Nate Reineke (00:13)
Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor here at Physician Family Financial Advisors.
Kyle Hoelzle (00:22)
And I'm Kyle Helsley and I am also a certified financial planner. I am the retirement investment specialist here at Physician Family.
Nate Reineke (00:31)
Alright Kyle, we got lots of questions. I was going to ask you about Halloween and what your kids were. Quickly tell me what your Halloween costume was.
Kyle Hoelzle (00:38)
Well, β we're going traditional this year. we're going, my kids are going as witch, cat and, which cat and sorry, I'm blanking now, but yeah, we're going traditional. So. β
Nate Reineke (00:55)
Oh, okay, so you
just chose the... I was telling someone before this that back when I was a kid, there was not... The costumes were not as good. I think I was like an M &M, like three years in a row. Until finally, my dad let me be Austin Powers, which now I realize was wildly inappropriate for my age. I would just...
Kyle Hoelzle (01:17)
That's funny. And you said Eminem
like the candy or Eminem like the rapper? Okay, okay.
Nate Reineke (01:21)
The candy. No, no, not the wrapper.
The candy. I was just a big peanut β Yeah, we'd go. Yeah. Yeah, no, no, we'd be &M's or something like that. And then we'd go to JCPenney's and get our pictures taken. It's crazy.
Kyle Hoelzle (01:27)
with each blonde hair and, you know, baddie jeans.
You
know, it's funny, my wife, she always wants to do a family group costume, right? Because there's five of us, so we can, it means like there's a lot of group costumes you can do. And my children just, they never want to get on board with it. Like they are, cause you know, they're all individuals. They all want to do their own thing. But this year it's actually kind of coming together because they all want to be kind of the traditional. So we're all going to go traditional. So we like the Munsters maybe or something. We'll kind of like that. So it's going to be fun. Yeah.
Nate Reineke (01:44)
Yeah.
Mm-hmm.
That's good. I
like that. Okay. Lots of questions today. We'll get started. This is actually a listener question. I'm going to read what they wrote and then we'll tackle it bit by bit. So I'm a 58 year old surgeon in Pennsylvania and I've been practicing for 25 years. Always as an employed physician. Over time, I've built up several retirement accounts. 401k with TIAA.
the 457B plan for my second job that was frozen when the hospital was acquired in 2011, and my current 401k that started in 2011. I also have a cash balance pension plan that appears to be invested in a money market fund. As I start thinking about retirement in the next five to seven years, would it make sense to consolidate these accounts in one place? And if so, when is the best time to do that?
So before I get like one by one into each one of these accounts, β at a high level, what do you think about someone who's going to retire in five years? Should they consolidate now or should they just wait five more years and consolidate all at the end?
Kyle Hoelzle (03:14)
I think if it makes sense to consolidate it now, meaning you're not rolling money from β an inexpensive 401k with good investments over to an expensive 401k with horrible investments. mean, if it makes sense, all other things considered, then yeah, I think you should start consolidating now because
Nate Reineke (03:28)
Mm-hmm.
Kyle Hoelzle (03:35)
It's just, know, when you're in retirement, you know, my wish for our clients in retirement, other people in retirement, so they're actually out there enjoying themselves and going out and doing the things they want to do and not be on the computer messing around with their accounts. you know, at some point you'll reach that required minimum distribution age and you have to take that from each account you have that's subject to that. So if you have five or six accounts, you got to process five of those every year. If you were able to consolidate it down, that's less of that you have to do. It's less mail you get, it's paperwork, it's less...
Nate Reineke (03:48)
Yeah.
Hmm.
Kyle Hoelzle (04:05)
And so really if there's not anything barring you from doing it, I think it makes a lot of sense for anybody at pretty much any stage that you're at, just as part of that financial hygiene. But I wouldn't blindly do that, right? I would make sure it makes sense, all other things considered.
Nate Reineke (04:17)
That's good.
Right.
Yeah, I've noticed that with recent retirees, if they don't have it, you know, their accounts in shape before they retire, it's like a part time job for six months to just clean everything up. So it's just β what I'm hearing you say is just because you've waited this long doesn't mean you shouldn't start making good choices now. And but the key is good choices. So and we're going to get into that. So the first one is this β old 401k.
They said a TIAA. And you can roll old 401Ks into active 401Ks if your active 401K accepts the rollover, which is pretty, at least recently I've seen it's pretty rare for them not to accept rollovers. It happens, but it's pretty rare. And the big thing here is when you're making this decision, just like you pointed out, you're looking at fees. So which 401K has a better fee structure and you're looking at investment choice. That's it.
And then if your new 401k has better lower fees and better investment options, you would roll it over. If it doesn't, just leave it at the old one. Right. So that one's pretty straightforward. The frozen 457 is a little bit tricky. If it's a governmental 457, you can sometimes roll those over if your 401k allows it. If it's a non-governmental 457B, which most of the time is the case.
you would probably know if it was governmental. But that stays with the employer and usually can't roll it out. So you probably have to leave it there until you're retired. It's sort of tied to that employer until you're retired. And I couldn't quite tell from this question, but it sort of sounds like they used to have a 457 and it's still the same employer, but they were just acquired. So I don't think there's anywhere to roll this to. So it just has to stay there.
And we've talked about it a lot on the podcast, but β non-governmental 457Bs, I think the thing to be aware of there rather than account structure and consolidation is to be aware that it's subject to your employer's creditors. So when you're thinking about making β a distribution election, you need to be aware of the fact that if you stretch it out a really long time, you're stretching out how long it is.
subject to your employer's creditors. you might, might, this is a big planning question, decide to have these distributions come out a little bit faster than you would have forwarded. Okay. And then the cash balance pension plan. β They said it appears to be invested in a money market fund. I would bet that this is just a credit interest. it's, it's, they're crediting you.
β Your return is the credit that they promise you rather than investing in a money market fund money market funds typically don't aren't in here or at least it's a small portion, but it certainly is invested conservatively and β You can't usually move these until you retire or leave the employer and I also got the impression that this is with the same employer So at some point you'll make a choice about whether or not to take this money on a lump sum and maybe roll it into an IRA
or take the lifetime benefit. And then rolling into the IRA is another big planning question. You wouldn't want to do that β early. Like if you were leaving an employer and they said you want to take out this lump sum, you roll it into an IRA. It blocks your back door Roth because you don't go into traditional. But if you're going to hold on to it and make make this rollover after you retire, it can go into an IRA because
you're not making an income, you will continue to make Roth conversions, backdoor Roth conversions, and then you can slowly convert that money over to a Roth in retirement. So good question. It probably deserves a little bit more detail and everything, but I think that's the best we can do with what we got.
All right, next question. This is all you, Kyle. This is an OBGYN from Maryland. I got an email offering to put an ACATS block on my account. That's A-C-A-T-S. ACATS block on my account. What is that and why would I need one?
Kyle Hoelzle (08:50)
Yeah, this is a new feature that I've explored recently through a question a client asked and this is actually the second second time I've heard this question. So I was like we got we should put this on the podcast so A cat's is a an automated transfer system for Transferring securities and most of the modern platforms use a cats
because it's efficient, it's got a lot of security protocols on it. β The checks, you know, the owner on both sides of the account, and it's a very efficient way to transfer securities and investments without selling them. They travel over in kind, not being sold. So it's a very efficient system and it works really well. It's something that we use here a lot. So there was a New York Times article that came out about ACAT's fraud, where someone had transferred money, a fraudulent actor had
transferred money out of a client's IRA. β The money was recovered because the account holders acted quickly. when I got that article forwarded to me from a client, I read it. β I saw something about an ACATS block and I thought that's interesting. We should look into that. I β called a couple of custodians that I know I work with and asked about it. And sure enough, they do have what's called an ACATS block. β
I kind of picture this as being almost akin to like freezing your credit. It's a block you put on your financial account saying, do not want, there can be no outbound ACAT transfers, right? So if somebody opened up an account fraudulently your name and they try to ACAT the money out, it would just get denied because you have this block on your account. And so just like with your credit, you have to lift the freeze. You have to actually contact
Nate Reineke (10:16)
Mm-hmm.
Mm-hmm.
Mm-hmm.
Kyle Hoelzle (10:39)
your financial provider, your custodian where your account's held most of the time by phone because they want to verify you. And then you have to lift the block and then you do a transfer. And just like with freezing your credit, most of us know when we're getting ready to like use our credit or we're getting ready to do an outbound ACAT. So I think this is a good thing. I don't see any real downside to it. mean, maybe you have to wait on the phone, you know, for 15 minutes or something to get this done, but I think it's a good layer of security.
Nate Reineke (10:46)
Right.
Kyle Hoelzle (11:09)
for people who are in a really good place, they're happy where their account's at, and they don't have any intention of moving. And I think that this is something you should consider adding. I think it's not a bad thing. So, but that's my opinion on it.
Nate Reineke (11:18)
Yeah. You know,
the way I feel like the world is going, β I thought about this with student loans too. β Essentially, the government will make some rule or will have some new technology. Okay, so ACATS. I don't know how new ACATS is, but you just described it's a really good technology. It's really clean, it's really fast. And then β someone will β find a way to exploit that thing.
Right. We have new technology all the time and there are always going to be people out there who try to take advantage of you or anybody else and try to steal money from you. OK. And then β what comes after that is features and benefits to protect you from those bad actors. Or in the students case of student loans or some new rule, there's public service loan forgiveness. And then instead of a feature that fidelity or Vanguard offers you, a business pops up.
And you're like, so it's like every new cool thing produces the bad actors, which then produces more things to either do or spend money on to protect yourself from the bad people, all because you got the cool thing in the beginning. And that's all that's happening. None of this is it's like the cycle repeating itself over and over. And you just have to be aware. And we are aware. Right. You would you wouldn't be aware if you're an average person what a cat says. But we are aware of these things. And β
for our clients, if Kyle's asking you to do something like this, it's because there's a new scam out there and you just have to constantly be protecting yourself from it. So we're really big on security here and it is kind of boring and annoying, but there's just no reason not to keep up on it. And much like β taking advantage of maybe online banks,
Kyle Hoelzle (13:00)
Amen.
Nate Reineke (13:15)
They're more of, you know, they give better interest rates there. It's more efficient. You don't have to go inside the bank, but you do have to plan a little bit more. So when you want to do your transfers, you can't go into the bank and get a bunch of cash. In this case, if you want to do a transfer and a cash transfer, you got to call ahead of time. It just takes a little bit more planning to keep everything secure. And like you said, it's worth it.
Kyle Hoelzle (13:38)
And this actually speaks to like this, is to me, the ACATS fraud seems like such a new thing, right? Cause I've only heard about it a couple of times, but when I, when I really thought about it, you know, and thinking about my time working in the banking industry before I was a financial advisor and all that experience.
Nate Reineke (13:44)
Mm-hmm.
Kyle Hoelzle (13:54)
What it really is, when you really boil it down, it's just another form. It starts with identity fraud. Because an ACAT fraud, they open up an account in your name at some institution you're not at, and then they transfer the money out to this account in your name. Right? But how do you, what's the root of all that? That's just, that's identity fraud. It's no different than opening up a fraudulent bank account or opening up, take a freezing your credit. So you do people can't open up fraudulent credit lines or buy, get a credit card and rack it up in your name. It's the exact same thing. It's so really.
Nate Reineke (14:00)
Mm-hmm.
Kyle Hoelzle (14:23)
The ACATS block is like, that's like way far down the line of your security, right? That's kind the last stopper, right? What people really need to be more focused on, if I could draw focus attention to this, it's shredding your mail that has your personal information on it. It's having really strong security on your passwords. It's having two factor authentication set up on your, any login that you have that's got anything sensitive in it. It's these types of just kind of what we feel like in the modern world is our standard security practices.
Nate Reineke (14:29)
Yeah. Yep.
Kyle Hoelzle (14:52)
That's where you can protect yourself with that, way further upstream. So even though I'm making this eight cats block sign, it's a good thing, which it is, really, I think the focus needs to be on protecting your identity from the word go.
Nate Reineke (14:58)
Yeah.
Yeah,
this is the last line of defense there. Okay, spouse β of an OB-GYN in Texas. What is the pro rata roll and how does it affect having slash opening a backdoor Roth? All right, we've talked for rata rolls a lot, Kyle here, but β it will never end, right? Because it's confusing and everybody wants to know. So what's the pro rata roll?
Kyle Hoelzle (15:27)
Mm-hmm.
Pro-rata rule is, it's an IRS rule on how they account for the tax status of the dollars in your traditional IRA, which includes not just the traditional IRA, but the other before tax IRAs, the simple, the SEP, the traditional. β So when you're looking to do a backdoor Roth, it's important to know how much
Nate Reineke (15:47)
Mm-hmm.
Kyle Hoelzle (16:02)
It's important to know what type of money you have in your SEP, SIMPLES, and traditional IRAs. Because the pro rata rule states, anytime you do a conversion, a Roth conversion, where you do a Roth conversion from your traditional IRA to your Roth, that is potentially a taxable event. If you have before tax dollars in any of these IRAs, whether it's in three or four or five different IRAs, the IRS doesn't care. They pool all your IRAs together. And one conversion in Roth conversion, one IRA, all the balances in all your IRAs
are considered and that conversion is taxed on a pro rata basis which is basically a fancy way of saying a ratio of how much of how much of all your IRA dollars combined how much of that is after tax never been already tax money sorry after tax already been tax money and how much of that is before tax never been tax money that ratio when you divide that that output that percent in this case with the after tax β
Nate Reineke (16:49)
Mm-hmm.
Kyle Hoelzle (17:01)
on the numerator, that tells you the percent of how much of your conversion is not going to be taxed. And the corresponding difference would be what is taxed. So let's say real simple numbers, $25,000 after tax, $100,000 before tax. And you do the conversion 25%. So you'd convert a $7,000 contribution. 25 % that's not taxable. 75 % of that is taxable because you have such a large
Nate Reineke (17:29)
Yeah.
Kyle Hoelzle (17:31)
before tax IRA balance. It doesn't matter how many different IRAs it's in, that IRS just sees it all as one big picture. So that's the pro rata rule in terms of like taxation or Roth conversions.
Nate Reineke (17:40)
I think β something
that happens really often here, β at least if people are trying to do their backdoor Roth IRA conversions, which is you make post-tax contributions, never taxed contributions to a traditional IRA. You're not getting any benefit for that, right? Post-tax, and then you just convert that over to a Roth. That's the backdoor Roth, simplest terms you can make it.
But while a lot of people do, they'll have all these other IRAs. So let's say you have a SEP IRA and there's a lot of money in it. But then you think you're going to be sort of clever and you're going to open up a different traditional IRA and you're just going to put $7,000 of post-tax dollars there. And then you're just going to move that $7,000 over into the Roth. And you think that somehow you skirted around this rule, but you haven't. They're going to look at all the accounts as one. And all you need to know is that if there are any pre-tax dollars,
in IRAs and you try to do this post tax dollars conversion into a Roth you're going to get taxed. Right. So that's why every time we answer even 401k rollovers anytime you're talking to what I would describe as just a traditional financial adviser. They OK. Let me get on my soapbox for a second. Traditional financial advisers don't want your money in 401k.
Kyle Hoelzle (19:03)
you
Nate Reineke (19:06)
They can't make any money on your money in a 401k. So this first question they asked us, β this surgeon in Pennsylvania, he said, should I do? How do I roll this money or move this money around? If they walked into a traditional financial advisor's office, that financial advisor is going to do their very best to get all of that money rolled into a traditional IRA so that they can start charging on those assets.
And the reason that's bad is that it essentially effectively blocks your ability to benefit from a backdoor Roth IRA. OK, so we always give these caveats like there's so much it's so complicated to move money around between employer accounts. Why would physician family financial advisors do that? Why is it worth the effort? Because the backdoor Roth IRA is so powerful and you lose all the benefit.
if you start piling money into an IRA. So you have to be very careful. And that's why we're always working real hard to keep it out of the IRA. And this pro rata rule is the reason that it's so hard. So you basically have to keep pre-tax money out of your IRA if you're a physician. And by the way, some of these advisors literally don't think about this. They probably knew about it, like read about it when they were
Kyle Hoelzle (20:16)
Mm-hmm.
you
Nate Reineke (20:35)
passing their exams, but most people these traditional advisors work with, they are retired. And this is no longer an issue. But if you have a big, I was looking at, I was writing a plan yesterday. There was like $1.5 million in a 401k. Imagine they changed jobs and they walked into an advisor's office and they rolled $1.5 million into an IRA. Just, and they were only 45 by the way.
They had another 20 years left to backdoor Rotha area conversion set would have been completely burnt to the ground.
Kyle Hoelzle (21:06)
Mm-hmm.
It's, you know, I was just talking about this with the client, because we were going to call and do what we call a reverse rollover, which is to go from the traditional IRA to the 401k. And I said, I said, we have to be really clear on what we're saying, because not only are other advisors kind of working against the backdoor raw strategy with this gathering assets, but the industry as a whole kind of works against this because there's what's called the forced rollover, where if you don't roll over your old 401k, and the balance is really small, there could be a provision some
Nate Reineke (21:16)
Yes.
Kyle Hoelzle (21:37)
plans and they're planning documents where it's like, if you don't roll this money to your new plan, we're going to put it in IRA, it's like forced roll over into an IRA. Sometimes clients don't realize that happens and then you end up with pre-tax money in your IRA. Another way the industry works against you is when you call, say you just left your employer and you don't have an advisor and so you call your financial company where your old plan's at, you go, hey, what should I do with my old plan? They're going to be like, you can roll it into an IRA. That's the first thing that they're going to say is just roll it to a trishire with us. We'll keep it here at
Nate Reineke (22:03)
Yes.
Kyle Hoelzle (22:06)
at where your account's now and we can open it for it, it'd really easy. It's smooth. And that just doesn't take in the consideration of the individual's, know, situation. You know, it's a kind of catch all advice, which is great for, you know, the average Joe out there who's, know, in the average tax brackets, but positions are often higher tax brackets. And that blanket advice just, it's not, it's not, β it's not the best it could be. You know, it's, falls short.
Nate Reineke (22:16)
Right.
Yes.
Agreed. Yeah,
this is just very unique to physicians and a lot of the times I try to think, you know, sometimes you think it's unique to physicians or it's unique to high income people. But a lot of times it is physicians specifically because they're the ones who work for these big organizations who are going to be calling and getting advice from, you know, someone at Fidelity or something.
These people don't have, β many times they're not even trying to get the assets. That's just what they were told to say. That is just a rule. You are allowed to move into an IRA. So, this is where planning comes in. Planning is great for goals. It's great for seeing the future, imagining how much you need to save, how you're gonna invest. But it also, account structure is so key in planning.
Kyle Hoelzle (23:11)
Right.
Nate Reineke (23:29)
Account structure should be crystal clear. Why are you moving money into which account and transferring money around, keeping it very simple. And, you know, a lot of times these questions of where to transfer things, it kind of comes down to like, I could take it or leave it. Maybe you move to a new employer and it's both, they're all at Fidelity. And you're like, you can just kind of leave it. That's fine. But sometimes it's like these rules come out where they force these rollovers into IRAs or
Kyle Hoelzle (23:49)
Yeah.
Nate Reineke (23:57)
The employer gets sold and something happens and it's just nice to clean things up as you go so you don't run into any of this stuff.
Kyle Hoelzle (24:05)
Right. No count left behind, you know, and, β yeah, I mean, and this is why, like every time I meet with a client during, like during an annual investment review, I ask if anything's changed with your account structure because there have been times where clients are like, I have this new rollover IRA. And I'm like, wait, we're doing a backdoor raw strategy. I'm really glad I asked this because we're not going to convert you this year unless we can do this reverse rollover and empty that rollover IRA back out for you. Otherwise your conversion is going to be taxed so heavily. It's not worth it.
Nate Reineke (24:07)
That's right.
Kyle Hoelzle (24:34)
at this point, but we can get this, we can fix this, you know, but it's, β that's why you really got to be paying attention, like you said, to account structure and that can change. And then, you know, you got to keep your eye on those accounts.
Nate Reineke (24:46)
That's right. Okay. Family medicine doctor in California. We own two properties that we use as investments and want to get a third so we can leave each child a property. So three kids, they want to give each child a property. You're three years from retirement and have enough for a down payment, but an on and up to buy it outright. Is it a good idea to buy? β I didn't get this question β from this client.
and I don't know exactly what was said to them. There are certainly a backstory here, right? There always is. It's β a dream of some people to pass on cool assets like this. And I do mean cool. I don't mean that it's the best idea, but some people get it in their mind that they want to pass on and be very equal to each child. Should you do this? I'm going to pretty much say no. Probably should not do this.
β Of course, there might be some decent reasons from a familial perspective, β but from a pure numbers perspective, to be going into debt before you retire so that you can have a cool legacy asset to give your kids, I think is a mistake. β When you're three years out from retirement, you should be focusing on protecting what you've built for retirement, not taking on risk.
and debt is just another form of risk. That's all it is. So another reason this is you and I were talking about this before the episode. β We all have really great ideas or what we think are great ideas for our kids and what we're going to give them and what legacy we're going to build for them. β I hate to be the one that always has to say this, but you don't really have control over what your kids are going to do after they're 18.
And it'd be cool to give it to them. But if you're, you know, if you're. What are they probably late 50s and you got another hopefully 20, 30 years left to live. And your children are going to inherit this probably when they're 50 or older. Like, are they even going to be in California? Right. And if and if this is an investment property, do they want to manage?
an investment property from a different state and the state being California, which is very difficult to manage real estate like that. It just seems like it's coming with really good intentions, but β I have a feeling that it would be a hassle for these kids. And maybe it works out and maybe it doesn't. So all I can say is I'd land on I would not take out more debt.
And by the way, your children will be just as well taken care of if you invest this money and they inherit a big pile of cash. Because that's a lot easier to handle and it's less messy. how you handle sort of the it being fair, I could see that being an issue and maybe that's something you should plan around. But β you had mentioned
You know, these families from California and California real estate has probably been very profitable for them. So I could see why you would want to do this. β From my perspective, it's probably the answer is probably you shouldn't do this.
Kyle Hoelzle (28:25)
I agree. Yeah, it's, it is a risky move, especially right when you're knocking on the door for retirement. A lot of folks are trying to simplify their estates β in the latter half of their years, and this definitely adds complexity. But again, I would say ultimately, I think the way I, I mean, this is my own personal opinion, of course, but I feel like it's a family decision, you know, right? Like I think, I think if
Nate Reineke (28:36)
Mm-hmm.
Mm-hmm.
Kyle Hoelzle (28:53)
If this is a really big, this is big thing, it's a big deal leaving a proctor to somebody, you know, and purchasing it today. think that having everybody's input on, you know, on this would be good, but that might not be practical. But I mean, it definitely seems like a family decision and the values decision. β But yeah, from a planning standpoint, it's not advised, you know, to take on debt right when you retire. So you want to be reducing your liabilities. You want to be fixing your costs.
Nate Reineke (29:17)
Yeah. Yeah.
Kyle Hoelzle (29:23)
So, yeah.
Nate Reineke (29:23)
That's right. Yeah.
All right, last question. This one's for you, Kyle. Urologist in New Hampshire. With the market going up and up, is it time to rebalance accounts even if it means capital gains tax?
Kyle Hoelzle (29:38)
The short answer is yes, but my caveat here is this sounds a little bit like market timing. Not a fan. So I want to be careful of that, but the answer is still yes. how I arrived at that, how that right at that conclusion is falling back on your principles or your disciplines and investing, you know, so of course the most basic principle or discipline you can.
Nate Reineke (29:40)
Mm-hmm.
huh.
Kyle Hoelzle (30:06)
you know, pick up and have in your investment life is your investment policy statement. You know, I'm targeting this stock, this bond ratio, right? That's your compass, right? So you know where you're going with your portfolio, where it needs to be, right? β Then another principle of discipline you can add on the top of that would be like a rebalancing band, which is to say, how comfortable am I letting one asset get away from its target? How far am I comfortable with it drifting?
away before I need to rebalance. so that I think is really important to have because it takes the market timing out of it. It's like, I'm not rebalancing because I feel like the market's at an all time high. I'm rebalancing because these are off because this market's done really well and this one's done okay and this one's done poorly. And so I want to get back to my disciplines, to my principles of investing, which is I want to hit my target. want to get back to my target.
Nate Reineke (30:39)
Mm-hmm.
Kyle Hoelzle (31:03)
And I want to rebalance when I've strayed far enough that I've determined that it requires a rebalance. And so what a lot of clients are experiencing right now, you if you just, you're looking at U S stocks, international stocks to bonds, just at a higher level. You know, we all know in the last decade or so, U S markets outperform the international markets, which is outperform bonds. So when you, when you are looking at portfolios that haven't
Nate Reineke (31:10)
Mm-hmm.
Kyle Hoelzle (31:33)
been rebalanced in the last five to 10 years, what you'll tend to see right now is just an overexposure in US stock, probably light on bonds. so falling back on those principles, those disciplines, yeah, you should be rebalancing if you are off target, if you are outside your rebalancing band, because at the end of the day, it's not about timing the market. It's about managing your risk. It's about saying, Hey,
Nate Reineke (31:58)
Mm-hmm.
Kyle Hoelzle (32:00)
I am comfortable at 60 % stocks, 4 % bonds, because I'm in retirement and I'm at 70 % stock right now. And I know because of my investment policy statement, but this is too risky for me. And if it's my taxable account I'm talking about, I need to sell off the stocks to rebalance back. I need to pay capital gains to take that risk off the table, to lock in those gains and to reinvest them where you need to bring up the weighting, where you need to go back to target.
β I think right now most people who've been in the market long enough, who've had five, 10 years of investing at this point, you're most likely probably off target. β
Nate Reineke (32:39)
Yeah. So what I'm hearing you say is this,
I like this. There's basically two main principles here that you're describing, which is just a typical ratio, you know, stocks bonds. And you get more complicated than that, but let's just say stocks and bonds. And you come up with a really thoughtful amount of stocks you want to own and bonds you want to own. And then. You follow it.
You actually follow it. And if you actually follow it and these principles that you have and this, you know, principles have a way of doing this. It helps you avoid emotional decisions. Right. Or overthinking this and trying to time the market. That's why you have them. And if they're thoughtful enough, if you really thought through how much stocks want on, how many bonds you want to own, there should be no reason to stray away from it no matter what the market is doing.
Right. And there's all sorts of benefits to doing this, like technical benefits. But just for you and your mind, thinking about your investments. Look, sometimes the market does so well that if you follow your principles, you have to pay some taxes. It's a good problem to have, because if that's the case, that means your investments have done really well. And yes, it hurts to pay taxes. But you know what hurts more is taking far too much risk and it creating some bad decisions later on.
Kyle Hoelzle (33:53)
Thank you.
Nate Reineke (34:04)
that evolve into worse decisions and worse decisions. So yes, I agree with you. It's probably time to rebalance for most people, unless you're working with Kyle, then he's doing that all the time with you. So, yeah, that is it for today. Thank you everyone for listening. If you like the show, be sure to subscribe so you can see when new episodes are released. β And you can also leave us a rating wherever you're listening. That'd be really helpful. If you'd like to work with us, you can go to PhysicianFamily.com.
Kyle Hoelzle (34:08)
Mm.
That's right. That's right.
Nate Reineke (34:33)
schedule an interview, and if you aren't ready for that, send us a question. We just answered one of them today. You can send them to podcast at physicianfamily.com. We promise to answer every question we get, whether or not it makes it on the podcast or not. Until next time, remember, you're not just making a living, you're making a life.
