Transcript:
Tom Vaughan: Hello, everybody, welcome to Friday. This is our second show of Go Live with Tom, really excited that everybody could join us last Friday had a really great time doing that got a lot of good questions and what not too. So, just want to lay the groundwork again really quickly. If you have a question you just hit asktom@golivewithtom.com, send that email in, any questions, Katie, of course, my co-host here will ask me those questions. If I’m talking about something, you want to ask a follow up question, feel free to fill in and do that. Also the big objective of this is investor education. You know, we have kind of a four point platform for helping our clients build and maintain their net worth financial planning, tax planning, investment management, those are the three categories that we’ll focus on during the show. But investment, you know, education is a really big component of what we work on here. We feel that people can build their wealth faster, the more that they know about how to do investing, how to do financial planning, and tax planning and those kinds of things. So really looking forward to that. Again, if you want to see the other videos that we’re starting to post on this channel, you’re going to want to subscribe, there’s a subscribe button, hit that button, there’s a little bell next to that, hit that bell, if you want to get notifications, we’re going to continue to put out additional videos in the investor education area, really trying to pick up the pace. And I will announce also that on May 7th, we’re going to start to have guests coming on the show, we’ll have a little question and answer period, tax professionals, estate planning, investment professionals, from the investment world as far as that goes, and whatnot. So really looking forward to doing that also. So thank you again, for coming. We’ll go ahead and get started with the first question, Katie, if you want to.
Katie Nealis: Thanks Tom. Well things are starting to look bright for our future, as California sets a date for opening up. A pretty popular question we’ve had is “How do I invest as the economy reopens?”
Tom Vaughan: Yeah, I think one thing that’s really important to understand here is how different this reopening is, we’ve always had these big boom and bust cycles that have happened forever, where you have, you know, a big giant run up in the market and run up in the economy. And then we have this recession, and what they’re calling, these types of things as a recovery. Okay, so that’s the norm. Well, this is a reopening. And so in order to kind of understand in a recession, everybody’s kind of lost money, there’s less earning power. And that certainly happens somewhat here. But actually, Americans save trillions of dollars more last year than they did on average. So there’s this big amount of cash sitting there on the sidelines, mainly because, you know, we did have a lot of stimulus money come out, but also people couldn’t spend the money. And so a reopening is a different thing. It’s a much more robust concept. And if you throw in the $1.9 trillion, stimulus that we had, just passed, and now they’re talking about this infrastructure, the reopening could be unbelievable. And so this kind of pent up demand, where everybody is gonna want to do more than they’ve ever done maybe in any one year to make up for what happened last year. And so if you think about the best areas to invest in this kind of reopening, really just think about those things that we weren’t able to do last year. And then how do we invest in those because I think people are gonna want to do them in a lot more. So let me share an idea here with you really quickly. Alright, so this is a chart here on it’s called RCD, and this is an Exchange Traded Fund. Okay, so again, this is a big basket of stocks. And very specifically, let me describe, you know, what this is, what’s happening here in this particular chart is each one of these bars is a day. And so we see this, motion, very nice, you know, the channel is there, it’s quite tight, it’s moving very, very well. What they’ve done here is they’ve taken the S&P 500. And so, Standard and Poor’s creates the S&P 500. And these companies are selected by this investment committee. So they have to pass a certain, rigor to even get in there. And the S&P 500 is one of the more popular indexes in the world. Then they take out what they call the Consumer Discretionary Stocks. And so these are companies that kind of just look at the other side, consumer staples are things that people absolutely need almost no matter what happens in the economy. Toilet paper would be a great example, for example. And consumer discretionary is something that people can have, you know, if they want it, so it’s kind of a need versus a want, and I think this has got a lot of pieces in it that that have, you know, been ignored in the last year. And you can see here down at the bottom, the blue line is the relative strength, right? So how is this done versus the S&P 500, which is this red line down here. So it’s outperformed the S&P 500 in this 12 month period. And I really liked that. But if you listen to kind of what’s in here, so in a travel area, you got major hotels, the Hyatt, Marriott, Hilton are in there. You even have the cruise lines, which haven’t aren’t running yet. But they will, you know, Royal Caribbean, Norwegian, Carnival Cruise Lines, for example. You got the casinos that are in there. Restaurant stocks that are in there. Clothing, the report that just came out yesterday on retail sales, one of the surprising things was that clothing sales are higher than they were before the pandemic started. And again, I think people are going to make up for lost time, we’re going to see that happening with lots of things. The GAP, Target, Ross, all of those types of things are, you know, in there. Ulta, which is you know, makeup and what have you too. Ford, GM, CarMax, etc. So this is, I think, a really good play for you know, what we’re dealing with here. And so I’ve got a note here that says, Katie, we’re having trouble hearing you. As far as that goes, I apologize. Got some technical difficulties here. I can hear Katie, but I’ll repeat the questions too. So we’ll start with that. But so that’s that’s where I would be looking in the reopening plays something like RCD, I think it’s very interesting. They also equal weight the stocks here in that index. And just so you kind of understand most indexes that you buy, in this case, it’s 62 stocks, the market cap weight, and so that what that means is that basically have a scenario where you multiply the number of shares times the share price. And so sometimes out of 62 stocks, you might get three or four that are the only ones really making that index move. And so an equal weight is what I prefer here in this particular situation where you’re getting, an equal amount of each one of those 62 stocks, because I want to make sure that I’m getting as much run out of, GAP, because GAP is doing fantastic right now, as Amazon and those types of things, too. So, alright, so let’s try the next question.
Katie Nealis: “How do I gift to charities out of my IRA?”
Tom Vaughan: Okay, good. So I’m not sure if people can hear her speaking, we’ve had technical difficulty here, unfortunately. But what she did ask was, just to reiterate, anyway. A question that came up here about how to gift money out of an IRA to a charity. So this has actually become a really big area prior to the last tax law change, where they increase the standard deduction, you basically can contribute to a charity and get a write off. But now with the higher standard deduction, a lot of people aren’t getting the write off, because they really can’t itemize. And so one of the ways that you can still give to charity and make it tax efficient, as far as that goes, is once you get past age 72, you’re required to take money out of your IRA. It’s what’s called a Required Minimum Distribution or an RMD. And with that Required Minimum Distribution, you will end up with this cash flow that comes out to you, whether you want it or not, it is taxable. Well, you can gift all or part of that Requirement Minimum Distribution to a charity, you just have to make sure that the money goes directly to the charity, and that the charity “cashes the check”, so to speak, before the end of the year. And then that counts as a distribution out of your IRA, and it meets that requirement. And then there’s no taxation on that whatsoever. So it’s a really great write off as far as that goes. Oftentimes, what we try to do is to get checkbooks for the client so they can, issue those checks directly to the charities as they see throughout the year. And again, just got to make sure those checks clear by the end of the year. All right. That’s go with the next question.
Tom Vaughan: All right, we’re back. Not sure we fixed anything. But we’ll go ahead, and I’ll just repeat the question she can she can ask me. What’s the next question that people have asked?
Katie Nealis: “Are there any retirement expenses that people have asked about in the past that they’re not counting on, that they should be counting on?”
Tom Vaughan: Okay, so what Katie’s asking is, “Are there any retirement expenses that people have asked, about in the past that they’re not counting on, that they should be counting on?” So, it’s really important when you’re looking at your financial plan, throughout your retirement, that you’d be fairly accurate with the type of expenses that might happen. You’re trying to look forward. And to be really confident about what you can spend today, you kind of have to have some idea of what you’re going to be spending tomorrow. And one of the things that we now put in all of our financial plans, because we keep getting asked about them. Our number one: Cost for Hearing Aids. And number two is the Cost for Dental. So oftentimes, people have a lack of coverage in those two areas. Or if they do have coverage, it’s not enough to really, you know, that doesn’t cover the hearing aid they want or the dental situation that they might be in. And so we actually put a fairly good sized chunk of money, about $7,000 for kind of a lifetime costs for hearing aids, and $15,000, and these are both per person for dental, because dental can add up really quickly. Now, of course, the problem with these types of expenses, you may never have them. But then you might have some other expenses that we didn’t count on either. So anyway, those are two big ones, I would say dental, and hearing aids are two big ones that I think are really important.
Katie Nealis: “What are some retirement expenses that might be different for somebody my age, than somebody that’s really close to retirement?”
Tom Vaughan: So Katie was asking about retirement expenses that might be different for somebody her age, instead of somebody that’s really close to retirement. It’s kind of interesting, I think the hardest thing to do, you know, when you’re working on a financial plan for somebody younger, is to sort of identify what that life might look like at retirement. So, or even the retirement’s kind of an interesting thing. Now a lot of people are talking about what they call Financial Independence, especially in the younger age group, where it’s not so much that they want to retire the but they want to be able to, and so, whether that’s 50 or 65, or 70, or whatever it is, they want to make sure they have enough money. And so one of the difficulties there and is really just the basic amount of money that you might be spending because right now, let’s say you’ve got a certain lifestyle, 40 years from now might be quite a different lifestyle. So I would say that would be the number one thing to work on isn’t so much the unexpected expenses, it’s really what are going to be your basic expenses and trying to identify what your lifestyle might look like. And talking about that. And the possibility of increased travel and things that you might be doing, at some point later, that you’re not doing now. So that’s a good question.
Katie Nealis: “My mother is about to go into a nursing home, what is the best way to pay for it?”
Tom Vaughan: Okay, so what Katie asked was a really interesting question, actually, “My mother is about to go into a nursing home, what’s the best way to pay for that?” Well, a couple of things that come up. And this is really interesting. So let’s assume in this particular case, that the mother is single, not married at this point in time, maybe previously was or what have you. And you’re responsible for trying to figure out how to pay this bill, which can be, six to fifteen thousand dollars a month or something like that, depending on kind of the level of care and where you live. And so one of the things that happens is the house tends to be this big asset. So yeah, it might look outside of the house. But one of the things I’d be really thinking about very hard, is whether that house has a big capital gain. So here in California, that’s pretty common, where we have this huge gain, somebody paid, you know, $100,000, for a house that’s worth a million and a half. And, you know, if you sell that they’re going to be a lot of taxes. And what what I’ve run across is sometimes people don’t know that the cost basis on the house gets stepped up at the date of death. So what that means is, if your mom paid $100,000 for that house, and you sell it now, you’re going to pay taxes, if it had a big gain. If you wait until she passes away, and let’s say it’s worth a million and a half, the cost basis is going to move up to a million and a half. And then if you had to sell it to settle the estate, there is no capital gains tax. So it might be a good idea to try to figure out a way to keep the home, and use the home to try to fund, some of the money that’s needed. So one way, of course, is to rent, not everybody wants to rent. But if you rent the house out, you don’t have to sell it, possibly the income from the rent can help to fill the gap. The other things are reverse mortgages, not my area of expertise. But I have had clients use those before, to try to fund, the nursing home care cost. And so that that would be a great place to start, it’s just a conversation of what to do with the house. I have a couple of situations over the years where people come in, and they’ve just sold the house and paid this huge capital gain, and didn’t actually realize that there was a stepped up cost basis upon death, otherwise, they wouldn’t have sold it. So I guess that would be my main message there is just understand how cost basis works. And that happens with stocks, also, not just your house. But there’s a step up to current basis. So I think that’s, you know, something to consider there.
Katie Nealis: “What if my relative doesn’t own a house. What would be the best way to pay for it?”
Tom Vaughan: So Katie is asking, “What if one of her relatives doesn’t own a house. What would be the best way to pay for it?” So essentially, somebody living in apartment or some other situation as far as that goes, and what we’re really, looking at there, is trying to identify all the other assets that somebody might have. And, structuring the portfolio for income using Systematic Withdrawal. So what we’ll normally do is try to find some really balanced portfolio as, 60% stock, 40% bonds, something along those lines, and we’ll set up a Systematic Withdrawal to try to pay that bill. And, you know, pass that once the money is run down here in California, they have a thing called, MediCal, which pays for long term care costs. Rest of the nation, they call it Medicaid. But it can be a difficult situation. And it’s one of the reasons that really somehow, someway, we’ve got to kind of fix the system. The cost of long term care is ridiculously high. And it can eat through assets pretty quickly. But that’s what you would do to try to stave off the, depletion of those assets, as long as possible create a well balanced portfolio, and then, take the money out as as you need it for that. And it all depends on how much money you have as to how long that would last.
Katie Nealis: “What is your outlook for the stock market for the rest of this year?”
Tom Vaughan: Okay, so she was asking, “What’s my outlook for the stock market for the rest of this year?” Here’s my path, or the theme that I’m really looking at very strongly, and it’s pretty straightforward. Over the course of this year, the virus gets under control, to a large degree, much more so than it even is now. And not just here, but throughout the world. The vaccine is rolling out at an ever increasing rate, in most places of the world, especially here in the US. You know, it wasn’t that long ago, we were doing 2 million doses in a day. Now, we’re almost to 5 million doses in a day. So as that continues, that’s going to allow people to get out of their home. One of the things we look at is called Mobility Data, and some Mobility Data tracks cell phones worldwide. So the US, if you look at the Mobility Data, it’s 23% less motion happening right now in the US, than last February, before with a lockdown started. So that means about a quarter of the population is still staying fairly stable in their in their place. And what that means is there’s a huge amount of people that can still come out, and start to spend and go to restaurants and go to hotels go traveling and those types of things. The other part of this is the regulation side. So for example, in California, we’re not fully open until June 15 right now, but these are all going to come. Every state’s going to fully open, we’re going to be able to have concerts, and go to movies and go out to eat and get on a cruise line and all those things. So what that does is that causes this monstrous amount of money going into these kind of what we call Epicentre Stocks. I believe that’s going to continue to make the interest rates go up on these bonds. They went down pretty heavily yesterday, coming back up today again. But when that happens, you’re going to see you know, growth stocks generally do poorly in highly interest rate increasing environment. And I think value stocks are going to be the place to be, especially in these Epicenter stocks. And what I just talked about with that RCD that Invesco Equal Weight Consumer Discretionary ETF, I think those types of things are the place to be, because I think we’re gonna have a very, very explosive economic growth. The Federal Reserve is predicting between 6 and 7% Gross Domestic Product growth in for 2021. That’s a huge number for the US. So I think we’re gonna see some pretty amazing things. I do think that we’re going to see some softness, as inflation picks up if it picks up too fast. So we’ll have to see how that plays out.
Katie Nealis: Following up from the last question, “This week has been all over the place. What do you think about this near term?”
Tom Vaughan: So Katie’s asking, just basically that this week has been kind of all over the place. And it’s true. It’s like every other day, we’ve had, you know, growth or value, back and forth, every other day, it has been crazy. And so she’s asking, “What I think about that near term here?” I actually think we’re gonna look at it almost exactly the same thing. Because what we’re dealing with right now, like this week should be what we probably see maybe up until the beginning of the summer, where it’s kind of chaotic, and the market is trying to figure out which direction to go. Are we going to growth? Are we going to value? Are we going to both? Is it a broad motion? And what have you. So I really think that, we’ve got a little bit of time here, before we see a true pattern. Like I just suggested, that might happen, I think, probably more in the second half of the year, mainly because the vaccine, and it’s not an even rollout. We got problems with the Johnson and Johnson. We got problems in Europe with the delivery. And that’s not to be unexpected, to be honest. I mean, life is generally not a straight line. And in this particular case, this is a new concept. So trying to get this to kind of roll out properly is going to be something that’ll take a while. So, I suspect between now and maybe the beginning of the summer, beginning of June, we’ll see a lot more volatility, or at least lack of true direction. But I think that direction is going to come as that Mobility Data moves from -23%, back up to moving as much as we used to. And I think we’re probably going to go a lot farther than that, I think there’ll be a lot of people interested in getting out and doing things that they couldn’t do. I think that will establish the trend as far as that goes. But in between times, we’re still trying to figure this out.
Katie Nealis: Tom, we’ve got a question here about Socially Responsible Investing. Would you mind first explaining what that means?
Tom Vaughan: Alright, so Katie says we have a question about Socially Responsible Investing. And she’s asking just, “what does that mean?” So, actually, my practice started in 1987. And it really, at the very, very beginning of that practice, I’ve always had a social responsibility set of portfolios that we’ve been using. And so the idea behind that, is you’re looking for companies that are, doing good in the sense of the environment, how they’re treating their employees, how they’re treating their community. And so that’s what that means, essentially: Trying to invest in companies that that meet certain criteria. Or, if you want to flip it on the other side, is sort of an elimination of companies. So, companies that aren’t producing guns and oil and things that you don’t want. “Hey, I don’t want to invest in these particular areas. I don’t want my money to be involved in those areas.” So that’s what we’d call Socially Responsible Investing. There’s kind of two ways to look at it, it’s looking for companies that are doing a really good job in that area, or avoiding companies that we really don’t want. So that’s what Socially Responsible Investing is. What was the actual question? Oops, I lost you now too, Katie. Yeah, I can hear you now. Okay, so she’s saying, that with the change in administration, whoever had asked the question, would like to do some more Social Responsible Investing: “Is this something where I will not make as much because I’m narrowing down the field and what have you. Actually, that’s quite true, originally. Go back to 1987, the Social Responsible portfolios that we had, always underperformed our normal portfolios, what I call our traditional portfolios. And, that was okay. Right, that was that was a group that was investing in that didn’t really care as much about return as they did making sure that their money wasn’t in places that they didn’t want to be. And so, but things have changed right now, actually, the whole concept of Social Responsible Investing has exploded. There’s now roughly $16.6 trillion of money invested in Socially Responsible concepts. And the biggest change is what’s called ESG Investing. So ESG stands for Environmental which obviously is a company’s impact on the environment. S stands for Social. So the company’s environment on the community. And G stands for Governance, what’s the board made up? How do they take care of their employees, those types of things. And there’s a couple big companies, one called Sustainalytics, and another one, MSCI, and they now rate companies on ESG. That’s a given number for each one: E, S, and G. And then they give a total number. And so what has happened now is you’ve been able to get these companies like Vanguard, can take their entire. Vanguard has what’s called a Total Stock Market Index. The ticker symbol’s VTI. It has about 3600 stocks, and they can apply an ESG screen. So only adding those stocks out of those 3600 that meet a certain ESG number criteria. And so it’s very simple, and it’s very effective. And they can do it on a non managed basis. So it’s very inexpensive, super inexpensive internally. And all of a sudden, the ESG portfolios are, at least in the last two years, they’ve either been matching or beating our traditional models, and it’s a really amazing area. And so I think this current administration just continues to push that forward. Clean Energy is one of the pieces that you’ll often see in an ESG type portfolio. And let me share just real quickly here, you know, an example let me pull it up here, of, you know, kind of our current one of our current clean energy portfolio. So this is, you know, one of our models that we are using right now. And so, you know, we kind of have a Nuveen ESG, large cap. And again, what Nuveen has done is taken big companies and applied an ESG screen, and you know, we can buy that we have a mid cap from Nuveen. Now, these are both value plays, again, because I think value is going to be a place that makes more money throughout this year. And then we have a small cap, we have another small cap again, in a recovery and a reopening small caps generally do well. This is through iShares. Now iShares is owned by a company called BlackRock. They’re probably the leaders in ESG right now. They’re really pushing this and opening up lots of new funds. And I think this is an international ESG PIMCO and Flexshares both have an ESG. And this is a really interesting one, this is one of our winners today. What’s up, .8% today, not bad. This is a global water ESG piece, I think it’s really fascinating. So, anyway, there’s a lot of different, you know, pieces that are out there, you can actually create portfolios, like you’ve just seen, this has developed tremendously, even in the last three years. So it’s a great place to take a look in terms of the investing side of the world here, too, so.
Katie Nealis: “I don’t need all of my requirement of distribution, do I have to take that?”
Tom Vaughan: Okay, so Katie is asking, “I don’t need all of my requirement of distribution, do I have to take that?” So that’s really interesting, actually. Because that’s unfortunately fairly common, within my practice, where people have built up a lot of money inside of retirement plans. And then as the as they get older, they’re required to take out more and more and more out of those. So let’s say you’re supposed to take out $30,000 out of your retirement plans, and you really don’t want to because you don’t want $30,000 end up on your tax return. And maybe you only need five or 10 of that to really live off of you know, for that year. Unfortunately, you do have to take it out. And keep in mind, the concept of time and a Requirement Minimum Distribution is that the government has allowed you to write off the money that went into that account, allow it to grow without any taxes. And they’re basically, you know, pushing money out of those to create taxable income, which, of course, partly goes to them. So that’s why it’s there. There’s no real way around it, except if you do charitable contributions, you could give a portion of that away, and then that does not end up on your tax return. So that, you know, again, it depends on what you’re trying to do. Otherwise, normally, what we’ll do, if somebody doesn’t need, it will set aside the money for the taxes, and the rest just goes into their regular taxable account so they can still continue to build their assets. But yeah, there’s no way around that other than the charitable contribution.
Katie Nealis: Denise would like to know about, “Retiring before age 65, how does an HSA help with medical and dental expenses?”
Tom Vaughan: So she’s saying that Denise is asked about, “retiring before age 65, so say age 60, and trying to deal with medical and dental expenses, for example with an HSA.” So, yeah, one of the things I think’s really interesting with HSAs, is that we’re seeing more and more people up just so you know what an HSA, Health Savings Account is: You can put money in, there’s a cap as to how much usually they’re offered through your employer. And then the money kind of grows tax free, there are bunches of them out there, as far as where you can put the money, your plan, that you have at work, maybe restrictive as far as what you could do. But any growth inside of that is tax free. And so one of the things we’re starting to see more and more is that people are starting to not use their HSA immediately. So normally, what we used to see was that you put them on hand you get $5,000, you get that as a write off, which is really great. And then you could pay for your medical expenses, let’s say there were $5000 that year. And so you would kind of just zero them out, more or less. But what we’re seeing now is people are putting in the most they possibly can, and really trying to build up the asset inside of the HSA growing tax free. And so that that’s actually a good question. Because between ages of 60 and 65 you don’t have this Medicare, which starts at 65. And so you’re trying to fund your your medical costs on your own basically, during that period of time. So an HSA would be a great way to do that. And sometimes it’s difficult to really build up a lot of money in there unless you’ve had a lot of time. So as you get really close to it, it’s a little bit less, but definitely works. Yeah, there’s that that is a program that we’re seeing more and more now.
Katie Nealis: “How aggressively should my kid’s 529 plan be invested?”
Tom Vaughan: Okay, so what Kate is asking now is a question about how aggressively to invest your children’s 529 plans. This is kind of interesting. One of the ways that I look at this is that, if you look at the 2000 downturn, if you look at the 2008 downturn, in both cases, it took five years for the market to come back. So if you kind of just do some simple math there, if I had a 13 year old, okay, they’re five years away from graduating, and going off to college. And so what I want to be careful of is what happens if today that 13 year old’s money gets involved in another big downturn like the 2000, 2008 downturn? Well, it’s gonna take five years to recover. So at 13 or less, I can be 100% stock, or less. Now, generally speaking, one of the things that drives how much risk somebody is taking has to do with the risk tolerance for the person who owns the 529. But let’s just say for example, that person has a fairly high risk, 13 year old they’re at 100% stock, and they’ve been there all the way through from two to 13. Well, once I get there, now I’m ending getting into this five year period. So when they’re 14, I’m going to move it down to 80%. Because on average, and 80% portfolio would have taken four years to recover. And when they’re, you know, 15, I’m going to move down to 60%, etc, by the time they get close to college, I’m going to get it down to probably 20%, I don’t go all the way to zero, I don’t go down to 10%, because there still is four years worth of college that needs to be paid for. And so I do want to see some growth out of that. So I really, you know, starts at about five years before they’re going to go to college, that’s when we really start to, you know, maneuver the risk of the portfolio. Prior to that we can be more aggressive unless somebody doesn’t want to be, which is fine, also. Good.
Katie Nealis: “Should I roll over my 401k at retirement, or leave it there?”
Tom Vaughan: Okay, so the next question is, “Should I roll over my 401k at retirement or leave it there?” This actually comes up quite often as people hit retirement. And first of all, I’ll tell you that I’m biased. I make money, when people move it into an IRA. And generally speaking, if they leave it at the 401k I don’t. Having said that, I have tracked over the years kind of the differential and rate of return between those 401Ks that people have and the IRAs that they have. And at least in my experience, the IRAs have been getting a higher rate of return, even after expenses. It’s very, very difficult to tell what kind of expenses you have in a 401k. You know, we constantly are looking at that. And it’s very difficult because there’s a lot of people with their hands in with third party administrators and those types of things. Obviously, we know what expenses we have in our IRAs. But the one thing that I would think about in terms of an IRA versus a 401k, after retirement, is that in an IRA you can hire somebody professional like me to manage it, which I think is a good idea, again, biased opinion. But you also have the capability of investing in almost anything, you can buy any stock, any bond, any Exchange Traded Fund, any mutual fund almost everything in the world is available inside of your IRA. Whereas the 401k, generally has this restricted list. So, for example, if you really thought clean energy was great, like it was last year, unbelievable, you couldn’t buy that in your 401k, I’ve never seen a 401k with a clean energy availability. So you know, that, that would be a good reason, just for selection of investment and being able to try to make a better rate of return. The other thing is, if you want to kind of try to protect the portfolio using stop losses, or different things like that, again, you can’t do that inside of a 401k, you’re just going to watch that thing fall, maybe you’ll try to scramble and make some changes. But within an IRA, we can do stop losses, for example, and try to protect some of the downside on those, say exchange traded funds or, or individual stocks that you might be able to buy. So I’m a big proponent of moving from a 401k to an IRA. But again, you know, just keep in mind who you’re asking.
Katie Nealis: “Should the average person have long term care insurance?”
Tom Vaughan: Okay, so she’s asking is, “Should the average person have long term care insurance?” Wow, this is great question perfect, I just had a situation with a client come up, where she is not doing spectacularly health-wise. So she could end up in long term care, she’s had a long term care policy for 15 years. And they keep increasing the cost. And the latest letter that she got was that they were going to increase the premium by 40%, which is unbelievable. And so what’s happening, unfortunately, in the area of long term care is more and more people are using it. And all of these insurance companies have been selling the policies to younger people, like this lady 15 years ago, when she didn’t need it. And now a lot of those people are getting into long term care, and they’re having to pay out. So I think it’s very fascinating. The best answer to that really, is to take your financial plan like we do, and put in long term care costs some projection, like I say, 6 to 15,000 a month, is probably a good range. And pick a time period, how long it would last and see what happens to your existing plan. And especially if you have a spouse or significant other, how does that impact them? Does your plan still work? Or does it wipe it out. If it wipes it out, you really got to consider some way to protect that. And that would be the long term care insurance, even if it does cost something, or a lot, it might be worth you know, protecting that that other person. But when you really look at it, then you can run the numbers where you say, Okay, now we’re going to run a plan where we put in the cost of long term care, we put in a really high increase on that cost for the rest of your life. And we reduce the, because long term care insurance policies generally have a cap: Certain number of dollars per day, total cap for the for the policy. You can get bigger amounts for more premium, obviously, but you manipulate that inside the plan, and you can tell whether or not a long term care insurance policy is going to be a really good deal for you or not. And that’s it. So are you self funded? In other words, do you have enough money, so that really the policy isn’t needed? It’s not going to be a huge damaging situation? Or do you need the life long term care insurance policy to make sure that things work out? And there’s just so many variables, you’re single versus being you know, with somebody else, what happens to your home is that your long term care insurance policy, you’re going to rent it out and fill in the gap, so, again, it’s really fascinating area to take a look at. And it really, it needs to be looked at fairly closely early, doing at the last minute, you won’t have as many choices. So getting that set up. And once you’re going into long term care, that’s probably going to be a really difficult time to get a policy obviously. But that that’s a really complex area altogether.
Katie Nealis: “What is the best way to create a balanced portfolio?”
Tom Vaughan: So Katie’s asking, one of the questions that came in is, “What is the best way to create a balanced portfolio?” Well, okay, so going back prior to last year really prior to kind of February, March of last year, I would have a different answer than I have right now. So, and this went on for decades, literally. I think the best way to create a balanced portfolio is to essentially buy the entire market. I love like the Vanguard Total Stock Market index, the Vanguard Total Bond Market index, not having to kind of guess where things are going to go and those types of things. And and then maybe you on the margins, 10%, 15%, 25% of your portfolio, you’re looking at some targeted areas where I want to call targeted index with things that you think might do well, for whatever reason, maybe they’re already doing well, and you think that will continue or what have you. So that was our normal methodology, we were always able to do I thought pretty well, with that, I was very happy with that you can do that fairly inexpensively. But then along comes the pandemic. And what happened in the pandemic is an entire section of the economy just shut down. I mean, almost completely, I mean, airlines, think airline miles dropped 96%. That was unbelievable to see that. And, and on the converse side, there’s another segment of the economy that just benefited from the virus. Zoom would be a great example, because the best thing that ever happened to Zoom was the pandemic. And so really, we had to shift and create our diversified portfolio, so to speak, in one section of the economy, it was mainly technology, innovative technology, advanced healthcare, clean energy, those types of things. That was what was running, if you were in the other areas, you weren’t making money. In a matter of fact, if you were in the broad market, you weren’t doing that well, because there was so much of the broad market that was struggling. And unfortunately, this year, I see the same exact thing happening. But just on the other side, all of those companies that were doing so poorly last year have a chance to do spectacular this year, just to survive. They’re called Epicenter stocks, right Epicenter companies. These are companies that were dramatically impacted by the virus. Just to survive, they had to cut back. And so now as this demand comes back, and I think the demand is going to be higher, you’re going to see this giant run up in those types of stocks, well, you’re going to see the other things that did really well, last year, probably really struggle. And again, that will mean that there’s a big chunk of the broad market that is doing poorly. So I do think maybe by the end of the year, we’ll be able to get back to this broad market concept with some more targeted indexes. But I think a balanced portfolio now is looking into that segment of the market that is bound to do well here and diversifying within that segment. It’s not the same as what we used to do. But that’s that’s what I’d be looking at right here. I think this is a pretty unique environment that obviously, this is our first pandemic, you know, as far as that goes, so. So what I want to thank everybody very much for coming. I apologize for the technical difficulties, we didn’t realize this was gonna happen, obviously, we’ll get it fixed before next time. But really, really enjoy doing these. Please, again, just submit questions at any point in time. You can see there’s lots of different things that are out there, make sure that we’re covering some things that you like, also. You can send those in during the week, if you so desire, that does give us some time to kind of prep for them what have you too so. I want to thank everybody very much for coming and I look forward to seeing you next Friday. Thank you.