#5 – Inflation Numbers, Elon Musk, Stock Splits, Market History, Housing News, and Retirement Planning Your Dividend and Long-Term Capital Gain Tax Rates

Jeff Lloyd [00:01:28]:
Oh, we call it here on money matters Musk, CTV, because it’s exactly what it is.

Wes Moss [00:01:33]:
It just keeps getting better and more interesting. Walmart did a good old fashioned stock split, or announced one. When was the last time that happened? Used to be earlier in my career. Go back to the late 90s, early 2000s. Stock splits are happening all the time, and then they’ve become virtually extinct like an endangered species. Wait a minute, a stock split spotting this week from none other than Walmart. So we’ll cover that and then dividend and long term capital gains when it comes to taxes. And here we are in tax season.

Wes Moss [00:02:14]:
So this week officially started tax season. By the way, welcome. Jeff Lloyd, I just brought you in without introducing you. Jeff Lloyd here in the studio. No.

Jeff Lloyd [00:02:21]:
Thanks for having me back, Wes. I know it was a rough Sunday last Sunday with the Lions losing, but as you described, you’re a multi fan.

Wes Moss [00:02:30]:
I’m a multi fan.

Jeff Lloyd [00:02:31]:
So even though the Lions lost, your Michigan Wolverine still won a couple weeks ago. You got one championship under your belt.

Wes Moss [00:02:38]:
Can’t have it all in one season. But I have no allegiance to either team that’s in the don’t. It’ll be great to watch it. I guess Usher is going to do the halftime show kind of mixed on that one. But either way, we’re going to all watch the Super Bowl I think, I don’t know how many hundreds of millions of people.

Jeff Lloyd [00:02:58]:
Is he going to have any special musical guests at the halftime show? I don’t know if they’re going to be any other musicians at the crowd.

Wes Moss [00:03:07]:
We don’t know for sure. Of course, it’s Taylor Swift. I really like the idea of the Lions represented by Eminem. He’s their musician versus the Chiefs with Taylor Swift. So it would have been pretty cool tv to see. It would have been Eminem versus Taylor Swift, which is a ridiculous matchup, but I thought it would have been great for ratings, not that it needs it. In my family, Eminem is a big deal, not Taylor Swift. I’ve always.

Wes Moss [00:03:41]:
I don’t know one Taylor Swift song. Jeff Lloyd, I know you have producer Mallory’s crying over there. How could you say that?

Jeff Lloyd [00:03:48]:
She’s throwing you a thumbs down over there.

Wes Moss [00:03:50]:
So into Taylor Swift.

Jeff Lloyd [00:03:51]:
But yes, I have a 13 year old daughter. We actually have been to a Taylor Swift concert back about six years ago on the reputation tour. We have not been on the latest tour, which apparently she is going to be in Japan a night or two before the Super bowl. So there’s questions of whether she’s done yet.

Wes Moss [00:04:08]:
She’s going to fly private. She’s asleep the whole time. She’ll be there, game time. She’ll be more well rested than anybody.

Jeff Lloyd [00:04:14]:
Well, I can’t wait to see it.

Wes Moss [00:04:16]:
Let’s start with this. Well into adulthood and still getting money from their parents, I’ve written about this. I have a chapter in, I think, the family habits section of you can retire in what the happiest retirees know that talks about the relationship between parents and their adult children and how happy versus unhappy retirees are participating in their children’s finances. Their adult children’s finances. So I’ve always been interested in this topic, and this is a new study that’s come out from Pew Research and was just published in the Wall Street Journal this past week, 59% of parents said they helped their young adult children financially in the past year. Almost 60% of parents are helping their adult children. More young adults living at home. Adults under the age of 25, 57% live with their parents, up from 53% back in 1993.

Wes Moss [00:05:14]:
So it’s not that shocking. As we get older and older, we look at college football and you see football players that are 25 years old. They’re still playing college football to some extent. We’ve elongated when we fully leave the nest. So that doesn’t surprise me as much.

Jeff Lloyd [00:05:30]:
It really doesn’t surprise me as much. If you kind of think about the affordability of houses right now and what we’ve kind of seen within the booming housing prices over the past couple of.

Wes Moss [00:05:40]:
Years, why don’t you bring up some housing data while I give some other statistics here? Because I think you’re dead on when it comes to that. It’s unaffordable. It’s a great time to be a homeowner for a variety of reasons, because prices are high. So if you wanted to sell your house, you could probably get, you’re probably close to an all time high point, depending on where you live. And you probably also locked in a really low mortgage rate. And we all have those statistics as Jeff Floyd is digging through the numbers. But at the same time, if you are not a homeowner and you’ve got student debt and mortgage rates are now higher, it’s a really tough time to be buying a house. Home affordability is very difficult right now for Americans.

Wes Moss [00:06:23]:
Here’s an example, though. So again, this is a Wall Street Journal article. They chronicled a 33 year old physical therapist named Heather McAfee from Austin, Texas. She lived at home from 19 or from 19, from 2019 to 2021. So for three years, so that she could help pay down her student loans. She had $83,000 in student loans. The plan worked. She lived with mom and dad for three years, down to $15,000.

Wes Moss [00:06:51]:
So it was a really big help, and that’s a very practical way to do it. I remember when I was right out of college, it was still only one of my friends did this. I remember from UNC, and I remember he went home to New York and lived with his parents. And I thought that was wild. I thought it was crazy that he would ever do that. He was the only one out of our friend group that lived with his parents. And to some extent, he was a little more set up for it because he was a consultant and he traveled every single week, and he would go to a particular location on Sunday night and not get home till Friday. So it kind of made sense to not even go get an apartment right out of school.

Wes Moss [00:07:29]:
However, I looked at that at that time, 25 plus years ago, as kind of nuts. Today, I think, well, that makes total sense. I would encourage my kids to do that. And then here are some statistics around the impact. So this is the share of parents who live with their young adult children say that living with them has had an impact on one, their own personal financial situation. Not all that bad. So only 15 18% of people parents said it was tough on them financially, but it’s almost 20%. And then their relationship with their child.

Wes Moss [00:08:08]:
This was interesting to me and a little bit different from the research that I’ve conducted over the years. But 74% of parents said it has had a positive relationship with their kids, which I think that is wonderful. 21% neutral. Only 5% said it had a negative impact. So I think that that makes, I love that statistic, that it brings parents and their kids closer. And it’s a good time, too, when you’re 21. I just remember when I was in my early twenty s, I finally became, you start to become an adult, you start to get along with your parents better. And in the world we live in today, where it’s less, I’d say less of a stigma to be 22 and still live with your Parents.

Wes Moss [00:08:51]:
I think it could be a fun time. As you’re grown up, your parents are grown up, you get along in a different way. So I love that statistic.

Jeff Lloyd [00:08:58]:
No, that’s a positive statistic. I mean, think about it. If you combine that 74 and 21, 95% are having as good of a relationship or a better relationship with their parents or child, you always look that.

Wes Moss [00:09:10]:
You are glass half full all the time. Jeff Wood.

Jeff Lloyd [00:09:13]:
Yeah, we get the weather report. If there’s a 95% chance of rain, what do you. I say there’s a 5% chance of sun.

Wes Moss [00:09:20]:
Okay, so great. The relationship with. So here you go. Now, this is on the young adults that live at home. So the share of young adults who live at home with a parent who say living with their parents has had an impact on their personal financial situation. 64% said it was positive, which makes total sense, 25% neutral, but only 10% said it was negative. So it looks to me, really, this relationship has works out for both parties. The only place you see a negative is in the sense of independence.

Wes Moss [00:09:55]:
And this, of course, makes sense. About a third of young adults who live with their parents say it has been negative for their sense of independence. Some point we got to get out of the nest and live on our own financially. And that’s what parents want. Parents want independent children. No matter what research you read. And this is research that I’ve done over the years, if you go back to Thomas Stanley and Bill Danko’s research on the millionaire next door, we aspire as parents. And I guess I can say this now that I am a parent.

Wes Moss [00:10:27]:
We just want our kids to be fully functioning, independent adults that we do not have to support. I’m fine to support them. I don’t want them to be in a position where they need to be supported when they’re 35 years old.

Jeff Lloyd [00:10:42]:
It’s like the birds in the nest. Mother bird wants to support the baby birds, but she wants to see them fly and leave the nest.

Wes Moss [00:10:50]:
They’ve got to be able to find worms on their own. All right, so here’s the next big story of this past week, of course, is the fed, I don’t know if you’ve pulled housing data yet, but this relates back to housing data because it really has to do with mortgages. What the Fed does with their manual levers, if you will, wags the tail of the entire bond market. So they control these really short term interest rates. They can do that manually, if you will. They can pull the levers to change rates higher or lower. And then that, almost like a bull whip, changes the entire yield curve of one year and two year and five year and ten year and 30 year bonds. It moves the entire bond market.

Wes Moss [00:11:30]:
And we saw that a little bit this past week. But the Federal reserves, they’re not quite ready to lower rates. That’s what we’re seeing from Jerome Powell and company. The market has been expecting that potentially as soon as March you’d see rates start to come down, at least what the Fed can control. Powell, he didn’t intimate that there was anything wrong and similar to what we talked about last week. We called this a super Goldilocks economy because we have low inflation and yet we have strong gdp. We have two really positive things happening at the same time. In fact, their preferred measure, there’s two inflation measures.

Wes Moss [00:12:09]:
You’ve got CPI that gets a little more press, consumer price index, and then you got PCE, which that’s the Fed’s preferred measure of inflation, but it doesn’t get talked about. I think if you went and asked ten people what CPI was, most people would say, oh, that’s consumer price index. I bet you it’d be one or two out of ten that know what PCE is, which is personal consumption expenditures. It’s hard to understand. It’s poorly named to understand that it’s an inflation number. We’re talking about housing. Jeff Lloyd, number one on the list. Do you have this heat map?

Jeff Lloyd [00:12:44]:
The heat map, number one for a.

Wes Moss [00:12:47]:
One year gain in housing prices. Number one on the list. We’ll go top three. Number three on the list, New York up 7.4%, San Diego up 8.1. And I have to think that part of that is because there was a correction in some of these cities and maybe they’ve recovered. And then number one on the list, Detroit, over the past year. Now, if you go over the past ten years, it’s trounced by a lot of cities. It’s only up 94% over the past decade.

Wes Moss [00:13:18]:
Whereas you see a city like Tampa is up 148%. A city like Seattle, even though has recently been more flat, up 131% over the past decade or so. And where are we on the Atlanta. So Atlanta, here we are in the city of Atlanta, up 6% year over year over the past ten years, up 112%. Yeah.

Jeff Lloyd [00:13:40]:
And according to the data, Atlanta home prices hit a new all time high.

Wes Moss [00:13:45]:
Good for homeowners, a little rough for home buyers. Now, what wags the tail of interest of mortgage rates? We know that it’s the Fed. They can manually move interest rates that impacts the ten year treasury bond yield. And then that really is where mortgage rates are coming on. For the most part, they play off of where they were usually a little couple of points higher than where the ten year treasury is. We hit a high of what was the 30 year mortgage rate high back.

Jeff Lloyd [00:14:13]:
In like the October, November of last year. We got in kind of the 7677.

Wes Moss [00:14:20]:
Range, almost 8% almost for almost average 30 year fixed. And now we’re down to 6.7%. So it’s come down about a full percentage point. But the Federal Reserve is not going to lower rates. And this is what they said this week. First of all, they said the data is good. Inflation has come down, the economy is strong, and the numbers are good, but we want to see the numbers stay good for a while with their elevated rates, that they’re still elevated. Five and a quarter to five and a half percent.

Wes Moss [00:14:48]:
That’s the federal funds rate. Before they start to lower interest rates, they still want to see a little bit of progress on inflation. Now we know that CPI, again, we’re getting close. CPI is, as it stands right now, that’s the consumer price index, stands at about 3.4%. PCE personal consumption expenditures, that’s another inflation measure, is only up 2.6% over the past year. Here’s the difference between the two. To measure airline ticket inflation, as an example, CPI is going to measure a fixed basket of airline ticket routes and what they’re purported to cost. That’s what CPI is measuring.

Wes Moss [00:15:32]:
Makes sense, but PCE personal consumption expenditures measures what consumers are spending on airline tickets. They’re looking at airline revenue, actual dollars spent. That’s why supposedly the Fed likes this PCE number better as an inflation measure, because it’s less hypothetical and it’s more measure of how inflation is impacting real world consumers. And that number is even lower than the CPI number. And depending on, if you look at, with or without food and energy, call it 2.92.6, depending on which way we’re measuring. But PCE getting really darn close to what the Fed’s really looking for. More money matters straight ahead. Thinking about retirement in 2024? Well, you’re not alone, and I’ve got just the thing to help guide you on your journey.

Wes Moss [00:16:27]:
What the happiest retirees know my most recent book that shares the ten habits of the happiest retirees, meant to help you land at a place where work becomes optional for a limited time. Get 25% off@westmossbooks.com. Simply use the promo code. Our treat all one word at checkout. That’s wesmossbooks.com. Seven Social Security lessons learned from none other than the coolest Social Security lady I’ve ever met. By far. She’s full time Social Security.

Wes Moss [00:17:03]:
At least she was for her. Beth Franklin, she’s the great explainer of Social Security. It’s such a complicated topic. It’s so important for people to get right. It’s a huge chunk of income, even if you have plenty of money. And nobody does it better than Mary Beth Franklin.

Jeff Lloyd [00:17:19]:
She just makes it so easy to digest and understand.

Wes Moss [00:17:24]:
We recorded a podcast with her for the retire Sooner podcast. Of course, you can find that on Apple or wherever you find podcasts, but it’s called the retire sooner podcast that we’ve hosted now for a couple of years. And we just had Mary Beth Franklin back on to talk about Social Security, simplifying it, really. We probably should have titled it, how do you optimize Social Security? Because we know how to maximize it. You wait as long as you can. It’s really about optimizing Social Security. And that’s what she talked about anywhere from number one on my list is, where’d that color statement go? Remember, you used to get the green, white and green statement with black letters. Now it’s got color.

Wes Moss [00:18:01]:
You got to log in to get it. But we talk about when you get that, how to get it. Will benefits be there long into the future? What could change around Social Security? How Social Security funded? How much of our income do we pay on the Social Security tax? This is the new number for 2024. It’s $168,600. So the first 168, 600 we make, that’s up from a little over 160 from last year. That’s what we pay our Social Security taxes on. That’s the FICA amount that we pay, which even if you make 500 a year, you’re still only paying Social Security tax on 168,600. The door has closed on some old rules here, as we have started now in 2024.

Wes Moss [00:18:51]:
And then what about the working penalty? These are all things we cover from Mary Beth Franklin. But she’s great. We really love the podcast that we did with her, and you can find it on the retire sooner podcast. Now with that, we’ve already talked about the Fed this week, Jeff Lloyd, and super important news. PCE, which is an inflation measure that they really care about, is now just slightly sub 3%. So it’s in the twos, depending on which PCE measure we look at. PCE is preferred by the Fed because it measures the prices, people, not the price that’s listed that you see in the store, if you will, but actual spending on, let’s call it any item that they’re measuring that gives us an idea of what the consumer is spending and how much more they’re spending on the same thing they did last year. And that’s where we get this inflation number, PCE.

Wes Moss [00:19:50]:
It’s getting pretty close. Fed thinks the date is good. They just want it to stay good for a while before they start lowering interest rates, which should be welcome to anybody thinking about buying a House.

Jeff Lloyd [00:20:01]:
Yeah, it doesn’t look like they left the door open for maybe a March cut, but doesn’t seem very likely. It seems more likely that that cut could come in May.

Wes Moss [00:20:13]:
Sure. And the market looks at it that way, too. And there’s Fed fund futures and there’s odds on how many cuts. And when the cuts come, here’s the reality is that the Fed is data dependent. And I really believe that. I hear that get poo pooed on financial television. All the. They’re, they really data dependent? Yeah.

Wes Moss [00:20:33]:
They are looking at new economic data that comes in every single day up until they meet. And if we had gotten a really low inflation print that was even lower than, let’s say, the 2% handle that we’ve had, maybe they would have cut. So it really is what’s happening in the economy, what the numbers look like, and they’re going to adjust accordingly. What’s maybe even more interesting than the.

Jeff Lloyd [00:20:58]:
Fed, I would say Social Security. And that is a wonderful benefit that impacts a lot of Americans, a majority of Americans. But I want to talk about another benefit that was in the news this week, and that was Elon Musk. 50 plus 51 $56 billion pay package.

Wes Moss [00:21:21]:
Well, Tesla, it would have been a benefit. It would have been a benefit, but it was struck down by the court. So this is the overall pay package for Elon Musk. Here’s the headline from this. And again, Jeff Lloyd, you call this Musk? CTV. He had a pay package that was reportedly $56 billion. That would have been a one year bonus is essentially what that was. Yeah.

Jeff Lloyd [00:21:51]:
And a payment going to one person.

Wes Moss [00:21:53]:
One person getting a 56 billion, not million, $56 billion number. Delaware Judge on Tuesday ruled in favor of the investors who challenged Elon Musk on that and his pay package. And this was a court filing. It was in Delaware court. The judge found that Musk’s compensation was not. I don’t think it was that it was too high. Even though that’s a hard number to wrap your head around, is that was inappropriately bore by the board of Tesla and that’s why they struck down the pay package. And I’ve heard plenty of reaction to that by the was all his post said after this was, never incorporate your company in the state of Delaware.

Wes Moss [00:22:38]:
That’s all.

Jeff Lloyd [00:22:39]:
Let’s go straight to x, the company he owns. Never incorporate your company in the state of Delaware.

Wes Moss [00:22:45]:
Hundreds of the world’s finest companies are domiciled in the state of Delaware. So he’s obviously just mad at a Delaware ruling here, but he’s not going to get the pay package, evidently, and I’m not going to even go into it. They argued that it was inappropriately set. The board never thought that they could ever even come close to the parameters to get there, and that’s why they challenged it. But that’s not as interesting as this. The $56 billion, which producer Mallory in the booth over there doing the mind blown emoji in real life is hard to understand because, again, this would be a bonus to somebody to think a $5 billion bonus is a giant bonus. Imagine, though, you hear a $50 million bonus. You think, oh, that’s crazy.

Wes Moss [00:23:33]:
Somebody would get $50 million. But nobody’s ever, you don’t get a billion dollar bonus. There’s no billion dollar bonuses. Now, maybe if you own a big hedge fund and it’s a multibillion dollar hedge fund, it goes up a lot and you could make a billion in a year. Maybe instead, this was 56 billion. So it’s a billion times. 56 times to one person. And I guess that’s why there was so much outrage about it.

Wes Moss [00:23:58]:
But that number in itself is bigger than the company itself of three m it’s bigger than the railroad companies, Northrop, Southern. It’s bigger than truest. It’s bigger than Aflac. That’s how much this payment would have been. These are bigger than giant companies that are part of the S and P 500. It’s bigger than Ford Motor Company. Is that what you said here, Jeff? Is it really bigger than Ford Motor Company?

Jeff Lloyd [00:24:23]:
It’s bigger than Ford. It’s bigger than General Motors. So entire car companies, their market cap would be smaller than the peg package of 56.

Wes Moss [00:24:33]:
Clever. Because Tesla. I see what you did. Clever. Car company to car company. His bonus at Tesla, bigger than his competitors in itself, anyway, it’s not happening. Let’s go to something else good old fashioned. When was the last time we talked about a stock split?

Jeff Lloyd [00:24:49]:
I can’t remember talking about a stock split on money matters.

Wes Moss [00:24:53]:
If you own Walmart, remember, when we talk about these companies, we’re talking about the companies themselves here. We’re talking about a stock. We’re not recommending you go buy or sell it at the. We want to educate around what it potentially could mean, because any company can do a stock split. They could do a regular stock split, they could do a reverse stock split. And it’s been such a long period of time. What the heck is this? It’s the dodo bird showing up. I thought these were extinct.

Wes Moss [00:25:22]:
If you look at a chart, and I got this from barons, if you go back to the late ninety s and the early 2000s, it was not uncommon to get 50, 60, 70, 8100 companies a year were doing stock splits happened. Think about this. You would have a couple every single week. I think it was a peak in maybe in the year 2000. There were almost 100 stock splits in just that one year. Then over the course of time, they became less and less and less and less popular. And now you barely ever hear about a stock split. You maybe get a dozen or so in a given year.

Wes Moss [00:26:01]:
Maybe that trend will start to reverse here in 2024. But essentially, they did this, Jeff, and you spent a little bit of time on this, which is they really felt it was good for their associates and their employees. How many people work at Walmart worldwide?

Jeff Lloyd [00:26:19]:
It’s about 2.1 million.

Wes Moss [00:26:21]:
2.1 million people work for Walmart.

Jeff Lloyd [00:26:24]:
And in the US, it’s like 1.6 in the US. So they are the largest private employer in the US. Walmart is.

Wes Moss [00:26:35]:
And then you have 400,000 Walmart associates that participate in the Walmart associate stock purchase plan. Today, about 400,000 employees are doing that. And the reality here is that. And this goes all the way back to Sam Walton. I don’t know where you got this, but Sam Walton believed it was important to keep the share price in a range where purchasing whole shares, rather than fractions was accessible. So this is what happens. On the surface, it shouldn’t really matter to investors because I guess a simple example, let’s just say a two for one stock split and Walmart is three for one. But if you think of it this way, you own 100 shares of company x.

Wes Moss [00:27:21]:
We’re not talking about Twitter here, but you have 100 shares of company x. It’s priced at $100 a share. That means it’s valued today at $10,000. Now they do a two for one stock split. Now you have two shares for once, and now you have 200 shares, but the price falls in half. So you have the exact same value, if you will, in those shares. So now your 100 goes to 200, the price goes over $100 down to 50, and your investment is still worth $200, but you have more of a lower price share. And if you think about you’re doing dividend reinvest or you’re doing a stock purchase plan, and you’re only able to put in a few dollars or 50 or $100, it starts to make buying a full share that much easier.

Wes Moss [00:28:07]:
So we could also think of it. So a stock split is like ordering a large pizza, in the case of Walmart. So normal pizza, let’s say it’s got eight slices, but instead you say, I want a large pizza, but I want 24 slices. So it’s the same exact pizza. It’s the same exact size. It’s just there are 24 pieces as 24 smaller pieces relative to eight larger pieces. And that’s really what a stock split is all about. And that’s what’s happening with Walmart.

Wes Moss [00:28:38]:
But what’s an example if you didn’t have a stock split? Give us an example, Jeff Lloyd, of what could happen. Yes.

Jeff Lloyd [00:28:45]:
I thought Apple would be a good example to use. And they ipoed back in 1980, and they’ve had a couple of stock splits since then. I think they’ve had five in total and had the company not ever done a stock split.

Wes Moss [00:29:01]:
Hold on. So the price, let’s call it this.

Jeff Lloyd [00:29:04]:
Week, let’s call it 186 mid 180s.

Wes Moss [00:29:09]:
Right.

Jeff Lloyd [00:29:12]:
Per share.

Wes Moss [00:29:13]:
Okay. But what if it had never split over the years?

Jeff Lloyd [00:29:16]:
If it had never split, the cost of a share would be just over $41,600 per share.

Wes Moss [00:29:27]:
All right. And what you’re doing then is taking the total size of the company, the market capitalization and readjusting for what the shares were when it first started for.

Jeff Lloyd [00:29:36]:
Like share repurchases and things like that.

Wes Moss [00:29:39]:
And that’s a really good example of why it could be really inaccessible if you don’t have stock splits. Imagine you’re saying, I’m going to take some money out of every paycheck, maybe it’s $50, and I’m going to buy Apple shares with it. Well, you’re never going to buy a share, or you would just buy these tiny, tiny fractions until you get to $41,000. And that’s the reason why companies can do this and make it a little more accessible. We’re not saying go out, run out and buy these stocks. We’re talking about really, this is a conversation around stock splits. They don’t change the value, they don’t materially good or bad, but they do make the price a little more accessible if you do.

Jeff Lloyd [00:30:22]:
So, yeah, stock splits, I like to say, kind of helps you be able to take a bite out of the apple.

Wes Moss [00:30:28]:
What else happened so far? To start out this year, volatility has picked up a little bit. The VIX is up 15%. Crude oil up about 5% or 6%. We had, let’s see, the bond index was relatively flat, down just a fraction of a percent. Gold down about 1%. It’s interesting that the VIX picked up, which is the volatility index, but relatively benign month for markets. Not a ton of movement in either direction. The magnificent seven, which is that those are the companies that really ruled the day in 2023.

Wes Moss [00:31:07]:
These happen to be the biggest companies in America for the most part. And because the S and P 500 is market cap weighted, they have a very large impact on how the market does. We had a lot of most of last year, we were looking at the market and we had a scenario where even though the market may have been up at any given time, let’s say up 10%, it was because just those seven stocks had done so well. And the other 493 were, on average, down. Yet the market was up 10% because the magnificent seven were up so much, 50, 60, 7100 percent in some cases. Those companies, how are they doing now? Or how did they do, at least for January, still some pretty good momentum. Nvidia was up 24%, meta was up ten, Microsoft up almost six, Amazon up two. But then we saw Apple negative on the month.

Wes Moss [00:31:59]:
And Tesla. Tesla was down 24% for the month of January. So that’s a not so magnificent rate. Of return. Not saying let’s go run out and buy or sell the magnificent seven at all, but maybe a little less carrying the market when it comes to just a handful of companies. And we did see a broader, what I noticed throughout the month on any given day when the market was up, it wasn’t just tech driving, it was much broader. So I’d see these, let’s call it large cap dividend companies that are just large, they’re not mega, mega cap. So in the world we live in now, we have trillion dollar companies.

Wes Moss [00:32:42]:
Used to be 100 billion dollar company was really big. Today that’s not even that big relative to some of these massive technology companies. We know Microsoft is over $3 trillion, we know Apple is over $3 trillion or they’re both flirting with that level. And we may see more of these trillion dollar companies. But I’ve noticed so far this month is that when the market we have a decent day in the market. It’s not as though the rest of the also rands or the bench players if you will, because they’re only 100 billion dollar company. They’ve participated as well. So some broadening out of the market so far in 2023.

Wes Moss [00:33:22]:
Speaking of some of these big companies like Google or Alphabet and Microsoft, it’s funny to look at, or it’s interesting to look at their revenue and how it’s grown over the years. And you look at a company that’s a $3 trillion company and you think how can that even be possible in this world? And it’s because they continue to grow their revenue year after year after year and it’s really supported that. And of course revenue can translate into profits and that’s how we get to multitrillion dollar companies. You go back to 1996, Microsoft did $9 billion. Still it’s at a huge amount of revenue. That was back in 1996. Let’s fast forward to 2000 and 646 billion dollars in revenue. Let’s go to 2016, $95 billion in revenue.

Wes Moss [00:34:16]:
This is the amount of money they’re bringing in in revenue, selling software and again doing the cloud. Now they’re of course participating heavily in artificial intelligence. Then you go to 2023 as of last year, did about $228,000,000,000 in revenues. Yes, these companies are massive and they have trillion dollar market caps, but they’re doing hundreds of billions of dollars of sales. You don’t just accidentally get to a trillion dollar market cap. These are companies that have supported. Now you can make an argument that some of these companies are pricey and they’re trading at high multiples relative to what they’re earning. But it’s not as though that their revenue hasn’t been just eye popping as well.

Wes Moss [00:35:05]:
Along with this journey to go from large cap to megacap to ultra megacap, in a lot of these cases, Alphabet is just another one. Again, go back to 2003. Alphabet did 1.5 billion in revenue. 2013 did $56 billion in revenue, and in 2023, did over $300 billion in revenue. That is Alphabet. So these are companies that are operating on many cylinders. That’s the army of american productivity, is it not? Jeff Lloyd? The Army of american productivity. More money matters, straight ahead.

Wes Moss [00:35:54]:
We spent a lot of time thinking about and wanting to articulate, I think, the importance of different tax rates. That gets some short shrift, meaning that there’s a huge difference, Jeff Lloyd, between the ordinary income tax bracket. So when you think to yourself, I make x amount and I pay about this, and almost a lot of Americans will just kind of default to saying, I think I pay 20 or 30% in taxes. And they’re usually not all that wrong. Sometimes they’re thinking more about their bracket versus their overall effective rate. But there is a very big difference between our ordinary income that gets taxed at a certain level, and those brackets get higher faster and go up more to a much higher level than the taxes we would pay for long term capital gains, which, again, rarely ever gets talked about. And the income you receive from dividends, qualified dividends. Think about any big s and p 500 company.

Wes Moss [00:36:56]:
Most of them that pay a dividend. Those are qualified dividends. So they have their own special tax rate. And today, we wanted to highlight what that means. And this came from. We were looking on Twitterx, and we read a post that said, did you know? And by the way, I’m not a CPA. I’m not operating here as a CPA. Even though we’re in tax season here, we have to always generalize anything that deals with the taxes from investments.

Wes Moss [00:37:28]:
So your own personal situation may be different. There’s all these other variables. You always have to check with your CPA before saying, oh, this applies to me. But this is an example. This came from Axe. I don’t know. This is the dividend investor, I think, that posted this, and the post was this. Did you know that if you make $124,000 in 2024, your dividend tax rate will likely, and I like that they use the word likely be zero.

Wes Moss [00:37:58]:
What? You don’t associate making $124,000 a year with zero tax rate? How could that possibly be. It’s because the dividend tax rate and the long term capital gains. Again, if we hold an asset for longer than a year and we sell it, then we’re going to get to pay long term capital gains. Those two brackets, really, they’re virtually the same. I would say that there may be some sort of nuanced difference, but if you look up the two brackets for 2024 dividend, here are the income levels you get to for different capital gain rates. They’re very similar or the same as dividend tax rates, and they are zero. They are 15 and they are 20. Now, I’m not talking about the, there is an additional 3.8% net investment income tax, but essentially, long term capital gains and dividend rates are their own brackets, and here they are zero.

Wes Moss [00:38:57]:
Yes. 00:15 percent and 20%, depending on where your income is. I went and pulled the 2024 tax brackets for the ordinary income and then the tax brackets for dividends and the tax brackets for income. I’ll try to not get too mired down in the weeds here, but here are just some examples. I’m just using this. All of these are married filing jointly. So this is, if you’re married filing jointly, if your income is, call it $90,000, as I’m looking at this tax bracket right here, the 12% bracket, by the way, for married filing jointly is about $23,000, up to 94,000, 94,300. That entire zone, if you will, is in the 12% tax bracket.

Wes Moss [00:39:43]:
So if your income is $90,000, you’re in the 12% federal bracket. But guess what? You’re in the 0% long term capital gain bracket and the 0% dividend bracket. And that’s important. Another example, if your income is $500,000, you’re in the 35% federal tax bracket. High earner, high bracket. By the way, the federal brackets go all the way up to 37%. That’s the highest federal tax bracket right now. You’re in the 35% you would pay on ordinary income, but you’re only in the 15% dividend and long term capital gain tax bracket.

Wes Moss [00:40:25]:
Huge difference, 35 versus 15. And if your income is $750,000, and that puts you in the highest bracket, that starts at, again, married, finally, joining starts at 731,000. Just a little more than that. So if you’re making seven, if you, if your income is 750,000, you’re in the 37% ordinary income bracket, but only 20% for dividends, qualified dividends and long term capital gain again, I’m not adding in that extra 3.8%, which is net investment income tax. And this is just for illustration purposes only. One of the reasons we don’t talk about taxes a lot here is that there are so many exceptions to it. So when you’re listening and you’re thinking about taxes, there’s always somebody that’ll call in and say, well, this doesn’t count. Or you said this, and it’s different.

Wes Moss [00:41:17]:
So just remember, we’re really just generalizing here, and it could be a little bit different for everybody. And this is not tax advice, but this is what we do need to think about when it comes to investing, to optimize what our bracket might be in the future. So we get to keep more of what we’re earning. But the dividend, this is from X or Twitter, the dividend growth investor this week. And this is what started this whole conversation. On the surface, Jeff, you and I were both like, wait, what? This doesn’t make sense. Dividends are not taxable in 2024 for married couples whose total taxable income is less than 123,250 this year. What? How could that be? Well, first of all, what they’re doing is they’re taking that number, 123, 250, and they’re using the standard deduction for a married couple, which is 29,200.

Wes Moss [00:42:12]:
So really what you arrive at is $94,050. And then you go over and you find that if you’re looking at the capital gain tax table, which is also the dividend tax table, guess what? 15% tax rate, if that’s where your income lands, 94,051. This is for married filing jointly all the way up to 583,000. 583,000. You’re in that 15% tax bracket when it comes to long term capital gains, when it comes to qualified dividends. Now, there is a handy tax calculator through which I’ve grown to really like this site. Jeff Lloyd, nerd Wallet. I really like Nerd wallet.

Wes Moss [00:43:02]:
They have really good articles. They’re very clear. They have good calculators. And we don’t get any kickbacks of nerd wallet. But I will say that it’s a helpful website. It really is. And now they have a 2023 capital gain tax calculator. So this is not going to be perfect.

Wes Moss [00:43:19]:
But the other thing I think that is important is that it shows us that capital gains and dividend taxes are essentially a progressive tax, meaning that because you have these different tiers, you have zero, you have 15, you have 20%. It’s not necessarily as if as soon as you clip over into that 15 bracket, it’s not as if all your dividends or all your capital gains, all of a sudden, in the 15, it’s progressive. So the calculator will show you that. And it doesn’t even take into account the standard deduction here. But if you were to enter in that you had 50,000 in capital gains and 60,000 in income, so your total income was 110. Long term capital gain, married, filing jointly, it shows you that part of your long term gain is taxed at zero and part of it is taxed at 15%. And that’s the key here. So you end up with this blend, and this is as an example on the calculator.

Wes Moss [00:44:20]:
Keep in mind, this is still their 23 version. It’s not taking into account the standard deduction. So it’s not fully accurate, but it gets the picture, because what it’s showing here is that the estimated capital gain tax is about a little over three grand. 3000 on 53,000 on 50,000. That’s about a 6% rate. It’s because part of it is in the zero and part of it is in the 15 is a blended tax rate. Or we could call that a progressive tax rate, but the brackets are a heck of a lot lower. It’s something that gets overlooked in retirement planning.

Wes Moss [00:45:00]:
We haven’t talked about it for a long time, but we talk about the steadiness of dividends. We talk about how dividends grow over time, or at least the market in general. We’ve seen dividend growth year after year. And by the way, the dividend growth rate we’ve seen to be double or triple the rate of inflation, depending on what time period you look at. What’s interesting about it, though, is that we go through our working years and we start adding up all the taxes, and let’s say you’re in your highest earning years in your head, or on paper, you’re paying 35% in taxes. The good news is, when you get into retirement, and Warren Buffett is famous for saying this, is that he pays a lower tax rate than somebody who works for him, administrative person that works for him, that maybe makes $300,000, because that person is paying, and they’re subject to their ordinary income brackets. Warren Buffett’s only subject because this is the way he sets it up, to pay taxes on dividends. And those are preferential, for the most part, relative to ordinary income.

Wes Moss [00:46:08]:
And it’s important, and it’s a big part of why it’s not just that dividends grow and outpace inflation and are a very steady piece of the overall equation, or can be, is that they’re pretty efficient when it comes to taxes relative to some of the other ways you can generate income when you get into retirement. And it’s not just about how much money we have in retirement, it’s about how much money we are able to generate and then how much are we able to keep after taxes. And if we’re smart about it, really thinking about it in our retirement planning, dividends really could play part of that role. So thank you, Jeff, for bringing that up today. And I know we did a lot going through that.

Jeff Lloyd [00:46:53]:
Yeah, a lot of detail in that. But I think it’s just a good.

Wes Moss [00:46:55]:
Was that the most boring segment of all time? I think it was, but it’s just.

Jeff Lloyd [00:47:00]:
A comprehensive look at finances and taxes, and factoring both those into a financial plan and strategy may have been one.

Wes Moss [00:47:10]:
Of the most boring and hard to follow. But I think it may be one of the more important segments we’ve done in a long time. Again, think of this as general advice. I’m not a CPA. I’m not saying this is exactly how it will be on your taxes, just some general ways to think about taxes on your investments when you’re planning for retirement, which is what we want to help you do right here on money matters. You can find me and Jeff Lloyd and the money matters team. It’s easy to do so throughout the week. We’re at yourwealth.com.

Wes Moss [00:47:40]:
That’s Y-O-U-R [unk]yourwealth com. Have a wonderful rest of your day.

Mallory Boggs [00:47:49]:
This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only, and is not to be considered investment advice or recommendation or an endorsement of any particular company. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. The information provided is strictly an opinion and for informational purposes only, and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing.

Mallory Boggs [00:48:37]:
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