The “Brooding” Truth about Financial Planners
by SGL Financial
Our 2 Cents – Episode #176
The “Brooding” Truth about Financial Planners
Welcome to another great episode of Our 2 Cents with Steve and Gabriel Lewit! They are excited to share the cicada craze this year, how to not make any big financial decisions based on predictions, and their financial take on money management with some listener questions. Listen in now using a link below!
- Cicada Emergence 2024:
- Learn about the rare occurrence of two broods of cicadas appearing together at the same time this year and how they make their “lovely” screeching noises.
- Morgan Stanley’s Poor Predictions:
- A Morgan Stanley exec went back on his own word for the S&P 500 target, as he realized the market did not take a turn for the worse.
- Discover why it’s in your best interest to not make a financial decision based a prediction.
- Write-In Article Question & Listener Questions:
- Write-In: “Do I continue with my current financial adviser or is it time to DIY?”
- “I’m recently divorced and have just received money in a QDRO as part of our settlement. What are my options for what I can do with this money?” – Rebecca
- “Should I continue with my 401k rollover or hold off since it’s performing well?” – Eric
- “I’ll be receiving a settlement from a lawsuit and have some credit card debt and car loans that could be paid off entirely with the settlement, or I could invest the money instead. Do you have a recommendation?” – Alina
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Podcast Transcript
Announcer: You are listening to Our 2 Cents with the team from SGL Financial, building wealth for life. Steve Lewit is the President of SGL Financial and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies, and more.
Gabriel Lewit: Welcome to Our 2 Cents. We’re back for another show, a great show if I may, that we’ve got lined up for you today. I’m here with Mr. Steve Lewit.
Steve Lewit: Who Gabriel told me I’m too chipper today.
Gabriel Lewit: He comes in here like humming and whistling a song, and then he’s-
Steve Lewit: It’s a magnificently beautiful day.
Gabriel Lewit: Goofing around.
Steve Lewit: Goofing around.
Gabriel Lewit: Have you ever been around someone that’s just way too chipper for you? In your current mood.
Steve Lewit: That’s so English.
Gabriel Lewit: Chipper.
Steve Lewit: Chipper. Chipper, you’re too chipper this morning.
Gabriel Lewit: Yes. Top of the morning.
Steve Lewit: Top of the morning to everybody out there.
Gabriel Lewit: Yes, you as well. Well, actually we do hope you’re having a chipper day.
Steve Lewit: Yes.
Gabriel Lewit: And I will chipper up my mood to match yours.
Steve Lewit: Chipper away there, son.
Gabriel Lewit: Yes, here for the show. So to kick things off here today, I know you’re excited for this, Mr. Lewit, we’re going to talk about cicadas.
Steve Lewit: I love bugs. No, I don’t.
Gabriel Lewit: Now. This has absolutely nothing to do with finance. We just thought it was interesting.
Steve Lewit: Yeah, it is kind of interesting where these things go to and where they come from and why.
Gabriel Lewit: Yeah. So let me set the stage here for you. If you have not heard about this yet.
Steve Lewit: Or stepped on one.
Gabriel Lewit: Or stepped on one or seen one or heard one. There is kind of a unique year this year where there are going to be more cicadas, a lot more cicadas than usual. And we’re going to tell you a little bit about them today. So you can wow all your friends with your cicada knowledge.
Steve Lewit: At your next party, you will be the show.
Gabriel Lewit: Yeah. So, exactly. Okay. So now here’s the headline here, I didn’t come up with all this, we found a handy article, of course. But if you’re one of the 17 states across the Midwest and Southeast, it could be the trillions of periodical cicadas making their way up after years spent underground.
Steve Lewit: Yes.
Gabriel Lewit: So just think about this. You’re walking around your yard, ignorant to the fact that there are trillions of cicadas buried deep beneath your feet, just ready to emerge at a moment’s notice.
Steve Lewit: Yeah, it’s like what are they doing there? Are they sleeping? I mean, what is their meaning in life?
Gabriel Lewit: Yes, I mentioned 17 states. They’re called broods. Broods.
Steve Lewit: They’re different kinds of them.
Gabriel Lewit: Okay. Yeah, so you’ve got the thirteen-year brood XIX, which is located mainly in the Southeast, but also the Midwest. And the seventeen-year brood XIII or 13, in the Midwest specifically. And the two broods have not emerged at the same time since 1803, which makes 2024 a rare double brood year.
Steve Lewit: I’m going to brood over that while I’m chipper.
Gabriel Lewit: And this is in addition to other cicadas that I think randomly pop up or I don’t know, I feel like there’s always cicadas.
Steve Lewit: Yeah. Have you seen one?
Gabriel Lewit: Yeah. So they’re all around my house.
Steve Lewit: Really?
Gabriel Lewit: Yep. My kids are like, what are those? And then they go running towards them to poke at them with sticks and stuff. You can hear them.
Steve Lewit: You can hear them? I have yet to see one.
Gabriel Lewit: Have you heard them?
Steve Lewit: You can hear them, they are loud.
Gabriel Lewit: Well, go up to a tree and look at the bark and you might see them on there. I have a bunch on my driveway. I probably rolled my tires over one inadvertently, not on purpose, I would never do such a thing. You’ll also see lots of cicada casings like shells, where they emerge out of, and then just leave their little shell carcass behind.
Steve Lewit: And then where do they go? Do they crawl back underground?
Gabriel Lewit: No, they-
Steve Lewit: They just die?
Gabriel Lewit: Well, let’s read the … you’re asking me these questions like I know.
Steve Lewit: Well, you brought the subject up.
Gabriel Lewit: Well, just because it’s an interesting year.
Steve Lewit: Do your homework.
Gabriel Lewit: All right, so they’ve been spotted, just so you’re aware, in Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee and Virginia. All right, so we’ve got them all over the place. In case you were wondering, because I know many of you were, there’s an app called Cicada Safari where you can track all of these things. Just download right on your phone.
Steve Lewit: I was wondering about that too. Let me get my phone out.
Gabriel Lewit: All right. So to your question, because they were on page two, how long will the cicadas be above ground? How long they live depends on their brood and if they are an annual or a periodical species. Okay. So the two that you are seeing that we just mentioned this summer, are a periodical species that come out thirteen-year lifecycle and seventeen-year lifecycle.
Steve Lewit: I remember them from years ago. Like fond memories.
Gabriel Lewit: Yeah. You remember the-
Steve Lewit: I remember-
Gabriel Lewit: From 17 years ago?
Steve Lewit: Yes, I do. They were all over.
Gabriel Lewit: Once they have emerged, they will die after spending only a few weeks above ground. Anywhere from three to six weeks after first emerging.
Steve Lewit: What a life.
Gabriel Lewit: Okay. Yes. Yeah. And then there are annual cicadas that come out every year. So yeah, that’s what I was saying earlier, you’ve got your annuals and you’ve got your periodicals, and you just got boatloads of cicadas.
Steve Lewit: Are they a determinant if the market will go up or down?
Gabriel Lewit: Well, if the cicada sees its shadow, there will be a bull market ahead.
Steve Lewit: Okay. So we have to go out and look.
Gabriel Lewit: Now we talked about what’s a brood? A brood is just a classification of cicadas on the same life cycle type that emerge in a given year.
Steve Lewit: They are ugly things.
Gabriel Lewit: They are very ugly.
Steve Lewit: They’re really ugly.
Gabriel Lewit: And then last but not least, everyone’s biggest question, why do cicadas make so much noise? Do you know the answer to this pop quiz, Mr. Steve?
Steve Lewit: They rub their legs together, isn’t it?
Gabriel Lewit: No.
Steve Lewit: That’s how they make the noise. Not why they make the noise.
Gabriel Lewit: Yeah. This does not say how, necessarily. It says you’ll have to thank the male cicadas for all the screeching because male cicadas synchronize their calls and produce congregational songs. Which establish territory and attract females. And there’s a courting call that they can make as well.
Steve Lewit: I wonder where that appears on my song list.
Gabriel Lewit: And most importantly, it says the periodical 13- and 17-year brood are the loudest. Partially because of the sheer number of them that emerge all at once.
Steve Lewit: Katie, could you … as Assistant Katie, Director. Could you look up how they make this noise? I got the team working on it.
Gabriel Lewit: There’s a special organ called a tymbal. Tymbals are hollow drum-like structures made of a rubbery substance called resilin that are located on either side of the cicada’s thorax. And the tymbal contains a series of ribs that buckle one another, buckle one after the other when the cicada flexes its muscles producing a clicking sound with each buckle.
Steve Lewit: Wow.
Gabriel Lewit: Don’t you wonder why evolutionarily, that’s how … we have vocal cords, why didn’t the cicadas just get vocal cords and yell at each other?
Steve Lewit: They could be talking to us. Tell us their story. It was really dark down there for 17 years.
Gabriel Lewit: My goodness. Anywho, we just thought we’d have a little fun, share that with you. Now you’re in the know. You can go share with all your friends, your coworkers.
Steve Lewit: Go and impress.
Gabriel Lewit: Your family members, your kids, your grandkids.
Steve Lewit: Yeah, especially.
Gabriel Lewit: And enjoy this rare opportunity this year.
Steve Lewit: Yes. Thank you Gabriel for bringing this to the table. I want you to … I feel better.
Gabriel Lewit: Do you think there’s a person, like you know how there’s people that study plants, botanists-
Steve Lewit: There is somebody-
Gabriel Lewit: Somebody’s job is just to study cicadas.
Steve Lewit: There is somebody out there that is thrilled that this is happening and there’s a double brood. I mean, somebody has … their life revolves around this. I guarantee it.
Gabriel Lewit: Yeah. I guess it’s just a … there’s a biologist. Yeah. I guess, I don’t know. Biologists. There’s a lady professor in the College of Arts and Sciences.
Steve Lewit: There’s somebody walking around gathering these things and analyzing them for no purpose because this … I don’t know what purpose they serve. People say everything in the universe has a purpose. So I’m trying to figure out-
Gabriel Lewit: Well, I bet you they provide food.
Steve Lewit: Did they eat something? Maybe they become food for something.
Gabriel Lewit: They become food for … I don’t know, birds? Producer Katie said birds very confidently. So we’ll accept that answer.
Steve Lewit: Must be birds then.
Gabriel Lewit: Oh, that would be … I was randomly watching the other day The Weakest Link. Have you ever seen this show?
Steve Lewit: That’s a really-
Gabriel Lewit: It was like an old rerun or something.
Steve Lewit: It’s a pretty good show, actually.
Gabriel Lewit: But that would’ve been a good question for the show. And Katie, I would not have voted her the weakest link based on the confidence of that answer.
Steve Lewit: I know who you would vote the weakest link in this conversation.
Gabriel Lewit: You?
Steve Lewit: Absolutely.
Gabriel Lewit: Yeah, probably.
Steve Lewit: Absolutely.
Gabriel Lewit: Probably. Okay.
Steve Lewit: All right, let’s get to money.
Gabriel Lewit: Let’s move on.
Steve Lewit: So, let’s talk money.
Gabriel Lewit: I got a little money snippet for you. I periodically like to pick on people that make stock market predictions.
Steve Lewit: Oh, I know you-
Gabriel Lewit: You know this.
Steve Lewit: Well, we do a whole report on that.
Gabriel Lewit: We do every year. And I reference from time to time why we don’t always believe that markets are timeable, right? You can’t predict the future. And I should be more strong about that. We don’t.
Steve Lewit: We never. No, we never believe. Not most always.
Gabriel Lewit: Yes, okay.
Steve Lewit: I was going to correct you.
Gabriel Lewit: Well, I would say there’s a little asterisk, right? If you’re in a high interest rate environment, you’re confident the interest rates are going to go lower. There’s the tiniest, tiniest little bit of things here and there that you can generally forecast more accurately than others. But by and large, market timing is a waste of time.
Steve Lewit: Give a hand, take an arm. Don’t go there.
Gabriel Lewit: It’s a waste of time. And here’s a great example of this.
Steve Lewit: Our favorite people at MS.
Gabriel Lewit: Well, it could be any bank, but this one’s Morgan Stanley-
Steve Lewit: Always.
Gabriel Lewit: This is an article. So here’s the title, and the title I think says it all. It says, “One of Wall Street’s Last Remaining Bears, Morgan Stanley has Finally Capitulated.” Here’s its new S&P 500 target.
Steve Lewit: It’s incredible the difference though.
Gabriel Lewit: Hold on a second. What does that title itself just tell you when you hear that?
Steve Lewit: It says, we were wrong and now we’re going to give you a different projection because we screwed up.
Gabriel Lewit: So yes, it’s implying that somewhere last year, late last year, early this year, somebody from Morgan Stanley-
Steve Lewit: Not somebody, it was the top echelon people.
Gabriel Lewit: Yes, I was going to get there. But made a prediction about this year that was very bearish. And let’s just say that you had taken their advice because it’s a top guy at Morgan Stanley.
Steve Lewit: Let’s go to cash.
Gabriel Lewit: Well, now six months throughout the year, they’ve capitulated. Oh, sorry, we were wrong. I hope you didn’t make any decisions based on that data we gave you.
Steve Lewit: Do I get a refund on my newsletter that told me to sell?
Gabriel Lewit: Yes. So it’s just kind of funny. Okay, so yes, a guy there named Mike Wilson says he sees the S&P 500 at 5,400 now by the second quarter of 2025. But his prior 12 forecast for the year projected-
Steve Lewit: Drum roll, drum roll.
Gabriel Lewit: The one that he has since capitulated on.
Steve Lewit: The one that he recapitulated.
Gabriel Lewit: Had the S&P 500 being down to 4,500-
Steve Lewit: 4,500.
Gabriel Lewit: By the fourth quarter of this year.
Steve Lewit: Only a thousand-point difference. And he gets paid for that. By the way, he gets paid a lot of money for that.
Gabriel Lewit: But this is what-
Steve Lewit: No, no, no. There’s no but.
Gabriel Lewit: No, this is my but though. But this is what makes this so silly.
Steve Lewit: It’s ridiculous.
Gabriel Lewit: All these Morgan Stanley … some of our clients do too at the end of the year, hey, what’s your projection for next year? But so does Morgan Stanley clients, right? Hey guys, Morgan Stanley, you’re in investing my money. What’s your projection for this year? Oh, Mike Wilson says it’s going to be a bear market. It’s going to be down 4,500. Now what’s the point of asking for that information? I mean, most people that ask that care about it because they’re trying to do something-
Steve Lewit: Well, they’re trying to time the market.
Gabriel Lewit: With their money based on that data.
Steve Lewit: Yep.
Gabriel Lewit: So, let’s say you did do something. If you thought the S&P was really going to be down to 4,500, what would you have done at the start of this year?
Steve Lewit: I’m going to cash.
Gabriel Lewit: Maybe you go to cash.
Steve Lewit: Go to cash and wait for the upturn, which is hard to tell when that is. But that’s-
Gabriel Lewit: Well, it’s already upturned.
Steve Lewit: Well, it did. It never went down or?
Gabriel Lewit: Which is why it’s now been revised. We just revised the forecast to 5,400.
Steve Lewit: Do you remember, Gabriel? Do you remember when Trump was first elected? We had a client that had $400,000, went to cash when Trump was elected because everybody thought the market would collapse. Do you remember?
Gabriel Lewit: Yes, I do.
Steve Lewit: He had $400,000 in cash. And do you know, four years later he was still waiting for the market to go down.
Gabriel Lewit: Which it hadn’t because it had gone up.
Steve Lewit: It went straight up.
Gabriel Lewit: Yes, yes.
Steve Lewit: And that’s what happens.
Gabriel Lewit: Well, and here’s what’s also funny about this article, is there’s all this data. The rest of this article is all the data for why he’s re-changing his prediction. But don’t you think he had all sorts of similar data that validated his prior position when he made it?
Steve Lewit: Sure.
Gabriel Lewit: Right. So I don’t know. Am I crazy for thinking this is crazy?
Steve Lewit: No, you’re not. But people actually listen to this. People bet on it and people quote it because these are supposedly people that know what’s going on. And anyone that tells me they know what the stock market is going to do or can predict the stock market, I just credit it has no meaning to me. Literally.
Gabriel Lewit: Yeah. Well, I think that’s where it comes to. And this reminds me of, there’s guys out there, people call them permabears.
Steve Lewit: What’s a permabear?
Gabriel Lewit: A permabear.
Steve Lewit: Sounds like something you wear.
Gabriel Lewit: It’s a stuffed animal you get at the store.
Steve Lewit: Oh, a permabear. What is a permabear?
Gabriel Lewit: A permabear is someone that every year is claiming that this is the year the market’s going to crash.
Steve Lewit: Oh, a permabear. Yeah.
Gabriel Lewit: Right. And eventually, let’s say the market crashes once every 12 years. He’s finally right.
Steve Lewit: The stop clock is right sooner or later, twice a day.
Gabriel Lewit: And then that person proudly raises their fist up in the air and proclaims, I knew it. I told you I was going to be right this year about the bear market. You guys finally listened to me.
Steve Lewit: Yeah, Harry Dent, he’s one of those guys.
Gabriel Lewit: Well, there’s some permabulls too, but they’re statistically more right, because markets go up statistically seven out of 10 years. So being a permabear is basically a losing proposition from a guesstimate perspective.
There’s this other guy I disliked too, only because he’s very fear-mongery. This guy, he always pops up, Robert Kiyosaki, always claiming that the world’s coming to an end and the market’s going to see the biggest crash since the history of market crashes began. And lo and behold, he wants you to buy his gold fund or something like that.
Steve Lewit: Imagine that. He’s trying to sell you something.
Gabriel Lewit: Imagine that. Yeah.
So folks, I don’t know. Why did I bring this up? Well, I saw the article, it piqued my interest. I thought it’d be interesting to share with you. But it just goes back, our goal of this show is to give you good guidance, sound guidance. One of those items being try to avoid listening to market forecasts, remember that markets are impossible to time. If this example doesn’t give you a clear-cut example of that, I’m not sure what else will. Other than we often will make fun of dozens of people that all do the same thing, not just Morgan Stanley. We’re not picking on just Morgan Stanley.
Steve Lewit: We do an analysis … we get an analysis of 500 different predictions of the market. And none of them-
Gabriel Lewit: Well, one of them or two of them end up being right by statistic-
Steve Lewit: Right, but they don’t agree with each other.
Gabriel Lewit: Yes, correct.
Steve Lewit: It’s true.
Gabriel Lewit: None of them are on the same page. And, they all have world class research.
Steve Lewit: But here’s the problem, Gabriel, is that we all really behind our … in the back of our minds, we’re saying, “Gee, I wonder if the market’s going to keep going up? Or when is it going to decline?” It’s just back there because we’re afraid of losing what we have. That’s the fear. And people are always going to ask that question. And they’re always going to listen to somebody that says they know.
Gabriel Lewit: Well, if somebody says something confidently, like Producer Katie just said … I forget. What were we talking about? Birds, yeah. Birds eat cicadas. She said it so confidently, I believe her.
Steve Lewit: Yeah, me too.
Gabriel Lewit: I have no clue if it’s right or not, but-
Steve Lewit: It’s not right.
Gabriel Lewit: She sounded like she knows what she’s talking about.
Steve Lewit: Who knows? It doesn’t matter. She said it and she said it with confidence.
Gabriel Lewit: Market’s going up this year. You said it.
Steve Lewit: You said it.
Gabriel Lewit: Boom.
Steve Lewit: Boom.
Gabriel Lewit: All right.
Steve Lewit: I wish it were that simple.
Gabriel Lewit: I know, right?
Steve Lewit: Yeah, it’ll be great.
Gabriel Lewit: Will it into existence.
Steve Lewit: Yep.
Gabriel Lewit: Okay, let’s switch gears.
Steve Lewit: Okay.
Gabriel Lewit: So, this was another interesting one. I subscribed to lots of things to get ideas for the show, and sometimes I get these ones that are these … you ever heard those articles where you write in and somebody gives you responses? Usually they’re like … there’s a couple famous ones like Dear Betty or something like that.
Steve Lewit: Oh yeah, Dear Abby.
Gabriel Lewit: Dear Abby.
Steve Lewit: Dear Abby, yes.
Gabriel Lewit: Stuff like that. But financial versions of that where people write in their questions and somebody writes back.
Steve Lewit: Yeah, I have a husband who’s leaving me, blah, blah, blah.
Gabriel Lewit: Yeah. I actually always am interested in these stories and the responses. And this one caught my eye. And it was somebody saying, I’ve got a simple portfolio, I’ve got a pension worth 800,000, which was a nice pension.
Steve Lewit: Nice pension.
Gabriel Lewit: As well as 470K in investments.
Steve Lewit: Nice.
Gabriel Lewit: My advisor charges me 1% a year for her to manage my money. Is it time to ditch them and manage it myself? Was the question.
Steve Lewit: How do you possibly answer a question like that? What was the response? Well, maybe.
Gabriel Lewit: Well, the response was, it depends.
Steve Lewit: It depends. How do you answer a question like that?
Gabriel Lewit: Well, it’s hard, right? It’s why actually we have some listener questions later. We do the same thing, we hedge. We say maybe, it depends.
Steve Lewit: Maybe.
Gabriel Lewit: Because there are so many factors that really go into this. But I think it was a worthwhile discussion point because there’s always that age-old question, is it worth paying an advisor to manage money? Or could I do it myself?
Steve Lewit: Definitely. Is there a value add there for paying a fee?
Gabriel Lewit: Yeah. And especially when you convert it to dollars, it tends to … it can jump in your face and say, oh, what am I paying for that much, $4,000, for? And so it’s an interesting question. And so obviously we’re advisors, we’re planners, so we might be shade biased in our responses here.
Steve Lewit: Maybe.
Gabriel Lewit: But it’s our belief that if a person is simply managing your money, just the only thing they’re doing is managing your money, portfolio allocation, absolutely nothing else. 1%, or in this case, $4,000 out of their 470 is probably a very high fee.
Steve Lewit: I think it’s exorbitantly high for just getting your money managed.
Gabriel Lewit: Yes. If you’re just getting someone that places a couple mutual fund or ETF trades on your behalf and doesn’t really do much else, planning wise, tax wise, insurance-wise, you name it, then that would arguably be a pretty high fee.
Steve Lewit: Well, they’re doing the same work. So let’s say they have a thousand clients and you come on board with your million bucks, they’re not doing any more work, really, to manage your account because they’re managing it the same as everybody else’s, or pretty similarly. So it is an artificially high fee for work that I cannot find justification for.
Gabriel Lewit: Well, I will also play counter devil’s advocate to that same answer.
Steve Lewit: Wait, wait, wait. Counter devil’s advocate.
Gabriel Lewit: Or devil’s advocate, yes. Counter devil’s advocate would be confirming.
Steve Lewit: Means you agree with me. You agree with me?
Gabriel Lewit: Yes. I will counter that or play devil’s advocate, not be both. Because the other way is … and this is what we don’t know about this question, is they start off with saying, I have a simple portfolio. Well, what if this person … simple portfolio was all in bonds. And the advisor said, you know what, Mr. Client? Since you have such a large pension of $800,000, you don’t actually need any income from this portfolio. You should be in all stocks for the next 30 years.
Steve Lewit: That would be very valuable advice. Definitely.
Gabriel Lewit: Now, what’s interesting about that is the difference over say 25, 30 years between a 4% paying bond fund and a 9% paying stock fund would be astronomical. So it’s possible had that person not gone to the advisor and gotten that advice, they could have left literally millions of dollars on the table. And this is what’s interesting about this question to me, because I find people tend to be very hindsight focused. You think?
Steve Lewit: I knew the market would go up. Didn’t you know the market would go up?
Gabriel Lewit: Well, so the moment they have this planning meeting, and they learn this great advice and this person helps them, they then say, oh, I could have figured that out on my own.
Steve Lewit: I could have done that myself.
Gabriel Lewit: What do I need to pay you going forward for?
Steve Lewit: Yeah, but you didn’t.
Gabriel Lewit: But they didn’t at the time they came to you. And the point is, if they didn’t have that one figured out by the time they came to you, wouldn’t you agree that there’s likely going to be something else at some point in the future that that person’s not going to think of that the advisor, if they’re a good advisor, would point out to them. Thus, again, justifying the fee over and over and over, and then some. Because let’s say that person paid a $4,000 fee for 20 years and they paid 80, $90,000. Sounds like a lot of money.
Steve Lewit: Well, yes and no.
Gabriel Lewit: If the advisor made you two million.
Steve Lewit: It’s not a lot of money.
Gabriel Lewit: It’s not a lot of money. But the problem is, as people, we would say, oh, I could have made that two million myself. When you start to really dig into this.
Steve Lewit: Yes. Well, I’m going to be a devil’s advocate here and saying if the advisor, the money manager. If the money manager is doing planning and saying, look, what’s your goal? You don’t need bonds to reach this goal, you need something else. Then that’s value. But that’s a planning aspect. Most times when people bring their money to the banks or the Marylinches and the Jones of the world, to bring a million dollars and they say, okay, let me give you a stress test or a-
Gabriel Lewit: Monte Carlo.
Steve Lewit: A Monte Carlo, and we’ll figure out what your risk profile is. And you know, belong in a 70/30 portfolio. That’s what they do. And then that’s what you’re in.
Gabriel Lewit: If you’re in a 70/30 and they put you in a 70/30 and there’re just no other value being created, then yeah, over time you probably would underperform the fee. But that really goes into the value that’s created, examples of planning guidance, and why I think we, especially at SGL, as holistic planners. Not only do we typically charge much less than 1% anyways for many of our clients, but the value that we provide via planning is where most, if not all, the money is made.
Steve Lewit: Priceless.
Gabriel Lewit: Priceless, okay.
Steve Lewit: Actually, it is priceless.
Gabriel Lewit: Well, and let’s just use this example, right? Let’s say this person in this case was paying $80,000, $100,000 over their lifetime. They got reallocated based on a plan and guidance into something that made them $2 million more. That’s value. Other examples I see wrong all the time, things that people don’t see on their own where value is created. Let’s say you have a Roth account and an IRA account, people put 60/40 allocations in both. Well, what if you put the bonds in the IRA and the stocks in the Roth?
Steve Lewit: Lower your taxes.
Gabriel Lewit: And put the vast amount of the long-term accumulation in the tax-free bucket.
Steve Lewit: But that’s a planning component.
Gabriel Lewit: Right, that’s what I’m saying. So I’m giving examples here. It comes down to what the planner is doing for you, the ideas, the tax strategies, the income approaches, the income efficiency, all these things bar none will more than pay for any advisory fee if you’re working with the right advisor.
Steve Lewit: Yeah.
Gabriel Lewit: That’s really what the point I wanted to make there based on this article.
Steve Lewit: And I happen to concur. And it’s bewildering that when most people hear a fee, they always attribute it, well, how much more money you’re going to make me on my investments? That’s all they think about.
Gabriel Lewit: It’s very common, very common.
Steve Lewit: All the other stuff, so this has happened too, Gabriel, we’ll show what we do in our portfolios, how we build. We’ll show a portfolio and say, this is how we build a portfolio, it’s highly diversified. That’s what wins in the market based on modern portfolio theory. And there are 22 asset classes and the potential client will look at you and say, well, I could do that.
Gabriel Lewit: Well, here’s another one that I think is very valuable and oftentimes overlooked. Is if you’re managing your own portfolio and there’s another … let’s call it a really bad 2008. And maybe you read this JP Morgan article … or sorry, not JP Morgan, Morgan Stanley.
Steve Lewit: Morgan Stanley.
Gabriel Lewit: I always get the Morgan’s confused. Okay, you read this Morgan Stanley, you have nobody to talk to. What do you do? What’s Morgan Stanley? I’m going to move my money to cash. Or you sell when the market’s down because you feel like you’ve got to, you can’t keep losing this money, you have no plan or vision. Sometimes it’s the things that an advisor will help you with when the markets get choppy, when the water is rough, that are the most valuable. Not when the waters are smooth and crystal clear.
Steve Lewit: And that’s not dollars and cents, that’s intangible emotions, it’s peace of mind, it’s having confidence in the future. What is that worth? Can you put a price on that?
Gabriel Lewit: And then that same person’s going to say, well, I wouldn’t do that in the future.
Steve Lewit: Yeah, right. Yeah, good luck.
Gabriel Lewit: When we have choppy 20-foot waves in the ocean, I’m definitely not panicking.
Steve Lewit: Yeah, I’m going to ride the waves.
Gabriel Lewit: Yeah. So us humans, we tend to think we’re invincible and then we’re going to act like we rock stars when goings get tough. And then the goings get tough and we freak out.
Steve Lewit: Wimp out.
Gabriel Lewit: Unless you’ve been through stuff before. Okay, well anywhos, that’s what I wanted to talk about there. Any last comments on that, Mr. Lewit, we’ve got a couple listener questions to get to.
Steve Lewit: No. I think there are some people that are very savvy investors and can do a pretty good job on their own. It’s all the other things, the taxes, the legacy, the-
Gabriel Lewit: Raw conversions.
Steve Lewit: It’s all the other things that the real wealth. I mean, that’s where the real money is. Not getting an extra one or two percent in the market. Just want to add that on.
Gabriel Lewit: Yep. Yep. And usually this scales too, depending on the size of your dollars. If you’ve got $4 million, then the risks of how much money you’re leaving on the table get magnified equally.
Steve Lewit: Taxes.
Gabriel Lewit: So, it’s whether you’re small, large, taxes, estate taxes, all sorts of things that you’ve got to factor in beyond just the investment portfolio itself.
Steve Lewit: So, while you’re talking, all I’m thinking … not that I’m not paying attention. But I have this vision of me stepping on a cicada.
Gabriel Lewit: Cicada. Did you call it a cicada?
Steve Lewit: Cicada, cicada. Yeah.
Gabriel Lewit: And what happens?
Steve Lewit: It’s a crushing experience.
Gabriel Lewit: Were you planning this joke for like 20 minutes?
Steve Lewit: No, no, no. When something sits in the back of your head, it just sits here.
Gabriel Lewit: It looked like you were waiting for the right time to use that.
Steve Lewit: No, no, no. I just thinking about it when you stop talking, I said there’s this thought in the back of my head that won’t go away.
Gabriel Lewit: You know it bites you.
Steve Lewit: But I am paying attention, they do not bite.
Gabriel Lewit: It’ll bite you.
Steve Lewit: No, they don’t.
Gabriel Lewit: Don’t get too close. I saw one jump from the floor all the way to land on your face.
Steve Lewit: Would you stop?
Gabriel Lewit: You got to be careful. They got strong legs.
Steve Lewit: Okay, so-
Gabriel Lewit: I’m teasing.
Steve Lewit: What’s next?
Gabriel Lewit: All right, listener questions. We got a few, Rebecca. Rebecca wrote into us here, I’m paraphrasing these, of course, folks. Recently divorced-
Steve Lewit: I’m sorry.
Gabriel Lewit: And finally received the QDRO, which is a qualified domestic relations order for those that might wonder what that acronym is, as part of our settlement. What should I do now with this money?
Steve Lewit: Rebecca, that depends. Here we go.
Gabriel Lewit: See, that’s how you have to answer.
Steve Lewit: That’s how you have to answer.
Gabriel Lewit: You have to answer this.
Steve Lewit: Well, that depends. It depends on what you spend, it depends on your lifestyle, it depends on how much money you have, it depends on your goals. If you want to travel-
Gabriel Lewit: I’ve got the easy answer.
Steve Lewit: Oh, Gabriel has the easy. You need a plan.
Gabriel Lewit: You stole it from me. I was going to say that.
Steve Lewit: I was getting there, I’m building drama.
Gabriel Lewit: Well, so Rebecca, and I don’t know the backstory, but it’s possible, it sounds like perhaps your spouse had managed the money prior.
Steve Lewit: Ex, ex.
Gabriel Lewit: Ex-spouse, sorry. Correct. Your ex-spouse had managed the money. And now that you have all this money and you’re fully aware of it, your question, which is a valid one, is what do I do with it? And that would be all the way circling back to step number one, which is, you’ve got to create a future investment in retirement plan.
Steve Lewit: Does she say how old she is?
Gabriel Lewit: She does not.
Steve Lewit: She does not. Okay.
Gabriel Lewit: No. But either way, whether you’re 40, 50, 60, the biggest goal of all is planning ahead for retirement. Do you have enough savings? Are you going to have enough income? Are you on track for that, Rebecca? So that’s step or goal number one that we want to help answer.
Steve Lewit: Are you a homemaker or did you work? Do you have a career? Or what kind of person are you?
Gabriel Lewit: So, I think you got to start at the foundational basics here. Find an advisor, work with someone to create a plan, do your cash flow, think ahead to when you’re going to retire. That will be the trick to determining what to do with this investment money.
Steve Lewit: Yep.
Gabriel Lewit: Yep. Whether it’s IRAs, non-qualified, whatever you received in the settlement, that’s going to be step one.
Steve Lewit: Yes.
Gabriel Lewit: Yep. Okay. And certainly if you’ve got questions on that, please let us know, follow-ups.
Okay, I’ve got Eric. Eric mentioned that he’s got a 401k from an old job that he was thinking about rolling over, but now it’s starting to perform better this year, 2024. Should he continue to roll it over or should he just keep it where it’s at?
Steve Lewit: Well, traditionally, Gabriel, we like to take money out of 401k because we have many more options and probably less fees if it’s managed by somebody.
Gabriel Lewit: Well, he’s not mentioning if it’s a self-managed rollover or one with an advisor. Now with an advisor, going back to our question earlier, he might have to pay an advisory fee for that. So it would go into what overall services you might get then the value created there. But all else being equal, your 401k, Eric’s going to have about 20 funds. And outside of your 401k, you’re going to have access to like 20,000. So you’ve got far greater choice, some of those might have lower expense ratios than your 401k, even if you’re in the same asset classes. So you might be able to, assuming you do it yourself, improve your performance based on the same funds, just similar, but lower costs outside the 401k.
Steve Lewit: But if you’re doing well and you’re not seeking an advisor or an advisory, then why not continue to leave it there?
Gabriel Lewit: Yeah. If you like your fund choices. We’re kind of the mindset, if you’re really happy, then you’re happy.
Steve Lewit: Be happy. We’ll just make sure you don’t fall off the cliff if you’re our clients.
Gabriel Lewit: Yeah. Well the goal there, Eric, I think is if you’re confident when you’re investing on your own in the 401k, then stick with it.
Steve Lewit: Now, the question is that you brought up is if you give it to an advisor, will they do better by you? And that’s real. Just the fact that they have more choices is a plus. And perhaps less fees as a plus for moving it into an IRA. But it’s not cut and dry like that.
Gabriel Lewit: It is. And there’s other considerations, Eric, depending on your age, if you’re going to retire before 59 and a half, if you want to do backdoor Roth IRAs. There’s other reasons not to roll it over, but we would have to get into planning work to help figure that out for you.
Okay. Ready for one last one?
Steve Lewit: I am.
Gabriel Lewit: We’ve got Alina.
Steve Lewit: I’m excited.
Gabriel Lewit: This is like an interesting settlement day, right? Receiving a settlement from a lawsuit.
Steve Lewit: I’m chipper.
Gabriel Lewit: You are chipper today.
Steve Lewit: Yes.
Gabriel Lewit: And Alina is wondering if she should take the money and invest it or pay off her credit card debt and car loans entirely with the settlement money?
Steve Lewit: Credit card debt. Helena, what is it?
Gabriel Lewit: Alina.
Steve Lewit: Helena.
Gabriel Lewit: Alina
Steve Lewit: Alina. Alina, pay off your 29% credit card debt.
Gabriel Lewit: I would concur. Well, we don’t know how much, but assuming it’s not … I mean, I guess arguably if it’s like $100,000 a credit card, you’d really want to pay it off. If it’s a really small amount, two grand, three grand, five grand, maybe.
Steve Lewit: Maybe, maybe not.
Gabriel Lewit: But yeah, the larger that is, the worse the minimum interest payments are every year. You never pay the thing down.
Steve Lewit: There is nothing positive about having that debt.
Gabriel Lewit: And you won’t do better than 29% in the stock market.
Steve Lewit: No, you won’t. And if you’re saying to yourself, well, but I could buy this and I could buy that, and instead of paying down the debt. You’re just kicking the can down the road and come back and bite you later because it’s 28, 29%. It’s a ridiculous rate of interest.
Gabriel Lewit: Yes, it is. It’ll chew you up.
Steve Lewit: It’ll chew you up.
Gabriel Lewit: Yep. No problem there. With that answer, pay it off. Pay off the credit card.
Steve Lewit: Pay it off.
Gabriel Lewit: Well, that’s what we have for today.
Steve Lewit: That’s it?
Gabriel Lewit: Yep. No, do you have any more cicadas jokes?
Steve Lewit: No, we covered a lot of territory though. It was good.
Gabriel Lewit: Yes, we did.
Steve Lewit: Yeah, no, good job, man.
Gabriel Lewit: It was quite a brooding, thoughtful conversation.
Steve Lewit: I’m not going to go there. That sounds like one of the things I would say. You’re too young to say something like that.
Gabriel Lewit: All right, folks. Well, if you’ve got questions for us on, I don’t know, anything cicadas, stock market forecast.
Steve Lewit: Should I tell everybody what today is?
Gabriel Lewit: No. Or anything else that’s on your mind? Give us a call. (847) 499-3330 or go to sglfinancial.com.
Steve Lewit: I can’t say anything?
Gabriel Lewit: Well, today isn’t a special day.
Steve Lewit: Well, what can I tell them what tomorrow is?
Gabriel Lewit: If you really want to.
Steve Lewit: It’s the birthday for the boy.
Gabriel Lewit: It’s my birthday. Yes.
Steve Lewit: It’s birthday boy.
Gabriel Lewit: It’s just another day. Just another day in the week. Just a Thursday tomorrow.
Steve Lewit: No, it’s not.
Gabriel Lewit: We’re recording this on a Wednesday, folks. You’ll get this on Sunday, it’ll already be pass. It won’t even be special.
Steve Lewit: Yeah, the old news.
Gabriel Lewit: Old news.
Steve Lewit: Old news.
Gabriel Lewit: Exactly, exactly.
Well, we hope you have a wonderful day. Thanks for tuning into us. We love and value your listenership here on our show.
Steve Lewit: We do.
Gabriel Lewit: And if you have any friends, make sure you send them our links so they can tune in as well. And we will talk to you on the next one.
Steve Lewit: Stay well everybody.
Gabriel Lewit: Bye now.
Steve Lewit: Bye.
Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at (847) 499-3330. Or visit us on the web at sglfinancial.com and be sure to subscribe to join us on next week’s episode.
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