Video Transcripts

Knoxville Financial Q&A Show Transcripts: Episode 6

All right, welcome to the Knoxville Financial Q&A. This is episode six. I'm your host, Paul. I'm Brian.

Today we're going to answer three questions. Two of them are just ones that we get the most commonly asked. The third one comes from someone who sent in a question. So, let’s just get right into it.

The first question we have, Brian, is: should I pay off my mortgage or invest instead?

Yeah, that is one we get asked a lot. I think the simple answer to that one is just: can your investment returns generate more than your cost of a loan?I know it’s way more complex than that, but I feel like that’s the simplified answer.

It’s a very simple answer, but it’s correct. Five years ago, this question was almost a no-brainer, right? Interest rates were so low that it was pretty much, of course invest. It’s not the same anymore. You have to pretty much go by a client-by-client or situation-by-situation basis.

Yeah. Because if you have job changes or any sort of income shift, or a wife stops working and wants to stay at home, all those factors matter.

So would you say if your mortgage rate is at 3%, you locked in in 2015 at 3% or something like that—

Ride it to the wheels fall off. Exactly.

So the gray area becomes now what happens if it’s 6.5%?

Yeah. Then you start to think about how those amortized borrowing costs matter significantly. I think when you hit that 5.5% to 6% range, it’s almost double what your house costs on a 30-year note.

Yep. So if you buy a half-million-dollar house, you’re paying a half-million dollars in interest. That’s crazy to think about.

Most of your beginning mortgage payments are mostly geared toward interest only.

Yeah. Ninety-plus percent.

At least. So let’s say you might have five years left on your mortgage, you’re pretty much only paying principal at that point. That’s something to consider as well because it’s not really costing you as much anymore.

Right. So you’ve already paid a big bulk of the interest at that point.

Yeah. Look at factors like our real estate in Knoxville and Farragut and all the other areas around here. We’ve had such an influx of people from out of state that our real estate prices have gone way up. So you factor in that cost of real estate along with the cost of a loan, it’s brutal.

It’s a tough decision for some people. My clients are older than Brian—I say this all the time—and they’re approaching retirement. Some people just want peace of mind. They don’t want to have to deal with having a mortgage. If you don’t have a pension, you’re potentially going to be in a lower-income situation and you don’t want to deal with a mortgage payment.

Unfortunately, we’ve said this before, but you never really own your home because you always have to pay property tax on it. It would be cool if—I’m not even sure if this is being discussed in Tennessee for real—I heard they were planning on potentially eliminating property taxes.

I think Florida is pretty gung-ho on it.

But here, let’s say you paid your house off. Start there. If you pay your house off, you own it. No more property taxes. That would be a good start in my opinion. Then after that, spread it out, see how it works. There’s a reason a lot of people are moving to Florida. There’s also a reason a lot of people are moving here. It would just be nice to actually own your home.

Either way, if you’re eliminating a mortgage payment and you’re going into a lower-income situation, the peace of mind—I don’t know if you can really put a value on that. There’s no planning software that factors in, “I don’t have a stressful overhead payment this month or any month after that.”

Exactly.

What’s the next one we got?

The next one is: should I buy a rental property or invest in stocks, especially in Knoxville?

Yeah, I get asked this one quite a bit. I have friends that are successful in real estate in this area and I have friends who see that success. They always ask, “Maybe I should be doing this.”

Knoxville in particular is a little bit unique because we don’t have situations like Detroit, where all the car manufacturers moved elsewhere and the city collapsed. Knoxville doesn’t have that situation. Between the University of Tennessee and all the major facilities in Oak Ridge, the economy is always going to be pretty stable here.

If you want to talk about actual data, you can do a simple Google search on this, but the returns on rental property here in Knoxville are between 6% to 12% leveraged. The stock market has historically returned between 8% to 10%.

The question really is whether those differences in numbers are worth it if you actually want to be a landlord and have to deal with whatever goes wrong in the house that you own but don’t live in.

Everybody wants to be a landlord until you have to do landlord things.

Yeah. Quite honestly, I had several clients that came in with rental properties and they couldn’t wait to unload them. These are older clients approaching retirement, and I can understand why.

I think a good scenario for possibly owning rental properties would be if you’re empty nesters, one of you works, the other one stays home, maybe is bored, and is willing to take on the responsibility of managing those rental properties.

That’s a lot of where my conversations steer. When I start getting asked that, most of my conversations become less about returns and more about lifestyle. I have an acquaintance who owns apartment complexes and duplexes. We’re talking about $40,000-plus a month in rental income. It’s great money.

But he has a stack of three cell phones. If you can get him to a lunch appointment, which is borderline impossible, one of those phones is guaranteed to ring. Everybody wants to collect that check until the garbage disposal breaks on a Saturday morning or the dishwasher dies.

Most people that are successful in it do it because they love it. I don’t think they’re always measuring ROI. Maybe it was inherited, maybe they built into it over time, but they genuinely enjoy it.

The leverage part matters too. If I have a widget I can sell for a dollar and I only have $10,000, I buy 10,000 widgets and sell them. To maximize that, you leverage it. But borrowing money adds carrying costs and overhead. It’s not as sexy anymore.

If you love real estate and you’re destined for it, invest in real estate. Most people, though, that’s probably not the scenario.

I agree. Knoxville housing prices have increased substantially over the past few years. Add that on top of increasing mortgage rates and it’s not really a good scenario.

Right. What if you have really bad tenants? What if 2008 happens again? What if you just bought a house for half a million and now it’s worth $220,000?

Exactly.

If it was 2020 or 2021 and housing prices were where they used to be, maybe rental properties made more sense back then. But where they’re at now—and by the way, I don’t think we’re overpriced, I think we just caught up to where we should have been—if you’re looking at it right now, I personally would not want to be a landlord.

I don’t want a call at one in the morning that the hot water heater went out. I don’t care how much it’s cash-flowing, which by the way, it’s probably not cash-flowing much if you’re buying right now with current interest rates.

There is one scenario that might make sense. I’ve had this happen with clients where they move out of their existing house they’ve lived in for a while and buy a new house without selling the old one. In that case, the client knows the house. They know when the water heater was replaced, when the roof was replaced, and they can project potential expenses.

Assuming good tenants.

Assuming good tenants, right. That would be the only situation where I’d personally consider renting out a home.

That’s probably fair.

Is there anything else you can think of?

Yeah. One thing that impacts ROI is being able to write off expenses. If something goes wrong, you can write off the repair. You can also write off loan costs if you’re carrying a mortgage. So there are some tax benefits there.

If you’re not close to retirement and you just plan on diversifying your portfolio overall, rental properties are not the worst situation. I just personally wouldn’t do it right now in Knoxville.

I was reading something about the old 60/40 portfolio not working anymore. One alternative they mentioned was a 60/20/20 portfolio: 60% equities, 20% bonds or fixed income, and 20% real estate. I thought that was a cool concept because it creates more diversification.

But again, it still comes back to whether you actually want to be a landlord.

Yep. I agree with that. If this was something I really focused on, it would probably be close to UT because of the amount of student housing needed. Even though they’re building like crazy, there’s still not enough.

Those properties will probably always have value for renting to students, but then you also have all the problems that come with renting to students.

Personally, I’d rather invest and not deal with any of that.

I think our next question is from Michael. His question was something like this: “I live in Farragut. I make really good money. Everything seems to be getting more expensive. What’s the deal?”

We’re going to paraphrase that for you, Michael, and say what you’re probably experiencing is what we call lifestyle inflation.

Lifestyle inflation can equate to so many different things. You always want a bigger house. Me, I always want a bigger boat or a nicer boat. The reality is sometimes it just doesn’t make financial sense.

If you have all your priorities in place—your emergency fund, retirement savings, maybe your house is close to paid off or you have a low interest rate—then maybe consider those things. But if you want to keep up with the Joneses, you’re probably going to end up hurting yourself.

You end up broke with the Joneses.

Exactly. If you save and invest properly without worrying about the Joneses, eventually the Joneses will want to keep up with you.

I’ve always used this illustration: here’s your income, here’s your expenses. The two best ways to improve quality of life are increasing your income or decreasing your expenses. Ideally, you do both.

I call that gap the “quality of life gap.” If you make really good money and keep your expenses low, you’re able to go on more vacations and do things most people can’t do.

Most people, when they get a pay raise, buy a new car or a new house instead of just investing the raise or building their emergency fund.

Lifestyle inflation is real, Michael. That’s probably more of what you’re experiencing.

I look at my own house. In 2017, $150,000 to $200,000 bought a pretty good house. That same property is now $550,000-plus. That wasn’t even ten years ago.

So if you bought a house recently and you’re experiencing lifestyle creep, it’s not just you wanting nicer things. Everything is getting more expensive.

One thing I’m most guilty of is subscription creep.

That should absolutely be a coined phrase.

I’m totally guilty of that. I don’t even know what I pay Apple every month now. Netflix, streaming services, all of it. Someone says, “Have you seen that show?” and suddenly I’m subscribed to another service.

“It’s only seven bucks a month,” right? Times ten.

Exactly. Add all those up and you’re paying a substantial amount every month.

Some of those things I probably don’t even use anymore.

Sure. And if that’s what you value and enjoy, maybe don’t skimp on it. But if you’re not using it, that’s a problem.

The other thing I’m guilty of is the boat. I have a modest boat, but the slip rental at Concord Marina is not modest. It’s a substantial expense.

It’s like a mortgage payment.

For some people, absolutely. Then on top of that, we live in a neighborhood with a pool and HOA fees.

And then there were several golf carts that started appearing in the neighborhood. For some reason, I just wanted the nicest one.

My midlife crisis was pretty modest. It’s not a Corvette. It’s just a really nice golf cart—or technically not even a golf cart. It’s a family hauler.

And I love it when we use it.

I saw a side-by-side recently that was fully enclosed with air conditioning, heat, and CarPlay. It costs more than a car in some cases.

That’s crazy to me. It’s basically not a golf cart anymore.

This all relates specifically to Knoxville and East Tennessee because of our topography. There are so many cool places here to use side-by-sides, boats, all of that. That’s why marinas are so expensive. Slip rentals are in huge demand.

We’re very blessed recreationally here between mountain biking, road biking, golf, lakes, and everything else.

This ties back to retirement. How do you want to live in retirement? Because doing all those things on weekends isn’t cheap.

If you want to do those things and it improves your quality of life, great. Just make sure you have your bases covered first.

Plan for it.

Exactly.

With that said, we’re wrapping this one up. Keep sending your questions and we’ll answer them. The best way to see our videos is just type in wealthy.com.

You can also schedule on our website or send us individual emails.

And if you go to wealthy.com, it takes you directly to the page where all the videos are hosted. As soon as you scroll down, there’s also a place where you can ask a question.

With that said, signing off.

Signing off.

Knoxville Financial Q&A Show Transcripts: Episode 5

Welcome to episode five of the Knoxville Financial Q&A. I'm your host Brian. I'm Paul. In the last video, we talked about who we can best serve and we got a response from Michael who asked, "Hey guys, my wife and I just watched your last video and really enjoyed it. My question is, what kind of difference in investment return should I expect from working with you or any adviser versus us doing it on our own? It's a good question.

What does the magic wall have to say? What does it have to say? 3%. All right. Well, that's the answer. That's it for this video. Thanks for watching.

We're kidding. Yeah, that really is the answer. We thought I thought it was a really great question because I always felt like we did provide a lot of value over what people that try to do it on their own can do, but I never try to try to quantify it in a way that there's an actual number, right? Because there's lots of things that go into financial planning. Yeah. Some of that is tangible, some of that is intangible. Yeah. You know, for sure.

Fortunately for us, Vanguard did a study and I'm going to link it. It's a PDF. I'm going to link it below. It's pretty in-depth. It's like 28 pages or something like that. So, what we've done is basically take that information and narrow it down to a couple of bullet points.

Vanguard suggests that there is a 3% difference by working with an adviser. Obviously they are talking about their own advisors, but when we go through these bullet points, they're essentially listing the same exact things that have been listed on our website for many years. So, Brian, what's the first bullet point?

Behavioral coaching. Which goes back to the first thing I said, which was, you know, call me coach. You know, I said it for accountability, but the reality is when you look at how behavioral finance is applied now, it makes all the difference. Most people make bad decisions when it comes to money. Both in when to buy, when to sell, on what to buy, what to, you know, borrowing, when to borrow and when to invest. All of those factor in. Yeah.

What does it say that that value is to making the right call and having somebody in your corner? So according to Vanguard study, that attributes to 1.5 plus or minus 1.5% or more in your returns.

I'd say that's probably fair. I mean, you figure most people, you know, if you apply the idea of like Warren Buffett, you know, when what does he say? The stock market is the only market that when everything goes on sale, everybody runs out of the store. It's a huge deal.

Yeah. Speaking of Warren Buffett, we have a quote on one of the walls in our conference rooms that says investor returns equal investment returns minus investor behavior. And that quote cannot be understated. Guys, I don't know any other way of saying this except that a lot of you make very bad decisions at the worst possible times.

I mean, you it says one and a half percent. You figure, you know, if if the average market return was 10, that means that you're making a a mistake that cost you 1 and a.5% based on just So now you're netting what, eight and a half? Yep. Just because of bad decisions of selling at the wrong time or buying at the wrong time.

And most people I've always heard it said, time in the market beats timing the market almost 100% of the time. And I it just proves that point. And what's the next bullet point?

So the next one is tax efficient investing which Vanguard says attributes to almost 3/4 of a percent or more in returns. These are things that we've actually have previously talked about in in other episodes. But what that means is asset location, tax lost harvesting, and withdrawal sequencing can materially improve after tax returns.

Yeah. You figure if you're taking money out, you know, you get if we get a customer that calls and says, "Oh, I need some money." And it's markets up, you're going to take a lot of, you know, taxes. you might as well pair that with either a negative to try to do some tax loss harvesting or you know maybe sometimes it's just talking them off the hey maybe borrow for you know a couple 30 days or so and see if we can get a better market return to try to mitigate some of that. You know most people underutilize borrowing.

Yep. just had a a client open up a line of credit secured against their you know investments to collateralize their investments so that way they don't have to worry about that. I think something like that's an underutilized tool for sure.

And as I mentioned, it is something that we've already talked about, but asset location is extremely important. And just to a quick review, all that means is you're taking assets that are tax inefficient, such as dividend paying stocks, and you're putting them inside of an IRA where the taxes are deferred, right? Versus other equities that don't pay dividends that you don't plan on on selling. you can you can put that in an individual account and you won't have a big a tax issue.

Yeah. But to your point too, you know, that the the tax efficiencies, you know, I had a a client, this is a long time ago in the state of Tennessee, we had something called the hall tax, which was anything that was dividend producing. If you made over 5,000 in dividends, you had to pay a 5% state tax. I had a client wealthy, lots of money, and they were being recommended by their CPA to get out of the dividend producing stocks because they were having to pay estate tax. And you know, it's like foregoing profit just because you don't want to pay taxes. That's a prime example of like, okay, so you don't want me to make money to avoid paying taxes. I mean, that's just crazy.

Well, we've mentioned this before, but CPAs look at this year, maybe next year, where we got to look 20 years down the road. Oh, yeah. So, Brian, what's the next bullet point?

Uh, I think it was rebalancing, uh, which was to be right around estimated 35% or a little over a quarter percent. Uh, which what's funny about that is most of that we put on autopilot by just having quarterly, annually, semiannually, but we can automatically put that on a portfolio without even have to to think about it, touch it. So that the strategy that we start with is the strategy that we end with during that year.

Basically, what rebalancing does is it allows you to sell the things that are high and buy the things that are low, which is exactly what you should be doing. Yeah. Because as as we know, not every asset class performs the same year over year. No. We see so many winners of one year become the dogs of the next.

Yeah. And so also when you know we're talking about rebalancing, we consider something called portfolio drift where you might have certain asset classes that you're invested in and we might put maybe a 2% variance in there. And if it does really well and let's say it's up at 3%, we might do a rebalance right then and there whether it's quarterly or not. But that matters. All these things matter when you add them up.

But yeah, that reminds me of that any given Sunday quote, you know, which is like football is a game with a of a matter of inches. And I feel like investment is the same way. You know, most people don't really take into account that all of those inches add up.

So the next bullet point is cost-effective implementation which Vanguard says can increase your returns by 0.45%. Plus or minus. Part of the reason they say that is because they're use Vanguard's no load funds but we also have no load fund strategies as well and we also use Vanguard.

Yeah costs get expensive. I'd say in the right strategy for the right person, making sure that you mitigate those is important. But I would also say that, you know, there's a reason why Ferraris and Bentleys exist. I've always heard it said that price is only an issue in the absence of value. You don't always want to hop on the cheapest flight, especially if you're going overseas. So, yeah, I would say that that may be one of those where it's there's a trade-off, you know, for sure.

So, Brian, what's the the last bullet point?

uh withdrawal strategies. I think when you get to retirement that matters significantly. Balancing social security income, balancing what you take from whether it's a Roth, whether it's a 401k or whether it's a a traditional or other qualified money or non-qualified money. If you've managed to to sell off property or save up, you know, each pile of money that you can pick from comes with different tax implications. And I could see how withdrawing from the wrong pile at the wrong time they say is what was it 1% or less?

According to the Vanguard study it attributes up to 1% which is that's significant significant that matters. I mean and I would say that that's actually probably fair. I mean I've seen instances where people have withdrawn money from the wrong place at the wrong time. Whether it illustrated a 1% I could see that that's reasonable. Yep.

But yeah, I could see how, you know, withdrawing from the wrong pile at the wrong time matters. You know, you just look at social security by itself. If you wait 62 to 65. That's a big time. Okay. Well, if that accounts for 1% income difference, that matters.

I mean, I don't know how you quantify this with a percentage, but what if we can help you create a strategy where you don't outlive your money, right? Is there a value that you can quantify that with? Because I don't know, it it just seems like that is something that is priceless.

It is. I mean, don't outlive your money is the the probably the number one Well, not accumulating enough, but then yeah, not accumulate enough being number one problem. And then I'd say then the second part of that is outliving your money.

So guys, basically this all adds up to 3% according to Vanguard, right? And so we obviously broke down a 28 page document in 10 minutes. So I wouldn't say that this is guaranteed in any way, shape, or form, right? It's just their study that they did. The numbers seem realistic to me. In fact, the one about the behavioral coaching where they said one and a half percent or more, I'm leaning towards the more side in all honesty. The amount of people that we've had come in who have made really poor decisions at really bad times that we could have prevented from happening would have saved them a lot more than one and a half percent. For sure.

Right. And so I think that's the biggie right there out of all the other ones. the behavioral coaching, which is something that we really focus on based on the amount of education that we put into working with our clients. To me, that stand. It's obviously the highest one on there, but it also stands out to us as being the most important with or without a Vanguard study.

All right. So, with all that said, we're not saying that we're going to outperform everyone by 3%. We know that there are some DIY investors out there who spend a lot of time, have good discipline, and and do really well on their own, and that's fine. We're just talking about, you know, the average investor that that comes in and and works with us. And we're trying to justify paying they're trying to justify paying us a fee. And this 3% number, by the way, is net of fees. if you if you read the whole study you know but most of those are statistical anomalies when you start looking at statistics and sample size you know you increase the sample size you increase the accuracy and so I would say when you start looking at those people that can do that they are the outliers those are the people that don't fall in the general public most of us kids you know baseball games softball games you know life gets busy you know it's the same reason that I always talk to clients or or potential clients and say, "Do you pay somebody to cut your hair?" You can cut your hair. Don't get me wrong. It may not be good, but you can cut your own hair. Uh, you know, why do you pay somebody 50, 100, 150? And it's just sometimes simply to outsource some of my life, buy back my life. Why do you pay somebody to mow your grass? Lots of people pay somebody to mow their grass. Not because you know you need somebody to mow your grass, but sometimes it's just better to buy your life back. So, you know, focus on your life, focus on spending time with loved ones, focus on the things that matter. You know, let somebody else handle something that, you know, we can prove that there's an advantage to.

Yep. 100%.

So, Michael, our phone number is 865-342-7766. Be sure to ask for Paul. No, I'm kidding. Brian and I work with most of our clients together anyway.

So anyway, we have we have a couple of upcoming videos planned that I think the the one about the tips and tricks is going to be a really good one. So stay tuned for that. And I think we covered all the the bases on the Vanguard document here.

All right. So the document will be linked below. It's a PDF file. You're you're welcome to download. It's going to be on our website. As I mentioned before though, if you do download it and look through it, if you're going to spend time to to read 28 pages, I invite you to spend just two or three minutes on our website and all of that same information is on there as I mentioned earlier. And it's been on there for years. So, we feel pretty confident in in being able to use this document and that 3% number as a correlation to what we do for our clients.

So with that said, signing off. Signing off.

Knoxville Financial Q&A Show Transcripts: Episode 4

Okay, everybody. Welcome back to the Knoxville Financial Q&A show. This is episode 4 and I am your host Paul. I'm Brian. And today we're going to answer a question that is basically in three parts. And so the first part of it will be when should I hire a financial adviser?

I mean there's lots of reasons to hire a financial person. You know, the biggest thing is just we all need accountability. One of the things that you think about or I think about, I correlate it to like being in fitness and I think about people going to the gym. You know, if you want to lose weight and get fit or if you're trying to build a bunch of muscle mass or you're trying, you know, you have a specific goal, having somebody to help keep you accountable, it I think far surpasses everybody knows what they need to do, you know, lift weights or do their specific exercises, you know, there's so many YouTube videos or so many access to information, but having that person to help keep you accountable, I think makes a massive difference. Yeah. So, we're basically like the gym trainer. Yeah, for your money, give me call me coach.

I mean a really quick simple answer I think would be if that thought even crosses your mind whether you need to hire one or not, you probably maybe you might need to hire one. I think another thing another time that might be appropriate would be especially if you're not used to investing and you come into a big inheritance or sale of a business or something like that where you just come into a large pile of money and you don't really know what to do with it from a tax standpoint or investment standpoint.

You nailed it. I was going to say tax efficiencies matter so much. You know a lot of that that's that is another thing I guess tax efficiencies across the board. I mean you know having something that has high turnover you get subject to taxes. So like you know when you make $2,000 it's not that big a deal but if you make 20 30 40 50 grand in the year on your investments because you have a million dollars or a half million or 100,000 that matters. But yeah I you know the other thing too which I'd love to find the data I don't remember the data point but I've seen that that you know it's behavioral finance is what it comes down to but it comes down to most people always exit at the wrong time and so that time in the market beats timing the market when everybody tries to time the market and it's it just rarely works in their favor. I agree. It may work once or twice, but I think another scenario would be you're approaching retirement. You've been investing in your 401k the whole time and you didn't really need financial advice. Maybe sometimes the 401k provider will provide that. Most of the times lately, not so much anymore. And so you're getting close to retirement and you got this big pile of money in your 401k and you don't know what to do after you retire. How where's it going to go? How to manage it? Well, sometimes even before retirement, we look at like the rise of inservice distributions. You know, people who are 50, 52, 53, 54, 55, you're getting really close. You've built this pile of money. And if that's all you've ever had is that pile of money there, you know, because of the 2008, we've built in those inservice distributions where the plan stays active, everything stays the same. You can stay contributing, but you have the ability to remove all of your money out and go get professional management. So you can try to get that active management that you know when the market dips you're not quite as low you know and so that there's I think that element there just matters significantly too. It definitely matters especially since I think maybe the very first video that we talked about a lot of the 401k plans are now just target based. Oh yeah based funds and so you you know that's not really the best case scenario. you have the ability to still work, still keep the same 401k, still contribute, take some of those assets and have them actually professionally managed with more much more diversification.

Is there any other reasons you can think of somebody might want to hire somebody?

Yeah, I think when your DIY approach is no longer working you might actually be costing yourself some money.

So, can you think of any other reasons?

You know, I think if some major life decisions happen. I mean, I I have a lot of clients get come to me and ask this question, too. You know, like, I have some money saved up. I want to buy a house. Should I put more money down or should I borrow or should I just do 100% financing? You know, I think a lot of that comes down to can your money out earn the what it costs. I think some of that matters too, having somebody a be able to break those down because a lot of people get stuck and I've seen this way more times than I care to admit, but a lot of people get stuck in that I just don't want debt or I just don't want to have a payment. And so I think a lot of people will make not necessarily the best decision financially just to avoid the debt or just to avoid but you know prime example when we had mortgage rates at like two two and a half whatever percent all the way down at that low now you can get a CD for three or four or five if you came to me and said should I pay off my mortgage or should I you know invest this extra money. It’s is a question we get all the time. Yeah, keep the mortgage and invest. And so I think, you know, a lot of a lot of people probably could find those answers with whether AI or anything else, but it comes down to if you've got somebody that you can pick up the phone and call, nine times out of 10 that will happen way more than going to Google for something. Oh, definitely 100%.

All right, so the next question, the next part of this question would be, do you have an account minimum?

Yes and no. We don't publish it on our website and we do that on purpose because everybody's situation is not just based on how much assets they can bring us to manage. We don't Brian and I don't work like that. We do gosh I mean we do a lot pretty much pro bono, right? Yeah. And and the part of that reason is because we love doing we what we do and we love like it's goodwill essentially. And sometimes basically I mean we can't work with everybody. That's just the way it is. Some people there's nothing you could do for them. But even those people we'll sit down with them and spend some time with them and try to give them the best advice possible. And in return, and I've had this happen to me personally, because we've done taken that step, we've received referrals from that person even though we couldn't even help them, but they knew that we had their best interest in in mind. And so, part that's mainly part of the reason we don't publish a a minimum. Yeah. Because every situation's different. You know, some people starting out have substantial, you know, goals and substantial income. Yep. And just because you don't have that amount of money, you shouldn't get advice. It just seems backwards to me.

Yeah. So, in Knoxville, I'm I'm fairly confident with this number. I I didn't do any research on it, but I'm I'm fairly confident in it. But I think most advisers their minimum would be 500,000 just just to talk with them. And that's great. I have no problem with that. But there's people I mean we just ran across a couple that they're both high income earners. They're just now they have low debt. They're just now able to put away a bunch of money. We gave them advice. They came back, took our advice, and you know, invested 50,000 to start and putting $5,000 in per month. Well, let's say we had 20 of those clients. So, if we had 20 of those clients doing that same thing, that's 1.2 million in assets that we'll be managing per year that we didn't have before if we put $500,000 on our website. And these are people that we want to work with. And just because they don't have $500,000 now, we're able to guide them to the point where we're giving them advice through this whole entire time, they're going to be great clients for a long time. Yeah. Right. And so, why would we not want to work with people that are high income earners, that are willing to take our advice and and invest the amounts that we tell them to, it just makes no sense.

So, we don't publish a number. There is no number for us. It's client dependent which what you just said matters more than anything. I think the biggest thing is we've all been here so this has nothing to do with financial stuff but you know people ask for advice you give advice and it could be sage advice and they don't follow it. I think that comes down to this this goes back to that like who could you help or who could most benefit the people that are genuinely looking for help with their situation that are willing to take advice and apply it. I think that is the summation of everything. I think whether you got $2 or two million, if you need some help and you're willing to apply advice, we're looking for you. Exactly. 

And then the last part of this question is, who can we serve best? I think that would be what I just Yeah, pretty much. I mean, in all honesty, like the the big majority of our clients are people that are getting close to retiring, like we mentioned earlier in the video. People that are getting close to retiring that have a big pile of money in a 401k and they don't know what to do with it. They need it managed after retirement or like you said, inservice distributions before retirement. Yeah. I mean, I see that. I see, like you said, inheritances. I see people that have gone from, I guess, what I would call 0 to 100. So, you get some, you know, people right out of school or people that got maybe got a really good career. They went from bartending to, you know, being a not saying a CEO, but you get the idea. And so, we've seen that with musicians and and, other professionals, but, you know, you go from making hardly any money to now making money. Now, what do I do? I think trying to damage control on everybody's situation is far worse than starting it correctly. And so getting that that everything in order to where there's a benefit via taxes and all the other things and work your way into it is better than showing up with the million bucks or the 2 million bucks and then it's like here's my mess, help me clean it up. I think another situation where someone can benefit from us would be if your financial situation is very complex and we have the ability here to bring in a CPA, bring in an estate planning attorney and we all meet in our conference room and at least for the initial consultation and then we're all on the same page right from the get-go. There's no making a whole bunch of different phone calls back and forth and we're all trying to communicate with each other. That's something that we, you know, we focus on a lot is being Brian and I are like the quarterback and then we have this this team of professionals that that help us navigate really complex situations. So, if if that's you, we're the answer quite honestly.

Yeah. Sale of businesses gets really messy. You know, what you said before is when you kind of come screeching into retirement with a very large 401k is not really that complex. But if you've got thrift savings plans, numerous IRA'S, you know, inheritance accounts, and all these old annuities from those inheritance accounts or inherited accounts, I mean, yeah, you can somebody can get lost in the weeds pretty quick on trying to decipher through all that and retire. All right, I just thought of something else. when it when it comes to account minimum probably should have thought of this during but you know we get certain investment vehicles that have limitations and so sometimes it's not so much as an account minimum as much as it is an investment minimum. Rules that are set forth from our what we call a custodian or rules that are set forth in our trading platform all require us to fit within certain guidelines. So, you know, this goes back to like diversification and everything. You know, if one position or two positions or three positions that we really like may require specific amount of money. So, it's not so much a a minimum, but in order to utilize the strategy that we want to utilize requires a certain amount of money. So that's something to think about, too. You know, we may be able to talk a great game when we're having the conversation, but if you don't have enough money to participate, it it kind of kind of stinks a little bit.

Yep. So, I think that sums up this video. One thing I wanted to mention is that a lot of people if they're trying to find our videos or whatever, and they go to our website, which is iws.one. some people might type in IWS.com. So what we have done is created a new domain name just to redirect to the page where all the videos are hosted on. And so that domain name is wealthyknox.com and that'll take you right to all the videos. Are you going to put it up right here? Mhm. It'll be right there. It'll be right there on this wall. All right, guys. Thanks for watching and keep sending your questions in. We appreciate it and feel free to comment, like, subscribe, whatever you want to do to our channel. But for the most part, we just want people on our website to just watch the videos and not have to do any of that stuff. We do want questions though. So send your questions. Send your questions. So with that said, we're wrapping it up, right? Signing off.

Signing off.

Knoxville Financial Q&A Show Transcripts: Episode 3

Knoxville Financial Q&A Show Transcripts: Episode 2

Alright, everybody. Welcome to episode 2 of the Knoxville Financial Q&A show. I am your host, Paul. I'm Brian. And today we are answering four questions that you guys sent in. You sent in actually quite a bit more than we expected, which is great but these have to do with taxes and since tax season's coming up, we figured this would be the perfect opportunity to answer these questions. And so, let's just get right into it. 

Mark asked, "How can high income earners reduce taxes legally?" Alright, there’s numerous ways. The biggest thing is just trying to figure out which ones impact your exact situation. So, you know, one of the first ones would be, yeah, I mean, it's an easy one. Most financial advisors should be doing it anyway, but asset location is a big deal. You hear a lot about asset allocation. You don't hear much about asset location. Asset location just means you're putting tax inefficient things like dividend paying stocks or whatever in in let's say the traditional side of your portfolio where it's tax deferred. So you're not paying taxes on those dividends. And then you put your tax efficient equities that don't pay dividends essentially in your brokerage or individual account. This way there's not a whole bunch of taxes being generated, right? 

And then you also have things like tax loss harvesting, which is a way to offset gains. It doesn't really impact it when it comes to like income taxes per se, but it helps you when it comes time to take those gains. It can it can reduce your income tax a little bit if you have, you know, it's been a really good year and you have some really good gains. Short term. Short term for sure. and you want to at least mitigate or reduce some of those gains with just by doing simple tax less harvesting. Basically tax loss harvesting is selling things that have not done well to offset some of the gains that you have incurred for the equities or whatever that have done well. 

Yeah. But when it comes to some of the high income earners and places really the the biggest is going to be like for self-employed or business owners, things like SEPs and things that allow you to basically have a separation of your business's contribution to your retirement and your contribution to retirement. You know, a lot of the high income earning W2s don't have very many places to hide. They can max out their 401ks obviously, but kind of outside of that, you're very limited on what you can do. You know, if you make over, you know, $300,000 a year, you're pretty much out of luck when it comes to hiding outside in a W2 at least. I'm trying to think of other other ways that really impact.

Well, one of them you just said max out your 401k if you can. If you're a high income earner, for 2026, it's $24,500 per year. And the good thing is over age 50, there is an additional $8,000 catch-up provision. Yeah. And between 60 and 63, you have the ability to do the super catch-up contributions, which is new, so definitely take advantage of that if you fall between the 60 and 63 years old. And that's $11,250. So if you're between 60 and 63, you can basically take $35,750 out of your taxable income. 

Well, what about deferred comp? I mean, we think about like, you know, sometimes organizations allow deferred compensation that can impact you or help. I'm trying to think if there's any other unique situations that people should be aware of. I mean, without getting too far into the weeds, like things like cash balance plans and stuff like that. Cash balance plan is a great one. Yeah. Um, got to have it, but yeah, that's not provided to everybody. That's like we're being very general here, guys and I think it's important that we make a quick disclosure that says um, you know, if if you take any advice or suggestions that we give you as tax advice, consult your CPA. We are not CPAs. Okay, consult your CPA, please. 
Maxing out the 401k like we already talked about. If they're a business owner, take advantage of an SEP, simple, or individual 401k. Health savings account. That's another good way to reduce taxes. It's not a huge amount, but it's well, they're good anyway regardless because you get the what's it called? The the triple tax benefit essentially where it's deductible. Your contribution is deductible, it grows tax free and it comes out tax free for qualified medical expenses. Well, and when you think about it too, there's there's lots of loopholes when it comes to that. I should say I use that term loosely. It's not really a loophole, but there's no law written that requires you to take your withdrawals from an HSA for healthcare expenses in the same year. So essentially you could stockpile those receipts for your health expenses and defer your withdrawals till after retirement or close to retirement and then take your withdrawals which is also a unique you know example of how you can take advantage of it. 

Alright question number two Amy asked this one might get heated here. Amy asked are backdoor Roth IRA’S worth it? The reason I said that was because Brian's in the middle of trying to do one right now and we're having a little bit of issues from the opening account opening side of things. But anyway, I would say in non-financial terms, and Brian might agree or disagree with me, if you're an organized excellent record keeper kind of person, yes. If you're not organized and you don't keep good records, I would probably avoid them. Yeah, I would I would probably agree with that. You know, the reality is they could be very very beneficial, especially when you're in the high earning situation. You know, deferring income is great, but it leads to the compounding problem of lots of what we call qualified money, which is money that is pre-tax. And when you have a very very very large nest egg at 60 65 and retirement age that you have to worry about withdrawing if you accumulate too much which is a good problem to have trying to you know avoid RMDs become a a significant challenge. So would a back door Roth be worth it? Yes. You know that there is some caveats to which is what he was talking about. I'll expand on. You know you have to make sure you have your ducks in a row. you can't have any IRA money outside of your 401k because that has to be converted first. So if you're in a situation where you have the high income earning potential and you really want to take advantage of you, you need to be good at record keeping, become really good friends with your CPA and or tax attorney because you will you will get to meet with them at least once a year and document everything to make sure that you're not going to or if you get audited that you're not going to be caught with your pants down, so to speak. Um, but are they worth it? Sure. I think it Yeah, it's a double-edged sword, but yes. 

Pam asked, "How do I create a tax efficient portfolio?" Basically, we kind of answered that already in question one, but a tax efficient portfolio would be asset location for sure. Low low turnover, low turnover. Utilize municipal bonds. Uh, municipal bonds, I think, are probably one of the best kept secrets, especially for people that have high income taxes, and thankfully in the state of Tennessee, we used to have the Hall Tax, which we don't have anymore, which yay. But yeah, I think that the location is is, you know, dividends, if you have significant dividends, you know, you can get hit there. you have there's lots of little things but yes the most tax efficient municipal bonds, stuff that has low turnover stuff that isn't dividend intensive yeah. Pam if your adviser, if you have an adviser like if your if your adviser is not doing these things for you already then you might want to ask for or search around for a different adviser whether it's us or somebody else. 

All right, final question here. John asked, "Roth or traditional 401k at 120k income?" I think you could go either way on that. That's right there at that line. It depends on if you're filing single or if you're filing married joint. But I'd say that's right there along that income level of, you know, the the ability to compound your deferred, you know, taxes could be significantly impacted. You know, the downside is we don't have a crystal ball. So, we don't know what tax situations look like 10, 20, 30 years down the road. Could be more, could be less. So, well, the other issue here is we don't know, John. None of these questions came from our current clients. it was just people that saw the video, the first video. So, we don't know John's situation. I would say like an easy answer to that would be if John is in a position where he's been at a job for a while and he doesn't expect to have a jump up in a tax bracket before he retires, then he might want to just go for the traditional. Sure. Right. and then after he retires, he could potentially be in a lower tax bracket where you might want to consider Roth conversions. By the way, we're going to do a whole episode just on Roth conversions pretty soon. So, and then if you're just starting out and you're in a low tax bracket, for sure I would contribute to the Roth 401k first. Absolutely. And you're still going to get stuck with some pre-tax traditional money no matter what because most matching is going to go towards the traditional or pre-tax side anyway. So if you contribute to your Roth 401k, the match that they that your employer contributes is going to be pre-tax. That's correct. So we just answered the four questions that you guys sent in. We appreciate it very much. continue to do so. And I hope there was some value to this one. We just kind of just blew right through this it seems like. Right. But yeah, so if you have some questions that you guys want answered, we, like I said, there was some others that you sent in that we haven't answered yet because we just wanted to do ones that had to do with taxes since April 15's coming up. So, send them in info@iws.one or the page that we host these videos on on our website also has a contact us form. So, either way is fine. You can also just call the office 865-342-7766.

With that, signing off. Signing off again. Thanks for watching.

Knoxville Financial Q&A Show Transcripts: Episode 1

All right, everybody. This is episode one of Knoxville Financial Q&A. We're your host. I'm Paul. I'm Brian. The purpose of this show is to answer your financial questions. So, since this is episode one, we don't really have any questions yet because nobody knew we were actually doing this. So, what we decided to do for this first episode was to answer the questions that we most frequently get asked when new potential clients come into our office. So, with that said, Brian, what's one of the questions that you get asked most often from new potential clients?

One of the questions I get asked most often is probably should I take advantage of my 401k at my work or should I open up or invest outside of work? One of the things that I always try to talk to them about is say, you know, 401k match, if you get a match, you know, what are the fees? Does the company pay for the fees? What are your investment options at investment vehicles provided by the 401k? But, um, you know, the biggest thing is just match. You know, if a company matches, if it's a dollar for dollar match up to like 5% per se, the idea there is every dollar, if you put in 5%, they're giving you 5%. That's a 100% rate of return that you can't really find anywhere else in the world. So, taking advantage of any employee um employer match is really probably the number one thing that I would say yes, take advantage of a 401k. Should you invest outside of work? Always, but if it's a question of one or the other, take the match. 

Speaking of 401k’s, one of the questions that I see all the time, and I'm sure Brian does too, when people come in, they want to discuss their current 401k allocations. And the reality is there's not many to choose from anymore. So, you have probably noticed in your own 401k, if you have one, that you don't have any many choices anymore. They're all sort of age-based or target-based funds. Let's talk a minute for how we got there. It was 2008 basically and the market crashed. Everybody's 401k’s just sort of depleted. And what ended up happening is people pulled out of the market at the wrong time. They didn't stay in it or they were really close to retirement and they shouldn't have been that aggressively invested anyway. Part of that problem was because the market was doing well before that and everybody sort of got greedy, right? Comfortable. Yep. And so what happened was a lot of the employers, the employees rather, ended up turning around and suing the employers who were providing the 401k benefit to them because there was no financial guidance. And that led to the creation of target-based or age-based funds because it sort of um takes the employer off the hook a little bit. It makes it easy. There's a fund manager who's doing all the allocations based on uh the date you're supposed to retire. My problem with the age-based funds is what you're planning for is not the date you're retiring. It's you should really plan for the date you might die, which I know is hard to predict, but you want your money to last a lot longer than the date you're going to retire. So, I'm not a big fan of of age-based funds. I don't know about you, Brian, but I, you know, back in the days when you had a lot of 401k choices and you had you can put together a decent allocation, 401k’s tended to to do better in my opinion. So, with that said, like I said, I'm not a I'm not a big fan of the the age based funds or the target based funds and um, but it's just the norm in in 401k’s nowadays. And so, you know, part of rolling over a 401k that we can help with is putting together a portfolio that's properly diversified for your life expectancy rather than when you're going to retire.

Yeah. And my my next question would be kind of like a followup to kind of what I said earlier, which was, you know, should I have a retirement plan outside of work? You know, I think a lot of people mistake their work plans for their only plan  instead of thinking along the lines of supplemental everything, you know, all your belongings when you leave your job or whatever you whatever job you have, you typically take those with you. Why would you not take your money? I think there's a there's an idea of, well, my work takes care of me. If you just go have a plan, Roth IRA, traditional IRA, or things outside of work, you have vehicles to move that money into and they're already established. You're already contributing to them. We're also getting to an age where, I'm sure you'd agree with this, you know, we're getting to this day and age where the the 401k matches aren't significant. We don't have pensions. We don't have all that other stuff. So, you know, having that program that you contribute to, that investment vehicle outside of whether it's retirement or external investments in general, having that plan outside of work is just icing on the cake. I think that's the second most asked question for me.

Another question that we get all the time is um are you a fiduciary? And the answer to that question is yes. Both Brian and I are fiduciaries. But I always follow that up with um how much I hate that word and the meaning behind it. Sure, it's a it's a legal term where it puts us in a position where we have to put your interest ahead of ours, but the reality is if we weren't doing that, we would have no clients. And so what I don't like is when other advisers use it sort of as as a marketing ploy almost um you know stating that they're this fiduciary and they're going to take care of you the best they can and all that. We're already doing that with or without that word. We do have that on our website though just because that's what people search for. And so if we want to show up in your Google search for us um we have to have fiduciary on our website. So yeah, we are fiduciaries, but don't put too much weight into that. Just find an adviser, if it's not us, that always puts your best interest ahead of theirs, regardless of using that word or not. Any thoughts?

No, that's pretty much spot on. The the next question that I probably get asked the most is and this falls right in line with having the supplemental program outside of work or having a you know the work should be supplemental to your plans outside of work which is should I have life insurance? If you look at like group life insurance at work a lot of people don't realize um that their benefit is age based for in five year increments. So it gets more and more and more expensive. Um it's also based on the health and wellness of the overall group that they're insuring. Uh so if there's a lot of very old people there or a lot of very unhealthy people there, the the costs are usually based on that. Um and the other as aspect of that is it's if you leave that job or if they choose not to offer it anymore and you're out of luck. Um especially if you have any health problems or have any health problems arise while you're working. So yeah, my general recommendation is almost always have some form of life insurance outside of work. I think the uh in the age of social media, I think the the the most heartbreaking thing is seeing some young people pass away and have these GoFundMe’s set up and it's, you know, when they could have had a very cheap term policy that that covers some of the basic needs. It's just heartbreaking. You know, take care of your family. It's the number one thing to do. At least that's what I would say. 

Yeah, totally.  And I will say that, you know, a lot of new clients that come in or potential new clients, I think there's some hesitancy maybe before they book an appointment because they're un unsure of how we're going to charge them or what they need to pay. And um, so Brian and I meet with a lot of clients together and we provide a lot of education even in the first meeting. That's one of the things that we're really proud of is the amount of education that we do provide for our clients, whether they're clients or not. We just want to put everybody in the best possible position for financial success. But, you know, we might go through an hour meeting and provide all kinds of information and they might, you know, you can see them um pull out their checkbook or something like that and say, you know, what do I owe you? And just so you guys know, that's not what we do. We don't charge for an initial consultation. In fact, we don't charge where you have to write us a check for anything. So basically how we get paid is by managing your assets and getting a fee from that, a percentage of that. It doesn't come out of your pocket. So if one of the reasons you might be hesitant to call us is because you're worried that you have to pay us for something, you don't. We're here to provide information to you and um and just do the right thing. So, don't let that hold you back, put it that way. 

All right, guys. So, again, this was only episode one. We don't really know exactly how this show is going to end up going, what direction it's going to go in, but we do have the premise of we want your questions. We want to answer your questions and the best way to do that would be on our website which is iws.one not .com.There's a contact us section at the bottom or you can just email us atinfo@iws.one and just make the subject “Question”. That'll basically guide the direction of this show in the future. Um, you know, we again, this being episode one, we hope to improve. We hope to make the format a lot better and just get better with experience over time. We do plan on adding a sign back here. We're, you know, we put this studio together pretty quickly and, uh, we kind of like it. It came out good, we think, but it's going to get better and so will the production and everything else. So, don't be hesitant to ask. We we really want to um provide value to you guys.

So with that said, thanks for watching. Um please ask us questions. We want to answer them. And if you would like to schedule an appointment with us, again, the website is the best place to do it. We have an online calendar, but our office number is also 865-342-7766. So, with that said, signing off. Signing off. Thanks for watching, guys.