Featuring:
Leslie Geller
Senior Wealth Strategist
Ed Gonzalez
Portfolio Specialist, Capital Group Private Client Services
Jan Gundersen
Senior Investment Director
Leslie Geller: Hello and welcome to Capital Group's PracticeLab Webinar series.
I want to thank everybody for joining us. It's great to be with you. Our topic today is dealing with today's risks: portfolio and wealth planning checkup. I'm Leslie Geller and I'll be joined today by my capital group colleagues, Jan Gundersen and Ed Gonzalez. And we're really looking forward to talking with you today on a range of topics from that new tax bill in Washington to portfolio and wealth planning trends.
But before we dive in, we're going to cover some housekeeping like we always do. If you look in the upper right corner of your webinar player, you'll find everything you need, including the slides for today's event, an important update on continuing education or CE credit. We've actually made it easier for you to get CE credit by attending our webinars. Rather than having to complete a quiz, your credit will happen automatically as long as you do two things. First, fill out a brief CE form, which is the top link in the documents tab in that upper right of your webinar player. And second, you need to stay on this call for at least 50 minutes. Hopefully, we'll be so captivating that won't be a problem, but that's 50, 5-0, not 15, and you should receive your credit by email within five business days. Also, we heard your feedback and we're beginning to offer IAR credits for previously recorded webinars. Not yet for the live events. IAR CE credits for this event will become available through the website about six to eight weeks after the recording is posted. So thank you for your patience on that.
And then lastly, before we begin, we love getting your questions and comments throughout this event. That's what makes these events so special, and we'll try to answer as many as we can. You'll see that Q&A tab in that upper right section of your screen. If you have any tech problems, just use that Q&A window to let us know. And so with that, let me introduce our speakers.
Jan Gundersen immediately to my left is head of Wealth Solutions here at Capital Group. He has 26 years of investment industry experience and degrees in geology and oceanography from Colgate University and Texas A&M and Jan sits right next to me downstairs, so we see each other regularly. And then Ed Gonzalez is a portfolio specialist in our private client services group. Ed has 19 years of investment industry experience and in addition to an MBA from UCLA, Ed served as an infantry officer in the United States Marine Corps. And I'm senior wealth strategist here at Capital Group. I have 18 years of industry experience, including six here at CG. And I have a background in tax law that's really come in handy this year.
Ed Gonzalez: I bet.
Leslie Geller: So thank you Jan and Ed for joining us. And let's take a quick look at what we'll cover today. First, we're going to tackle that elephant in the room, that One Big Beautiful Bill. What does it do? And more importantly, what does it mean for investing in wealth planning? We're really going to focus on that piece of it. And then we're going to take it to the portfolio level. So we're going to look at our proprietary analysis of advisor portfolios, what kind of hidden and unintended risks are we finding in those portfolios? And then lastly, Ed, who's working with clients all the time and is on the front lines, he's going to get really tactical and talk through some strategies for dealing with client anxiety around portfolios and investments.
Okay, let's get right into that Big Beautiful Bill. The OBBB as everyone is calling it, these fun acronyms.
So there's a lot of political policy, debt deficit implications of the passage of this bill. We're not going to talk about that today. We are luckily not going to get into any of that. What we are going to focus on today are the implications of this bill on a client's financial life, right, on investments and wealth planning. And from my perspective, it's actually been a helpful thing because it provides some degree of certainty from a tax planning perspective, which is really nice to have, particularly since over the last, what? Five, 10 years, we've had these different specters of potential change and sunsets happening. And so from an income tax perspective, we have some degree of certainty over what the rates are going to be, right? From an estate tax perspective, we have some degree of certainty, more than we've had in a long time, over what the exemption amount is going to be.
Also business tax, right? The ability to deduct and amortize expenses and research expenses and rates, all of those things. There's some degree of certainty, not guarantees, right? Because this is permanent in tax speak, but we have some degree of certainty and it's helping us, I think, counsel clients. So jumping right in, Ed, since you're on the front lines, we don't have to run through all of the different changes in this bill. We've got a great article about it on our website. There's tons of content out there about it. What are you seeing clients ask about with respect to the bill, or what are you proactively reaching out to clients about that's in that bill?
Ed Gonzalez: Thank you Leslie, and thank you so much for having me. It's a great question. I think probably the biggest thing when we are sitting down and speaking with our high net worth families is just about the gift tax exemption, how it's going to be going up in 2026. So it was scheduled to go down, but it's actually going to be going up and now it's actually indexed for inflation. So this is something that we're really trying to be proactive about talking to clients that you're going to be having more room in the future to gift to your children. And the other thing is, and this is maybe not a lot of people are aware of this, but it also applies to GSTs, or generation skipping transfers. So this is where our clients are also talking about and we're talking to them about their grandchildren, just the next generation. So it's really about gifting to the next generation.
Leslie Geller: And I know from my perspective, the advisors that I speak to, there was a lot of hesitancy with that threat of the rollback. There was a lot of hesitancy to make decisions, right?
Ed Gonzalez: Yes.
Leslie Geller: And I think probably now we're seeing people not be so paralyzed because we have some certainty around that.
Ed Gonzalez: Right. I think there was a lot of people running to their accountants and rushing things. And now because there's some certainty, they have a lot more room to breathe and plan properly and really think about the legacy that they want to leave.
Leslie Geller: And then how about from an income tax perspective? Are you seeing people do anything? I know we have an adjustment to the SALT cap. (Video graphic will spell out: “S.A.L.T. = state and local tax exemption”) So those of us that live in California, New York, some of the other high tax states, but that cap, it's actually more limited. That increased cap is actually more limited because of the income phase out, than it appears at first glance.
Ed Gonzalez: So it's moving from 10,000 to 40,000, but only if you're making $500,000 of income or less. So for those individuals that are close, maybe making a little bit more than $500,000 a year, some real income tax planning and thinking about is now a good time to accelerate some gifts? Some donations, perhaps using some donor-advised funds in order to get your income to that 500,000 level or below to really maximize that SALT deduction.
Leslie Geller: And I was reading somewhere yesterday that the differential in income tax to be paid between 500,000 in income and 600,000 in income, because that's how the span of which the phase out happens, is massive.
Ed Gonzalez: Yes.
Leslie Geller: It's I think close to or over $100,000 in income tax, which is a very, very big deal when you're thinking about that.
Ed Gonzalez: Yeah, there's a real crunch there.
Leslie Geller: Yes.
Ed Gonzalez: So focusing and working really on income tax planning, especially if you're close to that $500,000 level, could be a real benefit.
Leslie Geller: And then the other thing too that I've seen people ask about around the SALT is the PTET (we will insert a video graphic to define P.T.E.T. …P.T.E.T. = pass-through entity tax) or those workarounds that a lot of the states passed to allow people to deduct their full state and local taxes, even when the cap was at 10,000. In the Senate and House versions, there was some proposals to eliminate those workarounds, which a lot of high net worth investors and business owners were not thrilled about. And that was not included. So that PTET, all those workarounds were maintained. So an important thing that people are asking about.
All right, Jan, from your perspective, has this, the passage of this bill caused people to call out or question or actually adjust anything in their portfolios?
Jan Gundersen: Yeah, great question. No, not directly. I mean, look, there will be impacts, obviously there's questions as to near-term growth opportunity as a result of this lower taxes and what that will do to spur growth, longer-term debt implications. So I think there's some things to be figured out there that may favor different sectors, but it's less about tactical allocation and it's more about what Ed talked about, which is having more room to be thoughtful about the objectives for the money, whether it is transfer of wealth, educational planning, which there was some impact on 529s and educational planning. So really going back to those objectives with the client with a little more certainty in certain cases, probably more clarity on the time horizon and therefore obviously time horizon risk being two things that will drive some of that strategic asset allocation and the ability to go back and revisit that and if needed, make adjustments to that long-term strategic allocation because of that time horizon clarity.
Leslie Geller: Yeah, it's taking away some of the noise.
Jan Gundersen: That's right.
Leslie Geller: And I think too, there's some nice synchronicity or rhyming in this trend of a focus on tax-efficient investing or making portfolios more tax efficient and having that be a driver of return and having a little bit more clarity in the tax space. Right, because it's really hard to be certain around tax efficiency when you don't know what's going to happen with the tax rates and numbers.
Jan Gundersen: That's right.
Leslie Geller: And then just a few other things that I'd call out that I'm hearing about around the tax bill. Nothing monumentally earth-shattering for huge swaths of investors, but maybe certain things that are going to matter for individual investors. The qualified small business stock, the QSBS benefit for startup investors, startup founders, that has become more beneficial, which is interesting that that was put in there. Opportunity zones. You're seeing the special interest groups and how they sort of got their voice in. Opportunity zones, that has been made, quote-unquote permanent, the benefits there. The shift there is though more from the urban areas to the rural areas, which again is interesting from a trend and special interest perspective. And then Jan alluded to the 529 changes, some more liberal withdrawal allowances, particularly with respect to K through 12 education and what you can use that money for.
And then Ed and I were talking earlier about charitable deductions.
Ed Gonzalez: Yeah.
Leslie Geller: There were some threats in the Senate and House versions, particularly around donations to universities and private foundations to really limit of the benefits for charitable deductions. They were definitely toned down by this final bill a lot. I think people were very panicked, but there are some changes to the deductibility of charitable contributions. So it's something really important I think, to address with clients right now. All right, I think we have a few questions on the Big Beautiful Bill before we move into our investments in portfolio discussion.
And as I said, we love getting the questions in the Q&A part of your screen. Please send them in. We'll try to answer as many as possible. So the Big Beautiful Bill has these Trump accounts that start with a thousand dollars in government money for children born between 2025 and 2028. What is your thinking on this new way to save for children? Well, I'll start, I'll start. I think anytime the government wants to give you money ...
Ed Gonzalez: Take it.
Leslie Geller: You should probably take it, right?
Ed Gonzalez: Yeah, absolutely.
Leslie Geller: Yeah. I think we are, here at
Leslie Geller: Capital and in PCS still learning about the benefits of Trump accounts, especially as compared to 529s. It shouldn't probably be your only saving strategy for children, but there are some benefits there. It's certainly a different avenue of saving for children, but I think generally everyone is still trying to wrap their arms around the rules. Have you had anybody ask about it?
Ed Gonzalez: We have had people ask and same thing. I think it's something that we're still learning about, but anytime the government wants to give you free money, absolutely take it. I'll also say that though, we are very comfortable with 529s and the 529 structure. There's just a lot of knowledge there. We know exactly what it is, and part of the bill was expanding what you can do with it. So there was a lot of extras, things that were held back and we'll call it the K-12 spending and the K-12 timeframe. You can now include more things and spend more money in the future with 529s at a younger age. So I think both are great. Certainly take the free money, but we are very comfortable with 529s as well.
Leslie Geller: Yeah, 529s I mean they come up all the time in my discussions as well. They're just so easy to implement and they cover so many bases from a tax mitigation perspective, now even more so because of the types of things that you can use them for. $20,000 for a K-12 education is very different from $10,000. That's a massive-
Ed Gonzalez: Massive [inaudible 00:14:26]. Yeah, you're doubling the amount that you can spend. And I think it's also interesting when you think about 529s, we were talking about the next generation. I think a lot of our clients are looking not just at their children, but if they're older, their grandchildren, maybe even some of their great-grandchildren and looking to set up these accounts, maybe even superfund some of these accounts.
Leslie Geller: Yep. And it's also, I mean because of the ability to do that rollover into IRAs with a limited amount, but still we're seeing, I agree, huge uptick in 529s. Oh, here's a good question. We'll take one more question on this and then we can move on to our investment discussion. I was reading about this yesterday. Any discussion of Trump's plan to open 401(k)s to private markets? I saw this yesterday. Do either of you want to address this?
Jan Gundersen: Look, I think there's been a lot of discussion on this and anytime we can give clients access to new markets and new investment opportunities, I do think it's a good idea. I know there's different opinions on the inherent risks and is it right for everybody? I think there's more transparency in the private markets than there has been before. I actually think the more people that are looking at it actually creates more transparency, the demand creates more transparency, and I think working with financial professionals can also really help that average investor feel comfortable that private markets are an opportunity for greater diversification and incremental returns. So I think overall it's a good thing. I think if done the right way, and again with the right professional advice, I think there is less risk now than there has been in the past.
Leslie Geller: Yeah, yeah.
Ed Gonzalez: Agreed.
Leslie Geller: And I think there will have to be, from what I understand is that he was going to do this through an executive order and I think there's going to have to be a lot of guidance, a lot of discussion so that custodians and everybody feels comfortable-
Jan Gundersen: Absolutely.
Leslie Geller: Actually doing this. So we're probably a ways away from private markets and 401(k)s. Okay. Let's move on to the main chunk of our discussion today. We're going to talk about portfolio trends, hidden risks, and then Ed and I will tackle how to actually talk about these risks and help with client anxiety. But first, let's talk about those investment and portfolio trends. So we at Capital Group have visibility into hundreds, even thousands of advisor portfolios. So we get a great perspective on what people are doing, what portfolios of certain types of people and certain demographics actually look like. And it's Jan's team that crunches those numbers to reveal those trends. So one of the things that I know we've all been noticing over the last five, 10 years is two things. So volatility keeps coming back. We think we can tell the volatility team to kind of disband and then all of a sudden they're back, so right, volatility.
And then the other trend we're seeing is that rise of passive. So how are portfolios kind of synthesizing those trends in a good or bad way? What are you seeing around those areas from a portfolio perspective?
Jan Gundersen: Yeah. When we talk to advisors, because really where we get visibility into those is through the conversations with advisors as they ask us to take a look at their portfolios. To your point, that volatility has been prevalent for the last few years. It's actually a trend that has led advisors to try to de-risk a bit. And by the way, you can't create a riskless portfolio. There's no such thing as a riskless portfolio. And so it is less about the risks that are in the portfolios, it's more about are these intended or unintended risks. And so as we see advisors trying to de-risk or manage the risk that's been creeping up, whether that's concentration or just overall market volatility, we've seen advisors moving into blend, in particular large blend, as you mentioned passive and a couple of things are happening. One, as they're de-risking and moving to that large blend, maybe shifting the portfolio to neutral just because of some of that uncertainty, it's actually causing a rise in equity volatility.
And so logically, if you're de-risking and yet you're seeing the equity volatility go up, it's probably an unintended risk. And that's really coming from a couple of things as you mentioned, rise in passive, whether that's a focus on fees or just if I'm going to shift to large blend more often than not that that is passive. And so you have concentration risk in there. Higher concentration of non-dividend payers, which are some of the highest volatility equity.
And then finally just some unintended exposure to small and mid-cap that's happening within those passive exposures. So passive exposures have crept up to some of the highest that we've seen over the last five years. Again, kind of in that shift to neutral if you will. A lot of times that happens through passive allocation. And as a result, the equity volatility has been on a steady climb from roughly 22% of that equity being high volatility equity to be as high as 35% right now. And that's concerning and it's concerning to a lot of advisors we talk about because again, their intent was to de-risk and yet some of the moves they're making are actually causing an increase in that equity volatility.
Leslie Geller: It's interesting because I think the other thing we're seeing too is as far as the difference in volatility between U.S. and international investments, and whereas I think a lot of people, particularly foreign investors, would bring their assets to the U.S. because of the stability, the relative stability compared to maybe where they were from or economic stability, geopolitical stability. I think that has also become more volatile.
Jan Gundersen: It has.
Leslie Geller: And so what are we seeing from an investment perspective there as far as U.S. versus non-U.S. investments in portfolios and where those risks are manifesting?
Jan Gundersen: I mean, look, the international trade has been a difficult one for advisors for the last 10 years. The U.S. market has outperformed. And so for those advisors that have maintained allocations to international, I think it's been a frustrating trade. But recently in the last year or so, as a result of that frustrating trade, we see allocations being very low in international. Advisors have a very large home bias, the largest home bias we've seen over the last 10 years. Again, if you had a 10-year trade that really wasn't working out, it makes sense. You might unwind some of that. If you did nothing, your position in the U.S. is going to grow. So we know advisors rebalance, but it is not illogical that they are overweight U.S. But to your point in what we've talked about here at the lead, just that uncertainty that has entered into the U.S. market, even some of the Big Beautiful Bill and what it will do to long-term debt in the U.S.
Leslie Geller: Or the threats, that 899 revenge tax, think about how that ... it didn't happen, but think about how that would-
Jan Gundersen: That uncertainty that was there really led to some challenges with the dollar, depreciate. And we're seeing international markets looking more attractive. Now you bring into that the tariff conversation and there's some things you can do to get comfortable there. We talk a lot about domicile of a company, but we also talk about revenue. And so if you think about tariffs and you start to say, well, okay, I understand the international market is starting to look more attractive because of the dollar, but we also have tariffs to worry about. Well then take a look at where those companies ... where your exposure is getting its revenue from. And if it's getting its revenue from outside of the United States, that tariff conversation is less relevant. So for a number of reasons, we think the international opportunity is back. The advisers are very much underweight that opportunity.
Leslie Geller: Right now, and couple of questions that are coming in from the audience, I'm going to take them kind of as we come. Regarding passive exposure, when we're talking with clients, any guidance on how to address the tax advantages of passive products versus the benefits of actively managed strategies? And we talk a lot about that--
Jan Gundersen: Yeah.
Leslie Geller: Tax-efficient SMAs, (Insert video graphic: S.M.A. = Separately Managed Accounts) tax loss harvesting, all of that.
Jan Gundersen: Yeah, I think ... and we talk about it a lot right? Don't let the tax tail wag the dog. Sometimes I say that wrong, but stay focused on that objective right? The objective is to achieve ... to maximize after-tax returns. And so when talking to clients, and it's interesting to phrase the question that way because up until recently that tax-efficiency question was more of an active-passive decision. What I mean by that is in order to get access to a more tax-efficient vehicle, the ETF (insert video graphic, E.T.F. = Exchange-Traded Funds), it was an active-passive decision. And so it was actually somewhat of a false narrative.
And I say that only because in order to be more tax-efficient, you had to be passive. And so people said, well, we're talking about the benefits of passive as if that was a tax-efficiency in and of itself. Obviously lower turnover is a tax-efficiency, but you can find lower turnover active. Now with active ETFs, we're seeing advisors step back and say, look, the active-passive decision is a separate decision from a tax-efficient vehicle decision because I can look at active ETFs. And so we are helping advisors think through separate that product allocation decision from an active-passive decision.
Leslie Geller: Yeah, that's a really important distinction and I think there's a lot of, not necessarily confusion, but conflating of that issue as you explained.
Jan Gundersen: And they had to previously. There was no active ETF.
Leslie Geller: Yeah, exactly. Exactly. Another question from one of our viewers, just putting you on the spot, what percent might you suggest be an international or global assets? Ed, you can opine on this.
Jan Gundersen: Yeah, almost I'm going to pull a matador and just back up and I will let Ed opine because he talks to clients more. So I think that question is almost twofold. One, from an asset allocation perspective, but two, and I'm going to start to tease this. Any allocation decision, and I'm not ducking the question is really dependent on what are you trying to achieve. What is the client's objective for the money? What are you trying to achieve? And so I will use us as a comparison.
So CG, we manage 500 billion of portfolios and we think of that allocation really in two ways, developed markets and then emerging markets. And so we are probably more in that 30 to 35% range international. But again, that would depend on the objective. As you have a more aggressive client, maybe a more growthy objective, you would see us be a little bit more overweight or relative to where we see advisor portfolios, overweight, international, again in that 30 to 35% range. So it's less of a hard allocation recommendation and a bit more of what are you trying to achieve for your client.
Leslie Geller: What are your thoughts?
Ed Gonzalez: I mean, I think you said it perfectly, because it always starts with planning. Like, what is the actual objective for the client? That being said, if we take a look at all of our accounts and I think of all the clients that I work with, I'd say that we sit around 65% U.S., 30% developed, and around 5% emerging markets, so that's 65/35, but that's an average. We have plenty of clients that are, again, looking more growthy, looking for more tech, leaning more into that U.S. tech, and other clients that are sitting back and want more dividend-oriented strategies, so we see a lot more of that global dividend growers, that's sometimes closer to that 50/50 mix. So you lead with what the goals are, and that will bring you to the portfolio.
Jan Gundersen: Well said.
Leslie Geller: All right, one more question on this, Jan. You were talking about the case for kind of going a little bit more international, right? With equities. One of the advisors here is asking, so even though they understand, intellectually, the case for that, it's a little hard to get clients-
Jan Gundersen: Clients, yeah.
Leslie Geller: ... convinced to do that.
Jan Gundersen: Yeah.
Leslie Geller: What are some of the talking points that you might provide an advisor to counsel a client to shift a little bit more?
Jan Gundersen: Yeah. And again, I will rely on my partner here, because he is having more client conversations than I do. But, in talking to advisors about this move, that is often what we hear, is a bit of, "My clients have some concerns about that." So the first is, look, that is an experience concern, meaning over the last 10 years, that that client has seen, and read, and heard that U.S. is dominating. So one, I think just educating them on what was driving that, and the strength of the dollar, and the strength of the concentration in technology in U.S. companies. We're seeing the markets diversify, so that would be the first thing.
The second is the income opportunity and the impact of dividend payers. Now again, a learned experience. Dividends haven't been the contribution recently that they have been historically, but they have in international markets, and so for those clients looking for income, the strength of dividend payers, and candidly, the magnitude of dividends that are being paid by some international companies, makes that very attractive. So I think it is a little bit of that resetting. Yes, the recent experience has, and you're not wrong, Mr. and Mrs. Client, but what we are seeing is a few things that would tell us that international is ... that trade is changing, and here's a couple of reasons why I see international being a little more attractive. But would a client believe me on that, or?
Ed Gonzalez: Absolutely.
Jan Gundersen: [inaudible 00:28:57] add?
Ed Gonzalez: No, I think it's that you really hit on it, which is especially for clients that are looking for the power of dividends, that's really where we're seeing a lot of clients look more globally and look more internationally, because as you said it, there's some really amazing dividend payers out there.
Leslie Geller: Right, and that's one of the trends you alluded to earlier, is that there's too much exposure in portfolios to low dividend payers, and so that fits nicely with the case for international.
Jan Gundersen: Yeah, and I think when I lead with, "Hey, we're seeing equity volatility go up," that is one of the other, and probably a very significant driver, of equity volatility right now, is the lack of dividend payers in clients' portfolios, whether they're looking for income or not, just the stability of ... And it makes sense. If you go back and think about it, free cashflow in a company's balance sheet indicates the ability to be ready, take advantage of opportunities, but it logically leads to a lower-volatility profile.
Leslie Geller: Yep. Yep, that makes a ton of sense. Okay, so let's shift to Ed. We just kind of talked about our big-picture trends from a portfolio perspective. Now let's move to the more tactical and client-specific conversations and engagements we're having-
Ed Gonzalez: Absolutely.
Leslie Geller: ... in the context of these trends. With all that you discussed, and with the Big Beautiful Bill and everything else going on, there's a lot of anxiety, right? I think-
Ed Gonzalez: There is.
Leslie Geller: Yes, we feel it in my house, we feel it around the office, but you're on the front lines, counseling clients through this anxiety in these investment and portfolio conversations. So how do you counsel clients through times like these, which may or may not become more just how we exist generally these days? Yep.
Ed Gonzalez: Right, so you know, you said it earlier. I am counseling clients that I think the volatility's here to stay. We should expect that it's here. I think some people are thinking, "Wow, the beginning of the year was so volatile. I'm so glad we're through that. Hopefully that's over." Well, let's expect that we may continue to see volatility. And I think a lot of it, and I'm sure our advisors that are listening know this quite well, the trick is to really know your client. And I tend to know, when I'm going into client meetings, the clients that are going to be very anxious. I will sometimes get emails ahead of time, "Hey, what if we just sell everything?" So I think that we're ... I'm sure advisors, if I'm having those conversations, I know the advisors listening are having those conversations.
So I've brought a few slides today that I have been using in my client meetings just this year, that I don't usually, but it's just been helping as a way to open up the meeting to alleviate some anxiety. I think the first one is being shared right now, but it's just a long-term look at things. It starts in 1950, it goes all the way through the end of 2024, and it's just a look at when the U.S. economy has been in growth mode versus a recession. And just starting here and saying, "Look, let's just take a look at a long-term view." There's going to be good and bad times. There's certainly going to be a next recession. On average, if you go back to World War II, it happens about once every seven years. Sometimes, it takes a little longer, sometimes it takes a little bit shorter, but if we look over long periods of times, what we see is that recessions do tend to be very short-lived, around 10 months. The economy pulls back to 2.5%, but what that leads to is the next growth cycle.
And I think starting a conversation with something like this for those clients who are really worried about, "What if we head into recession? What's going to happen?" I think starting with a chart like this ... And please, for those of you listening, steal these charts. Use them. If you think they're going to be helpful, please, please use them. But I think starting with something like this tends to take the temperature down in the beginning of the meeting. The next one I use is actually the one that I've been using the most recently.
Leslie Geller: I love this one.
Ed Gonzalez: And especially when there was just all these questions about tariffs, and what's going on in the Middle East, what about Russia-Ukraine, and there's just so much going on in the world. That wasn't just anxiety. I would say there was this feeling of existential dread, and sometimes, the conversation started not so much about the portfolio, but just like what is going on in the world? And while I certainly would love to give perfect answers, I can't. So what I did with this particular slide is, hey, let's just take a step back. We have lived through volatile times in the past, and so the slide's up on the screen right now, but let's just think about what we've lived through.
We've lived through the invasion of Kuwait, 9/11, the dotcom crash, the great financial crisis, the largest pandemic the world has seen in 100 years, and through all of that, and you can see this on the chart, the markets continue to move up. There will be ups and downs. There's going to be short-term volatility, but it continues to move up. And this is something that we used to say in the Marines, "When bad things happen, improvise, adapt, and overcome." That's what human beings do. We are going to see another crisis. We are going to be living through these things, but as bad things happen, we're human beings. We're going to improvise, adapt, and overcome, and as long as we believe that, the markets will, through all their volatility, continue to march up. At least that's what I believe.
Leslie Geller: Do you find, do these work?
Ed Gonzalez: Absolutely. So, starting there, you're eventually going to have to move forward, and I think usually, I have these just sitting in an appendix, and I bring them up sometimes, but this particular ... Over the past several months, when I know I'm meeting with a really anxious client, these are the slides, or at least that last one, I start with that a lot, just to bring the temperature down, and then we move into the next section, of really diving into what the client wants and then their portfolio.
Leslie Geller: Do you find that there's any patterns in who is experiencing the greatest amount of existential dread? As far as maybe age demographic, what their portfolio looks like, their investment history, anything like that? The level of wealth.
Ed Gonzalez: You know, my honest answer is no. I haven't seen a huge pattern there, because I think everyone's a little bit different. I have met with, you could say easily for some clients, well, isn't it older clients that have more wealth to lose, and now they're really worried? They've spent their whole life ... And yes, I've met some clients that are super nervous, but I've also worked with families where it's the older, more experienced investor that's the one calming the younger people in the family, being, "Hey, we lived through this," and they love this chart, and they're like, "Hey, I lived through what the investments did during the dotcom crash, during the great financial crisis, and let me talk to you about it." So honestly, I have seen both. There is no pattern. Some clients are going to be very nervous and have anxiety, and others won't. But I will say, I have seen an increase in anxiety the last six months.
Leslie Geller: Yep, I totally agree.
Ed Gonzalez: Yeah.
Leslie Geller: So once you kind of bring the temperature down, right? You talk about these two slides. You help them feel maybe a little bit less anxious. How do you actually help them plan? So much of what we've been talking about is not rules for portfolios or rules for investments, but objectives, and the ability now, because we have a little bit of clarity around taxes and policy, to get back to the objectives. So how do you really focus on that and guide clients through that investment process?
Ed Gonzalez: Great question. You know, I'm a portfolio and investment specialist. I love investing. It's what I always want to get to. It's certainly a super exciting thing to talk about, but I always tell clients, "Before we get to the really exciting part, let's talk about you first. Let's really focus on your life and your goals and objectives." So one of the big things, and we're sharing the slide with you right now, is I just reiterate at the beginning of every meeting, "What are your goals and objectives?" Hopefully, if I've been working with this client for a while, I know them, but I just revisit. "Hey, the last time we spoke, I just want to make sure I understand. Here are your really important goals and objectives, and the date that you want to accomplish those goals and objectives."
I always joke with my clients, you know, the difference between a dream and a goal is a date. It's nice to dream and have thoughts, but if you really want to set a goal and objective, let's really figure out exactly when you want to accomplish that by, because that's when we can really start doing some planning. That's what's going to allow us to really, and you the advisor, to really dive in and say, "Okay, based on your goal and the date that you want to accomplish it, now let's really analyze the risk, how much of your portfolio should be in more growthy investments, how much should be in dividends, bonds, cash, things like that," and you really start to help the client understand that the portfolio's just helping to support them to live the life that they want to live.
Leslie Geller: And how do you elicit from the client ... How do you get those objectives out of them? I mean, we always are talking about, like, better discovery, right? And I'm always getting asked questions. How do we stay away from these yes-or-no questions, or just outright ask people, "What are your charitable intentions?" Right? Like, what are the ways to get at those answers and those objectives in a different, more contextual way, that's going to get you more information?
Ed Gonzalez: Well, I find open-ended questions are great, but especially also, I love meeting with families or couples, because then you can ask open-ended questions and have great conversation about, "Hey, what's important to you for the next five years, for the next 10 years?" Or, "If you could give anything to your children or your grandchildren, what would it be? What would be a dream that you would pass on to your children or grandchildren?" And that can spur a really interesting conversation about goals.
Leslie Geller: And that's interesting, because when I ... Back when I was an attorney, one of my favorite things, or the things I found most useful, was having a financial advisor in the room for the discovery meeting because you would get the conversation not only between the spouses or the members of the family, but also the person who knew all the details of their finances very well. And so that conversation, I think that's such a great point. I'd never thought of it that way.
Ed Gonzalez: And then one other tidbit that I like to mention is it's really important when they start coming up with goals and objectives, write it down right there in front of them. There's something really magical about when someone talks about something that they're dreaming about, they want to do, write it down in front of them, put a date on it, and read it back to them because it's also really magical when you meet with them three months later, six months, two years, you're going back to these things that they told you that was important to them, and you're constantly revisiting, is this still important? Are you actually on your way to achieve these goals?
Leslie Geller: Yeah. Okay. A couple questions coming in.
Ed Gonzalez: Please. Please.
Leslie Geller: All right. When you look at the elements of setting objectives and building a portfolio, does anything in the current environment, I'm guessing an allusion to the volatility, make you reevaluate that approach, or are these timeless guidelines that work really in any market?
Ed Gonzalez: Well, I think the answer is yes to both. There are certain timeless guidelines that are going to work no matter what but you always have to be intelligent about what's going on in the market. Thinking about interest rates as it compares to cash and bonds, what's going on with the U.S. versus international, where is a great place to go for dividends?
So I love talking about investments, but I think we start with some of these timeless goals and objectives, and then that will lead you into the more tactical conversation about, "Okay, based on this and based on what's going on in the world, here's the thing that we should be tweaking with your portfolio right now," and that will really dive you into really great recommendations.
Leslie Geller: Yep. Here's another one that I think either of you could probably answer. Do you anticipate any portfolio changes that will be needed as we get closer to 2034 and possible social security reductions?
That's a really interesting ... Speaking of the timeless objectives and counting on things that maybe we shouldn't be counting on, are people asking about that? Are we thinking about that? Is that being internalized into our analyses and what we're doing or no, because it's not a fact yet?
Jan Gundersen: No, because it's not a fact yet. But the premise, which is what are your sources of income and how much do you have to rely on your investible assets, is always a conversation. And so for a lot of folks, Social Security is a meaningful contribution and therefore there's less portfolio reliance rate. But for others, depending on their lifestyle, Social Security isn't enough and they need to draw from ... So there's always that conversation.
But specific to this question, are there changes in the portfolio that going to have to happen? Look, as we see what happens with the sustainability of Social Security, if it goes the way that people are saying, that they're not going to be able to meet the full benefits, yes, you're going to have a higher portfolio reliance rate and you're going to have to look at the sustainability of withdrawals from that portfolio income generated off of that portfolio longevity and whatnot. So it is something we are always talking about just because Social Security is a different level of contribution for different people, but it will be a bigger conversation if it's not sustainable.
Leslie Geller: Yes. Anything you'd add?
Ed Gonzalez: No, no.
Leslie Geller: I've got more questions. Okay, great. Okay. Even after the Big Beautiful Bill, we're still hearing discussions of other potential tax changes, and as we've been talking about this relative certainty, yes. And now they're talking about more, possibly including capital gain reductions. Do we need to watch Washington closely? I think yes.
Ed Gonzalez: Yes, yes. You always have to watch Washington.
Leslie Geller: If we've learned anything over the last however many years, I keep throwing out these time spans, but I think anything can happen. I don't think we ... Really, I certainly didn't anticipate that tax legislation would be passed before at least the fall. I didn't think they'd get it done by July 4th. I don't know that any people thought they would get it done by July 4th.
And so I think reasonably we can kind of look at the potential field of changes and say that, "Yeah, we should probably be paying attention." That doesn't mean that we should be running around chicken little waiting for the sky to fall or worrying about all the different parade of horribles that can come our way. But I do think we have to, as our lobbyists and government relations folks are always doing, kind of stay on top of what's the next thing? Are there going to be changes in retirement? Are there going to be changes to the capital gains?
But it's interesting too, I think, and we haven't talked about this today, the things that didn't change in the OBBB that were discussed and some of the things that are continually coming up, I always use the example of the carried interest, taxing the carried interest at ordinary income rates instead of capital gain rates. That's always coming up. That's been coming up for decades, and that doesn't change. There are certain things that are very hard to change. And so I think it's important, although we're watching out for everything to kind of remember what is really hard to change either because of special interest groups or because of the need for a bipartisan effort.
I do think it's useful to note that the OBBB passed with J.D. Vance having to break the tie vote. So it's hard to do. I wouldn't look at this as something that is going to be par for the course, legislation of this magnitude.
Jan Gundersen: Look, I think you're absolutely right. We have to watch it. I would say, and I think you said it so I'll echo it, don't let it paralyze you. And there's always scenario analysis when you're looking at investments, when you're looking at your portfolio, and I'll just pick on the capital gains part of it.
If you are concerned with that, it's a matter of where you hold assets that are going to deliver capital gains, right? And if you hold those in qualified accounts, you don't have that issue. So there is a little bit of think about asset location, do that scenario analysis. But yes, I think we're going to have to watch Washington closely.
Leslie Geller: Yeah, it certainly keeps things exciting. Another question from the audience. Can you clarify the changes in taxes on Social Security? So this is one that I've gotten questions about a lot. In the OBBB, there was the promise from Trump of no taxes on Social Security, and then there was continued discussion and headlines around no taxes on Social Security. But that's not what actually happened. It's really just an increased deduction for seniors, I believe in the amount, was it $6,000 in increased deduction?
Ed Gonzalez: I think that's correct.
Leslie Geller: Yes, so not technically no tax on social ... very much not technically no tax on Social Security, but a benefit for seniors who would otherwise take Social Security, a little bit of a tax benefit there. Also, we've had several questions asking for those slides that Ed presented.
Ed Gonzalez: Please use them.
Leslie Geller: Yes, the entire deck. As I said at the beginning, the entire deck for today's webinar is on the webinar player in the documents tab. And I mean, Ed said use these. I know a lot of people use them. They're really useful. I actually showed one to my husband the other day when he was experiencing a moment of existential dread.
Ed Gonzalez: They take the temperature down and that allows you to have those good conversations. It's just a way to bring the temperature down and resettle and then focus on your clients and the good things you should be doing for them.
Leslie Geller: Yep. Okay. So we are coming up on the close here. We covered a ton of ground today. Let's see if we can wrap things up with some high-level takeaways, closing thoughts. I'll go first.
So my closing thought is I tend to be an optimistic person just generally about humanity, the state of the world, all of that. That's been a little tougher that lately, but I've really been trying to think of this, find the good in things that are happening.
I do think the OBBB does give us some breathing room as far as a degree of certainty with clients. And that is a gift at the moment with so much uncertainty everywhere else. And so I think we need to take that and really use it in our conversation. So that would be my closing thought. Jan?
Jan Gundersen: I'd go back to you can't build a riskless portfolio. We talked about these unintended risks in the portfolio. I think that's the thing to focus on. What are you trying to achieve for the client? Make sure you align what you own to what you're trying to achieve and manage those unintended risks.
I think especially when you run into somebody who's having that existential crisis moment, maybe you do need to reevaluate their risk tolerance, but otherwise explaining to them, "We're intending to take these risks in the portfolio. We're getting paid for those and they're helping us achieve what we're trying to achieve." Manage those unintended risks.
Leslie Geller: Great. Ed?
Ed Gonzalez: Always, always, always connect the portfolio to the actual client's goals and their life because that's what's going to really lead you to a great asset allocation. And to your point, there's going to be some clients that are going to be worried. They're going to want a little bit more protection and preservation. So adding a little bit more cash and high quality investment grade bonds may be perfect.
But also you may have clients that want to give more to their children or grandchildren, and that maybe should be more aggressive. So really focus on those goals, connect those goals to the portfolio, and that's what's going to help you with clients, especially in volatile times.
Leslie Geller: That just triggered a question.
Ed Gonzalez: Please.
Leslie Geller: Do you find that a client's risk appetite shifts a lot throughout their investment lifecycle or do you feel like it stays pretty consistent?
Ed Gonzalez: No, I think it shifts a lot because it's not really about the client, it's about what is the purpose for the money? Because I see some clients, they're getting older, they get a bit more conservative, they get a bit more conservative, but then they realize they want to gift to their children or their grandchildren. They have a whole separate pool of money for someone in their twenties. Well then that actually should be invested much more aggressively. So this constant conversation about what are the actual goals of your funds, that's what's going to really lead you to a good, what is the proper amount of risk for the portfolio.
Leslie Geller: Great. All right, so thank you Jan. Thank you, Ed. I love talking to you guys generally, but it's really-
Ed Gonzalez: My pleasure.
Jan Gundersen: Likewise.
Leslie Geller: ... fun to do it in our fancy studio. A few quick notes in closing. There's a ton more insights and thought leadership available from Capital Group. This slide that we're showing right now gives you some links to additional content. Both us and PCS have a great article on the Big Beautiful Bill, gets into a little bit more of a list of the changes, all of the things to be watching out for.
I want to thank everybody for your engagement. The questions are what makes these events. We so appreciate you sending them in. It's because of you that Capital was voted number one for thought leadership for the sixth time in a row. And finally, one more thank you to Jan and Ed for your great insights. I hope all of you found this as interesting and helpful as we did. Thanks again and enjoy the rest of your day.
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Event date:July 17, 2025
Leslie Geller is a senior wealth strategist at Capital Group. She has 18 years of industry experience and has been with Capital Group for six years. She received an LLM in taxation from New York University School of Law, a juris doctor from Boston College Law School and a bachelor’s degree from Washington and Lee University. Leslie is based in Los Angeles.
Ed Gonzalez is a portfolio specialist at Capital Group Private Client Services, acting as a liaison between the portfolio managers and Private Wealth Advisors within the firm. He has 15 years of investment experience. Prior to joining Capital Group in 2019, Ed was a senior vice president and senior investment strategist at Wells Fargo Private Bank; before that he was an infantry officer in the United States Marine Corps. Ed earned an MBA from UCLA’s Anderson School of Management and holds the Chartered Financial Analyst® designation. He is based in Los Angeles.
Jan Gundersen is a senior investment director on Capital Group’s Portfolio Solutions & Services team. He has 26 years of investment industry experience (as of 12/31/24). He holds a bachelor’s degree in geology from Colgate University and a masters degree in oceanography from Texas A&M University.