Let's Talk Money

Good morning everyone. You were listening to Let's Talk Money, brought to you by Bouchet Financial Group. My name is Vincenzo Tesla. I'm one of the wealth advisors here at Bouchet Financial Group. I'm a CPA and a CFP, and I'm sitting in and giving a well deserved break to the one and only Stephen Bouche. And I'm joined by my colleague Edward Wilhelm. Ed, why don't you give an introduction really quick for the audience. Hey, everyone,

thanks for joining us today. It's a beautiful morning up here in Saratoga, so happy to dive into it. Thanks, Thanks, Ed. Thanks. I encourage all listeners to call in at eight hundred Talk WGY. That's eight hundred eight two five five nine four nine. Please give a call of any questions at all really quick. I just wanted to give a market analysis and outlook on the major indices this week. The past three weeks have been kind

of rocky. The Dow jones this week, you know, it has saw a tiny gain when the S and P five hundreds saw a three point one percent decline, and the Nasdaq has saw its worst weekly performance since twenty twenty two, with a five point five percent decline. And you know Ed's joining me today. You know, he's our portfolio analyst at the firm. It's

heavily involved with the portfolio. He's on our investment team, and you know he can bring a lot of insight to you know, some investment outlook and you know, the market outlook that we're looking at today and they and an analysis of that. So the indices, you know, it's been kind of rocky lately, we've seen some volatility. It's you know, we've seen a great twenty twenty four and up until now, and you know it's honestly,

the pullback is a sign of a very healthy market. You know. Obviously if the market continues to keep trending up, you know, that could be a sign of you know, yeah, it's at a certain point that marketings a pullback. So Ed, why don't you give some analysis and outlook on what you've been seeing. Yeah, definitely, thanks, Vinny. So what we've seen, you know, even over the last week, you know,

growth, you know, tech definitely taking it on the chin. But a lot of that I think is just because of the concentration we see in those areas within the broader indices. I don't think that's pointing to any you know, key warning signs there. You know, we're seeing some divergence, you

know, from their strong performance relative to other sectors. But on the flip side of that, you know, we have had value outperforming these these growth stocks over the last you know, a couple of weeks now, So it is it is nice to see a little bit of a switch there, you know, and it just points to the added benefit of diversification within portfolios in the in the biggest news i'd say, you know, in Vidious slumps ten percent on Friday. So, like I said, these big name tech stocks

the risk on really areas of the market are taking it the hardest. And that's just because I think markets are a little fearful right now. You know, we've seen some geopolitical conflict arise and people tend to get scared. You know. One metric I really like to look at, you know, when we start to see an extended pullback like we've seen over the last three weeks is CNN has a fear and greed index. If you're listening, you can

find this just by googling fear and Greed index. It's probably the first link by CNN, But it compiles a whole bunch of different metrics and essentially just points to whether the market is looking either greedy or fearful. And this is kind of based on a quote from Warren Buffett and he said that only fear and greed really moved the market as far as underlying psychological kind of principles.

But I think it does a good job of telling the story of what we see in over the last three weeks, and it's you know, we've had a great twenty twenty four so far, We're approaching earning season. You know, we've had a string of hot inflation data. The commentary have from the Fed has changed on rate cuts they had originally signaled for three. That tune is changing a little bit given the streak and hot economic data, and we

don't know if we're going to see those three rate cuts. Estimates are certainly coming down and maybe pointing to only one, you know, later in the year. Time will tell. And as far as that goes, I mean, retail investors and even those on the institutional side are are really just right

behind the Fed. And it's a kind of waiting and seeing game, you know, as these economic data points come out, as earnings come out, you know, what is the economy looking like, and lately it has been running hot and that and that does point to you know, stickier level of inflation, but that's not necessarily a bad thing for the ECONO me right, markets can continue to perform even it went at these higher levels of rates. So I think markets have grown a little fearful, but that's not a bad

thing. And as you mentioned, this pullback can you know, certainly be healthy. You know, it gives valuations a chance to reset, and as we approach earning seasons, hopefully we'll see them continue to kind of be justified. You know, we've seen earnings play a more important role this year, you know, relative to maybe other years in history. But it really is waiting and seeing game. And I'll give maybe just a little recap on where

earnings have been already to start the year. You know, my my thoughts have been that they've been relatively positive. So just a couple kind of big names. American Express they saw an acceleration and credit card sign ups, consumers are able to continue shopping freely. They beat earnings, Netflix Speed earnings, they saw subscribers jump sixteen percent. This definitely stood out to me because this is kind of in that discretionary spending sector, So this doesn't scream to me

that the consumers are really in a tough spot. T SMC they're a AI chip supplier, you know, a couple of their clients are you know, big brand names like Apple and Nvidia. They beat on revenue and profit expectations, you know, citing a strong demand for those AI chips. So I think that was something I was really happy to see. And it's this AI

kind of bull wave is not really quite getting blown out. And just because some of these valuations are stretched, it doesn't mean that they can't remain stretched for some time. And I don't think we're at a serious inflection point in the market where you know, these valuations are completely unjustified. On the healthcare side, you know, United Health Group is up fourteen percent this week. They beat expectations on earnings across So I think overall we're at a good spot.

But it is just kind of a waiting and seeing game. And you know, the one major unknown is kind of those geopolitical conflicts. But again, you know, there's kind of a short term impact to markets and I encourage anyone listening to keep their thoughts and their focus on a longer term time horizon. Yeah. I mean, that's really our philosophy at the firm. It's you know about you know, buying and holding rather than trying to time

the market. Right. You know, when we see a pullback like this sometimes you know, maybe not in this situation, but if there's more of a correction, we'll have you know, folks who are willing to you know, who have a risk tolerance, that are able to you know, get more aggressive on the forefront, right. You know, if we were to see another five ten percent pullback, you know, folks that are maybe sixty forty, we may you know, advise them to get more aggressive at that

point and get more into equities. But you know, we're only a little bit off of the all time highs. We're still at you know, pretty high levels in the markets. You know, regardless of the pullback in the NASDAC and the pullback in the S and P five hundred and and and you know, the geopolitical issues and unknowns are really a large part of the pullback in the markets, uh this week, in the past couple of weeks.

So you know, it is the side of a healthy market. You know, with the market, if the market were to keep going up, you know, that would kind of be, you know, something to be worried about, in my opinion. You know, the pullback is healthy and it's something that you know, it's it's the norm, right, you know, the markets go up and down, and that's what they're going to do. And and you know, to be an equity investor, you have to be

optimistic and you have to be able to deal with that. So you know, on the flip side, you know, from the equity markets, you know, we have bonds, right, so back in twenty twenty, you know, bonds and yields in general money market funds they're yielding basically nothing, right, and now bonds have gotten more attractive. We're in a higher interest rate environment, and you know, even a ton of our clients we're getting them into bond funds or individual treasuries, and you know, bonds have gotten

more attractive. So, ed, why don't you just go into a little bit about individual treasuries and bonds and the pros of owning each of those and the differences between those two. Yeah, awesome, So I think you know, something we've seen is is rates have certainly grown attractive in this environment.

You know that the ten year yield for US Treasury is right around four point six percent right now, So when you think about that, you know over a ten year time horise, and that can certainly be an attractive investment, especially for those you know, approaching retirement or in retirement where you're in a

wealth preservation sort of mindset rather than maybe a capital appreciation mindset. So you know, we really view you know, any asset class or investment vehicle is just a tool, and the toolkit in compared to shorter you know, term history, these these rates are attractive, and these are tools we haven't necessarily had access to, you know, when rates were so low. So you know, the great thing about owning an individual treasury rather than maybe owning a

bond etf or a money market is you're you're locking in that rate. But then also you're as long as you're holding to maturity, you're not subject to any risk on that capital. So you know, when you when you own a bond fund, as rates go up, the price of that bond will go down. The longer the term the bond fund, the more sensitive is

going to be to those interest rate changes. So that's why you're seeing some of these longer term bond funds really taking on the chin, you know, over the course of twenty twenty three and even to this year as we've seen a resurgence and rates. So the biggest thing i'd say is, you know, the capital appreciation perspective on a bond etf you know, may be higher, but you're subject to that market volatility while the forecast rates is unknown.

When you're locking in a rate with an individual treasury, you know what you're getting and as long as you're holding it until maturity, the volatility in the meantime, you know, it doesn't matter too much in that perspective. So it's definitely, definitely can be a great tool. And I also just saw an article on money markets. You know, they've been a fantastic tool as well. For those who don't know, a money market fund is essentially an

ultra short bond fund. So what they do is they'll just buy you know, one sometime one month to even shorter term treasury maturities and continue to roll them and it essentially acts like cash. But right now kicking off a very attractive yield. You know those most are above five percent, probably closer to the five point two percent range. However, the issue with those is, as soon as we see the first rate cut, the yield on those is

going to drop. And they are awesome because a lot of them are stable value. You know, they're priced at a dollar and they will always be priced at a dollar, and they just will kick off that yield as you own them. However, like I said, once we get that first rate cut, or even as expectations come down, the yield on those will drop,

and it can happen very suddenly. So if you have long term time horizon and you have a pile of cash sitting in a money market, you know, I would encourage investors to maybe look elsewhere and maybe try and look at locking some of that that yield in because you certainly don't want to get caught with a large sum of money in this money market fund and rates come down and now you're kind of stuck in. If markets are still elevated,

you might not have as an attractive entry point into equity markets. And typically the money market funds are also charging a higher fee rate than something like a broad market ETF or even a fixed income ETF and then of course no fee on an individual treasury. So it's also just kind of something to keep in mind there. Yeah, thanks Ed. You know, I think that's really

important. You know, individual treasuries are essentially risk free, right. The US Treasury bonds step back by the US government, you know, But the most important part about it is, yeah, they're risk free if you hold them to until maturity, right, because if yields move up and down, you know, the price of the bond is going to move up and down. And that's really important to understand. If if you have a long term time horizon and you can't hold on to a US treasury from extended period of

time, it's important you know that you don't sell. I mean, if the price of the bond increases, obviously it's a good sign and you can sell out and you know, capture that game. But if you sell out and you do need the cash before the date of maturity, it's important to be aware of the risks of the price volatility in the bonds and that you may have to sell the treasury if the price decreases, well we're going to take a quick break. I encourage all listeners to call on at eight hundred

talk WGY. You are listening to Let's Talk Money, brought to you by Bouchet Financial Group, where we help our clients prioritize their health while we manage their wealth for life. Thank you. Hi, you were listening to Let's Talk Money, brought to you by Bouchet Financial Group. My name is Vincenzo Tesla. I'm one of the wealth advisors here at Bouchet Financial Group. I'm a CPA and a CFP, so it really special and financial planning and tax

planning. You know. Prior to working at Bouchet Financial Group, I worked at KPMG, one of the big four accounting firms, you know, strictly doing taxes. And I am joined by my colleague Edward Wilhelm. Thanks for joining us, Ed, I just wanted to get into really quick. You know. Obviously Ed and I were talking before about you know, the pullback in the markets and and a little bit of volatility we've been seeing recently. And you know, one of the things that's really surprising me is, you

know, the performance of Apple over the past couple of weeks. So, Ed, why don't you talk a little bit about that. Yeah, so you know, Apple has certainly been kind of left behind in the AI rally, you know, relative to its counterparts in the in the mag seven, it's definitely struggled, which is something you know that the stock and investors are not used to seeing. So there's there has been some you know, doubts behind the strength of Apple, but you know, in the long run,

it really may be the the winner. You know, they're doing a lot of cool things in the AI space, and they were maybe a little behind at the jump, but I think if anyone can catch up, it's certainly Apple. And you know, they just announced a partnership with Google and there are some of their AI services, So I think it'll be really exciting to see some of the big things to come there should be should be interesting, and you know, it certainly can be a potentially attractive entry point for investors

on a on a long term time horizon. Yeah, I mean Apples down eleven percent year to date, you know, typically, you know, Apple is one of the more attractive positions to retail investors and and investors as a whole. So you know, AI really been driving the upticks in the market.

Obviously not the past three weeks, but you know past year or so, you know, artificial intelligence has really driven you know, the performance in the markets right in the NASDAC, which is really technology based and it's into sey that you know, tracks technology companies like Apple and you know Amazon and the test the Teslas of the world, so ed, you know, Tesla has seen a little bit of a pullback as well. What are you seeing

with Tesla? You know, Tesla's a big name. You know, it's a company that a lot of people have you know, great aspirations for and and you know, their innovative company. But what have you seen, you know, the past couple of weeks with Tesla pulling back? Yeah, I mean it's important to keep in mind that, you know, Tesla is really the definition of a growth stock, right when when people are investing in Tesla,

it's not really because of what they're doing right now. It's not because of the numbers that they're posting it at this current time, right, but it's it's that future idea of what they may be able to do and some of the growth rates that they've been able to show. And because of that, you know, it's really become the definition of growth stocks, but also

just a proxy for growth in the markets, right. It's it's an area where historically you've been able to attain you know, some very aggressive capital appreciation. But then on the flip side of that, you know, you receive the downside, and when and when markets sell off, you know, these risks on stocks and areas will take it the hardest, you know, has to be expected as as investors, you know, get fearful, they look to trim you know, those those riskiest areas kind of first, and also

those in the largest gain. So I think most of the selling on Tesla is a form of you know, the broader market sell off. I don't know if too much of it is specific. You know, Elon Musk is also a very relevant person in the news, so that's something to kind of keep in mind as well. But from a long term time horizon, you know, I think they're doing a lot of a lot of great things. They're certainly a very unique company. I still think they're leading the EV market.

I think it's gonna be hard for other companies to kind of close that gap. I mean probably one of their biggest proponents for that is their you know, charger network as well. I think you know, people kind of focus on just the cars and what they're doing in that area. But what's really been impressive is some of the infrastructure they've been able to come out and build. You know, over time, you know, they're they're scooping up

a very solid chunk of that market share. So that's that's something important I encourage investors to watch, is you know, kind of look under the hood a little bit and see what else is going on. Yeah, I mean

it seems like Tesla's kind of become a household name, right. You know, you have the clean exes of the world, the Coca Colas, right, they are leading the charge in that space, in the you know, the electric vehicle space, and they are in a very innovative company, Elon Must you know, kind of has become like a political figure in some respects. People have opinions on them. You know that also maybe you know what's driving the volatility with you know, within the stock price of that company.

Right. And you know something really interesting about Tesla is you know they have their own insurance company, right, so if if you get the Tesla, you can get insurance for the Tesla through Tesla itself, right. And you know, they have so much technology in their vehicles that they're able to basically

track and you know, monitor how their drivers are driving their vehicles. And you know, with their insurance company, they have such you know, such innovative technology that they could basically see, you know, how many times you cross over the line in the road or things that you know other car companies can't see, and it's basically able to give you know, the actuaries that work for their insurance company, you know, real time data of how good

of a driver, if you will, you know, it's driving the vehicle right, and it's able to give them insurance premiums that are tailored to you know, how good of a driver they are, right if they're a high risk driver and they're constantly swerving or crossing over the line in the middle of the road, they're able to you know, have that information and see that

in real time. And you know, that's pretty amazing if you think about it, because when you talk about insurance companies and how profitable they can be, you know, the actuaries are going to make you know, assumptions or predictions about you know, how high risk a specific driver is, and you know, it's pretty amazing that they have that technology and they're able to see

that in real time. All right, So we're just going to move on really quickly to some tax planning, and you know, ways to take money out of your IRA or four one K early without a penalty. You know, there are some ways to do it to take distributions to your IRA. As you know, if you take distributions from an IRA before you're fifty nine and a half or a four to one K, you may be subject to penalties and you may be obviously if it's a traditional IRA, you will have

to pay tax on that money. But before we do that, we are going to take a quick commercial break. My name is Vincenzo Testa. You're listening to Let's Talk Money. Please call in if you have any questions at eight hundred talk WGY that's eight hundred and eight two five five nine four nine. Again. My name is Vinny Tesla. You were listening to Let's Talk Money, brought to you by Bouchet Financial Group, where we help our clients

prioritize their health while we manage their wealth for life. Listen to Let's Talk Money brought to you by Bouchet Financial Group. My name is Vincenzo Testa. I'm one of the wealth advisors here at the firm. I'm a certified public accountant and certified financial planner. I'm joined by my colleague Ed Wilhelm, who is a portfolio analyst at the firm. I encourage all listeners to call in at eight hundred talk w g Y. That's eight hundred eight two five,

five, nine four nine. Before the break, I was going to get into, you know, withdrawing money from IRA early without penalty and some of the options you can to do that. But before we get into that, you know, I just want to talk about a couple more things regarding you know, the markets, right, and we've seen pullbacks in the markets.

We were talking about this earlier at an eye, and there's some opportunities to you know, do some financial planning and tax planning strategies and commit to them, you know, in regards to things you could do, you know, when the market does pull back. And you know, I was talking about

how getting more aggressive, you know, is a strategy, right. You know, selling out of equities when they pull back is not the best move of all time, but you know, getting more aggressive when equities pull back is right because you know, you get that cheaper price and you buy in when the markets are down and you reap the benefits over the long term time time horizon. Right. You know, the pullback has you know, is the consequence in effect of a lot of different things going on in the market.

Right, there's tensions in the Middle East. You know, the oil market has been frothy. So ed, what have you been seeing with tensions in the Middle East and how that's affecting the markets. Yeah, certainly, I mean it really just kind of points to to fear in the markets. You know, these geopolitical conflicts, you never know how they're going to turn.

You know, it's definitely, I think probably one of the hardest things within finance to forecasts, and I mean it really leans outside the realm of finance even but of course, you know, whenever there's tensions, you know, rising in the Middle East, you know you generally see you know, the prices of oil start to creep up, you know, worries that the supply chains can kind of get interrupted and it can squeeze that supply of oil

a little bit tighter. So that's you know, kind of while we're seeing the rise there, and then you know, just in the same kind of commodity field. We've also seen gold. You know, it's been on a somewhat of a historic run, and I think that also just kind of points to to fear in the markets. You know, it's kind of a place where investors run when you know, they they're scared of equities, you know, especially right now with the fixed income market also looking at a higher for

longer rates. So that's kind of what we're seeing there. I'd sum it up to really just a lot of fear and definitely somewhat justifiable. You know, we don't know what's going to happen in the Middle East, so that's that's kind of where i'd leave it. Yeah, I mean when oil prices increase, right, that can affect a lot of aspects of the supply chain, right, you know, transportation costs themselves are gonna you know, increase, and you know what does that do That that increases the cost of goods,

right, cost of goods sold. And you know that's basic accounting for you, right, you know, when the when the goods you know, hit the consumer or you know, the businesses that are purchasing the goods, or you know, those prices are going to be increased, right, because transportation costs have increased because it's the price of oil, right, And that's really important to understand, you know, how that can affect the price of

goods and then makes it more difficult for folks and the consumers to purchase the goods. And you know, the purchasing power you know, starts to decrease when you know that oil price increases, right, you know, And with the market pull back, there are a lot of strategies you could utilize to take advantage of it, right, you know, just like before, you know, say I said it once and I'll say it again, you know,

you know, getting more aggressive when the market pulls back. But there's also you know, things you could do like wroth conversions, right, and roth conversions you know, for those of you who are not aware, is you know, when you push money from your traditional IRA or four to one K or tax deferred qualified retirement account and you recognize the income and you convert

it to a wroth. Right, so you recognize taxable income on your tax return in any given year and you push it to your wroth right, And

why is it advantageous to do that when the market pulls back? Because you're going to have less taxable income, right, and you're pushing money out of your traditional IRA when the markets are down, and you're going to be paying you know, less tax if you will, you know, on that money, then you would then if the markets were at all time high, per se, and you get that money out of the tax defer retirement account and you push it over to the WROTH and it could be really advantageous for a

couple of reasons. Right. So you know, folks that are you know, nearing towards required minimum distribution age, right, your require minimum distribute is you know, the money the IRS says, hey, you know you receive the tax benefit for contributing to your four win K after all these years. But you know, it's time we get our money. It's time we get

our tax revenue. And they force folks who are you know the age is now seventy three to pull money out of the traditional iras and tax deferred retirement accounts and basically pay tax on it. And it's really a calculation and you know, to make things simple, it's really four percent on an account balance of a traditional IRA or you know, tax deferred retirement account, and that's that's what the IRS uses to calculate it's about four percent of the ending balance

in the previous year. And by pushing money out of your traditional iray or tax deferred retirement accounts simple iras you know steps, you you know, kind of decrease that balance for the future. Right. You know, when you have a required minimum distribution, you really don't have control over how much money or how much taxable income you have to recognized from that account. Right,

so when you hit age seventy three, you've kind of lost control. And the lower your balance is, the better it's going to be for your tax situation and the more flexibility you do have. Right, So having money in tax free retirement accounts like ROSS is really important. Right. You don't want to have all of your money tied up in tax deferred accounts because you know, a lot of the reason is because of that requirement of distribution. Right,

you have no control over your tax situation. Right, you know, we could do tax playing, you know, until the sun goes down. But if you have a requirement, if you have a really really high, you know balance in you know your step you're simple your traditional IRA, your four O one K and you know your r m D is you know significant, you don't have control over your tax situation. It can put you into a high tax bracket. You know, any other income you recognize is going

to be getting tax Let's say you're in the highest tax right. Let's say you know you're a high earner and you were a higher earner and you have a four to one K or rollover IRA that you know has a significant balance like four or five million. You know your rm D is going to be two hundred thousand plus and you know, based on your other income, you

could be in the highest tax bracket. So every you know, all the income that you have come in after the fact, that could be getting taxed at thirty seven percent, you know, and you know that's not on the federal side. Then you have the state side with six percent, and you know you might have the you know, net investment income tax of three point eight percent. So at the end, you know, at the end of the day, you could be getting taxed almost fifty percent on your income if

you're in the highest tax bracket. And you know that's something that worth mentioning, right, And that's why doing roskin versions is so important, right, And the on the flip side. You know, aside from the rm D, your Medicare premiums are based on your income. So if your rm DS is that high, you know, again you have no control over your income and you can't plan for that. You know, your Medicare premiums can they ascend pretty quickly based on your income. And you know, getting money out

of your iras is important. And then you know, when the markets pull back, that's one of the best times to do it. You know, especially when we're talking about tax planning, we want to move money out of the iras into ross when the market has pulled back a little bit. You know, aside, you know you could do them do it when the markets are at all time highs, but you know it's a more advantageous time to do it when the market pulls back and we're gonna take a quick break.

I encourage all listeners to call in at eight hundred talk w g Y. My name is Vincenzo Tesla. You were listening to Let's Talk Money, brought to you by Bouchet Financial Group, where we help our clients prioritize their health while we manage their wealth for life. You were listening to let's talk money. My name is Vincenzo Tesla. I'm one of the wealth advisors here at Bouchet Financial Group. I'm joined by Edward Wilhelm, my capable colleague, who

is a portfolio analyst at the firm. Before the break, we were talking about, you know, things to do in a market pullback, right, and I was talking about roth conversions and how they could be advantageous to investors and and you know, those holding retirement accounts, you know, but there's something else that you could do as well, and something it's something called tax

loss harvesting, right, and you know what does that mean? You know, tax loss harvesting is, you know, a strategy in which you take if you have a taxable account right now, we're not talking about retirement accounts here, but if you have a taxable account, you basically recognize the logial positions in your taxable account, you know, and kind of net them against your gains. And there's a new you know technology on the forefront that the

firm is rolling out. You know, we're not the only firm that's rolling it out, but it's it's kind of this new technology and it's called you know, direct indexing. Right, And direct indexing I'll let Ed go into a little bit, but you know it's really there's really cool technology that you know helps investors and you know, helps firms like ours, you know, invest in individual positions. Right. You know we as of right now,

you know, we use exchange traded funds. Right, So exchange traded funds are funds are they're not mutual funds, right, but they're funds that hold a basket of stocks, right, And you know we only can sell and buy into you know, these funds as a whole. Right, But direct indexing kind of does something different and it it you know, gives investors and folks, you know, the opportunity to do this tax loss harvesting. So Ed once't you get into that a little bit. Yeah, So, as

any mentioned, you know, ETFs are awesome. You know, they're a really easy way for investors to obtain that diversification benefit by getting a basket of stocks at a at a very low cost. As Vinny also mentioned, you

know the power of tax sosce harvesting. So taking some of the losses in your portfolio, realizing them, taking some gains in your portfolio portfolio and realizing them and then using them to offset each other from a tax standpoint, and then this allows you to kind of reposition your portfolio and you know, potentially

buy something similar to the losses you had just sold. You know, buying low and selling high is always the idea, but it's a lot more comprehensible to do in a account where you have a basket of rather than ETFs but individual stocks, because you have you know, more opportunities to do that tax sauce harvesting kind of across the board. So that's where direct indexing really comes in is it allows you to get the full benefit of tax sauce harvesting but

also not lose out to any of that diversification. You know, for a retail investor and even those on the institutional side, it can be very challenging to manage, you know, a very large portfolio of individual stocks, you know, as earning seasons roll around, it's a lot to kind of keep

track of and stay on top of. But what direct indexing allows you to do is essentially recreate an index or one of these ETFs or even a mix of them, so you can still achieve your you know, desired portfolio allocation and maintain that diversification benefit, but also just owning all the individual stocks rather than you know, a sum of the baskets. And then this this gives

you that opportunity to do some serious tax sauce harvesting. And what these direct indexing softwares are able to do is it's going to look for those tax sauce harvesting opportunities on a daily basis. So typically tax sauce harvesting is something you see done, you know, more in priority towards the end of the year.

You know, it's certainly relevant whenever you're seeing a pullback in the market, you know, and even just that periodic times throughout the year, you know, checking if you have anything a loss and a gain and maybe you want to trim that winner, take the loss from your loser and reposition. But you know, like I said, that can take up a lot of overhead. And for the retail investor, you know, especially those who are still working. You know, it's a full time job to try and manage

a portfolio, especially those taxable accounts. And this also prevents positions from just getting built up an extremely high or extremely low cost basis and building up a very chunky gain sometimes those positions can become oversized and also difficult to manage just

over time as a nature of being in a taxable account. So the direct indexing is really an awesome tool, you know, to provide that diversification benefit within your target allocation and then also taking advantage of those that tax sauce harvesting opportunity, you know, over time. In the software, it is able to do it really efficiently and look every day, and it's really really impressive, and it's only possible, you know, by the recent advancements over the

last few years in technology. You know, it's been around for a while, but not quite at the same level we're seeing today. Before it was just limited to your major indices, you know, like the S and P five hundred or the Dow. But now you can essentially upload an allocation of you know, multiple ETFs and and this is going to run through and pick a you know, large basket of stocks that are going to track the same way that your ETF portfolio would. But then under the hood, it's going

to look for tax los harvesting opportunities daily. So a really really powerful tool, especially for those in a high taxible bracket. It's just definitely something exciting kind of coming to the financial services industry and definitely approaching the you know, the forefront more and more seeing firms across the board kind of roll out this

technology. Yeah, it is pretty amazing how far it's come. You know, tax loss harvesting and ross conversions, you know, you know, these are all strategies that folks can utilize when the markets are down and there's a little bit of a pullback, right, and you know, tax loss harvesting is really important, like I said, when you're in a high tax bracket, you know, and let's say you do have short term gains, right,

short term gains are going to get tax the ordinary income rates. And if you're the thirty seven percent tax bracket I think I was talking about earlier.

You know, when we get you know, the state tax rate in the mix and the net investment income tax, which is three point eight percent on investment income for high earners, you know, you can get close to fifty percent and if you have the opportunity to you know, eliminate some of those gains in the market pulls back, you know, I would definitely take, you know, take the opportunity to do so, you know, for

high earners. You know, they're paying pretty high tax rates when it's all said and done, and you know, tax loss harvesting, you know, is a great tool and strategy, and that's what this direct indexing really allows investors to do. You know, it's really an awesome tool. And you know, we are rolling it out for clients at the firm and and you know we're starting to you know, get it ingrained in our processes, and you know, it's really a great technology and great opportunity for investors. So

you know, just to keep piggybacking off of that ad. You know, another one of the other great things about direct indexing is do you know there's some folks come to us and they say, hey, you know, I had someone pass away with you know, with lung cancer in my family, I don't want to invest in tobacco companies, or you know, if I have someone with a gambling addiction in my family, I don't want to invest,

you know, in DraftKings or fan duel. So why don't you talk a little bit about how you know, you could kind of pick and choose what industries you're invested in with direct indexing. Yeah, so you know, within the programs, you know, you really have the ability to completely tailor or portfolio just as if you were you know, creating it yourself. So I mean typically you're kind of uploading a an ETF portfolio and then and then

mirroring it using a basket of underlying stocks. And and then once you're kind of at that point, you can exclude you know, industries or sectors or even you know, specific names and whether that's just you know, a sort of environmental you know, social government's concern, or maybe you know, you just have an existing Apple position that accounts for a really large chunk of your portfolio. Uh, so you know you're you're really over exposed to Apple.

You know, you've got a really low cost basis. It's a year where you can't take a you know, huge tax will gain by selling out and reducing some of that position. So you know, these programs also you know, kind of have use in that area where you can say, hey, I'm going to kind of underweight the rest of the tech sector, you know, other kind of growth your stocks, and then also you know, avoid

buying any more Apple. And then what you can kind of do as time goes on is bank up some of those losses within the direct indexing process and slowly unwind that concentrated stock position without taking a huge, huge tax hit.

So you know, that's something we've definitely seen a use case for. You know, if you're an employee at a publicly traded company, you know, if you're getting compensated, you know, either through stock or stock options, you know, this can be a tool to kind of de leverage from that

specific position. You know, because we do see you know, clients coming in with you know, large concentration in one position, and this can be a really great tool in that area from both the investment portfolio management and then also on the tax side. So it really solves you know, those kind of two issues in that area as well. Yeah, I mean, and

that makes a lot of sense. I mean, we have clients that Regeneron right, Regeneron pharmaceutical company in Rentallear biotech company, and you know, they have some significant equity compensation, they have stock options, they have you know, restricted stock units, right, and you know, part of the strategy that I you know, start to roll out for them is right to start

exiting these positions, right. You know, if they have significant high net worth in Regeneron, Right, we have all of this money tied up. They're really, really really tied to Regeneron, right, and that's not I mean, Regenerons is a great company and all, but that's not a good thing. That's not a good thing. To have all of your eggs in one basket. That's what they call it, right. You know folks that

worked at General Electric over the years. I mean General Electric was a great company for a long long time, right, But you had some folks that you know, they have GE stock and their four O one k. They work for GE. Their job is to their income inside the GE. You know, they had equity comp from GE. And there was folks that you know, I remember talking to one gentleman. You know, he lost like two million dollars, you know, having all of his eggs in one basket.

Diversification is very, very very important. So you know, we have clients that regeneral On that have all of this equity compensation, right, and you know, while we're getting them out of these positions and starting to diversify their portfolio, and you know, when we're looking at it, you know, some folks have sixty to eighty percent of their funds tied up in Regeneron right comes to equity comp they have the stock in the four to one k.

So getting out of those positions is very very important. You want to diversify. You don't want to be tied to one company. If something goes wrong your retirement and your financial plan, can you know it could it could burst? Right, It's very important to diversify because there's something called systematic risk

and there's something called unsystematic risk. And systematic risk is market risk. Right, that's, well, you know what we're seeing on the market pulled back a little bit, there's some geopolitical issues, the oil market is frothy, the market as a whole is gonna move right, and that's the systematic risk of being an equity investor or a bond investor. And then there's unsystematic risk. Unsystematic risk is you know Chipotle has equal I in their lettuce or you

know Boeing one of their plane crashes and it affects the stock price. That's unsystematic risk. So if you eliminate unsystematic risk through diversification, the only risk you have is systematic and that's market risk. And that's when you know you're able to be a long term equity investor. Right, you could take you take risk invest in individual companies, right, and you know there are companies that you know you can do so without their being you know, without being

concerned. Right. But when you have all of your money tied up in Regeneron or you know g and you work there and you know your family you know, is supported by that company, it's very risky. And it might not feel like it or you know, seem like it on the forefront, but it's very risky to have all of your assets tied up, you know,

in those companies, you know, without being diversified. And you know that's what tax loss harvesting does, you know, or with the direct indexing right if you have if you do have all your money tied up in Regeneron, and you know, we're slowly getting you out of those positions, or you're you're slowly getting yourself out of those positions, you know, and we do so with very strategic tax planning, right, making sure folks don't go

over a certain tax bracket, and and you know, making sure that we're planning around exiting you know, equity compensation in a way that you know is tax advantage, you know, for that employee of that company, you know, and then investment with direct indexing. You know, if you are so exposed to regeneralund which is biotech, you know, we can kind of you know, not invest you into the biotech space, right. You know,

with this direct indexing technology, it's very important. You know, it's very crucial, you know, when we're looking at clients' financial plan and their financial life and you know tax planning as well. So we're coming to the end of the show. You know, my name is Vincenzo Testa. I'm one of the wealth advisors here at Bouchet and you know, I appreciate you all listening today. You know, Ed Wilhelm, I capable colleague you know,

also joined me today. I really appreciate him talking and giving his outlook in the markets. You're listening to Let's Talk Bunny, brought to you by Bouchet Financial Group, where we help our clients prioritize their health while we manage their wealth for life. Thank you.