 403b plans. They worked very similar to 401ks, in that you put money in, you get a tax deduction for it, and when you put it in it comes out of your employer payroll. It’s a very systematic way to be saving. It’s developing those early saving habits, which is why 401ks and 403bs are such an important part of our retirement system currently. And Gary and I were talking before the show and how much money is in 401k plans. And that was just 401k plans. That didn’t count 403b plans did it?

Gary Abely:
I think it was defined contribution plans.

Aaron Burke:
Okay.

Gary Abely:
So who knows. It could have been included, about $9 trillion.

Aaron Burke:
That’s a lot of money.

Gary Abely:
Yes. Yeah.

Aaron Burke:
A lot of Jack, Jack.

Gary Abely:
Quarter 2, 2022. So yeah, that is a lot of money.

Aaron Burke:
That is a lot of money in those plans. And that’s really what the majority of people are banking on in their retirement years, is to be making those systematic withdrawals. So they accumulate by putting money systematically away, and then they turn that accumulation into decumulation and turn that into a paycheck to help supplement their Social Security or what other savings that they have.
And so, Gary and I and the other 14 certified financial planners here at the Certified Financial Group, our job is to help you figure out how much you need to accumulate and then when that day comes when you stop working, what’s the best way to decumulate? And that’s what part of our job is, to walk you to and through retirement to make sure that those paychecks, when they eventually stop from your employer, can continue from the money that you had been able to save.
And so, that’s part of what we call our financial planning process, where we sit down with you and we go through your assets, we go through your liabilities, we go through your income, we factor in inflation and Social Security and insurances and longevity and then we test it all out, and we factor in some risk factors using reasonable assumptions to come up with high probabilities of success so that you know what you need to do now while you’re accumulating so that when those decumulation years hit that we can help you systematically, like I said, replace that income, which we said earlier was about 60-70% of what your current income is, is what most people need.
So that’s what we do day in and day out, and we answer questions about that Monday through Friday in our office. And we are here right now to be able to answer questions online about having anything to do with your personal financial life. We can talk about 401ks, IRAs, long-term care, we can talk about insurance, we can talk about annuities, real estate, all that more. And if you have a question, you can pick up the phone and dial these magic numbers.

Casey:
(844) 580-9326. That’s (844) 580-9326, or to make it simple, (844) 580-WDBO.

Aaron Burke:
And I will say that if you have a question that you don’t want to ask on air, we do have Rodney Ownby, CFP professional and also a CPA, he’s taking calls off the air, and he is at our office number at (407) 869-9800. Again, (407) 869-9800. You can leave him a message if he doesn’t answer because he may be on another call, but feel free to give him a call as well.

Casey:
Hey, guys. We have some questions from some listeners out there. The number one question we have so far is, “I have a significant amount of cash and would like to earn some interest. Should I invest in CDs or US Treasury bonds? Which is better? And what are the differences?”

Gary Abely:
Well, it’s always when we get these text questions, we don’t have the opportunity to ask more questions. So I would want to know more the timeline for the investment and what is this money earmarked for? But just in general, for safe money right now, six-month Treasury notes are paying around 5.35%, 5.4%.

Aaron Burke:
Yeah, maybe a little bit higher with interest rates going up last week.

Gary Abely:
Yeah. I think it could potentially go higher. And we may have one, maybe two more rate hikes to go. And looking at bankrate.com at different CD rates, which is a great website to look at, just make sure you’re investing with something that’s FDIC insured and you’re going below the limit. You can get, I think the highest one I saw was around 5.5% there for a one-year. So it really is going to depend on the timeline, and also when do we expect interest rates to go down?

Aaron Burke:
Right.

Gary Abely:
I think Goldman Sachs came out and said they’re expecting a rate cut sometimes second quarter next year. Now who knows if that’s accurate or not. And we have to know how many rate cuts, right? So this may be, if you had a purpose for saving for two, three years, this might be a great time to buy a two-year Treasury note.

Aaron Burke:
Right.

Gary Abely:
You’re going to get around 5%. You’re going to get a little less as you go out further, then it’s called an inverted yield curve. You would think you’re giving up your money for longer, you would make more.

Aaron Burke:
Right. Weird.

Gary Abely:
But in this environment, you’re making a little less. So anyway, Treasury notes or CDs I think, depending on your timeline would be the best way to answer that.

Aaron Burke:
Yeah. This has been a very unusual time for people with cash. And so, we have clients that are actually contacting us that have cash in the bank.

Gary Abely:
Right.

Aaron Burke:
And they’re in their checking or savings account, they’re still getting close to nothing, which is crazy to me as well. And they’re like, “What should I do with this money?” And it is a all-time historic time, in my opinion, from my experience, to be putting that money either in a money market or doing some short-term Treasuries or CDs, very little risk if any risk at all. And you are going to earn somewhere in the neighborhood of over 5%, north of 5% for at least a year, maybe two years depending on how long you want to lock that up for. So if you have money sitting in the bank earning zero right now, this is an historic time to be able to put some of that money into very low risk vehicles and get 5% guaranteed by the US government.

Gary Abely:
Yeah. And let me just counter that with what clients say to me often. It’s like, “Well, Gary, I really like having the liquidity of my bank account knowing the money is there.” And I said, “Well, you know your Fidelity Sweep account right now, which is over 99% government securities-related investments, is paying just under 5%, just a hair under 5%.”

Aaron Burke:
Right. Right.

Gary Abely:
“And that, we can get to you next day if you call us by noon today. So how liquid do you need this to be?” I would much prefer somebody making 5% than somebody making 0.5%.

Aaron Burke:
Sure.

Gary Abely:
Or sometimes less than that in the bank. So now that cash is earning money, make sure you are earning money on your cash.

Aaron Burke:
Exactly. Exactly. So that’s the conversation we’ve been having more and more over the last six months with what we’ve been seeing with money market rates, CD rates, and with Treasury rates. It’s really unusual. I haven’t seen rates this high as long as I’ve been in the business of 15 years plus.

Gary Abely:
I’m sad to say I have seen some better.

Aaron Burke:
Well, that was back. Yeah. Okay.

Gary Abely:
Yeah.

Casey:
All right, gentlemen, we have a second text question for you guys.

Gary Abely:
All right.

Casey:
“Are small and mid-cap stocks more risky than large-cap stocks? And how much of my equity allocation should I have in each?”

Gary Abely:
So let’s talk about what is small and what is mid and what is large, right?

Aaron Burke:
Sure.

Gary Abely:
So large companies, you think of the S&P 500 Index when you think of a large cap index, cap meaning capitalization, and then mid-sized typically in that $2-5 billion range. And large, we tend to think above $5 billion. And then, of course, small would be below the $2 billion. So it really is going to depend, and this is again, when we get these text questions we don’t have the ability to ask questions. So if somebody were in the office, first I would’ve had them fill out a risk tolerance questionnaire, right?

Aaron Burke:
Yeah.

Gary Abely:
And we use an award-winning questionnaire so that we can identify exactly, well, maybe not exactly.

Aaron Burke:
As close we can as possible, yeah.

Gary Abely:
As close as we can, as close as we can, somebody’s tolerance for risk. And the higher the tolerance for risk, and I’m going to include volatility in that.

Aaron Burke:
Mm-hmm.

Gary Abely:
Then I would say the higher the percentage you should have in small and mid. So now large-cap stocks, long, long-term, now when I say long-term, I’m talking a hundred years, have done about 10%.

Aaron Burke:
Okay.

Gary Abely:
Small-cap stocks, these companies under $2 billion in value have done closer to 12%. That’s a big, big difference, right?

Aaron Burke:
Yeah. Compounded over that many years, yeah, that’s a huge difference.

Gary Abely:
Yeah. Interestingly enough though, mid-cap stocks have really stolen the show over the last 20 years. Those have slightly outperformed small, but over long, long periods of time, I would say if somebody were aggressive, having as much as say 10, 12% in small, maybe 20% in mid, and then the balance in large.

Aaron Burke:
Mm-hmm.

Gary Abely:
And if somebody’s moderate and if you’re middle of the road, you probably want to keep about the same percentages in small, mid, and large that exist in the overall market. So you might be somewhere around 8% or so in small, maybe it’d be 18-20% in mid and the balance in large.

Aaron Burke:
And there’s always not only domestic large, mid, and small.

Gary Abely:
That’s right.

Aaron Burke:
But then, you’re going international large, mid, and small. And there’s so many ways to slice and dice a portfolio in order to get the proper risk exposure for the client. And when we talk about risk exposure, it’s really how much risk can the client accept without doing something stupid.

Gary Abely:
Well, that’s right.

Aaron Burke:
And that’s always the challenge, right, is if you have a client who wants to take a lot of risk until the bottom falls out in the markets like it always does every couple of years.

Gary Abely:
Right.

Aaron Burke:
And then, they panic and want to sell everything, then that person is taking too much risk for their portfolio.

Gary Abely:
Well, that’s right. We call it also concentration risk, right? We have these Magnificent Seven stocks that account for about 70% of the overall return in the market this year, and people are chasing those momentum stocks and eventually things get back to normal. Having these high price earnings ratios where you’re paying 30, 40 times what a company earns in one year, eventually we get a reversion to the mean and the momentum goes in the opposite direction.

Aaron Burke:
Right. And we see that with whether it was dot-com in the 2000s, and right now it’s everything having to do with AI and the chips that generate it. And there’s always some sort of trend that people are looking for the next big thing and they’re pouring money into it and those stocks outperform. But like Gary said, they eventually revert back to the mean over the long run.

Gary Abely:
Right. And we didn’t even have the conversation of growth versus value.

Aaron Burke:
That’s the other piece.

Gary Abely:
We could talk on and on, but surprisingly, the best asset class is small-cap value over the long term. A lot of people would think it would be small-cap growth, but it’s not.

Aaron Burke:
Well, there you go. The profit is in value.

Casey:
And you could be part of the On the Money program by calling at (844) 580-9326. Once again, that number, (844) 580-9326, or leave an open mic by tapping the open mic feature in the WDBO app. You’re listening to On the Money, where we’re planning tomorrow…

Aaron Burke:
Today.

Casey:
With the Certified Financial Group. We’ll be right back after the three big things you need to know here on WDBO.
Welcome back to On the Money, brought to you by the Certified Financial Group. For more than 30 years, the Professionals at Certified Financial Group have been answering questions for listeners every week here on WDBO. Joining us, the certified financial planner professionals, Gary Abely and Aaron Burke today in for Joe Burke. Good morning, gentlemen. And there are some several workshops you guys have coming up. Let’s talk about those.

Aaron Burke:
Yes. So we, in our wisdom, renovated our offices right before Covid hit. And when we did that, we were able to significantly increase the size of what we call our Learning Center, the TLC, The Learning Center, in our office. And it’s really a state-of-the-art facility where we are hosting workshops for our clients and prospects to be able to come in, get to know us, get to see our facilities, have a level of comfort, and provide free education where we basically, you can come in for an hour, maybe an hour and a half depending on what the questions are, and receive free information about whatever topic it is that we are covering that day.
And so, we hold these regularly, a couple a month. And the next one coming up is called Savvy Generational Planning. And that one is hosted by Matt Murphy, again here in our learning center on the 16th of September, I believe that is a Saturday, from 10:00-11:30 AM. And then, the next one is the next month, 7th of October, hosted by Rodney Ownby, Charles Curry, and Dave Balakrishnan, Everything You Wanted to Know About Mutual Funds and ETFs, again in our office here on the 7th of October. And then, 11th of October, we have a seminar on Long-Term Care Planning. And this is an evening seminar hosted by Charles Curry and Wynn Smith.
All of these are available on our website, financialgroup.com. You can go there and get… We have lots of information on our website, including replays of our radio show, which we’re listening to right now. We have blog posts, we have information about pertinent articles that we post from time to time, lots of good stuff. You can go on there. But you can also sign up for our workshops right there on our website, financialgroup.com. And again, you can also fill out a contact form if you’re interested in coming in and meeting with one of the 16 certified financial planners in our office. So financialgroup.com is a great source of information for you.
Additionally, I want to point out one other thing, another website that we support is called scoremyfunds.com. And one question that we get a lot from clients when they come in, they bring in their statements and they say, “Well, what do you think of the quality of my investments? Am I picking the right stuff? Did I buy the right stuff? Did my broker put me in the right thing?”
And so, what we have is a state-of-the-art system where we actually score the investments in people’s portfolios. And this is the same process that we go through for our 401k clients, for our individual wealth management clients. And we go through this quarterly, we actually go through it monthly, but we do a really deep dive quarterly for all of our clients across the spectrum. But we provide this service to you as well. So scoremyfunds.com, you can go there, you can give us the ticker symbols for the investments that you own, type them into there, give us your name and your email address, and we will provide a report back to you showing you the quality of the investments that you have in your portfolio.

Gary Abely:
And I want to just clarify one thing, Aaron. We don’t score the funds, we provide the scores for your funds.

Aaron Burke:
Correct.

Gary Abely:
It’s an independent organization that gives a score of zero to a hundred. Think golf, the lower the number, the better. And I’m amazed at the funds that when folks do come in and they provide a list of their funds to us, how many yellow and red funds, these are scores above 50 and above 75, that are really not meeting high fiduciary standards. In fact, there are funds that in most cases should be sold. So it’s a great source if you are wondering about your mutual funds. Go to scoremyfunds.com, and all you do is put in the ticker symbols and you will get the answers.

Aaron Burke:
Yes. Absolutely no cost for that as well. So we’re here to provide information, we’re here to help educate the public. And again, that’s what we do every Saturday here on WDBO.

 

Leave a Comment

Your email address will not be published. Required fields are marked *

Translate »

Schedule A Virtual Meeting From Anywhere In The World