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Pensions In Peril?

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On this episode of Tape Talk we examine the state of pensions in today's world. Are they the solid and secure retirement tool they're made out to be or are they slowly going the way of the 8-track?

A Brief History of Pensions

When it comes to financial history, pensions are fairly young. The private pension system in the US began in 1875 when American Express was the first company to develop a pension for its retirees, 60 years before social security began. Far from a posh retirement, the original pension paid, at most, half of an employee's ending salary. Further, Employees weren't eligible for the pension until age 60 right about the life expectancy at the time.

How A Pension Works

Most of us are quite familiar with how a company retirement account such as a 401k works, but the discussion gets a bit fuzzy when the topic of pensions come up. While a typical 401k works more like an account, a pension operates more like a contract. In fact, they're much more similar to an insurance plan than a 401k. With a pension, contributions from employees and employers are collected, payments are made to current retirees, and the remainder is saved and invested for future payments. The system actually works quite well when the program is managed prudently.

How Does A Pension Fail

The major issue affecting pensions today is that the math guiding them is based on a wide variety of assumptions. Add to this the fact that budget-strapped states and municipalities often underfund a pension to balance their operating budget and you have a recipe for failure. This is just part of the reason that the Kentucky Employees Retirement System (KERS) is cited as one of the worst-funded pensions in the country and risking failure. What should you know about the Kentucky Pension system or your own pension?

Why Care? What Should You Do?

While many people don't directly rely on a public or private pension for their retirement we are all still directly affected by the state of public pensions today. First, pension shortfalls will result in either higher taxes or cuts to other important areas of state and municipal budgets. Second, if pensions decide to cut benefits the quality of employees they're able to attract and retain may drop this could have a lasting effect on school systems, emergency management, and other critical areas of public service. Finally, while many of us might not have a traditional pension, in many ways our own 401k is our personal pension. The question we all face is whether or not our own personal retirement plan is solvent. When's the last time you sat down with an advisor to run the numbers and figure out if your retirement plan is a dream or a reality?

 

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On this episode of Tape Talk we talk all things IRAs, what are these mysterious vehicles that allow you to live the retirement life of your dreams?

A Quick Look Markets Here.

Before we get into this week's topic we take a look at what's been going on in the markets. With the major stock indices at highs, what's happening beneath the surface? How is rotation playing out across sectors? 

New Name, Same Great Firm.

If you've been listening to the show the last few weeks then you've probably heard, Tatro Capital is transitioning to Joule Financial. Find out a little more of what went into the brand change and what it means going forward.

What's A Traditional IRA?

Most people are familiar with a company retirement plan such as their 401k but we often get questions on what an IRA is and the nuts and bolts of how it works. We'll break down how your contributions work, what the tax implications are, early withdraw penalties, and required minimum distributions. 

What's A Roth IRA?

If you're ready to supercharge your retirement savings strategy you may want to add a Roth IRA to the mix as well. We'll talk through how they differ from a traditional by looking at the tax benefits, early withdraws from a Roth, and Roth required minimum distributions. 

Lightning Round: IRA FAQs

Before we wrap up for the week we do a quick rundown of the questions we get the most on IRAs:

Do I have to take an RMD when I’m 70½?

I have an old 401k, should I roll it into IRA?

What’s up with the new IRA rollover rule?

I inherited an IRA, what do I need to do?

Are there required minimum distributions on Roths?

My company does not have a 401k what do I do?

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Ercel Elis has been a legend in the horse industry for the past 5 decades. He has forgotten more about racing than most folks know and spends his time now hosting the internationally listened to Horse Tales each Saturday morning. In this unique interview Quint discusses with Ercel his history in the business, where he got his start, some of his fondest memories and of course an in-depth look at the greatest horse to ever run. 

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On this episode of Tape Talk, we talk about Index Investing. What exactly is an index and what are the pros and cons of investing in them?

Defining an Index

So you've decided to follow the recent trend towards index investing. But wait a minute...what exactly is an index anyhow?!? Before we dive into the details of indices we need to take some time to define exactly what an index is. First, it doesn't always represent all stocks in a market. Second, it doesn't represent all stocks equally. Finally, an index changes constantly over time. Did you know that only one of the stocks in the current Dow Jones Industrial Average has been there since the beginning? Were you aware that the S&P existed over thirty years before it contained the five hundred (or more) stocks as the name now alludes?

How is an Index Made?

Can you explain what Market Capitalization is at your next cocktail party? It's an important concept in explaining how an index works. That's why we break down what market cap is and how its used in developing an index. Since the S&P 500 is a market cap weighted index it's important for investors to understand this important investment concept.

Are All Sectors Equal?

Many people are under the impression that an index represents all stocks equally or at least all eleven of the sectors equally. However, since the S&P 500 is a market cap weighted index this is hardly the case. In fact, often times a few stocks or a single sector can start to dominate the index. This has some pros and cons and we take some time to break down how those affect your investments.

So, Should I Just Buy an Index Fund?

The natural question about index investing is whether or not you should start it or continue it. However, investing is rarely a one size fits all equation. The fact is, investing is about more than throwing your money into an asset, it's about working toward your goals. This is why it's important to have a financial and investment plan so you know where you want to go and whether or not your investments are taking you there.

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On this episode of Tape Talk we talk about the US Debt situation and the never-ending Debt Ceiling debates. Is it as bad as the headlines make it sound?

What is the National Debt? Why Does it Exist?

When a country spends more than it takes in its budget ends in a deficit. When this happens debt must be issued to make up the difference. While this sounds like a dire situation it's a fairly typical situation among many of the countries throughout the world. We'll consider if the national debt is bad or if it can actually be a beneficial tool for the country.

A Country is Not a Person

Most discussions around the national debt end up trying to make parallels to an individual consumer so that we can get our mind around the size and scope of the debt situation. However, this presents a significant problem. A nation is completely different from an average household. We consider why being a nation without a life expectancy, having the ability to print money, and control over taxes all contribute to national debt being significantly more sustainable than your average household debt.

Don't We Owe China Too Much?

One of the biggest arguments surrounding our debt levels is the fact that China owns a lot of our debt. Is this nefarious or simply the standard state of affairs? We break down the real level of US debt that China owns so we can consider how at risk the nation is.

There's No Easy Fix

Many discussions around the national debt inevitably result in pointing one's finger outward and expecting that someone needs to get the situation figured out. We consider how practical it is to pay down or pay-off the national debt. Also, is it possible to pay down the debt without affecting individuals' own financial situation?

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On this episode of Tape Talk we take a look at five big mistakes investors are making in today's market environment. 

 

Passive Indexing

With the recent history of steady gains in the major equity indices, many investors have become a fan of investing in index funds. The upside to this is many investors are paying significantly less in fees than they ever have before. The downside is that many investors still don't know what they're invested in, how an index works, or whether or not they're overweighted in any potentially overvalued sectors of the market.

 

Chasing Yield

Life is tough in today's economy for those who require a steady yield from their investments. With the 10-year Treasury trading near the level of inflation, investors have begun stretching out into more fringe investments to fill the yield side of their portfolio. This began with things like high-yield "junk" bond fund but has now moved to high-yield equity investments. These are far from the blue chip company trading at a 4% yield. What we're talking about here is the 8-25% yielding investment that investors assume has little risk of principal loss or a slashing of yield when the truth may be just the opposite. 

 

Social Security

 

There's a lot of factors that go into the decision of choosing when a person should begin taking their social security and yet the decision is often made emotionally rather than objectively. As most people's only form of a pension in today's retirement world, it becomes even more important to run the math and work with an advisor to ensure you're putting yourself on the social security path that is best for your individual circumstance. 

 

Annuities

With many investors having become risk averse as stocks have notched new highs seemingly monthly there's been a search for ways to lock in guaranteed return with little to no volatility. Unfortunately, volatility is what creates the compound returns in the stock market. The alternatives that some investors switch to might be full of restrictions and fine print which they hardly understand or don't take the time to review.

 

Market Timing

Even after eight years since the S&P 500 bottomed during the great recession, there's a caution among many investors who wish to never see their capital be exposed to volatility like that again. This results in their participating in the market in fits and starts while they attempt to call the next market top and put their money back in during the next generational bottom. This hyperactivity though can often just result in missing much of the returns required to meet an investor's goals.

 

 

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Covered in this episode of Tape Talk Radio:

Real Estate Market Update with Queen of Real Estate Kelly Karls

August's new home sales data came in weak, showing an over 9% decline in July and falling to a low for the year. Are buyers' interests beginning to wane or is this simply a "blip" in the market? In contrast, existing home inventories continue to contract leaving little on the market for buyers and causing homes to sell at a quick thirty days on average.  To add to the picture, interest rates are projected to head higher from here. We talk to Kelly Karls, Lexington's Queen of Real Estate, about what buyers and sellers should be thinking about now and what to expect going foward. 

 

What's Happening in the Market Now?

Have financials replaced transports in the Dow theory? Is rotation finally beginning to take shape? While the general indices have stagnated for the past month there has been movement under beneath the surface of the market. We'll talk about the sectors that are taking a pause and look at a few that may be ready to move higher. What should investors be looking for now to take advantage of this rotation?

 

How Does Rotation Affect an Index?

When you buy an index you're naturally aligning your weighting to the specific sectors as they are in the index. This isn't necessarily a bad thing. However, what happens when the largest sectors zig while the smaller sectors zag? Is there a way for investors to look beneath the index and understand what's going on in the individual sectors? It's possible that investors can find opportunity in sectors or themes even while the market indices overall head nowhere.

 

Headwinds Ahead?

Whatever happened to the debt ceiling discussion? Will Congress be able to get anything done or have hard lines been drawn between legislators and the President? If the debt ceiling discussions inject a bit of volatility into the market what might people consider doing depending on their various investment stage?

 

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On this edition of Small Business Spotlight, we talk to professional angler Bradley Roy from Lancaster, Kentucky about the Business of Fishing.

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Covered in this episode of Tape Talk Radio:

North Korea threatens aggression and the stock market blinks.

After President Donald Trump threatens aggression for North Korea's bullying tactics the market quickly sunk. What should investors make of the news? Is it time to fear a new bear market?

 

How to allocate your investments in every life stage.

Not everyone should be allocated the same way. Investment allocation is time dependent since most people will need to use their investments at some point in time. Are you allocated correctly for where you are on your investment journey?

 

How a financial plan affects your allocation.

So how do you figure out how you should be allocated? Frankly, if you've not done a financial plan you may just be guessing. Consider how critical it is to have a plan before and during your investment journey.

 

Lining up your required rate of return and your temperament.

Just because the numbers say you should be allocated a certain way doesn't mean you can stomach that. Not everyone is cut out for every allocation level in investing. A good advisor should help you align your suggested allocation and a level of risk that still allows you to sleep at night. 

 

Are you as diversified as you think?

Have you considered that many mutual funds and ETFs own many of the same major stocks? This means you might not be as diversified as you think. Even after buying different funds or investments you may be heavily concentrated in a few stocks. Find out how to figure out if you really are diversified. 

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For this edition of Small Business Spotlight we talk to Chris Eddie, co-founder of Smiley Pete Publishing. He shares the story of how two college buddies started a hyperlocal publishing company and began connecting local consumers and business. Find out what's next as they continue their evolution as a company by developing local events to even further highlight local businesses. 

For more information on Smiley Pete visit: SmileyPete.com

For more information on Crave Lexington visit: CraveLexington.com

 

To find out more about Tatro Capital, find us at TatroCapital.com

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