When Steve turned on the Zoom to start the podcast, he saw Dave fast asleep. Once Dave explained that, by law, 64 year old men must take a nap at 2pm on warm summer days, they were able to touch on Trump Accounts, Reasons to be bullish on this Bull Market, and Financial Fraud. Unlike Dave, you’ll be wide awake for the entirety of episode 130 of Plan For Life Now.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and 529 Product Program Description, which can be obtained from a financial professional and should be read carefully before investing. Depending on your state of residence, there may be an in-state plan that offers tax and other benefits which may include financial aid, scholarship funds, and protection from creditors. Before investing in any state’s 529 plan, investors should consult a tax professional. If withdrawals from 529 plans are used for purposes other than qualified education, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax.
Steve:
Welcome to Plan for Life Now, episode 130. We are now definitely in the summer, Dave.
Dave:
We are in the summer. We’re just going to just tell him what just happened behind the scenes. What day is today? See, that’s a good summer question to start.
Steve:
July the 9th.
Dave:
July 9th. It’s a Thursday and I was sitting here getting ready for this podcast and you said let’s record at 2:15, not 2:00. I was ready at 2:00 and then I was asleep. You woke me up. I think we all
Steve:
Know.
Dave:
That’s what summer’s all about. It’s like, especially if you’re my age, God, I’m already saying that, but it’s fair. 64-year-old guy can take a nap at two o’clock from 20 to 2:15 and it’s okay. It’s
Steve:
Positive. As long as you’re not looking to go to dinner at 4:15, I think you’re okay.
Dave:
One of my friends yesterday was like, “We can’t make it. We’re going to be at dinner at 4:45 to hear it and this is not even a 55 plus community.” I’m like, “Come on. ” Seriously. Come on. It’s like that’s… No. All
Steve:
Right. Well, you know what? I tried to get us another host here on the podcast, but I couldn’t convince her. My daughter, Emma, she’s here for the summer working, scanning lots of files. It’s just a really exciting task. But when we moved offices, whatever it was last month, we realized we’ve got 11 or 12 filing cabinets and we keep everything digital now. But we don’t want to throw out 20 years worth of files. So Emma is hard at work scanning them in, which takes a lot longer than you would think.
Dave:
She doesn’t want to be on Plan for
Steve:
Life.
Dave:
Interesting.
Steve:
Shocker. She said, “Have you ever made Amy come on Plan for Life now?” I said, “No, never have. ” So I guess we can’t make Emma do it. That’s
Dave:
Amazing that we’ve done, this is episode 130 and we’ve never made Amy come on Plan for Life now.
Steve:
She might be sad to hear we’re going to plan on that for the future.
Dave:
We might have to make Amy come on just so she could get nervous about coming on. I would never do that to Amy. I don’t think she ever wants to be on this show.
Steve:
No, I don’t think so, but that’s all right. All right, so we got some good stuff to talk about today. We were kicking around. What do we go over? Do we get an update on the markets? I mean, things have been relatively quiet and calmer in the markets. I can’t remember last time we did a podcast was clearly before the SpaceX IPO, but that was kind of the big thing that dominated last month was, oh, what’s that going to be priced at? Is that going to pull money out of other growth stocks? What’s going to happen? And went off kind of as expected, but we’re past that now. So yeah, not a whole lot going on in the markets, but generally speaking, it’s been a pretty positive year to be an investor.
Dave:
Be incredible. And nothing seems to be stopping this bull market as of today anyway. No. We have the straight of Hormeus being closed in the Iran War. And when it first happened, a little stumble went down. But now it’s happening as of the recording of this, I think. Nobody knows. It’s on, it’s off. The straight hormeus is closed, it’s open, oil up, down, whatever. Don’t interrupt my bull market.
Steve:
Yeah. And I mean, like we’ve talked about for quite a while now, mostly the narrative is around AI. And you know what, Dave? I had this as a list of something that I wanted to get to later in the show, but I’m going to call an audible right here and talk right now about this article I saw 10 Reasons to be bullish about the stock market. And we’ve talked about this before about how as an analyst, as a pundit, as a talking head, it sounds much smarter to be bearish. And this is not just my opinion, me thinking that. There’s been a lot of evidence and research around this that somebody who goes out there and says, “Yeah, I think things are going to work out. I think it’s going to be good. It’ll be positive.” People view them as more naive. They view them as less well-informed, not sensitive to the risks, all those sorts of things.
So there is definitely a bias in the media towards sounding bearish because you sound smarter. So it does make me kind of perk up and pay attention when somebody goes out there and says, “You know what? Here are 10 reasons to be bullish.”
Dave:
But here’s one reason not to be bullish. We’ve been bearish and now there’s stuff in the media just like the 60 / 40 portfolio’s dead.
Steve:
Yeah.
Dave:
Then it was alive. There were 10 reasons to be bullish? Uh-oh. But anyway,
Steve:
I’m kidding.
Dave:
I don’t know.
Steve:
You could look at it like that. I mean, there are certainly people have what they call the magazine cover indicator and it works in both directions. They have the magazine cover that’ll say the death of equities. Are equities dead? And then from there, the stock market just rips. And then on the other – There’s
Dave:
The Sports Illustrated Jinx. Again,
Steve:
News for you. The Madden
Dave:
Curse. This was the Redskins. Now they’re the Commanders. But way, way back in 19, when they won their first Super Bowl, they were on the cover of Sports Illustrated after three or four games as the hottest team in the NFL. No Jinx, they won the Super Bowl,
Steve:
Their
Dave:
First Super Bowl that year.
Steve:
All right. Well, so maybe we’ll look back and we’ll say, “Hey, remember that list we did about 10 reasons to be bullish? That was dumb.” All
Dave:
Right,
Steve:
Let’s hear. I thought these were pretty good. These are from the guys over at Exhibit A. They put together charts and whatnot. So I’m going to rip through these pretty quickly because some of them are a little technical. But basically number one, forward earnings are growing faster than stock prices this year. So it’s pretty hard to say, oh, stock markets, you could say it’s overpriced, but to say it’s in bubble way overpriced when earnings are growing faster than stocks, it’s kind of hard. Which
Dave:
We’ve talked about to clients at least a lot. I don’t remember if we’ve talked about on this show about how it’s not the same as the tech bubble when you looked at earnings versus stock price.
Steve:
Quite a bit. Yep. Number two and three is the fact that the stock market is broadening out quite a bit. And what we mean by that is the story through 23 and 24 was pretty much you had to own those magnificent seven stocks, the big technology ones, or you were left behind. The other 493, as some people call them, the rest of the S&P 500 really lagged behind. Well, a lot of data showing that’s broadening out small caps, mid-caps. And in fact, the S&P 493, which is not really a thing but kind of a thing, is actually beating the Magnificent seven by 15% this year.
Dave:
Wow.
Steve:
I did not
Dave:
Know that.
Steve:
Yeah. So that’s great news. Kind of ties along with what I said. Earnings are hitting all time highs both for small, mid and large cap. So that’s good. The AI spending. Now I’ll throw in the caution here. This could change on a dime, but the AI spending is real. The dollars that all those big technology companies are spending to build out a lot of those data centers. We got a lot of clients in Virginia, Northern Virginia. You guys are very, very familiar with all those data centers. Well, it’s a lot of spending to put one of those up, to put all the servers, computers, all that inside. And that certainly benefits the economy in general. Price to earnings ratios look pretty decent. No going to go too far into that. Profit margins are holding up. They look good. Five and 10 year inflation numbers. The predictions actually look fine despite some of the oil scare.
A lot of people worried that straight of whore moves is closed. Oil prices go up, inflation will go way up. No, 10-year predictions for inflation are still around two and a quarter percent, which is right in that sweet spot that the Fed really wants.
Dave:
That’s great.
Steve:
Earnings growth sector by sector, it all looks good. I mean, technology of course kind of leading the way, but energy, materials, communication, services, discretionary, they all are double digits. Yeah. And we already talked about concentration there. That’s the last one.
Dave:
All right. Well, those are all good reasons. This seems like the world’s biggest jinx podcast, but whatever.
Steve:
Yeah. And I mean, like we said, it’s not to say that people are not aware of all the risks out there because could this AI spending turn on a dime? Absolutely. Facebook, Amazon, Microsoft, they could all decide, you know what? All this money we’re spending turns out we were wrong. We’re not going to spend it anymore. And man, that could change the narrative very quickly and change earnings across the board very quickly. So not to say it’s without risks, never is, but there are a lot of positive signs. All right, so let’s shift from reasons to be bullish to something that I’ve started to get questions about. And Dave, I certainly had to go out and educate myself about Trump accounts. And if you want to be technical, let me see if I can find, what’s the actual section in the tax code? Gosh, I thought I had it in front of me.
530A accounts.
Dave:
Okay.
Steve:
Doesn’t really roll off the tongue, but maybe it will eventually. So these are the Trump accounts. They’ve been talked about for quite a while. They just went into effect, became something you could actually open up July the 1st. So how does it work? What are the basics of it? Any child under 18 with a social security number, you can open up an account. Here’s the real benefit is if you have a child that was born between 2025 and 2028, they get $1,000 of government seed money. So basically free money from the government going into their account there. If you
Dave:
Don’t –
Steve:
Is there a
Dave:
Limit on earnings of that? It’s just like anybody, any kid.
Steve:
Nope, not earnings adjusted or anything like that. So you got a kid in there, you can get that government seed money. Now, if you don’t have a kid who’s born in there, all my kids are much too old to fit in there. So what could I do? Well, you can do family contributions up to 5,000 a year. And if you’ve got a really great employer, the employer could do 2,500 of that 5,000. So employers are allowed to do that. Now the investments, they kept it real simple, which I think is fantastic. You always worry they might open this up and there could be people taking advantage and really crappy options, things like that. They’re just low cost index funds. That’s it.
Dave:
That’s good.
Steve:
You can’t speculate. You can’t be buying crazy crypto or meme coins or stuff like that. Is
Dave:
It similar to the TSP kind of thing?
Steve:
Exactly. Yep. All right. Very similar to that. Okay. So what does this actually get you? What this is treated like, if you’re familiar with it, is like an after tax traditional IRA contribution. So what I mean by that is if you contribute, you don’t get a deduction. So I decide I want to put in $3,000, put that in. I don’t get a deduction. But when my daughter takes the money out, that 3,000 comes out tax-free, but the gains are going to be tax as ordinary income.
Dave:
Okay. All
Steve:
Right.
Dave:
Kind of sounds like the way annuities work a little bit.
Steve:
Yeah. Okay. Kind of like that as well. Yep. Now here’s the downside of it is as soon as the kid turns 18, they control the account. So you contribute money for your child, they turn 18. It is now their account. No more contributions are allowed to it. They can roll it over to a traditional IRA and have it taxed that way, but you don’t control that account anymore. And this is probably my biggest problem with it is not every 18-year-old that I know is super duper responsible and does all the right things with their money. Some of them do. Some of them do not. So I see that as a risk where you could put this money in and all of a sudden your daughter has a boyfriend who decides he needs new rims on his car and she’s taking withdrawals out of the account, right?
Dave:
Right. Yeah. I’m going to counter that to be honest with you.
Steve:
Okay.
Dave:
Not everybody is doing this mainly because not everybody knows about it and very few people percentage-wise are even close to financially savvy enough to do it. Just that’s the way it is. Those who do do it are really financially savvy. They’re like, somebody told them or they read themselves, you do this. So when you have young people and there’s grandparent or parent and they know about this stuff and they’re starting with that, it’s probably going to be more likely that the kid is going to know about it younger. You learn a little education in finance and in investing, which we are sorely lacking in this country. And at the end of the day, you know what? I think percentage-wise versus the vast population, these kids will be responsible with that money learning a little bit about growing their money almost like a game or something like that.
So I’m going to go with a counter argument on that one.
Steve:
That’s a good counter argument. I like it. Because you’re right, maybe the value of getting people involved in investing in the stock market younger and earlier is worth that risk that you might have
Dave:
Done. We’re not talking about a vast fortune here.
Steve:
No, you’re not.
Dave:
You’re not. So you’re talking about in fact, to pay for college in the future or other expenses, you’re going to need way more than this. And that’s why I look at it. Now if they were the government for some reason giving a huge chunk of money, then I would say that’s pushing it on a bunch of different levels.
Steve:
Wow. So you mentioned college because where I’ve gotten questions on this is from grandparents. Most of the people we work with are more of the grandparent age than the young kid age. So I’ve gotten these questions about, “Hey, I’m thinking about opening one of these Trump accounts for my grandchild or grandchildren. How would that work? How could they use the money if they were to use it for college?” And this is where I think a 529 plan is actually a better vehicle in most cases. So when you make contributions, either a Trump account or 529, it’s both going in after tax. You’re not getting any federal tax deduction. Now on the state side of things, if you’re using your state’s 529 plan, you can get a state tax benefit. So that’s a slight advantage there, 529. When the money comes out, you can take money out of the Trump account for college and not have to pay any sort of penalty, but you are going to pay taxes at the ordinary income tax rate.
Now, some people might say it’s going to be the kid’s tax rate. And as an 18-year-old, they’re not going to have much in the way of income. And that’s true, but if they’re withdrawing 20 or $30,000, they could. All of a sudden there it could be taxable versus 529 totally tax-free. Now the control thing, you just sort of countered that a little bit, but the 529 plan stays in control of the grandparent. It doesn’t matter how old the kid is. The 529 plan is controlled for that. So the biggest drawback you would think would be what if the kid doesn’t use the money for college? What if they just want to use it for retirement, something like that? Well, the 529 plan added this feature. I shouldn’t say the plan did. Congress added this feature. And I would say 99 out of a hundred people don’t know about this.
You can roll over up to $35,000 out of a 529 plan into a Roth IRA. This is new. This is within the last two years.
Dave:
Really?
Steve:
Honestly, I’ve only done it for clients one time. So this is not something that is… I mean, for the most part, people use up their 529 plans because college is so darn expensive. But that extra little loophole, it makes it hard for me to see a scenario where I’d recommend a Trump account, especially if you’re not getting that $1,000 free money from the government.
Dave:
Okay. All
Steve:
Right.
Dave:
It’s interesting. I don’t know if I agree with you. I think we disagree on this one. I take it I don’t understand the downsides really. I feel like you’re going to have educated and you’re going to have a lot of people going to college. They’re also going to have 529 plans and
Steve:
Then
Dave:
The kid may have in fact earned some spending money to go to college. Hey, look at what you got there. I don’t know that you could use that to
Steve:
Buy stuff. If it makes it so that the kid’s more engaged and learning about investing in the market, things like that, then yeah, I could see that being a big benefit.
Dave:
Yeah. I don’t know. I guess I’m just taking, this is definitely taking the affluent road, my argument. I’m assuming a lot of affluence there, but we’ll see. You don’t forego 529 plans for college planning. That much is for sure. All
Steve:
Right. So let’s transition to the last thing that we wanted to talk about, which was fraud. Really fun topic. We’ve touched on this before with different examples. I talked a couple of years ago about a wholesaler in our industry that was a victim of what you call a, a terrible term for it. They call it a pig butchering scam, which is where you get in this investment group, you think it’s a group, and all these people are talking up how great an investment is. And of course, all the other people are co-collaborators and it’s all a big fraud. But we had two cases recently of clients people trying to scam them.
Dave:
Yeah. And certainly not mentioning any names, not even close to do that. So I think AI, just for regular people, forget all the naysay and the scary stuff. Let’s face it, anyone who’s used ChatGPT, I have. I like it. I’m personally, I asked what’s the role of my left shoulder in the golf swing? And it breaks everything down. And now I was able to, I get it. It’s helping me with my turn. It was pretty simple. It was good instruction. The whole internet knows what I’m interested in anyway. And the other day I broke 80 for the first time in my life and that tip, that was by a roundabout way to brag about my first 79 ever, by the way, to work that all into this. But anyway –
Steve:
I don’t blame you at all.
Dave:
Anyways, and I think it’s just another tool for us in work. And I think it’s just in life it could be, there’s a lot of positives. But there is a huge negative I think with AI, and this is one of them. The ability to scam people, more vulnerable, older people, more vulnerable, older, single people, divorced, widowed, whatever reason you’re on your own. So
Steve:
Now
Dave:
You’re only person making your decision. You have to pay attention to everything. And I think it’s probably going to get even more sophisticated to fool anybody, let alone people who are more vulnerable. So one of our cases, and I don’t want to get into the details because I just don’t. Of the cases sounds to me like it was probably a very sophisticated fraud. Yeah.
Steve:
Well, and
Dave:
Here’s one of the – More typical fraud, basically things where you get an email and they try to get you to give your social security number and stuff like that, one of our calls, and we dealt with that and explained it to them. But one sounded way more sophisticated.
Steve:
Yeah. And I’ve heard these stories before and it’s hard to understand the way that it’s done, but they create this sense of both a sense of urgency, but also a sense of you can’t share this stuff. My mom got on the phone with somebody, claimed to be a DEA agent, and he was absolutely insistent that she could not contact me because that was her first instinct was, “Oh, well, let me call my son. He deals with all my finances. And this person’s very convincing.” He’s like, “No, if you do that, he’ll be a co-conspirator. You can’t bring him in on this. You don’t want to ruin his life and blah, blah.” I say this because I consider my mom to be an intelligent person who knows these types of things. She watches the news, she’s aware of scams. And so these people, they’re really good at creating this.
They’re
Dave:
Really good. Yep. And they have enough AI information on you, plenty, to be able to do what they’re going to do. Soon they’ll probably be able to record voices even in a better sense to be even used voices. It’s going to get harder and harder. What do we have? The role of the financial advisor. I feel like going forward especially now and always been, but going forward, it’s not just, “Hey, we manage your money. Hey, we talk about the tax implications of your investments and all that. We could sit here and list a whole bunch of 25, 30 things that a financial advisor brings to the table. The other thing they bring to the table is a wall of defense, or at least we
Steve:
Should,
Dave:
Because you know your clients. This is why, whether it’s with us or someone else, it’s so important to get an advisor who you trust and then you have a relationship with because we can see patterns that are abnormal and then work on it. Because what’s going to happen? People are asking for large chunks of money and if someone has a financial advisor, they’re going to the financial, the financial advisor sees it, and then you deal with it.
Steve:
Well, that’s exactly what happened in this case. Once again, without going into too much detail is I said to this person, I said, okay, of course it’s your money. At the end of the day, you could do whatever you want, but this is out of character. Asking for a large withdrawal to be done immediately, to be wired to a third party account. These are the things that you made the comment at the time as we were going through this. I mean, that was directly out of one of these training videos, these continuing education things that we do where they have these videos and they say, “Bob calls up and wants you to wire money to the Cayman Islands. What do you do? Option one, go ahead and wire it. I’m sure it’s fine. Option B, ask more questions.” So I mean, yes, I think that is definitely…
And you do mention that it tends to be single people. And I think that’s just you don’t have that other person as a sounding board to say, “Hold on a sec. Does this sound all right to you? What do you think? ” And I think that’s the role that we need to play and we should play is being that sounding.
Dave:
Absolutely. I just look at things always from a long-term perspective, whether it’s investing or whether it’s say a relationship. I’m And these relationships, the role of a financial advisor is not just to try to make your client more money or even make more money, make sure you have enough retirement income and do all the numbers stuff. It’s a relationship. It’s important to have an open communication. It’s important to get to know who you’re working with. It’s important to have the same advisor or advisor couple whatever, whether it’s us or someone else for a long period of time, because that is a better defense against a lot of things that can happen that are bad. And this is one of the ones that is really bad and I think it’s going to be way more prevalent in the future. So I don’t know what to tell you.
I get a little pissy when people say, “I don’t need a financial advisor,” and I get it. There’s a lot of people who are sophisticated. There’s a lot of couples where one member of the couple, they know a lot about investing and stuff like that. The other member of the couple doesn’t know anything, isn’t that interested. And we’ve had some of those come to us as clients, but some of those have said things that have been super, in my opinion, or as Coach Gibson would say, super smart. And that was, “You know what? I do understand this stuff, but he doesn’t or she doesn’t. And if something happens to me, I need some people I can trust and who understand it, not just Trump, but can do this stuff.” And if that is your reason for finding a financial advisor, that is a damn good reason.
Steve:
Absolutely.
Dave:
That is a damn good reason. Yeah,
Steve:
Because you don’t want your surviving spouse, say you’re the knowledgeable one, you’re all into it, you pass away, now your surviving spouse, they’ve got to deal with everything. And now they’ve got to find an advisor and they don’t really like this stuff to start with. So are they going to find somebody good or not? So yeah, certainly on several occasions, many occasions, we’ve had people who that’s the primary reason why they hire an advisor.
Dave:
I can’t believe how intense I just was for a guy who just woke up from a nap.
Steve:
I knew you could fire right up, Dave.
Dave:
Maybe it was the nap itself.
Steve:
Yeah, maybe that energized you. All right, thank you all for joining us. Hope everybody is staying cool out there. Certainly a lot cooler this week than it was last week here in the DC area. And we will check in again with you real soon.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and 529 Product Program Description, which can be obtained from a financial professional and should be read carefully before investing. Depending on your state of residence, there may be an in-state plan that offers tax and other benefits which may include financial aid, scholarship funds, and protection from creditors. Before investing in any state’s 529 plan, investors should consult a tax professional. If withdrawals from 529 plans are used for purposes other than qualified education, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax.