Should I Diversify My Financial Institutions?

Summary

Podcast Summary: Jill on Money with Jill Schlesinger

Episode: Should I Diversify My Financial Institutions?
Release Date: March 17, 2025
Host: Jill Schlesinger, CFP®
Produced By: Audacy

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Introduction

In this episode of Jill on Money with Jill Schlesinger, hosted by Jill Schlesinger, CFP®, the focus centers on the crucial topic of diversifying financial institutions. Released on March 17, 2025, the episode delves into the concerns of retirees regarding the concentration of their financial assets within a single institution. After a brief introduction, Jill welcomes Rob from Kentucky, who brings forth his query about diversifying the institutions where his money is held.

Listener Question: Diversifying Financial Institutions

Timestamp: [03:17]

Rob introduces himself as a 64-year-old retiree whose financial portfolio is largely managed through a single firm—Fidelity—sourced from his previous employment. His primary concern revolves around the safety and security of keeping a significant portion of his assets with one institution, especially in an era rife with cyber threats and financial uncertainties.

Rob:
"I thought, you know, is it safe now to have so much of our financial assets under one company?"
[03:27]

Jill’s Initial Response: Stability of Major Asset Managers

Timestamp: [05:14]

Jill acknowledges Rob's concerns, emphasizing the stability and security offered by large, reputable asset management firms like Fidelity. She reassures listeners that companies like Fidelity are asset management firms, not investment banks, meaning they are primarily focused on managing client assets rather than engaging in high-risk investment activities that could jeopardize client funds.

Jill Schlesinger:
"Fidelity is not an investment bank... it's an asset management company. And so I would not worry about any problems with Fidelity."
[05:14]

Discussion on Risk Management and Diversification Strategies

Timestamps: [06:56] - [12:34]

Rob explains that his worries have intensified over the past few years as he approaches retirement, shifting his focus from growth to asset protection. Jill advises on maintaining a well-balanced portfolio to manage both investment and institutional risk. She highlights that:

• Security Measures: Reputable firms invest heavily in security systems, mitigating the risk of hacks and breaches.
• Diversification Beyond Institutions: While trusting a stable institution is crucial, diversifying the types of investments (stocks, bonds, ETFs, CDs) within the institution adds another layer of security.

Jill Schlesinger:
"If you're okay with the diversification, you know, 65, 35, I'm okay... getting some of that money out of those IRAs right now for the next five years... is a better way for you to minimize tax risk."
[12:18]

Tax Strategies and Social Security Planning

Jill explores tax-efficient strategies to further secure Rob's financial future. She suggests:

• Converting Traditional IRAs to Roth IRAs: This can help manage future tax liabilities.
• Withdrawing from Retirement Accounts Strategically: Minimizing required minimum distributions (RMDs) by adjusting withdrawal strategies.
• Delaying Social Security Benefits: By postponing benefits until age 70, Rob could increase his Social Security payouts.

Jill Schlesinger:
"Part of your strategy should be to wait to claim Social Security and pull some of that money out of those IRAs to live on, convert."
[10:54]

Portfolio Allocation and Comfort with Current Strategy

Rob discusses his current investment allocation: 65% in stocks (including ETFs) and 35% in bonds and CDs. He expresses confidence in his strategy despite recent market volatility.

Rob:
"Yeah, I still feel okay with that."
[11:57]

Jill concurs, recognizing Rob's comfort with his portfolio's balance but reiterates the importance of ongoing assessment to align with his retirement goals and risk tolerance.

Family and Estate Planning

Rob mentions having three grown children and grandchildren, and that both he and his wife have completed their estate documents. Jill acknowledges the importance of having these documents in place to ensure that his assets are managed according to his wishes.

Jill Schlesinger:
"You guys have your estate documents done, Rob?"
[14:07]

Conclusion and Final Advice

In wrapping up the conversation, Jill emphasizes the robustness of Fidelity as a secure institution and the wisdom in managing both institutional and investment diversification. She encourages listeners to focus on strategies that provide certainty in tax planning and flexibility in income sources to navigate future financial landscapes confidently.

Jill Schlesinger:
"I really feel very confident, you know, in the ability of a place like Fidelity to withstand pretty much anything."
[13:50]

Rob expresses his gratitude for Jill's insights, and the episode concludes with Jill advising Rob to enjoy St. Patrick's Day celebrations, reflecting a warm and personable interaction.

Notable Quotes

• Rob:
  "Is it safe now to have so much of our financial assets under one company?"
  [03:27]

• Jill Schlesinger:
  "Fidelity is not an investment bank... it's an asset management company. And so I would not worry about any problems with Fidelity."
  [05:14]

• Jill Schlesinger:
  "Part of your strategy should be to wait to claim Social Security and pull some of that money out of those IRAs to live on, convert."
  [10:54]

• Jill Schlesinger:
  "I really feel very confident, you know, in the ability of a place like Fidelity to withstand pretty much anything."
  [13:50]

Key Takeaways

1. Trust in Reputable Institutions: Large asset management firms like Fidelity offer robust security and stability, making them reliable custodians for retirement assets.
2. Diversify Within and Beyond Institutions: Maintaining a balanced portfolio and considering multiple financial institutions can mitigate risks.
3. Tax-Efficient Strategies: Converting traditional IRAs to Roth IRAs and strategically planning withdrawals can optimize tax liabilities.
4. Social Security Planning: Delaying Social Security benefits can enhance future payouts and provide greater financial security.
5. Estate Planning: Having comprehensive estate documents ensures that assets are managed and distributed according to personal wishes.

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For more financial insights and personalized advice, visit jillonmoney.com and consider subscribing to Jill's free weekly newsletter or tune into her sister broadcast, Money Watch, available on the Odyssey app.

Transcript

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[Jill Schlesinger]

Welcome to the Jill on Money show. It's Monday, March 17th. Hey, happy St. Patrick's Day to you and yours. If you celebrate. If not, we are just still the show. Whether it's St. Patrick's Day or not. The show that tries to take the mystery out of your financial life. We do that by asking you to do a little bit of work. All you have to do. Go to our website jillonmoney.com click the contact us button. When that form pops up, write us a note and if you're not going to join us on the show, try to give us a bunch of detail. If you are going to join us on the show. Check the box. Mark will do everything else. And because he's the best, the very best executive producer in the world, I just said to him this morning, you know how I say to you guys, like, you really have to share information? Of course there's allocation of labor. Like to be clear, Mark, my work spouse has so much information of mine and that I had to actually say to him, how do I send a zoom link out to somebody? What is my login? I had no idea. Anyway, so Mark is the best and I always am very grateful that he is in my life. And we're very grateful for you. So let's get going with our gratitude and talk to Rob who joins us from Kentucky. Hi Rob, how are you?

[Rob]

I'm doing well, thank you.

[Jill Schlesinger]

What brings you to our airwaves this this morning?

[Rob]

Well, I had a question about diversification.

[Jill Schlesinger]

Okay.

[Rob]

As you know, diversifying is investing 101 kind of stuff when you're talking about diversifying across different types of investments. But my question is more to do with diversifying across institutions, if you will, where all my money is located.

[Jill Schlesinger]

Okay, well, that's okay. I mean, I'm always interested in these kinds of questions. Sort of reminds me of like the financial crisis when we used to be like, oh, you don't have to worry about where your money is. And then you're like, wait a minute, maybe you do. So tell us a little bit about yourself, Rob. So who are you? What's going on? What's going on in your investment life?

[Rob]

Well, I am retired and my wife is working. Soon to be retired, probably by the end of this year.

[Jill Schlesinger]

How old were?

[Rob]

64. We're both 64.

[Jill Schlesinger]

Okay.

[Rob]

Worked for a large company that used a large, well known firm to administer the 401K and some other plans. So ended up through that, having most of my, most of our investments, most of our money with this one outfit. Great company, great experience with them over the years. And you know, it's kind of made my life a little simpler having everything under that one umbrella. But as the world has changed and I started thinking about, you know, all the companies that are being hacked and you know, things that could happen. I thought, you know, is it, is it safe now to have so much of our financial assets under one company?

[Jill Schlesinger]

Okay, so I'm just gonna guess that the company's Fidelity, am I right?

[Rob]

That's correct.

[Jill Schlesinger]

Thank you. I'm so good about these things. So I think that when we talk about the safety of assets, one of the things that I like to remind folks is that, like when a lot of companies were under pressure, even in the great financial crisis, right? That when those companies were under pressure, the ones that were just holding retail money, that would be like a big retirement account or all those IRA accounts or, you know, your accounts, Rob, that they weren't doing investment banking. They weren't taking your money in some way and risking money that they were investing on their own, maybe putting the firm itself at risk. So Fidelity is not an investment bank, okay? It's an asset management company. And so I would not worry about any problems with Fidelity. Now, you also mentioned something that I think is important, and that is, hey, what about risk in general, like privacy security in that respect? I think working with a company like a Fidelity or a Vanguard is also a good idea because they spend a lot of money on their security systems. Now, of course, any company, any bank, any. Anyone can have a hack. I don't think you have a lot to worry about when it comes to Fidelity's wherewithal to manage that risk. But if you're talking about, you know, ease of management and making your life a lot simpler in terms of your financial acumen and. Sorry, your. Your financial management. I like easy. Easy works for me. So I don't think that this is a big issue. I'm just wondering, have you been feeling this way for a while or is this a new feeling?

[Rob]

Yeah, it's more over the past couple of years. You know, never really thought about it as I was working and building our nest egg. But I guess when you get to a point where you don't have the ability to earn that income for, you know, if you have some kind of a setback or a loss, you get to our age, you start to think about how do you protect what you've been built a little more than you did when you were in your 30s and your 40s and even your early 50s.

[Jill Schlesinger]

So can I ask a different question? So the kinds. Because I appreciate the question you asked. I don't think you have a lot to worry about, but can I ask you about your other diversification, like the amount of money you have and how you are investing it and managing that just to make sure that we have a sort of running a health check on Rob Inc. And Rob and His Wife Inc. So tell us a little bit about.

[Fundrise Advertisement]

That part of it.

[Jill Schlesinger]

Like what do you have and how is it invested?

[Rob]

Well, we. We have a couple of IRAs. I have one in my name and one of my wife's name which traditional IRAs, which is, you know, a little over $3 million. And then we have. I have a Roth, which I have started over the past several years, converting some of that traditional Iraq to the Roth. My wife, who still is working, has a small Roth IRA through her employer, has about $20,000 in it at this point. And then have a brokerage account with Fidelity, which just made up of some stocks and bonds, has about $600,000 for you guys.

[Jill Schlesinger]

Are you using the money in the traditional IRAs or the brokerage account as income? I mean, your wife's working right now, but is her income right now enough for you, or are you drawing on these assets?

[Rob]

We're not drawing on the assets at this point. Between my wife's income and I have a pension, which I started drawing on this year. So between basically those two sources and some, you know, interest and dividends, we. We don't have to withdraw any of those assets at this point.

[Jill Schlesinger]

That's great. And so when your wife retires, will she have a pension?

[Rob]

No, she will not.

[Jill Schlesinger]

Okay, so when she retires at the end of this year, you have your pension, which is how much? About.

[Rob]

It's about $35,000 a year.

[Jill Schlesinger]

And then what do you figure you need to live on? Just like, big picture, you know, it's.

[Rob]

Probably 100, 110, 120,000 a year is enough.

[Jill Schlesinger]

Okay. And you're going to have plenty of money. And then when do you plan on claiming Social Security for you guys?

[Rob]

At this point? I haven't completely decided. It could be 67. Won't be before 67. Maybe. Chance of even delaying that, depending on how things are going.

[Jill Schlesinger]

You guys are in good health?

[Rob]

We are.

[Jill Schlesinger]

Okay.

[Rob]

Knock on wood.

[Jill Schlesinger]

Yeah, thank. I don't want to jinx it. The reason why I asked that is that maybe because you have so much money in those IRA accounts, maybe part of your strategy should be to wait to claim Social Security and pull some of that money out of those IRAs to live on, convert. So next year your only source of income will be pension and interest and dividends. Right. So presumably, I don't know, you don't have that much money in the brokerage account, but presumably you have the 22% maybe. I guess if you had a big year and you sold some stuff in the brokerage account, maybe the 24%, I would be pulling money out of those IRA accounts and trying to whittle them down and. Or try to convert them and, you know, live on that money and delay getting my Social Security or Claiming my Social Security to age 70, I presume. Once you get to 70, what's the Social Security amount? Do you have an idea of that?

[Rob]

It should be 50 something thousand a year.

[Jill Schlesinger]

Great. Okay. So, I mean, you have plenty of money. And so I think that the one thing that you could do to just kind of minimize those future distributions, those required minimum distributions, is pulling money out of the retirement account, out of the traditional account, and, or converting, you know, either one or both the accounts themselves. How are you managing that? Is it like index funds? You've mentioned stocks and some bonds, but are you in funds or individual securities?

[Rob]

Both. It's, you know, I've got about 65%. If you were kind of looking at the traditional allocation, about 65 in stocks, which includes some ETFs and then 35% in bonds and CDs.

[Jill Schlesinger]

You feel comfortable with that just in general, or do you want to. Are you pulling, are you, are you nervous about the allocation? When markets go down, like we've had a bad couple of weeks, but like, do you feel nervous about that or you feel okay about that?

[Rob]

Yeah, I still feel okay with that.

[Jill Schlesinger]

Okay, so then the, of course, as you look ahead, if you are going to stay in your 24% bracket, which I think, I mean, it would. The 24% bracket for this year goes all the way up to $394,000. That's a lot of money that you can take out of the IRA or, and, or convert. And since you do have a brokerage account, you have money on the outside to be able to pay for a conversion. I love the combination of doing that. Do you guys have grown kids?

[Rob]

We do three.

[Jill Schlesinger]

Everyone's doing okay. Those three are good.

[Rob]

Yep. All, all on their own and two married and grandkids. So.

[Jill Schlesinger]

Yes, amazing.

[Rob]

All good.

[Jill Schlesinger]

So I think that, that, you know, if you're okay with the diversification, you know, 65, 35, I'm okay. I do think getting some of that money out of those IRAs right now for the next five years, what a great way for you to minimize, or at least, you know, I say minimize tax risk. You're still going to have to pay taxes, but at least you have the knowledge of, this is my tax bracket. I am paying taxes with certainty right now. And, you know, I don't know, 10 years from now, the world changes over, who knows? But in this period of time where, you know, where you are tax wise and you know that you can convert some of the money, it's kind of nice to have it done So I think that's a better way to manage your anxiety about a company going broke or diversification of company. Let's concentrate on that because I think that's going to be a better use of your energy. I really feel very confident, you know, in the ability of a place like Fidelity to withstand pretty much anything. Also, by the way, Fidelity, as you know or may not know it, is a private company still. So it tends to have a different kind of exposure because it's the family's money. You know, when it's the family's money, it's not the public's money. I don't know. I think you run it a little bit more risk averse. Just my two cents. You guys have your estate documents done, Rob?

[Rob]

We do.

[Jill Schlesinger]

All right, man. I'm going to send you on your way unless you have any other questions.

[Rob]

No, no. Thank you very much. I appreciate the insights.

[Jill Schlesinger]

Good. Go have some corned beef and celebrate St. Patrick's Day.

[Rob]

Thank you.

[Jill Schlesinger]

If you like ro or thinking big, big picture. Hey, what happens if.

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Give us a holler.

[Jill Schlesinger]

I never want people to have to carry those kinds of questions around. Just go to the website jillonmoney.com, click the contact us button and of course, let us know if you want to come on the air by checking the box. Don't forget to sign up for the free weekly newsletter which comes out every Friday. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Hey, while you're on the Odyssey app, why don't you subscribe to Money Watch? That's our sister broadcast. It's on Saturdays and Sundays. You check that out. Alrighty, it's the beginning of the week. Just do something nice for someone else today. Get that week started on the right foot. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

[Fundrise Advertisement]

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[Joyn Robinson]

I'm Joyn Robinson, host of the new podcast the Women's Hoop Show. Each episode, I'll be joined by a rotating group of women's basketball experts to talk wnba, college hoops, the new unrivaled league, and the shifting landscape of the sport. The game is growing, and so are we. Listen to and follow the Women's Hoop show and Odyssey Podcast, available now for free on the Odyssey app or wherever you get your podcasts.