11/15/24 Back to the Basics: The 'Dumb Dow,' Fight Night Profits, and Financial Fundamentals

The Moneywise Radio Show and Podcast Friday, November 15th BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Guys" podcast call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Management instagram: MoneywiseWealthManagement Show Notes: Visualizing Every Company on the S&P 500 Index

• 0:00Speaker 00

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  That's right. This is the Money Wise Show. We are live from the padded radio room off Stockdale Highway. We are live on ESPN, Bakersfield, 1230 AM, 101 FM, and always streaming at your favorite podcast location. Click and listen, share, subscribe.

• 1:03Speaker 03

  I'm joined here by...

• 1:05Speaker 02

  Debbie Lewis.

• 1:06Speaker 03

  I'm your host today, Chris Pelster. We are going to have a great show for you. We're going to kind of get back to the basics a little bit. We've already had a great question come in from a local business owner, so appreciate the input. Listeners are what make this show great and this community great, so thank you for sending that in. If anybody else would like to call or text into the show, you can always do 661-396-1000. And so, yeah, let's get started. We talked a little bit about yesterday, before we dive into getting back to the basics, about the markets. We kind of talked about that there's been a little bit of a trim back on the markets, if you will. They kind of melted up. If, you know, that was a term that...

• 1:48Speaker 02

  Oh, I like that.

• 1:49Speaker 03

  Yeah, Mr. Gero Ellis used to always say, like, when the markets, you know, kind of overvalued, and we're talking about overvaluation, and something can still happen and push it higher. So, obviously, the election news and stuff like that, the Trump trade, whatever you want to call it, markets kind of moved in positive territory. And they've pulled back slightly. Uh, one of the things that I, I kind of always like to do is, um, rear view mirror, um, get some perspective. Um, you can kind of get, um, caught in, you know, just thinking the news from the last week or two is, is everything. And so just to step back a little bit, when we talk about the major indexes and what the markets are doing,

• 2:28Speaker 03

  again, um, the market actually took another big step back today. The S and P 500 was back about 1.3%. NASDAQ was down about 2.2% Dow Jones down about the dumb Dow down about seven tenths of a percent there. Um, and so, so yeah, like I said, to, to give a little bit of perspective, what I always like to do is kind of say where we're at. So the, uh, S and P 500 closed at 5,870, which is, you know, they take the valuation of all the different stocks and then, you know, all 500 of those companies, some go up, some go down. And that's kind of what gives us that index. It's like the S and P 500 is a scoreboard, if you will, to look at what those 500 companies do every single day.

• 3:12Speaker 03

  Standard and Poor's is a company that is, um, into like business consulting. If you're wanting to buy a company or sell a company, they're the ones, the CPAs, the number crunchers, the bean counters that can jump in there and go through the books and to try to give as, uh, close to a valuation as possible. So that's Standard and Poor's. They've been around forever. A long, long time ago, they put together the Standard and Poor's 500, S and P 500, which basically said, okay, this isn't going to be a mutual fund, which a mutual fund is somebody's actually like picking stocks. Right. This is just going to be an index where we're going to look at the 500 largest companies that are trading on the market. So the value cap of the 500 biggest companies.

• 3:57Speaker 03

  Now there's some criteria that has to be met. There's some different reasons why they're going to kick one out or take one out. If they don't think that it, you know, meets the criteria of kind of being a, a stock that is, uh, you know, I mean, like one of the things that's, that hasn't gone on there is, uh, you know, some of the, the Bitcoin things and stuff like that. There's a company. That heavily invest in Bitcoin. And so even if its valuation got up to a level, they still may not put that company on the S and P 500 because it's it's more currency based. It's looking at Bitcoin. It may not be indicative of like our economy. Right. And so anyways, long story short, the 500 largest companies, they put those together

• 4:37Speaker 03

  a long time ago. So when we, most people say the stock market averages X per year, 10% per year is kind of what you hear a lot. They're talking about those 500 companies. They have not been the same 500 companies for 100 years, but sometimes people think, well, oh, then you're changing things around. Well, it's still telling you that the 500 largest companies in the United States for the last 80 years or 90 years has consistently yielded and grown at about 10%. Has every single company done 10%? No, average. Some have done much more, some have done less. Some companies have even done so bad that they get kicked out of the S and P 500 because they're no longer a large enough company.

• 5:18Speaker 03

  And that does happen. So, but it is one of those things that we use as investors, you know, talking heads here in the radio room. We've been doing it for a long, long time. And it helps us all kind of understand what happened during that trading day. So that's a little bit of get back to the basics. But like I was saying, the rear view mirror. Where are we at on the year? So we opened up this year at 4,0742. Okay. Right now, we're at 5,0870. So we're still up, even with the market sliding, you know, today, the S and P down 1.3%. We're still up on the year 23%, just above 23%. The last 12 months, the one year marker, we were at 4,50288.

• 6:02Speaker 03

  So we're up 30.58% from one year ago. Five years ago, the S and P 500 was at 3,110.

• 6:13Speaker 03

  That was 89.58% gain since five years ago. And to give you the date for five years ago, it was 11 17 of 2019. So a lot of times people think, well, oh, the market's just been great the last five years. Well, if you don't remember what happened after 2019, it was a little year called 2020. And things uh

• 6:34Speaker 04

  When we all blacked out.

• 6:35Speaker 03

  Things, things

• 6:36Speaker 04

  Disassociated.

• 6:37Speaker 03

  Things got a little crazy in 2020 and the market did pull back pretty heavily. Obviously stimulus efforts and a bunch of different things happening. Um, there was a pretty quick, rapid recovery for how catastrophic shutting down economies across the globe can be. Uh, but it's another one of those testaments of staying invested. Um, you know, the markets recovered very resiliently. A lot of companies shot through the roof because all of a sudden everybody was forced to buy from home. So some of these tech companies and Amazons and some of these, you know, that were already doing phenomenal. Um, did even more and so

• 7:15Speaker 04

  Now that you mentioned the, the tech sector with the magnus magnificent seven.

• 7:21Speaker 03

  Yeah.

• 7:21Speaker 04

  Uh, with that stock, it's primarily tech based stuff now. Was it that way pre-COVID?

• 7:29Speaker 03

  Yeah. Yeah. So, so when they talk about the magnificent seven, it was actually coined in 2013, I think by Uh, Jim Cramer, which he's the guy that talks about stocks and gets all crazy. So most people know Jim Cramer. Um, so it was FAANG, it was Facebook, Apple, Netflix and Google. A couple of years later, he expanded it to FAANG with two As. Uh, because

• 7:53Speaker 04

  FAANG.

• 7:55Speaker 03

  It's because he added Amazon. Um, let's see.

• 7:59Speaker 04

  Alpha.

• 8:00Speaker 03

  Is it Alpha?

• 8:01Speaker 04

  Or Meta, Beta.

• 8:02Speaker 03

  Alpha is Google. Yeah. So maybe that's why it changed, but Alphabet is Google. Nvidia got added to the magnificent seven. So that wasn't part, oh no, yeah. Cause it was, uh, not Nvidia, it was Netflix. So actually it's changed, but good thing the N for Nvidia stayed. But Netflix was another company that, um, has done very well through, you know, everything that's gone on in the last 10 years or so. So yeah, in 2017, it became F A A N G. And it's Microsoft, Amazon, Meta, which is Facebook, uh, Apple, Alphabet, which is Google, Nvidia and Tesla.

• 8:42Speaker 03

  So, you know, just very tech-heavy, but that was one of the things that, you know, getting back to the basics, I wanted to talk a little bit about the S and P 500 and dive a little bit deeper. So, we kind of gave the thousand-foot view. It's 500 of the largest companies, but a lot of times, people don't realize, you know, the diversification and what does it all mean? So, I wanted to basically just explain this different sectors, right? So, you have the S and P 500, that's these 500 companies. Well, how is it broken up? Or what kind of companies are in there? And this is one of the things that sometimes I feel like the better people understand it. Sometimes people are willing to be very

• 9:25Speaker 03

  aggressive with investments if they feel like they kind of understand what they're holding. And sometimes people don't do a deep dive into some of their different holdings, some of their different funds, understanding that it's not just some random fund. It's if you have a mutual fund in your account, it's a large-cap fund, you might hold 50, 150, you might hold 300 stocks. And if you do a little research to understand what stocks are in there, a lot of times, it may help you have more confidence that yes, they've gone up and down in value. You know, I talk all the time about Warren Buffett, one of the best investors out there. He holds Coca-Cola because he likes, he loves to drink Coca-Cola, but he also believes in the company. So, when Coca-Cola drops in value, and he has

• 10:08Speaker 03

  these huge amounts of money in Coca-Cola, and he wakes up and he goes, oh, my account's down $12 million today. He doesn't run out and panic and sell it because he still has an idea of where he's at, what he purchased it for, what his long-term goals are, and he understands that he thinks that people are still going to drink Coca-Cola.

• 10:25Speaker 04

  Forever. Like, it's a timeless commodity that people will always want and/or questionably need.

• 10:33Speaker 03

  Yeah, and a lot of times people don't realize. So now if we look at the S and P 500 and say, okay, what's the breakdown by sector? So what kinds of stocks are in the S and P 500? Which, you know, some of the big boys, we just talked about the magnificent seven or in what would be considered info tech, which makes up a total of 26% of the S and P 500. So it's not all tech. You have about 26% of the S and P 500 that would be stocks that are moving in that space that would be considered informational technology. Okay, you have another 14% that is all tied up in healthcare. So you could start to kind of go, okay, so the big chunk of it's also in healthcare.

• 11:17Speaker 03

  So some of the companies that have been making headlines lately, obviously, are like Merck and Pfizer because of some of the the different things that have been going on, but also like Lilly is another name. Big, big time companies, 14% of the S and P 500 there is in healthcare. Another big piece of the pie, financials. So now we get into, you know, Mastercard and Visa, Berkshire Hathaway, I just mentioned Warren Buffett. So that's in the financial world. JP Morgan, PayPal, Wells Fargo, some of these big companies, 13% of the S and P 500 are financials.

• 11:54Speaker 04

  Don't forget Chubb.

• 11:56Speaker 03

  Chubb.

• 11:56Speaker 04

  With two Bs.

• 11:58Speaker 03

  Is Chubb in the, in the, oh yeah, we're not talking about the shorts?

• 12:02Speaker 04

  No.

• 12:02Speaker 03

  Oh, because Facebook, for some reason, keeps trying to advertise these really short shorts to me. And I'm like, I don't think your algorithm's working.

• 12:11Speaker 04

  And they're, and they're called Chubb?

• 12:13Speaker 03

  They're called Chubbs.

• 12:14Speaker 04

  What?

• 12:15Speaker 03

  Yeah. What is, what is Chubb? Do you know a little bit about the company?

• 12:18Speaker 04

  I don't, but I will quickly pop it up. I know they sponsor a lot of really big international tennis tournaments.

• 12:24Speaker 03

  Oh, really?

• 12:25Speaker 04

  I think it's some sort of credit card. I could be wrong, but I'll look that up.

• 12:29Speaker 03

  Yeah, a little bit. I mean, I haven't seen it on too much of like my television stuff. So I wonder if it is like a, might be like a PayPal that has a little bit more traction.

• 12:37Speaker 04

  Insurance for banks and financial institutions.

• 12:40Speaker 03

  Okay, there you go. There you go. Well, now you know.

• 12:42Speaker 04

  Based out of New Jersey.

• 12:44Speaker 03

  Yeah.

• 12:45Speaker 04

  Joyzy.

• 12:46Speaker 03

  So now you have a little bit of the S and P 500 left. Uh, 10%, 9.9 is consumer discretionary. So this is where you have things that are, would not necessarily be considered, um, must haves, which is funny because Amazon's on there. It's one of the biggest holdings in that sector. Uh, but people are buying a lot of daily needs and stuff like that. But again, consumer discretionary, it can go up when times are great, down when times are bad. Uh, but that's where you got a lot of the consumer discretionary there. 10% of the S and P 500. You have industrial, um, where now you have like, uh, transportation. You have, uh, yeah, the, the Caterpillar. You have Union Pacific, UPS, 3M.

• 13:30Speaker 03

  So getting goods and services back and forth to different people. That's industrial, 8.6%. Communication services. Now we get into the Apple, uh, Apple, well, uh, even, uh, Walt Disney now is considered communication services because of their streaming services and stuff. This is where you also have all of your cell phone companies, 8%. Jump over to what is considered more regular consumer staples, 7% Procter and Gamble, Costco, PepsiCo, Coca-Cola. Uh, we have energy, oil and, uh, stuff like that. We have four and a half percent there in energy. Utilities is 2.9%.

• 14:10Speaker 03

  Real estate's 2.5 and materials like gold and silver and different things, um, is 2.6%. So not to bore you too much with these numbers, um, there's actually a wonderful visual breakdown. Can we put that on the, the podcast post, Stephen? Yeah.

• 14:28Speaker 04

  This is an amazing.

• 14:29Speaker 03

  Yeah, we'll put the link to it. It's, it's a very, very powerful website called Visual Capitalist where it takes concepts like this and puts them all out. But the reason I wanted to run through those sectors is because again, when you're just talking about the S and P 500 or you don't really break back and go, okay, this is 500 companies that are out there that are trying to make money. They're trying to do good, uh, to their clients and, and offer a product that's valuable, uh, to its users. Um, there's all these different sectors. There's all this different diversification. So when you're holding some of these stocks, like you might hold a large cap fund in your 401K, it's probably has a lot of these stocks, what are in the S and P 500.

• 15:09Speaker 03

  You can actually buy an ETF or a fund that would basically just hold these 500 stocks. And so a lot of people get into that. They call that like indexing where you're basically just saying, hey, instead of going out and buying a mutual fund or something like that, I can just put money into an ETF. All the ETF does is buy each and every single one of these 500 stocks based on some of those percentages that I told you. So if you put a hundred bucks into that, they're going to buy $6.70 of Microsoft. They're going to buy $7.50 of Apple. That's all it does is it basically takes the exact composition of the S and P 500, put your money in there, and then as those 500 companies go up and

• 15:50Speaker 03

  down, you participate with the performance overall. So that's just a little bit about getting back to the basics about the index, the S and P 500. If you do want to look at this visualization of this talk that we're having right now, you will be able to see that on our podcast and the link on there. We're going to take a quick break. When we come back, we had that great business owner question come in. So stick around. Let's talk about that.

• 16:15Speaker 00

  Money Wise Wealth Management is the only locally owned independent firm that uses a comprehensive wealth, tax, and estate approach, working closely with a highly trusted CPA and attorney. For information on how Money Wise can help you invest and plan for your future, call 661-847-1000. That's 661-847-1000.

• 16:43Speaker 03

  Welcome back. I'm your host today, Chris Pelster, joined by Ms. Debbie Lewis here in the office, enjoying the end of this week. I don't know about everybody else. It was a tough week, just a lot going on and happy to be at the end and get a little breather this weekend. So hopefully everybody's doing great out there. Another comment came in that followed up with our discussion we were having. So I do want to jump into that before we get into the other question that came in. So it says, I've listened to the show for a long time, but still don't understand why your producer plays Carlos Mencena. Clip when you guys say dumb Dow and why is it dumb? I'm sure you have explained this. Nice to hear Chris and Debbie praying for Gero. Any updates? Is he home yet? Have an incredible weekend. Good news, he is home.

• 17:28Speaker 03

  He is recovering. We actually got to hang out with him the other day as an office. So we did a little after hours hangout session, watched Monday night football. He is both a diehard Dolphins fan and he loves the Rams because of his neighbor and Latroy here in the office. So we just had a great time and enjoyed Monday night football. So thanks for asking.

• 17:48Speaker 04

  Yeah.

• 17:50Speaker 03

  First off, kudos for knowing it's the Carlos Mencena.

• 17:53Speaker 04

  Yeah, that's impressive.

• 17:54Speaker 03

  Is it really? Is that what it is?

• 17:57Speaker 00

  Yes, actually, years and years and years ago, before all of that, he had a comedy show. And that's where the dumb Dell, he

• 18:08Speaker 00

  every segment he did, so.

• 18:10Speaker 03

  Yeah, so it's an interesting thing. I mean, in like, you know, how important it is or whatever. We just joke about it because it is known. As a matter of fact, when you said this, I kind of wanted to do a little research on it. So I searched and it says, why we care so much about the Dow? The stock market's dumbest index is an article that came out earlier this year.

• 18:30Speaker 00

  So it's not just us.

• 18:31Speaker 03

  No, it's widely known as a little bit of an antiquated index and I'll tell you why. So when we were just talking about the S and P 500, it ranks stocks based on their market capitalization. So how much money is that company worth based on how many people own the shares of that company? So the largest companies, you know, have X amount of dollars in their stock. They're the, they're the, you know, that's how they rank it is plain and simple by how much money is in that stock. Well, the Dow does it differently. The Dow ranks based on stock price, not on market capitalization. So what that means is you could have a very small company that has a very high stock price,

• 19:15Speaker 03

  which will now make that Dow move up or down a little bit more in proportionate because it has a high stock price.

• 19:23Speaker 04

  So who sets the stock price?

• 19:26Speaker 03

  Well, the market. The market. So when it, when, so we talk about Standard and Poor's. So if a company wants to go public, they, they have a valuation that happens because typically a publicly traded company starts private.

• 19:39Speaker 04

  Right.

• 19:40Speaker 03

  So you have 10 people, 20 people, 30 people start a company and it's private. And then they get it to a certain level. And now what they want to do is they want to sell shares to the stock market.

• 19:50Speaker 04

  Right.

• 19:51Speaker 03

  They use that capital that they receive to then fund phase two, three, four, five, whatever you want to look at it as. So based on how big a company is when it's private, the, uh, like a company like Standard and Poor's will say, your company's worth X amount of dollars. They might even suggest, we're going to start with a stock price of $75 per share. And, and so then when they make it available to the market, sometimes the market loves it and it goes from 75 and it shoots right up.

• 20:19Speaker 04

  Yeah.

• 20:19Speaker 03

  Sometimes it goes to market and it starts at 75 and it drops to 55.

• 20:24Speaker 04

  Just kidding.

• 20:25Speaker 03

  Because people didn't see the same valuation or potential that the valuation process that they went through. So great questions.

• 20:32Speaker 04

  This is like, honestly, I know I at some point learned that, but that is completely gone away in my bucket of things I forgot. That's amazing.

• 20:41Speaker 03

  So different companies have different values and, and the stock price when they go public, um, it's called an IPO.

• 20:47Speaker 04

  Right.

• 20:48Speaker 03

  Um, and so a lot of people try to play the IPOs, but it's very volatile because there's lots of factors that go into it. There's also lots of people that, um, there's rules and stuff that you'd have to, you know, kind of dig real deep into, but like if you've, if you've been building up this company and say you own a lot of that stock and then it goes public and you right off the bat want to sell a bunch of your stock to cash out. Well, if all of a sudden you have three or four of the founding people and they all of a sudden want to sell their stock. Now, most of them wouldn't want to because they want the stock to do what? Go up in value.

• 21:19Speaker 04

  Right.

• 21:19Speaker 03

  Right? But sometimes you have these situations where there's these dynamics and they think this is going to be a hot stock. They think it's going to hit. So they try to value it here and it goes to market and it drops. Um, and as a matter of fact, I mean, it, it's IPO investing is very, very volatile. It almost is like going to Vegas because. There can be a big loss right off the bat and it might take years to actually get back to the value that they originally thought it was going to open up at. And obviously, whether or not it ever gets back to there is based on whether or not that company goes out and starts hitting some numbers. As far as whatever their sales process and and numbers are supposed to be. So. Yeah, we call it the dumb Dow just because it's clunky. It's only thirty companies. It's not.

• 22:03Speaker 03

  Market capitalization weighted. It's stock price weighted. So a lot of professional, you know, stock people and stuff don't necessarily follow it or wouldn't. You know, and that's why when we were talking about the S and P five hundred earlier, we're talking about all these different sectors that are represented in the five hundred. And so when you look at that, it's it's not just thirty stocks. It's five hundred companies in all kinds of different sectors. Um, that are telling you the good and the bad and and overall, whether it was a positive day in the market or a negative day on the market. And so there's lots of moving pieces there. But again, that's where sometimes we if the the more you know about what you're invested in, like I said, I feel like.

• 22:44Speaker 03

  Hey, yeah, you know, things are tough, or there may be some things with the government that I don't like, or government spending this or that or whatever. But at the end of the day. I still think people are going to buy cell phones. I still think people are gonna.

• 22:55Speaker 04

  Toilet paper.

• 22:56Speaker 03

  Toilet paper. I mean, consumer staples. So I mean, when you talk about lower risk stocks, consumer staples. People are still going to buy socks and underwear regardless. Now, the other one, consumer discretionary. Now you're talking about there's some high end luxury purse companies and makeup companies that straight on the market. Spending goes down during tough times, right? And so those are much more volatile. There's all kinds of dynamics that go in there, but overall, when we step back and say the markets average ten percent. Well, overall, for the last however many years, hundred years, the top five hundred companies in the US economy have. Trudged along and averaged about ten percent per year positive growth.

• 23:35Speaker 03

  So unfortunately, most investors don't get close to that because they maybe don't go full in and say, I'm going to be aggressive and grow my money. Um, but even then, you don't necessarily even have to do ten percent. Per year to still get yourself in a great place. We've talked about a study that came out from Fidelity a long time ago that showed the average millionaires rate of return was only three or four percent, I think.

• 23:57Speaker 04

  Oh, wow.

• 23:58Speaker 03

  In their 401k. So they have a million dollars, they're ready for retirement and they've only been averaging three or four percent. Now, could they have done a lot better? Yes.

• 24:05Speaker 04

  Yeah.

• 24:06Speaker 03

  But even though they weren't necessarily getting humongous growth, they still were diligent in saving that behavior of just doing it year after year after year. Lo and behold, four percent over a 30 year period of time still got them over that million dollar mark. So hopefully that answers your question. Kudos on.

• 24:22Speaker 04

  That was a really good explanation, Chris.

• 24:23Speaker 03

  Oh, yeah. Thanks. Hopefully it's, I've learned something doing this job for 20 plus years now. So I wanted to jump on this question that came in though. Really, really appreciate it. It's some here in my notes. Let me.

• 24:39Speaker 04

  Do you want me to fire off the question?

• 24:41Speaker 03

  Yeah, go ahead.

• 24:41Speaker 04

  Okay, TGIF, I hope you can help with my question. What are some common audit triggers that you've seen in certain industries and are there specific steps I can take based on their industry's unique risks? I've only been open for about five months. It's a car repair business on Coffee Road, shout out Coffee Road, and wanted to bounce it off you guys. Thank you for the show.

• 25:03Speaker 03

  Great question and congratulations. Should we take a break? Yeah, let's do that. Okay. And get back to him after the break. So yeah, you guys can think about that. So I think a common question, a lot of business owners, even individuals, man, is there something I'm doing on my tax return that's going to trigger some audit that the IRS really looks for? So when we come back, we'll talk about some, some general things to consider and then even some of the differences in the different industries. So thanks for the question. Stick around. We'll be right back.

• 25:28Speaker 00

  Are you nearing retirement and currently working with a financial advisor? Are you not sure if you're invested appropriately? Call our offices at 661-847-1000 to sit down with a Money Wise financial advisor for a no obligation assessment of your investments.

• 25:53Speaker 03

  Welcome back. This is the Money Wise Show. Thanks for making it great and having a wonderful week. I hope you're having a great Friday.

• 26:02Speaker 04

  It's beautiful weather. If you're in Bakersfield, get out there.

• 26:06Speaker 03

  Yeah, it's been, it's been a nice

• 26:08Speaker 00

  Was that rain this morning?

• 26:09Speaker 03

  This morning, yeah.

• 26:09Speaker 04

  Yeah.

• 26:10Speaker 00

  I woke up and what is this?

• 26:12Speaker 03

  Yeah, I woke up because my sprinklers were on and then I, we have a new like aluminum patio that you put on the backyard and like, like that sounds like rain and my sprinklers are on. This may be overdoing it in the backyard. The grass don't know what to do with all this water. So, uh, so again, the, the question was, uh, business owner, auto industry, uh, car repair shop. Uh, what are some, you know, possible triggers for an audit? Um, so first things first, you know, there's certain patterns regardless of what industry you're in, that you have to think about as far as what the IRS would be looking at as far as common triggers. Okay. So some of these

• 26:57Speaker 03

  include unreported income. Um, you know, significant discrepancies between reported income and the industry standards. So if, uh, you know, if you're a repair shop and everybody in the repair shop industry is at X as far as what income is being produced and all of a sudden, you know, uh, you know, you've been open for five years and you're grossly under that. Well, then there's going to be a question of like, if everybody else is averaging up here, how are you staying afloat by being down here? And so if you're doing that by under the table type things or whatever, you're under reporting. So regardless of what industry you're in, under reported income. So, um, that's

• 27:40Speaker 03

  one thing to consider. Uh, another one is excessive deductions. So claiming unusually high deductions compared to business, um, income. So like if you have huge business income, but every single thing gets written down to where no income's left, um, there can be some issues there. Another one is misclassification of employees. So if you are at a point where your business has employees, you want to make sure that, uh, based on their hours and their responsibilities and different things, that they are in the correct employee classification.

• 28:13Speaker 03

  Because sometimes, you know, people might try to say, hey, I'm gonna pay you um salary, uh because then I'm not having to pay overtime and all this stuff. And so there can be some, some funny business there that that could create um some sort of a trigger for a thing. And then another one is uh consistent losses. So um if you have reported losses for year after year after ever forever.

• 28:36Speaker 04

  And you're not shutting your doors.

• 28:38Speaker 03

  And you're not shutting your doors. It's gonna be like, okay, you guys have been at a loss for 10 years. Now, with that being said, one of the most famous companies that we all love and adore because it's like Christmas 365 days a year, they deliver magical little cardboard boxes to our doorsteps.

• 28:54Speaker 04

  Amazon?

• 28:55Speaker 03

  Amazon. Amazon reported losses for like 15 straight years.

• 29:00Speaker 04

  What?

• 29:01Speaker 03

  One of the reasons was is because back in the day, um FedEx and UPS costs were very high. And so they basically had to take losses to get people to change their behavior to get goods and services delivered to their doorstep. I remember sitting inside of this radio studio back in the day and the early stages of online shopping and I I absolutely hated it.

• 29:27Speaker 04

  Same.

• 29:27Speaker 03

  Because back in the day, the Amazon, Amazon was still newer to the game. They were still kinda growing. And I remember saying like, every single website you go to, enter your address, enter your, you know, credit card. Every time I'm like, here I am, just throwing my credit card to some new website, you know, it just, I did not like it. And the one thing that Amazon did was it simplified all those things. It's all organized. You have your whole entire tracking history of all your spending.

• 29:55Speaker 04

  Got us hooked.

• 29:56Speaker 03

  They did. They took care of all those things. But it had to come at like 10 or 15 years almost consistently of losses year after year after year to change our behavior. Not much different than kind of what EV cars are having to go through like with Tesla. Took losses for a long time because we're having to wait for adoption. We're having to wait for enough people to jump on board um with electrical vehicle purchases, which I just saw earlier, by the way. Tesla last year accounted for 72, I think 72% of all electric vehicle sales. This year it's dropped to 42 or 47. So they're still selling, they're still moving things, but there's definitely some more people jumping into the game.

• 30:40Speaker 03

  The thing I will say, what I've always said is Tesla is still the only one making a good profit on every car that they're selling now. So all these other companies are taking a loss to try to take a little money out of their competitors' pocket. And hopefully if more and more people adopt EVs, then then maybe everybody will be able to get to where they are profitable.

• 30:58Speaker 04

  Can you imagine the accounting firm power behind companies like Bezos and his personal finances and Amazon and same thing with Tesla? How many CPAs do you think are working on those two companies alone?

• 31:14Speaker 03

  They, they probably keep a whole group of CPAs full-time and legal.

• 31:20Speaker 04

  Oh, yeah.

• 31:21Speaker 03

  You know, I mean, it's just at that point, you're just trying to make sure you're you're doing everything right. And going back to the question of, of, you know, the audit and some of the triggers. I mean, one of the things that you can do, how you mitigate it is, is, um, is that you, you hire a professional. You make sure that you're working with a tax professional that you feel like is going to be looking out for you, that you trust. Um, you know, not just somebody that's crunching numbers for you, but truly, you know, is trying to help you navigate this. Uh, and they're going to be able to tell you what those industry standards are and all that stuff. And you're not trying to be untruth or illegal. It's our responsibility as taxpayers to pay the least amount of taxes as possible.

• 32:00Speaker 03

  So there's nothing wrong about that, but understand the rules, be as aggressive as you can by trying to decrease taxes. But you definitely don't want to do something that's going to cause a headache for yourself. And I, I think that's why I appreciate your question so much. Another thing that you can do is regular internal audits. So if you're a smaller company, maybe that's a little overkill. Hiring a good CPA might be able to help you do that. But if you get a little bit bigger, maybe you have some of your, uh, your number cruncher employees, you know, like do some internal audits to make sure that you're staying in line with industry standards and some of those different practices. Uh, you also can leverage technology. So there are softwares to automate compliance and reduce human error. Um, one of the things is, uh, like,

• 32:44Speaker 03

  You know, some of your spending, if you're going old school and you're just trying to bring all your, um, your receipts and like enter them in later and you can end up making some excuses. There might be some personal ones that slip in there and you're putting all these in and so it may kind of be a little bit wampy, but there's a lot of software now and stuff that you can use that will track all your spending and it will help you automatically be categories, categorizing those by the type of spending they are and what kind of write-off they're going to be for your company if they are. The other thing is stay current. I mean, there's always laws changing and regulations in your industry. Try to stay um, as up to date as possible. So, um, I'm sure with, with nowadays with social media

• 33:26Speaker 03

  and different things, there's probably somebody in your specific industry. So, uh, auto service industry, there's probably some go-getters that are out there that are doing a podcast or doing some sort of regular, um, discussions where you don't even have to go do a lot of the research for yourself. You could probably follow somebody and if there is nobody doing that, maybe that's a little opportunity. Become the person that, that does the research and then you might even, you know, find a way to, uh, be, um, uh, you know, get paid for that. I mean, cause one of the funny things like, I mean, this is what I have to do too in my industry, like being licensed advisor and this and that. And, um, there's even people that I follow that would technically be considered my competitors. There's a gentleman

• 34:08Speaker 03

  that is very knowledgeable with social security, rules, regulations. He does a great job of talking about these concepts. Obviously he's trying to talk to potential clients and this and that, but I follow him and I give him kudos all the time because he just does a great job of staying really, really in front of all the rules and regulation and changes and, and you know, amounts that, that are going to get updated. And so it's much easier for me to watch his YouTube channel every now and then and just stay, uh, up to date with that instead of having to swim through multiple websites.

• 34:38Speaker 04

  But you love doing that, Chris.

• 34:41Speaker 03

  Little bit, but you know, I mean, I do as much as I can, but it's a lot easier when somebody else gives me the CliffsNotes version.

• 34:48Speaker 04

  Absolutely.

• 34:48Speaker 03

  That was what I was really good in high school and school, so.

• 34:53Speaker 03

  You know, 3.0 skating by.

• 34:56Speaker 04

  That's great.

• 34:57Speaker 03

  Great?

• 34:58Speaker 04

  Yeah.

• 34:59Speaker 03

  Everybody now with the 4.4s and 4.5s and what? Yeah, yeah, I was always, it was actually impressive because I was definitely uh got, found myself a little bit of a knucklehead at times and this and that and I look back and my mom, like even my mom would go to school, like this was when I was a little bit younger, but she would, she'd go to sit down for the, you know, meetings and uh, the teacher would start talking about how he sits so still in class and he listens and he does everything I ask him to do and my mom's like looking around like, Chris, Chris Pelsters, my.

• 35:33Speaker 00

  What?

• 35:34Speaker 03

  Yeah.

• 35:34Speaker 00

  My kid?

• 35:35Speaker 03

  Yeah, because I was known as the Tasmanian devil by most of my family, like I couldn't sit still for two seconds if I was at family gatherings, but for whatever reason, as soon as I got into a classroom, I turned into a little Johnny on the spot and paid attention.

• 35:48Speaker 04

  Thank Christopher.

• 35:48Speaker 03

  Yep, yep, that was it. I was definitely afraid of getting in trouble. That was one good thing. I guess that's a good thing to to kind of keep you out of trouble.

• 35:56Speaker 04

  A little fear goes a long way.

• 35:57Speaker 03

  Yeah.

• 35:58Speaker 04

  Yeah.

• 35:58Speaker 03

  Yeah, it kept me out of trouble, so. So anyways, um, back to the question, I mean, there's definitely different things uh, that different industries, you know, like uh, in the medical field, I know that like super high compensation for the doctors, you deal with some of these different things where uh, again, if you're a doctor and your, your income level shows really, really low, but every other surgeon in your industry is making three times as much as you, there's different things for different industries uh, that are red flags, but uh, um, the general ones, you know, stick to it. So uh, one of the ways to mitigate some of the, the general ones that we talked about, the unreported income, excessive deductions, misclassification of employees and consistent losses.

• 36:42Speaker 03

  Um, these are the ways that you get around it. Maintain thorough, accurate financial records and documentation. Bench press financials against industry standards to ensure consistency, properly classify your workers using the IRS guidelines, and avoid inflating deductions without proper substantiation. Meaning you need to have records of the money that you were spending, that you're going to be claiming that you're writing off. Again, a lot of these things can be done by just having a trusted CPA that you're sitting down with and that, you know, is kind of crunching these thoughts with you. But those are some of the ways to get around all that, so.

• 37:16Speaker 04

  And the good CPA for this is somebody that's above board, but can be creative. They understand everything in and out and they can, you know, again, above board, but creative.

• 37:29Speaker 03

  And it's tough too, because super great CPAs that are doing really great job are all super busy.

• 37:35Speaker 04

  Yeah.

• 37:35Speaker 03

  And super hard to get with, but.

• 37:36Speaker 04

  And you'll pay, you'll pay for that, right? A good CPA, you will, you should expect to pay a good amount for, but it's worth it.

• 37:44Speaker 00

  We'll have one on the show Tuesday.

• 37:46Speaker 03

  Yeah, who we having?

• 37:47Speaker 00

  Uh, Duffield.

• 37:48Speaker 03

  Boom, Johnny D. Johnny D, stick around and you can listen to some of his stuff. Real quick, before we go to break, uh, we'll, we'll, got a couple of messages came in. One says, I was wondering why Mike Tyson would be fighting this Paul kid, but then I heard on the morning news, he is making $20 million for this one fight. Wow, I'm in the wrong business. Thanks for the update on Gero. So, yeah, yeah, there's something to be said about entertainment because I don't know how serious of a fight it's really going to be, but it's entertaining enough. I was just talking about it this morning. Um, I want to watch it just because like, I just want to see what happens.

• 38:23Speaker 04

  Yeah.

• 38:24Speaker 03

  I mean, who knows what's going to happen, but it's like, that's one of those things where you get a big enough name. Um, I love the ones that are showing like Jake Paul when he was 15.

• 38:32Speaker 04

  Yeah.

• 38:32Speaker 03

  And he's dancing around his house, like eating cereal and this and that. And then it shows Mike Tyson when he was 15. He's like preparing for the Olympics or whoever knows what he was doing.

• 38:41Speaker 04

  Are they boxing or are they doing MMA?

• 38:43Speaker 03

  No, they're boxing. Yeah, it's full on boxing, but well, I say full on boxing. They're heavier, heavier gloves, which makes it much harder to knock somebody out.

• 38:52Speaker 04

  Oh, interesting.

• 38:53Speaker 03

  Yeah, so a couple of things that they're putting in place to.

• 38:56Speaker 00

  And there'll be some good fights. I know the, uh, the co-main event, the one right before Tyson is, uh, is gonna be a good one, too. But 20 million, geez Louise, that is a lot of money for a fight.

• 39:07Speaker 03

  I think he's guaranteed 20 million and I think Jake Paul's guaranteed 60 million.

• 39:13Speaker 04

  Six zero?

• 39:13Speaker 03

  Six zero. Yep.

• 39:15Speaker 00

  You better pay me that to get the ring with Tyson.

• 39:19Speaker 04

  Yeah.

• 39:19Speaker 03

  Yeah, if Mike Tyson circa late 80s, early 90s, like comes out, if he comes out in like all black shorts, oh.

• 39:28Speaker 04

  Oh, the way he slapped him during the whatever.

• 39:30Speaker 03

  Don't mess with his toes, I guess. Don't mess with his toes. Yeah. Well, hey, we're gonna take a break real quick, come back for our last segment. We got another message to come in and then we also are going to talk about, uh, some things to be thinking about towards the end of the year and some of the new amounts that the IRS allows for retirement, uh, savings plans, 401Ks, 403Bs and stuff of that nature. You need to start making plans now to be ready to have things in place for 2025.

• 39:58Speaker 00

  Have you been putting off your finances? Seize the day. Call the Money Wise office at 661-847-1000 or email [email protected] for more information on how our financial advisors can help your financial situation.

• 40:14Speaker 03

  Welcome back. Just.

• 40:18Speaker 04

  Happy birthday, E40.

• 40:19Speaker 03

  E40.

• 40:23Speaker 03

  Happy birthday. He was big when I was in high school.

• 40:27Speaker 00

  He still is.

• 40:27Speaker 03

  Yeah, he's still big.

• 40:28Speaker 00

  Yeah.

• 40:29Speaker 04

  Steven, you saw, oh. Steven, didn't you see him at the Kern County Fair this year?

• 40:35Speaker 00

  I did not see him at the fair, but I did see him this year.

• 40:38Speaker 04

  Oh, wait, okay. Was he at the fair?

• 40:41Speaker 00

  I believe so.

• 40:42Speaker 04

  Okay.

• 40:42Speaker 00

  Yeah, but he did, uh, he came to town with, uh, Nate Dogg and a bunch of the old eight, 90s rappers.

• 40:51Speaker 04

  West Side Connection?

• 40:52Speaker 00

  Yes.

• 40:54Speaker 03

  Yeah, I wanted to, I got to follow up because I did mention, I said Jake Paul was getting 60 million, he's getting 40 million, so 60 million guaranteed total. It's Tyson, age 58, versus Paul, age 27. It is tonight, and NFL's Dallas Cowboys stadium. It's going to be streamed on Netflix.

• 41:15Speaker 00

  Yeah, it's the first Netflix

• 41:17Speaker 03

  There you go.

• 41:17Speaker 00

  Live sports event.

• 41:19Speaker 03

  They're anticipating at least 60,000 people to be at the stadium for the live fight.

• 41:26Speaker 00

  Was that 20,000 more than the Cowboys games?

• 41:29Speaker 03

  Yeah.

• 41:32Speaker 03

  Yeah.

• 41:32Speaker 00

  Sorry, Jerry.

• 41:33Speaker 03

  Yeah. But it's interesting, it's just, it's entertaining and people are going to tune in, I think, and you know, love it or hate it, it is one of those things where it's just intriguing enough where I would almost pay to watch it. I don't know if I'm going to, who knows, but

• 41:46Speaker 00

  Do you not have Netflix?

• 41:48Speaker 03

  Is it free?

• 41:49Speaker 04

  Yeah.

• 41:49Speaker 00

  If you have Netflix.

• 41:50Speaker 04

  They've been doing these, so this isn't the first, they did

• 41:54Speaker 03

  Oh, I thought it was like something we had to pay extra for or something.

• 41:56Speaker 04

  They did a golfing exhibition match like this, they did a tennis, tennis one.

• 42:01Speaker 03

  With famous people that were golfing, yeah, I saw that.

• 42:03Speaker 00

  Yeah, that was the Tom Brady one that he golfed at.

• 42:07Speaker 03

  Yeah.

• 42:08Speaker 00

  And then I know the big fight tomorrow is John Jones, if you're a UFC fan, that's the big fight I'm looking forward to.

• 42:14Speaker 04

  An actual fight?

• 42:15Speaker 00

  But you actually have to pay for that one.

• 42:17Speaker 04

  Yeah.

• 42:17Speaker 03

  Yeah, so somebody else messaged in and shared in my same situation with the sprinklers in the rain, says, aha, I had the same thing happen to me this morning, had my neighbor ring my doorbell at 7 a.m. to let me know that my sprinklers were on while it was raining. So, hey, trying to get that winter rye to grow, alright?

• 42:37Speaker 03

  So, the one thing, the last thing I wanted to jump into, just so, you know, hopefully you guys can start making some plans, so maxing out a 401k is a big goal for a lot of people. It's not easy to do, you're getting to where you're living without, you know, a pretty big chunk of your pay. But like with everything in life, you know, if it's something that's important to you and getting ready for your future is important, then it's a great goal to set for yourself. And the IRS does allow you to put, you know, a portion of your money away for retirement without paying taxes, allowing you to grow that money instead of paying the taxes on it, and then you can get growth and compounding growth possibly, if it's in there long enough, even off the taxes that you would have been paying, so.

• 43:17Speaker 03

  Um, statistics on that is in 2023, about 14% of Americans maxed out their company sponsored plan. Um, so hopefully if you're being money wise and working on goals, I know it's not easy, but hopefully we can all try to make progress on hitting that. Last year, the 401k max was 23,000. This year, they upped it to 23,500. Catch up is what they allow people to do. Um, catch up contributions over the age of 50 is still 7,500. It was the same last year. So the total went up by 500 that you can do. It is now $31,000 if you're over the age of 50. It is a lot of money, but if you're getting to the point where, you know, maybe you're paying

• 43:59Speaker 03

  off some of your debts, you, you don't have car payments, uh, you might even get to the point and, you know, towards retirement, you pay off your house. I tell people, you, you know, you can start putting your house payment in there. Um, maybe increase your lifestyle a little bit, but the rest of it starts going into the 401k and you try to put as much money away there as you can, getting ready for retirement. They also allowed something new this year called super catch up. 60 to 63 years of age, you can do 11,250, not just the 7,500. So you can actually do 11,250 in catch up, which means you can do 34,750. Big numbers, calculate it. How many paychecks do you get per year? Split it up. Start making plans right now. Hopefully just at least increase a little bit if that's all you can do for next year.

• 44:44Speaker 03

  But if you're also one that's trying to max that out, crunch the numbers now. Make sure the info is into HR. And so you start January, ready to rock and roll by either doing the 23,500 if you're under 50, or a little bit more and get to that 31,000 mark. If you're over 50, and if you're a super saver, do the 34,750. Thanks for making money wise what it is. Thanks for, uh, list tuning in all these years. We really, really love you. But most importantly, be smart, be safe, be money wise.

• 45:14Speaker 02

  Securities offered through SCF Securities, Inc., member FINRA/SIPC. Investment advisory services offered through SCF Investment Advisors, Inc. SCF Securities, Inc. and MoneyWise Wealth Management are independently owned and operated.