Best In Wealth Podcast Scott Wellens

I make a spending plan for our family every single month. We account for every dollar coming in and going out. But what about the things that happen quarterly and annually? We add up all of those expected expenses at the beginning of the year and calculate the total approximate cost. That money will be saved every month to go toward those expenses. That is how we allocate money for things like Christmas and birthdays, too.

We budget $300 for each daughter’s birthday party and $200 for a present and save for it monthly. But last year, we bought pizza, cake, snacks, etc. Our daughter requested that we take her friends to brunch the next morning. We ended up spending far more than we had budgeted.

Now we need to save more in the remaining months of the year to make up for going over budget. When I have to do this, we have to lower our spending or it will not balance out. I vowed that it would not happen again. So this year, we did things a little bit differently. Listen to this episode to learn a unique way you can teach your kids how to budget.

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Outline of This Episode

[0:35] Why my kids had to take a personal finance class
[2:55] Why I make a spending plan every month
[5:05] Budgeting for my daughter’s birthday
[9:09] How I taught my daughter to budget
[18:37] The powerful lesson my daughter learned


What I plan on doing differently this year
My daughter was talking with my wife about her plan for her birthday and I knew I needed to interject. That is when a lightbulb went off in my head.

I asked her to share what she wanted to do for her birthday. She planned to have 10 of her friends over for a sleepover. She wanted to decorate our basement with banners and balloons. She wanted to take her friends out for pizza and ice cream. She also wanted to take them to an escape room. Lastly, she wanted to give her friends a cool party favor.

I’m sweating profusely at this point, starting to get nervous about my plan. But I took a deep breath and said, “That all sounds great.” I then proceeded to tell her that we had $300 saved for her birthday party and $200 for her birthday present.

I told her that she got to plan her party down to the last detail—but that she had to stay within the $300 budget. Even better, if she spent under $300 on the party, I would take the extra money and put it toward her birthday present.

But I told her that there was a catch: If she spent more than $300 on her party, it would be deducted from her birthday present. 

[bctt tweet="💡 I asked my 14-year-old daughter to plan her birthday party and gave her a specific budget to work with. It was a game-changer. Learn why in this episode of Best in Wealth! #PersonalFinance #Budgeting #FinancialPlanning" username=""]
My daughter’s real-life experience with budgeting
She had to calculate how many friends she wanted to invite and how much it would cost for pizza and ice cream for all of them. She had to find out how much the escape room would cost. She had to calculate how much the decorations would cost.

She wanted to get her 10 friends Owala water bottles for party favors. She excitedly said, “They’re cheaper than Stanley’s—only about $30 a piece.” And I said, “Eva—what’s $30 x 10?” Her smile faded when she realized the water bottles alone would eat her entire budget.

So she got to work. She decided they would not do the escape room. She would get ice cream that was on sale at our local grocery store. We would buy pizza from Costco. She priced out birthday decorations on Amazon. She also decided to invite only her closest friends so she could still get each of them an Owala water bottle.

Why are we worried about the world, the economy, the stock market, and our investment accounts? The stock market started the year great. The S&P 500 was up over 10% at the end of the first quarter. But the stock market has dropped steadily in the first 19 days of April.

My business Partner, Brian, wrote an article titled “The Wall of Worry.” In this episode of Best in Wealth, I will cover some of the details of his article and share why family stewards can take a deep breath.

[bctt tweet="How can you overcome concerns about the stock market, inflation, and the geopolitical climate? I share some statistics to calm your nerves in this episode of Best in Wealth! #Investing #FinancialPlanning #WealthManagement" username=""]
Outline of This Episode

[2:29] Why is everyone so worried?
[3:52] The market reacted to inflation
[9:52] The geopolitical climate
[15:03] What do we know?


The market reacted to inflation
The financial markets saw a great start in 2024. US stocks raced to almost 10% gains in the first quarter. Things have since been dropping, almost back to where we started. We saw the same pattern in 2023.

The inflation report released in March reported a 3.5% annual rate—higher than expected. It also likely closed the door on a June interest-rate cut by the Fed. That news made the stock market drop quickly in April. Why?

The stock market had priced in six interest rate cuts in 2024. But because inflation ticked higher, the expectation has shifted to maybe three cuts. Market participants are clearly worried.

In June 2022, CPI inflation was at its peak at 9.1%. It’s dropped every quarter since. In June 2023, we were down in the threes. In March, it was 3.5%. When you look at the report, you will see progress.

Battling inflation is a messy process. We should consider ourselves fortunate that inflation has fallen as much as it has, without a catastrophic event happening in the economy or labor market. We have avoided a recession so far.

The average rate of inflation over the last 100 years is 3%. Our latest inflation rate was 3.5%. The Fed wants the inflation rate to be 2%. But 3% inflation might be the “new normal.”

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The market reacted to the geopolitical climate
Stocks were up while bonds and oil were down as Brian wrote this article on Monday the 15th. It was the opposite of what we thought would happen.

What were past reactions to major geopolitical events? They might surprise you:

In the six months following the onset of WWI in 1914, the DOW dropped 30%. The market closed for six months. But it rose more than 88% in the following year—the highest annual return on record.
Hitler invaded Poland on September 1st, 1939, beginning WWII. When the market opened, the DOW rose 10% in a single day.
The DOW Jones lost 1% and remained calm during the 13 day period of the Cuban Missile Crisis in 1932.
The stock market opened up at 4.5% the day after JFK was assassinated and gained more than 15% in 1964.
Stocks fell sharply after the 9/11 attacks, dropping 15% in the two weeks following the tragedy. The economy was already in a deep recession. Within a couple of months, the stock market had gained back all of its losses.
The US invaded Iraq in March 2003. Stocks rose 2.3% the following day and finished the year with a gain of more than 30%.


When the geopolitical climate is uncertain, it causes us to feel anxious and can lead to panic. But it rarely pays off to make portfolio changes in reaction to geopolitics. Why? We do not know what is going to happen.

The more we dwell on it, the more our minds go to worst-case scenarios. While we might be right about our predictions,

The mutual fund landscape is complex, with thousands of choices. In fact, at the end of 2023, there were 4,722 US-domiciled funds that we could choose from. Of those, 2,043 were from US equities, 1,124 were international funds domiciled in the US, and over 1,500 were bond funds.

If you add all the money from these funds, it totals 10.6 trillion dollars. $5.4 trillion is in US equity funds, $2.1 trillion is in international equities, and $3 trillion is in bond funds. Whew.

If you decide to buy an ETF or mutual fund, you are spreading out your risk (as opposed to buying individual stocks). But how do you choose between the thousands of options? Should you choose between the thousands of options?

My goal is to help you understand the landscape of mutual funds so you can make informed decisions in this episode of Best in Wealth!

[bctt tweet="In this episode of Best in Wealth, I dive into the mutual fund landscape and how it works. Give it a listen! #wealth #investing #FinancialPlanning #WealthManagement" username=""]
Outline of This Episode

[1:08] Did you fill out an NCAA bracket?
[3:32] The mutual fund landscape
[6:21] What is an active mutual fund versus an index fund?
[11:28] Actively managed funds aren’t performing well
[16:48] Are you an active or passive investor?
[18:02] Is there a better way?


What is an index fund?
An index fund is your first option for investing in a mutual fund. An index fund tracks indexes, such as the S&P 500 or Russell 3,000. You are buying “the market.” You will receive the return of that market (minus expenses and tracking error). If you want to do better than an index fund and do better than the average of the stock market, you hire someone to manage it for you (i.e. buy into an actively traded fund).

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What is an active mutual fund?
An active fund is your second option for investing in a mutual fund. You have the option to buy that fund through your brokerage account or 401k. Active funds have a mutual fund manager and a team of people making decisions on the fund’s behalf. The manager is the “expert.”

They look at all of the publicly traded companies and choose the ones that will be in the fund. That manager and his/her team might decide to sell some of those companies. You are hiring this manager to do well, to beat the market. But how do you know if they are doing well?

The University of Chicago’s Center for Research and Security Prices is a great place to start. They looked at every single publicly traded company and created indexes to see how the market was doing. They are how we learned that the US stock market averaged a 9% return per year.

But this throws a wrench in things: It is not looking good for the actively traded funds.
Actively managed funds are not performing well
On 12/31/13, there were 3,022 funds available to choose from. As of 12/31/23, only 67% of those funds still exist. Why? Those 33% were not performing well. When we look at winners, looking back 10 years, only 25% of the experts beat the market. You only have a 25% chance of selecting an actively managed fund that will beat the market.

15 years ago, there were 3,241 funds and only 51% of them survived and only 21% of them had beaten their benchmark. Only 45% of the funds that existed 20 years ago survived. Of the 2,860 funds available 20 years ago, only 18% have beaten the market.

What does this tell me? Actively managed funds are not doing any better than index funds. Chances are, whether you buy into an index fund or an active fund, it is not always...

The #1 issue most people face when it comes to retirement is running out of money. Secondly, most people want to live the best retirement that they can. If there is anything left, they will gladly give it to their children—but it does not need to be millions of dollars.

Too many people are dying with too much money and never got to live out the retirement of their dreams. You have been saving your entire life. You should not be scared to spend the money and fear it running out. So how do we make sure that does not happen? I will share some of the common solutions—and our strategy at Fortress Planning Group—in this episode of Best in Wealth.

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Outline of This Episode

[1:07] Spending money in your retirement
[2:49] The two central issues with retirement income
[4:38] Solution #1: Purchase an annuity
[5:50] Solution #2: Live off your dividends
[8:00] Solution #3: The 4% rule
[10:04] Solution #4: Guyton and Klinger’s Guardrails
[15:30] Utilizing risk-based guardrails


Solution #1: Purchase an annuity
An annuity has the potential to give you steady income until you die. Let’s say you give $1 million to an insurance company in exchange for monthly payments. It might be $4,000-$6,000 per month. But when you pass away, the insurance company keeps your money.

If the insurance company goes out of business, you lose those monthly payments. Many people still use annuities to fund their retirement. The biggest drawback is that most people do not think about inflation. That money will not go as far in 20 years.
Solution #2: Live off your dividends
Let’s say you have $1 million and you decide to buy a company that is paying a nice dividend. Let’s just say you are receiving a 5% dividend or $50,000 a year to live off of. But most people do not know that dividends can go down. Secondly, when the stock price fluctuates, your $1 million could lose value. Someone who invested in Wachovia Bank lost everything when they filed bankruptcy. The investment became worthless.

[bctt tweet="Can you fund your retirement by living off your dividends? I share why this isn’t the wisest decision (and what we do instead) in this episode of Best in Wealth! #retirement #RetirementPlanning #WealthManagement" username=""]
Solution #3: Follow the 4% rule
Stocks can gain value over their lifetime. The 4% rule means that if you have $1 million, you could live off of a 4% withdrawal from your portfolio the first year. Every year, you take an inflation adjusted raise. If inflation is 10%, you withdraw $44,000. If you do that, your purchasing power stays the same. Bengen looked at every 30-year period in history and 93% of the time, the 4% rule works. What about the other 7% of the time? What doesn’t the 4% rule solve for?
Solution #4: Guyton and Klinger’s Guardrails
Guyton and Klinger’s Guardrails try to solve for both running out of money and dying with too much money. They propose that a 4% withdrawal can be too small of an amount. They usually start with withdrawals of 4.5–5%. How is their process different?

If you start with $1 million and the portfolio goes to $1.2 million, you give yourself a raise as well as an adjustment for inflation. And if your portfolio goes down to $800,000, you have to be willing to take a pay cut until the portfolio gets back above your lower guardrail.

When you take raises when your portfolio is doing well, it solves the issue of dying with too much money left. You rely on your guardrails to dictate what you do.

But we do not entirely use this strategy—or any of these strategies—at Fortress Planning...

What is a Roth conversion? Should you do a Roth conversion? When is the best time to do a Roth conversion? If questions like these have been circulating in your mind, this is the episode for you. I will break down when doing a Roth conversion might make sense for you (and why your CPA might not like it) in this episode of Best in Wealth.

[bctt tweet="What is a Roth conversion? Should you do a Roth conversion? I share my expert opinion in this episode of Best in Wealth! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]
Outline of This Episode

[1:03] There are some great CPAs out there
[3:56] What is a Roth 401K or IRA?
[7:41] Should you do a Roth conversion?
[9:37] When to do a Roth conversion
[13:37] Why you should work with a financial advisor


Understanding Roth conversions
Your money is either taxable, tax-deferred, or tax-free. Taxable money might be held in a savings account or brokerage account. You may collect interest and dividends. Taxes are due in the year those things happen.

Tax-deferred accounts are traditional IRAs, traditional 401Ks, and other retirement plans. You’re contributing money to get a tax break. The money grows and you have to pay taxes on the earnings you make.

A tax-free account—like a Roth IRA or 401K—means you contribute after-tax money. You also do not pay taxes on the distributions (because you already paid the taxes).

You can convert some of a traditional IRA or 401K and convert it into a Roth account. But all of those dollars are taxable. If you make $100,000, a Roth conversion might land you in the 22% tax bracket (and likely the next one or two brackets above that).

It may not be wise to do a large Roth conversion when you make a good amount of money. So when should you?
Should you do a Roth conversion?
If you have deferred money in a Roth IRA, you can do a conversion. But should you? When would you consider it? There’s no easy answer and it will be different for everyone. But there are some circumstances in which it might be better.

For example, if you lost your job, took a sabbatical, or did not earn as much money and you are in a low tax bracket because of it, it might be a great time to do a Roth conversion. If your income level is lower, you can convert some over at a lower tax rate than when you made the contribution.

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Roth conversions cannot be undone
Before doing a Roth conversion, consult with a CPA or Financial Advisor. Why? Because it cannot be undone. Let’s say you are taking a sabbatical or recently got laid off. So you decided to convert $50,000 of your traditional IRA.

But two months later you are offered a job you cannot refuse. You get a sign-on bonus of $100,000. Suddenly you are making $300,000 a year. That $50,000 that was going to be taxed at 10% is now in the 32% tax bracket. Ouch. In the old days, you could move it back—you cannot do that anymore.

So if you are on a sabbatical or lost your job, wait until later in the year before doing a Roth conversion.
When should you do a Roth conversion?
Retirees who have a long runway before receiving social security or taking required minimum distributions and those with large traditional accounts can consider it. If you can live on your taxable account and there is no other taxable income coming in, you can do conversions over years at a lower tax rate. Once you start collecting social security, it can be more difficult to do conversions because it may increase your tax rate. That is why you need to work with a financial advisor.

David Booth—the Executive Chairman and Co-Founder of Dimensional Fund Advisors—recently wrote an article entitled “Uncertainty is Underrated.” In this episode of Best in Wealth, I will read this intriguing article and share why I agree that—while it sounds scary—uncertainty has a positive impact on our lives.

[bctt tweet="Uncertainty is underrated. I share why the impact of uncertainty is positive in this episode of Best in Wealth. #wealth #investing #WealthManagement" username=""]
Outline of This Episode

[1:23] The blue cruise function on my F150
[3:11] David Booth’s article on uncertainty
[10:36] Life is one cost-benefit analysis after another
[13:22] How to manage risk: What to do (and not do)
[19:31] Why you need to know the basics about uncertainty


Uncertainty is why we see stock market returns
Without uncertainty, there would be no 10% annualized return on the stock market. How?

According to David, “If there was no uncertainty, returns would be predictable and there would be no difference between putting your money in a savings account or investing it in the stock market.” Risk makes potential rewards possible.

When you have money in your savings account and it is earning interest, it is certain that you will receive interest payments. The stock market is different. It is a roller-coaster. The S&P 500 was down 18.5% in 2022 and up 26% in 2023 (which is not abnormal).

Uncertainty simply means that we do not know—from day-to-day, week-to-week, or month-to-month—what those returns will look like. Everyone is guessing.

Over time, the stock market has delivered a 10% return. The reason we see a higher rate of return in the stock market is only because of the uncertainty.

[bctt tweet="Without uncertainty, there’d be no 10% annualized return on the stock market. How? I share the reasons in episode #240 of the Best in Wealth podcast! #wealth #investing #WealthManagement" username=""]
Life is one cost-benefit analysis after another
What is loss aversion? It is the premise that a loss can feel twice as painful as a gain of an equal amount. It might be one reason why uncertainty is underrated. An 18% drop in the stock market feels twice as bad as when the stock market goes up 18%.

David points out that “Because of uncertainty, life is one cost-benefit analysis after another, and we have no choice but to manage risk.” We cannot ignore it or eliminate it entirely, nor would we want to. But what we must do is prepare for it.

And humanity is no stranger to uncertainty. We have to make choices every day and those choices are how we manage risk. David points out that we cannot control the weather. But if it looks like it is going to rain, we might carry an umbrella around. The cost is the weight of the umbrella but the benefit of that cost is staying dry.

He shares that “When it comes to investing, you cannot manage stock market returns, but you can manage the risk you take.”
How to manage risk: What to do (and not do)
So how do we get better at managing risk?

What not to do: Do not try to predict the unpredictable by trying to time the market or pick winning stocks. Many of us struggle with the desire to time the market. But we cannot time it. When we try, it is a loser’s game. You will likely leave a lot of money on the table.
What to do: Diversify your portfolio to reduce risk and capture return. Secondly, figure out the amount of risk that you are comfortable with. You should invest and be prepared for a range of outcomes.


When you have a plan that you can depend on—and experience uncertainty—the more likely you are to succeed long-term.

We have all been managing risks and rewards our entire lives. Some years are better than others. But we stick around to see what...