Let's Talk Money

Listening to Let's Talk Money, brought to you by Bouche Financial Group. My name is Vinnie Testa, one of the both advisors here at Bouchet Financial Group. I'm a CPA. I'm a Certified Public Accountant and a Certified Financial planner as well. I encourage any listeners to call on at eight hundred Talk WGY. That's eight hundred eight two five five nine four nine, and I'm also joined by my colleague Ed Wilhelm. You're gonna join me on the show today,

and you know Ed's a wizard and investments. He knows his investments, and we're gonna talk about some topics that hopefully you all will enjoy. So Ed wants to just talk to the listeners and introduce yourself really quick. Yeah, happy to be here. It's a nice Sunday morning, and Happy Father's Day to all the dads we have listening. I know you play an important role in a lot of lives, so appreciate it. And I'm a somewhat recent Siena grad. I've been with the firm of a couple of years now

and my background really is in investments and also data science. I kind of sit on the operational end of the firm, and I'm glad whenever they let

me out from behind the desk do something fun like this. Yeah. Absolutely, I mean, you know, Steve has been doing the radio for years and it's a you know change of pace, nice change of pace when yes, you know, us and our other colleagues that do it, we enjoyed doing it and we love it. So Ed, you know, like I said, that is on the investment side of things at the firm, and you know, he he analyzes, you know, the portfolio. He's a

big part of the decision making in the portfolio. We make changes the portfolio, and you know, and we do make changes to the portfolio. It's based on obviously what's going on in the economy, what's going on the current you know, world news, and we make changes based on you know, the current economic environment. So Ed Monta go through the weekly returns and talk about the major in disease. Yeah, appreciate it. Vin. So looking at the S and P five hundred, I mean, it was a great

week across for the markets across the board. S and P five hundred up over one and a half percent, nas DAK, I mean that's really where the story is up over over three percent, dowd Jones down slightly, almost down one percent. But it's just the same narrative you know, we've had all year, and it's that that large cap growth. It's the tech and

communications that's that's really where the light's been shining for the markets. You know, we had the S and P five hundred hitting all time high on Wednesday, nas DAK followed that up and hitting all time high on Friday. Overall, you know, markets are at h at a good place right now. Apple had their Worldwide Developers Conference on Monday. They announced an integrated AI solution coming to iPhones and the stock had initially slid, but now it's finished the

week up over ten percent. I know, Broadcom had a really solid week on earnings, reverse share split, so I equity markets, you know, had a super strong week. Markets pushed up past all time highs, and we're you know situated nicely for you know, serious extended bull run into kind of elections into the latter part of the year. Here as we would hear more from from the Fed, yeah absolutely, so. You know, interest

rates obviously have been a big topic over the past year or two. You know, a federal Reserve, as we all know is you know, basically America's bank, right, and they raise or lower interest rates. And recently, you know, over the past year or two, they've raised interest rates because obviously inflation has been prominent in the news and obviously we've all felt it,

there's no question about that. So obviously the Federal Reserve has raised interest rates to you know, kind of curb demand, right, And inflation comes from demand outpacing supply in a big way. Right, So you know, when simple economics, when demand outpaces supply, it's going to create you know, an increase in price, and you know, therefore it has caused inflation.

So raising demand or raising interest rates, you know, curbs demand, decreases demand, and you know, and it has done the you know, the Federal Reserve has done what it's wanted to in terms of you know, bringing prices back down to you know, to Earth. So, ed, where do we see the Federal Reserve going from here? Yeah? No, it was certainly a big week, you know, kind of a across the board as far as inflation data goes. I mean, just the number of

events we had happening is definitely an event focused week. So right now, we've got the ten year treasury sitting at you know, about four point two percent that had that had slid a little bit. This week, you know, we saw rates come down mainly on on the longer end of the curve, so one year in far there definitely the majority of rates coming down was in kind of the belly, that five to seven range, that's where it

got hit hardest. But on Wednesday we got the Fed decision. They decided to pause rates, and this was this was pretty much baked into the markets for the most part. Everyone knew that we weren't gonna you know, cut or hike. A lot of the stuff is you know, pretty telegraphed by

the markets. For those listeners who aren't as financially savvy, there's something called the Fed Funds futures, so it's like a contract that predicts the future Fed Funds rate, and these are a great way to analyze what the Federal Reserve is going to do with the interest rates. You know, they're able to kind of break those down and basically show what the markets are pricing in. And if we're looking at those right now, markets are pricing in slightly above

a sixty five percent probability of a rate cut in September. Now, we have seen this before, you know, in fact, we've seen it all year to date. Markets love to be optimistic, They love to you know, aggressively forecast a rate cut. That's what's priced into the market right now. But we know that Jerome is going to be cautious on the back end when it comes to cutting rates. It's something you know, I've talked about on the show before. He was late calling inflation transitory. He waited to

hike and he made that mistake. So the last thing he wants to do is cut rates too soon and see inflation tick back up as economic growth slows. That leads us to an environment that is called stagflation. And that is, as far as textbooks are concerned, the worst economic regime to be in,

and that is an increasing inflationary environment. So above inflation being over that federal reserve two percent target while economic growth is slowing, and that is that is the worst kind of regime to be in compared to any other combination of those two metrics. But so, like I said, you know, the table is set for a potential rate cut in September. Markets are optimistic of it right now, that's what they're pricing in. I think that might change,

however, regardless. You know, we clearly don't need a rate cut for strong economic growth as we've seen all year, and on the flip side, the same for corporate profits. And we're still a long way off that fed two percent inflation target. You know, we've certainly got a long way to go. The Federal Reserve knows it, the consumers know it, and

now we're overall, we're we're in a pretty good spot. Yeah, thanks said So, Yeah, stagflation, like Ed said, it's a you know, economic period of time where inflation you know, is taking and their slow economic growth. So obviously, like I'd said, it's probably one of the worst economic situations to be in. And we have been in it in the past. And you know, when's the last time we had that in this country In nineteen seventies, nineteen seventy three, nineteen eighty two. Yep.

Yeah, So you know that was a period of time where we experienced stagflation and you know, we haven't experienced inflation in a long time. And obviously it has a lot to do with COVID, and you know, during COVID, we you know, we had shutdowns of businesses and just the country was shut down in general, so we had to print a ton of money and

you know just kind of create economic stimulus. And it was kind of just you know, the country basically stopped in terms of the economy, and then we jump started it by you know, passing bills and giving stimulus checks and you know, pretty much printing all of this money. And that's really what caused inflation. And then you know, the pent up demand from people not traveling for a long time, and you know, once everyone got out of the house and you know, the dust started to settle, there was a

lot of pent up demand in terms of spending. People wanted to travel, i people wanted to go and do things. So that's really what kind of

created inflation. So that's one of the major risks in the economy right now is that you know, we experience this stagflation and basically if the Federal Reserve lowers interest race, which you know looks like something that's on the horizon, that's the one risk is that inflation starts to come back, and we have this period of time where we're experiencing inflation for an extended period of time in the nineteen seventies, is you know, a pretty good depiction of what that

looks like. And I mean, I was only having the nineteen seventies, and I know ed wasn't for sure. But you know, we study economics and we study the history you of the US, and that was a period of time that you know wasn't great from an economic standpoint. And that's one of the major risks in the market and the economy is that we experience inflation

for extended period of time. We're gonna take a quick break. 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 your wealth for life. Thank you. You were listening to Let's Talk Money, brought to you by Bouchet Financial Group. My name is Vinnie Testa, one of the wealth advisors here at the firm, and I'm joined by my colleague Ed Wilhelm. He's

a portfolio analyst at the firm. So Ed, you know, I know, we talked before the show and wanted to talk about a couple of topics. We just got done talking about inflation and its effect on the economy and what the risks are from a long term standpoint with inflation. So we talked about the everything bubble, So why don't you talk a little bit more about

that. Yeah, So, I mean it's pretty cool with the just level of inflation we've been seeing, you know, across the board, and I mean all the examples of you know, markets reaching all time highs, you know, especially in that you know, kind of teching communist communication sector. But I mean the silent, the silent part of inflation really is the shelter

costs, right what what people are paying for rent. And due to these higher shelter costs, which have remained elevated, they've been one of the stickiest and priciest points of inflation, continuing to hold it, you know, above that feeds two percent target. Because of these high shelter costs, workers demand and higher wages, the general increase in prices causes insurance premium to to also

increase. And this is kind of then in an endless cycle here. So we've got you know, shelter costs up, which drive wages up, which then drive insurance premiums up. And this is essentially just a cycle until the FED is able to come in and and get it corrected. You know, we know that asset prices, UH, inflation spill over into the real economy, and that's really what we're seeing. But shelter accounts for of core CPI and it's still rising, and that stuff has been one of the kind of

stickiest, stickiest areas of inflation, you know, really really quick. We do have a we have a caller, John Gilderland. Hello, Hey, John, how are you? Hey, guys, how are you good? Good? Good? I'm looking for advice. Uh, I'm retired, my wife is retired. We both have guaranteed tensions. We have we have no debt, you know how we are at a point where we both had tax

shelters and we're now having to take the minimum distribution every year. Yes, there is there anything I could do to put myself in a better position. I mean, I know I'm in a great position having a guaranteed pension, which a lot of people don't have. But with that kind of scenario, do I just you know, play out the strength or is there anything else I could do in terms of your requirement of distribution? Well, in in terms of anything, I mean, I've got six grandkids. That are my

targets right now. But you know, we're comfortable obviously where we are with a minimum distribution. I say, we're taken maybe between the two of us ten thousand the year we have to take. I don't want I don't want to take it, but I have to. Yeah, yeah, what do you think I should do with that? Are you charitably inclined? Am I charitably inclined? Yeah? Yeah? We probably donate about ten thousand a year now to different different charity. Yeah yeah, I mean that's something you can

start doing. You start doing qcds, right, so you do qualified charitable distribution with your rm D, you're probably not receiving a tax benefit for the ten thousand dollars a year that you're doing right now. Right, So if you do a QCD, which means you move the money directly from your rm D to the charity of your choosing, and it comes directly off your taxable income. Right, So are you working with a financial planner? Yeah?

Yeah, yeah, so that way, if I send it directly to them, then I get a little bit of a tax No, I mean you get the full tax break, right. So, if you're making a cash contribution, chair veritably, I mean just based on the surface. I'm a CPA, so I've done taxes for you know, extended period of time. Someone in your situation, you're married, filing joint, I'm have to imagine,

you know, the standard deduction. So if you're doing ten thousand dollars a year, something's telling me that you're probably not itemizing your deductions unless you have some other significant expense with medical expenses that I don't know about. So

by doing the QCD. Yeah, So basically right now, you're you're taking a ten thousand and getting taxed on it and then directly giving it to the charity, and you're not receiving a tax benefit when you could be doing a qualified charitable distribution and just completely moving it from the IRA or four one K where we're pulling it from to the charity and it's going to come directly, you're not getting taxed on it. So basically taking a step out and not

getting taxed on the money you're pulling out of your IRA. So it's basically a no brainer if we did that, would all of it have to go to one charity or could they go to a couple of No, you could you could do it to multiple charities you can. Okay, Yeah, well, thank you, I appreciate that. Yeah, no problem, no problem, Thanks for calling in. All right, Ed, you're talking about shelter

costs and how it affects CPI, so feel free to resume. Yeah, no, that was I'm sure that's beneficial for our listeners, but I was just kind of running over the shelter costs has been he mentioned, and then kind of how the insurance premium come along with that, and the insurance premium have been the major driver of the portion of the core services inflation metrics, and these can actually kind of be somewhat understated, and some of the CPI

metrics we get, but core goods are no longer deflationary. You know, we've seen shipping costs rise again. The base effects are no longer supportive as the supply chain crisis rolls out of the trailing twelve month window. And Trump's proposed tariffs also would impose a new import tax of one point four percent of GDP. Uh, so that was also kind of a big, a big proposition, and you know, it can't take too much of that, you know, into into markets, but definitely something to kind of consider. As

we had head towards election. In some other interesting news we've got towards the end of May and Nvidia overtook Apple in market cap. It's just the overall size of a company, and this has some kind of implications when we think about the the all I would say the nerdy side of finance, right, we have ETFs those listeners who are familiar, so it's an exchange traded fund.

It's it's very similar to a mutual fund. That's essentially just a basket of stocks and the majority of them are market cap weighted and they'll they'll own there are some of the largest players when it comes to individual stocks. You know, they'll own pretty significant portions of a total stock in these in these baskets, especially the large and the popular ones. But within Vidia overtaking Apple in in market cap, you know these et ss are going to have to

rebalance. And when they rebalance, if their market cap weighted, right, so the size of a company's holdings within that basket is determined by the the size of its market cap, it's good they're going to have to rebalance, and and typically these rebalance on the third Friday of the last month of each

quarter. So I would say this is going to be kind of an interesting to watch, interesting one to watch, you know, as we've seen in Vidia overtake Apple and market cap, you know, there could be some interesting moves and some pretty large flows coming between some of these ets across the board. So definitely, you know, kind of something you might not often hear about, but these things are important, you know. It's kind of the

institutional side of the money. Yeah. I mean that's the one thing with ETFs, right, So you have market weighted ETFs, right, and those are the qqqs of the world, right, and you know qq you know, pretty popular technology fund And when we say Barker waited, it means that the companies that are you know, have the highest market cap, right, and a lot of you know, some people that you know no stocks and talk stocks, right, you know, they might get tied into oh,

you know, Apple is one hundred and twenty five dollars, but Microsoft is three hundred and So it's not really about the price of the stock. It's about how many outstanding shares there are, and then the price also comes to to play. So when you multiply the outstanding shares, which means that the shares that are available to purchase for four purchase to the public or to anyone

looking to buy into those companies. Those are the outstanding shares, right and the company's border directors make the decision, and and you know, it's determined on a you know, very extended factors that probably about above our pay grade why they make those decisions. But it's that number multiplied by the price, and that's what the worth of the company is, otherwise known as the market cap. Right and ed, what is the highest valued company right now?

Is it Navidia? Microsoft? I believe it is uh is still Microsoft? I'm not sure on that. I know this. There's been a lot of ping pong between those those top three players. I believe Apple just broke above three trillion, you know, catching up somewhat to a Video, But I believe it's Microsoft and Video and then Apple. Yeah, I'm looking at Microsoft right now. The mark cap is three point three trillion dollars, So it's

sitting at four hundred and forty two dollars right now. The outstanding shares multiplied by that price is what's getting to that three point three trillion dollar number. That's the mark cap. That's the value of the company. And when we look at the ETFs that are market value weighted, these companies really affect the

price. So if if Microsoft is in QQQ and it's you know, I'm not going to look through all the companies right now, but Microsoft has been one of the highest valued companies in the country for extended period of time. So if Microsoft's price moves in terms of their stock price, that's going to affect QQQ more than you know, Adobe would because Adobe isn't that doesn't have a market cap even close to Microsoft. So that's what market value weighted ETFs

to. And then there's the equal value weighted ETFs. And these are ets where every single comp company within the ETF is going to affect the price of the ETF in the same manner. It doesn't matter what their market value is. Right and when you have you know, and you know why is this I won't say a benefit, but you know, if you have a technology

ETF that's equal weighted, it's basically just just gonna apologize. Just track the technology sector in the generality right where you know the market valuated will you know we're talking about the Magnificent seven lately, how they're affecting the stock market, and you know, only a couple of companies are up this year. When you look at the rest of the market, it really hasn't been much of an effect. So that's where the market evaluated. ETFs in this situation have

been, you know, pretty beneficial to own. But we're going to take a quick break. You were listening to Let's Talk Money brought to you by Bouchet Financial Group, where we help our clients prioritize their wealth health while we manage their wealth for life. Thank you. You are listening to Let's Talk Money brought to you by Bouchet Financial Group. My name is Vinnie Testa. I'm my wealth advisor here at the firm. I'm a CPA and a CFP.

I have extensive tack knowledge, so please feel free to call in if you have any tax questions or financial planning questions for that matter, at eight hundred Talk WGY that's eight hundred eight two five five nine four nine. I'm also joining with my colleague Edward Wilhelm, portfolio analyst at the firm. Ed's a crucial part in the trading that goes on to the firm and the investment portfolio decision making that is done at the firm. Ed's part of the investment

team, and Ed, you know, is studying for a CFA. He's working hard to try and get those accreditations. And you know, that's one of the hardest tests in the country, right, I mean, I've taken some hard tests in my day. The CPA was tough, the CFP was tough. For the CFA, it's tough. Not to remind him, but it's a tough test. And Ed is, you know, aspiring to get that test done. So, and we're talking about market value weighted ETFs versus

equal weighted ets. What are the benefits and or cons do you see to both of those ETFs? Yeah, I mean market cap weighted you know ETFs, And I mean it's really the indices underlying index that the ETFs track. But typically, you know, when you see an index, it's it's pretty safe to assume that it's it's market gap weighted. For the most part, that's kind of the norm. Now they're they're definitely other ways to weight them. I mean, essentially, you could pick any sort of metric and you

know weight the index based on that. You know, whether it's a free cash flow or like a PE ratio. It's it's possible, but the most common is definitely market cap weighted, so that the largest companies just have a little bit of a higher weight than the smaller companies. Then, as you mentioned, yeah, we have we have equal weight in the indices and that

is where every single company within the index gets the same same weight. So you know, when you're buying one of those like a and you know qqq e W or like a spy equal weight, right, essentially, what you're doing is is you are just you're buying less of those you know, top ten kind of holdings, and you're you're buying more of those, you know,

bottom fifty sort of holdings. And when we think that most indices are market cap weight, and what that's really doing, uh, when you're buying an equal weight indexes, you're you're getting exposure to the smaller and the mid caps. So you know, it can be a kind of a tactical way to say, hey, I don't I don't love the concentration that we're seeing right now on markets, and and maybe I'm going to look at some of these smaller companies. And you know, if you're doing it in something like

a tech like an equal Weighted Focused Index or ETF. You're just saying that you want some more exposure to those those smaller players, that that's really all you're doing. However, you know, I will say is the narrative this year really has been just just concentration. It's a lack of breath in the markets. You know. Essentially, the more concentrated your portfolio has been in you know, tech, that magnificent magnificent seven, the thaying, the better

it's done. I mean, it's it's literally just like how much money have you had in the VideA, how much money have you had in Apple? How much money have you had in Microsoft? You know, Google, Amazon, Meta? And those are really the core components that are driving market returns this year. And it's I think it's going to take something somewhat serious to kind of break that that regime, you know, and it as these you know, the returns continue to be driven from these you know, few players.

They take up in it even larger weight of these indices, and because they're taking up a larger weight in the indusses, they're getting more flows from you know, the average retail investor who's just buying this in p funk hundred buying the NASDACT. These companies are such a large component of that. It's like, okay, you know almost you know, between like thirty or fifty percent of you know, your portfolio when you're buying one of those diversified funds.

It's you know, it's all in just that handful of companies. So it's kind of interesting to see. It's it's just somewhat of a cycle, you know, the concentration driving returns, and then those returns continuing to drive the concentration out performance. So i'd say here at Bouchet's that's one of the things we're definitely keeping an eye on, and it's definitely a metric we focus on. It's like it's called referred to as the breadth of the markets.

So you know, how concentrated are the returns, you know, across sectors, across industries. But whether it's focused in just a handful or a you know, we're starting to see it kind of spread out to those mid cap and small cap companies. Yeah, like I said, I mean the Magnificent seven for those of you don't know, it's you know, those large technov companies that we all know and love, Microsoft, Apple, and Nvidia, Amazon, Meta, Facebook, uh Tesla, and Google, and you know,

those are really driving the returns in the market this year. If you look at the other companies, ed, you know, what does it really look like in terms of returns, It's not it's kind of amative. Overall, it's still positive, but yeah, I mean relative to when you look at these companies and it's you know, they can they're having a you know,

a lot of companies are having still a very strong year. You know, even if we just look at earnings, right, earnings growth, forecasted earnings growth, profit margins, total revenue, all of the numbers are up. However, you know, once you start comparing them to the MAGNETA since seven, it's like, okay, they look a little underwhelming, and I

don't I don't know if that's quite in apples to Apple's comparison. And then saying, once you start taking an individual company and then even comparing it to an index return, it's like, hey, it's like okay, yes, you know, maybe this stock is only up five percent and you know the S and P five hundred is up you know, twenty percent year to date. Okay, well, it's it's lagged. Then but it's not really the

whole S and P five hundred that's up that much here to date. It's you know, a couple of core players that are just driving that performance. So that's honestly some of the trouble we're we're seeing almost when when you're benchmarking to an index in a year like this, this sort of concentration, I mean, it definitely makes our jobs tougher. I mean, right, Like, I sit on the investment committee, so we're constantly looking at the portfolio

and any sort of tactical rotations. And I mean since I've been alive, right, I was born in two thousand, But since I've been alive, if you haven't been in large cap growth, you know, specifically tech, you've underperformed. Right, There's no way around that anyone in the industry would would agree. I mean, you can get creative and do all sorts of cool things on a very complicated side of finance, maybe, but I mean, just breaking it down, if you have not been in large cap growth,

specifically tech, you've underperformed. And that is even more the case in this since twenty twenty you know, since the drawdown in twenty twenty two. It's it's like there's nowhere else to run. So it's you know, some people call it a bubble. You know, valuations are certainly frothy regardless, right, evaluations can be frothy. We can be in a bubble. That's not the question. The question is is if or when that will pop U So you've got to look at kind of more macroeconomic factors, and I think

you're going to want to stay in large cap growth. I mean, I've seen it work for twenty four years now, and that to me, there's there's almost really no no alternative driving driving returns, and once you start benchmarking to these indices, you you see that it's really just the thing that's seven and the more you've had in them, the better you've done. Yeah.

I mean, you know, back with the year year born and there was a tech bubble, right, So for those of you do remember, you know, the Internet was just kind of in the infants, infancy stages of

what it is today, right, No one really knew. I mean I remember seeing I think it was a the Late Night the Late Night talk show with I think it was Johnny Carson and Bill Gates is on there, or it was one of the other comedians that were in that late night talk show, and they're basically like mocking Bill Gates, uh, talking about the Internet. They're like, you know, saying, you know, how how can you send electronic mail? And like kind of like laughing at Bill Gates.

And it was back when, like the Internet. Obviously it's come such a long way and the computers have come such a long way, but back then, it's really difficult to kind of grasp what it is today, you know, before it became what it is. So I just remember that video of Johnny Carson just kind of mocking Bill Gates and Bill Gates is kind of sitting

there laughing and that. You know, there was a tech bubble back then, and all of these companies, you know, they call it the dot com bubble, So all of these companies that had dot com right and I think one of the big ones was pet dot com, you know, a company that didn't have you know, you know, revenue growth or they I don't think they were profitable, but it was a company that sort of just

took off in terms of its stock price. And a lot of companies that had the dot com or were you know, internet companies, Uh, you know, the stock prices all took off, and that's what was considered a bubble, and at one point that bubble popped and and everything not everything, but you know, there was a pretty significant crash in the technology sector of the markets. And you know that's kind of what's really important when it comes to investing, right, And you know, one of the main and the

main you know principles of investing is diversification, right. And it's great if you had your money in the VIDIA, right, if you had your money strictly in the video and that was it, you made out, But there's risk to that, right, And there's risk to also having your money in small small cap tech stocks or if you had your money in consumer staples. Over the past couple of years, like Ed said, there has been significant

performance in technology since two thousand, especially since that dot com bubble. When that bubble popped, I mean, you know, the technology sector was at all time lows, and if you bought under that time, you really reaped the benefits. But it's very important to diversify your portfolio and make sure you

don't have all your eggs in one basket. You can't. You know, it's risk reward, right, you could you can make out, right, if you owned the video over the past couple of years, you definitely made out. But if you're talking about your your nest egg, your portfolio that you're going to use in retirement, your four one K when you roll over to an IRA, and in terms of what you're gonna invest, and you want to diversify, you want to put these put your money into funds that

have you know, hundreds or even thousands of companies within them. That way, you're not subject to something called unsystematic risk. Unsystematic risk is a risk that single companies hold, right, And I talk about this every time I go on the radio. I remember I had ed and I both went to see and I had a professor, you know, a microeconomics professor, and

he always talked about this, the unsystematic risk of companies. And specifically when you think about it when you own Let's say you own Chipotle, right, and I'll bring up a news story that Chipotle pushed out years ago that affected their stock price. But if you own Chippotle, you have risks strictly to Chipotle. That's unsystematic risk, and years ago Chipotle's lettuce. It sounds stupid, but there let us had an e coal I breakout and it affected their

stock price. And you if you owned McDonald's and Wendy's and or what other ever fast food companies, you know, when they colli broke out in the lettuce and affected their stock price, you still would have had those companies holding up your portfolio. And that's you know, that's what unsystematic risk is, to pull a kind of screwed up in a way, or you know, they didn't have their quality control and the lettuce, you know, acting proficiently.

So they had that outbreak and it affected the stock price. And that's an unsystematic risk. But when you diversify, you eliminate that unsystematic risk. Another example of unsystematic risk is you know, if you own let's say Boeing, and you know, god forbid, what are their planes crash? Right,

that's gonna affect their stock price. But if you own other companies like Raytheon or other other uh, you know, manufacturing companies that manufacturing plate planes, boats or what have you, you're not gonna have risks strictly to bowing.

You have other one in your portfolio across other companies, so you don't have to worry about You do have to worry about it, but you really you're not as successible or exposed to, you know, the wrongdoings or the you know, negligence of what Boeing is doing because you have your money in other companies, right, and when you diversify, the only risk you have

is systematic risk, right, and that's market risk. And you know, if you're an equity investor or a bond investor, you're gonna have market risks no matter what. And you know, if you stay in the test of time and you're able to, you know, stay invested during tough times like COVID or twenty twenty two when inflation was ticking back up, or you know, twenty eighteen Christmas Eve when the stock market you know, took a significant dip, and you're able to you know, withstand those tests of time,

you're gonna reap the benefits over launcher periods. I mean it's the only way, right. You know, we talk about inflation, and we talk about you know, prices rising. How you know, if you start working when you're twenty years old, by the time you retire, you know, prices are going to be a lot different uh than when you were twenty, right, and you kind of need to you know, invest your money to make sure you keep up with those price gauges. And you know, if you

don't, how are you going to retire? It's a it's an impossibility. And the way to do that isn't you know, correctly investing in the equity markets, right, and making sure that your risk allocation is uh, you know, allocated the proper way and you're taking enough risk to you know, get the returns needed that you need to get your portfolio balanced to a point where you could retire comfortably and not have to worry about it and not run out of money too, right. And there's a lot of factors that go

into that. So you know, the risk in the market, you know, like like I said, you know, the unsystematic risk of owning one company is crucial. And you need to diversify your portfolio, diversified, diversified,

diversify, It's very important. And if you don't, you know, I have clients, some clients that worked at ge right, you know, people you might have all you know, a ton of money tied up in Apple right now, right, And Apple is a great company, right, and you know, we like Apple, and we think Apple's going to be here for the long haul. But you know, the one thing to mention is GE at one point was that company, right, they were in the top of the S and P five hundred. They were a great company.

But you have folks that worked at G and this is right in our neighborhood, right in Schenectady, and I have I've had clients tell me that they've had you know, they had GE stock in their four oh one k or they had equity compensation that General Electric gave them, you know as compensation obviously, and when GE stock price took it, you know, tanked a little bit. You know, people they were not able to retire because they had

all of their eggs in one basket. And that's one of the things that you know, I just took an exam called the ECA Exam Equity Compensation Associate, and you know a lot of companies, public companies specifically, are giving

their employees equity compensation. Right They're giving them their stock options, they're giving them RSUs, which is restricted stock units, and a lot you know, when you look at your overall net worth and you work at a company and you have you know, fifty percent of your assets tied up in the stock, and you know your four to one k has stock of the company within it. You're exposed in a big way. And I've talked to people who have been exposed, like like I just said, at General Electric, who

were not able to retire when General Electric stock price tanked. So it's very crucial that you're looking at your equity compensation that you're receiving from your company and make sure that you don't have more than ten to fifteen percent exposure to one company, especially the company you're working at, because even more so you're working there. So if that company, I mean, if a company is going to go bankrupt, you probably would have sort of you know, some sort

of heads up of unless there's some fraud going on. But if you lose your job, you know what I mean, and you have all the stock in this company and the price tanks, I mean, you're really in a bad spot. So it's crucial. And like I said, I just took an exam equity compensation associate. You know, we're rolling out this new service offering at the firm and adds crucial part of this. You know, we're

helping clients exit their equity compensation in a tax efficient manner. Not only that, we're also looking to manage the risks of doing so, right, because you might have a ton of equity compensation in your company, but if you sell it all at one time, you might be in the highest tax bracket, right, and you know, we might not want to do that.

There's other ways to exit it, and you know, take a long term capital gain rates, which are lower tax rates than you know, ordinary income, right, you know, the wages you receive, or short term capital

gains. So there's a lot of ways that we're looking at client situations and kind of just helping them exit these positions in a way that saves them taxes, right, doing little by little year after year, keeping them in these lower tax brackets, or just helping them utilize those long term capital gain rates.

And we're also looking to use investment tools in the portfolio to kind of hedge, right, because you know, there's risks, Like I said, there's risk to owning one company, and we want to be able to hedge those risks even when a client still owns positions. Right. We're not, like I said, we're not going to exit it all in one time. So they might hold these positions for five to ten years and they keep getting equity year after year from their company, but they're still exposed. Right.

We could talk about exiting it all we want and start doing it, but if they still hold stock in the company while we're doing our planning and exiting a year after year, we want to basically kind of hedge that risk while they own it. And there's a lot of funds and etf SO and option option strategies that we'll use to hedge the risk while we're doing this. And we're sort of just rolling this out at the firm, and you know, we're looking to make it a big part of what we do at a bouchet

financial group. I think it's really crucial. It's kind of a niche. You know, people don't realize how much, you know, money they could save even in terms of their taxes, or how exposed they are, you know, with their equity comp and especially for those you know, the officers of the company, the vps of the world, you know, they have

a lot of exposure. And we're gonna take a quick break. You were listening to Let's Talk Money, Brought to you by Bouchet Financial Group, where we help our clients prioritize their health, where we manage their wealth for life. Thank you you were listening to Let's Talk Money, brought to you by Bouchet Financial Group. My name is Vinnie Testa. I'm one of the wealth advisors here at the firm. I'm joined by Ed. We only have a

few minutes left for the show. And Ed and I have done the show a couple of times together, and every single time we do it together, we talk about something called direct indexing, and that's something that we're rolling out at the firm, and it's this is new technology and investing, and I think it's really a great tool to help clients do something called tax loss harvesting and also kind of help clients develop a portfolio that's right for them, whether

it's they want to exclude certain companies because of you know, they're not comfortable with what those companies are doing, or they want to get more exposure to, you know, one sector versus the other. So, Ed, why don't you just talk a little bit more about direct indexing. Yeah, no, it's my pleasure. I mean, I it's certainly a large development, you know, within the financial services industry, So we just kind of think

about the progression of you know, investment strategies. You know, for for a long time, it was mutual funds, and then ETFs exchange exchange traded funds came out and they I mean, essentially, I would just boil those down to it's more TAXI fit than a mutual fund. So it's a little bit more passive, right the underlying investments or the basket of stocks and ETF it changes less, and then it's more tax efficient for the company running it,

so they can charge you a lower fee. That's kind of how ETFs became the staple. And now, you know, we're kind of seeing another advancement where it's direct indexing, and it's it's not a new technology, you know, I think it's been around since twenty twelve, but it's certainly had in the more recent years some you know, significant advancements that make it a

lot more useful to me. And it's it's more efficient and it's a little bit cheaper now and then you kind of have a different array of options. What direct indexing essentially does is instead of owning a basket of stocks, you know, if we're just thinking about the S and P. Five hundred, for example, you can buy spy Spy the ETF, and you're going to own a basket of the five hundred largest companies in the US economy in its

ways by market cap right now. At the same time, what you could do is you could just buy a portion of every single stock the five hundred largest yourself, right and that would save you from having to pay and it's pretty cheap, it's like point zero three percent, but that would save you that point zero three percent on your money, and you would just buy all the underlying stocks yourself. And the five hundred is certainly a large pool to

manage, So that's why most people just opt for buying LEADTF. It's a great way to get that diversification that you know, US professionals preach about so much. Both the direct indexing. Let's you do is, let's you take something like this in P. Five hundred and still own instead of the basket,

every individual position. But then you have it, you know, a software that's looking at it on a daily basis, and it's looking to sell winners and buy a there like minded replacement that's gonna, you know, maintain a similar correlation to whatever you're selling, but then from a tax perspective, you're able to use those losses at the end of the year and offset your

gains. Right, so you're just constantly you have something in a loss, you're selling it, you're buying something very similar, so you're not losing any market exposure, and you're buying very something sillar, you're locking in the losses to then use at the end of the year for your gains, any any capital gains you have. But now nowadays, instead of just having to track the S and P five hundred or like the DOWD Jones or something pretty vanilla,

you're able to track something you know, more tailored to yourself. So it's really awesome. Thanks Ed, We are coming to the end of the show. I appreciate everyone listening. My name is Vinny Testa, one of the wealth advisors here. You're listening to the Wets Talk Money brought to you by Bouchet Financial Group, where we help our clients prioritize their health, where we manage their wealth for life. Thank you.