You think you know, but do you REALLY know?

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Welcome to the weekly Wealth Podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

Have you ever thought, I don't know what that means?

Or have you ever thought, I don't know if I really know what that means?

Or have you ever found out that something that you thought, thought you knew what it meant, really didn't mean that?

Today I want to talk about some financial terms that you might think that you know or that you might not know what they mean and explain them to you.

So this is going to be an episode where we give some quick explanations to financial terms that there may be some lack of clarity about.

So I've sat across the table from surgeons, from executives, from wealthy business owners, from people who you would assume are really smart.

And yes, they are really smart in their area.

But they just nod when you say something like, the futures are up.

Or they'll say, oh, don't worry, it's a quote write off.

Then 20 minutes later, one of them would ask, hey, what does that actually mean?

So here's the thing that I found.

Sometimes the person who may be the smartest person in the room in some area, they are not the smartest person in the room in all areas.

And just because they nodded, when you talk about some financial terms, it doesn't really mean that they know what you're talking about.

And they're making decisions based on words that they don't fully understand.

So today we're trying to fix that.

We'll have 18 financial terms that you think you know, but you might not know, or these might be financial terms that you're just like, you know what?

I've always heard that and I really don't know what it means.

So no nodding allowed this episode.

And let's try to learn something now.

If there are any other financial terms that you'd like us to cover in A future episode, because I think these should be a couple times per year.

Email me davidarallelfinancial.com that's davidarallelfinancial.Com Let me know.

Is there a financial concept or is there a financial term that you just don't understand and that you think that you should?

All right, here we go.

So we're dividing into five rounds, five segments this episode.

So we're gonna have the market scoreboard.

We're gonna talk about rates in Washington.

We're gonna talk about investing and taxes and then risk management.

And then finally, our final round will be for business owners and retirees.

All right, so let's go.

So the first one is the Dow Jones.

You hear about this on the news.

You see it on ticker symbols.

When the news says the market is up, they usually mean the Dow.

And here's what most people don't know.

The dow is only 30 stocks, 30 out of thousands of public companies.

And it's price weighted.

A stock with a higher share price moves the index more, regardless of how big the company actually is.

A $500 stock has 10 times the pull of a $50 stock, even if the $50 company is bigger.

So the Dow is the most famous number in finance and one of the least useful for measuring your portfolio.

It's really like a headline and not a benchmark.

Next we have the s and P500.

That's roughly 500 of the largest US companies weighted by size.

The bigger the company, the more it counts.

It's a much better measure of the market than the Dow, and it's what most professionals mean by the market.

By weighting by size means a handful of giant companies, mostly tech and lately mostly AI related, drive a huge share of the result.

Earlier this month, the index was up double digits for the year, while the typical stock inside of it was up about half that.

You've probably heard about the Magnificent Seven, and they drive a big portion of the quote S and P returns.

So when somebody says, I own the S and P, I'm so diversified, sure, more than owning five stocks.

But you're also making a bigger bet on a few companies, more than you probably realize.

Now here's another one that you hear all the time on the news or on cnbc, and that's the Nasdaq.

And it's confusing because it's two things.

The Nasdaq is a stock exchange, which is a marketplace where stocks trade like the New York Stock Exchange.

And the NASDAQ is a composite index of the stocks Listed, there's a few thousand companies heavily tilted towards tech.

So when people say quote, I own the Nasdaq, they usually mean a fund that tracks the NASDAQ 100.

That's the largest 100 non financial companies on the exchange.

Different index, different math.

So when the news says the NASDAQ fell 2%, that's usually the composite.

Your fund might have done something different.

Know which one you actually own?

Alright, so futures, right?

So you probably see on the morning news the futures are up or the futures are down.

So what the heck does that mean?

Right.

A futures contract is an agreement to buy or sell something, maybe a stock index, oil, corn, treasury bonds.

At a set price on a future date.

They trade nearly around the clock.

So before the stock market opens, futures gives you a read on how traders are feeling.

Futures are a mood ring, not a crystal ball.

Plenty of days start with scary futures and close in the green.

If you're making long term decision based on what futures did at 7am, you're letting the most emotional hour of the day run your plan.

All right, here's our final one in our investing portion of this episode and that's private equity.

You've probably heard a lot about private equity.

Some people say private equity is the greatest thing ever.

Some people say it's ruining the country.

But it's a cocktail party favorite, right?

Private equity firms raise money from investors.

They buy whole companies, often with a lot of borrowed money.

They try to improve them and sell them several years later.

That's really it.

But there are three things nobody mentions at the cocktail party.

One, your money is often locked up for years, maybe 10 years or more.

Two, you don't hand it all over upfront.

They send what's called capital calls when they need it.

So you better have the cash.

Three fees.

The traditional model is 2 and 20, about 2% a year and 20% of the profit.

So private equities can have a place in your portfolio.

But if something pitches it as a what the rich do, Ask two questions.

What does it cost?

When can I get out?

What are the track records?

Now, oftentimes with private equity you have to be an accredited investor, which means that there's a fairly high net worth requirement in order to get in.

So private equities are often not available to your typical retail investor.

All right, let's go on to rates and Washington.

All right, our number six term is yield.

You've probably been hearing a lot about yields on the news.

So yield is what an investment pays you, is expressed as a percentage For a bond, it's roughly the return you'd lock in if you'd bought today and held it to maturity.

So here's the part that trips everybody up.

Bond prices and yields move in opposite directions.

It's a seesaw.

If a new bond pays 5%, nobody wants to pay full price for your old bond paying 3%.

So that price drops.

So here's the gotcha on it.

When you hear yields are surging, that's good news if you're buying bonds today and not so good news for the bond you already own.

Both are true at the same time.

Now, number seven, what is the Fed funds rate?

When the news says the Fed raised rates, this is the rate that they mean the target rate banks charge each other for overnight loans.

It flows pretty directly into savings account credit cards and home equity lines of credit.

But 30 year mortgage rates track the 10 year treasury yield much more closely.

And that's set by the bond market, not a committee in Washington.

That's why mortgage rates can raise even if the Fed cuts rates.

So the Fed doesn't set your mortgage rate.

If you're waiting on the Fed to fix mortgage rates, you may be waiting on the wrong people.

Now, this podcast episode is coming out near the midterm elections in 2026.

So we've been seeing all of these politician interviews and the candidate interviews and yes, these ridiculous political commercials that I'm so ready to be over.

But a lot of them talk about the deficit.

All right, so what does the deficit mean?

The deficit is how much more the government spends than it brings in a single year.

One year.

That's it.

So think of it as your household spending more than your paychecks this year and putting the difference on a credit card.

So the deficit is a one year number.

It's not the total that we owe.

That's the next term.

But the deficit is just very simple.

How much money did our government bring in versus how much did it spend?

All right, but the deficit will contribute to the national debt.

So if the deficit is this year's overspending, the debt is the credit card balance.

That's the running total built up from years of deficits.

And here's why this matters to you.

A bigger debt means the treasury has to borrow more.

And all those new bonds are one of the forces behind the yields that we just talked about.

The.

Those aren't like political trivia words.

They show up in your mortgage rate.

So when anybody, either party, any politician, any candidate says we cut the deficit, it can sound like we're paying down the debt, but that's not what they're necessarily saying.

A smaller deficit just means the balance grew more slowly.

And just in case you're wondering, this data did come from fiscaldata.treasury.gov all right, round three, starting right here.

And this is where we're talking about investing and taxes.

So let's talk about fiduciary.

You'll see some of those commercials for some financial planning companies, and you may have even just heard the term fiduciary.

So what does fiduciary mean?

A fiduciary is legally required to act in your best interest to put your interests ahead of their own on an ongoing basis.

That sounds like everybody should be a fiduciary in the financial industry, right?

It isn't.

Depending on the product and the license, other professionals operate under different rules, often a duty that applies at the moment of the sale, with conflicts of interest allowed as long as they're disclosed.

So plenty of people assume, quote, financial advisor means fiduciary.

It doesn't.

Ask one simple question.

Are you a fiduciary on everything you recommend to me?

And will you put that in writing?

You can ask everyone, including me.

Some financial professionals operate under a suitable standard.

Suitable and best interest are different levels.

Best interest means it's absolutely in your best interest.

Suitable means, yeah, it's okay.

It's not going to hurt you, but there may be better options for you.

All right, here's one that a lot of people, and I'm talking some wealthy people and some business owners get messed up, and that's marginal versus effective tax rate.

All right, so you'll hear maybe someone who is a W2 employee, and they tend to get big bonuses, but they'll say, I don't want that bonus.

It'll bump me into a higher tax bracket and I'll take home less.

So let's kill that myth once and for all.

Our tax system works like buckets.

The first chunk of your income is taxed at 10%, the next at 12, the next at 22, and so on.

Your marginal rate is the rate on the last dollar.

That's the top bucket.

Your effective rate is your total tax divided by your total income, and it's always lower.

Moving into a higher tax bracket only affects the dollars in that higher bucket.

Okay?

So if you bump in to quote the next tax bracket, only the next dollars will be taxed at that higher percent, but the previous dollars will not be taxed at the higher percent.

So tax brackets are never a reason to turn down money cliffs are worth planning around.

But if you can get a big bonus or if you can increase your revenue or compensation, yes, the next dollars might be taxed at a higher rate.

But don't forget your first chunk is always taxed at 10%, the next chunk at 12%, the next chunk at 22%, and so on.

So if you have any questions about marginal versus effective tax rates, how about this?

Go to www.weeklywealthpodcast.com, click on the microphone icon and leave me a voicemail.

All right, if you're a business owner, I can almost guarantee that somebody from maybe a school or a local 5k race or fundraiser has asked you for a sponsorship.

And they come in, well meaning, and they say, hey, would you like to donate and sponsor a hole at the golf tournament or donate to the gala?

And then they'll say, but hey, don't worry, it's a write off.

And they act like it's free.

It's not free.

A write off is a deduction that lowers your taxable income.

It does not come back to you dollar for dollar.

So let's do some math here so you understand what write offs mean.

Now, in this case, we're talking about a sponsorship, which is typically supporting a cause.

And if you listen to the weekly wealth podcast, you know that I think charitably inclined people are amazing and that we should all give money away.

Now, with that being said, let's understand the actual math.

So let's say you're in a 32% tax bracket and you do a $1,000 sponsorship of the local golf tournament.

So your tax savings is about $320, but you're still out $680, right?

So the write off is a discount, not a refund.

So you wrote $1,000 check to sponsor the golf tournament.

It gave you a $320 tax savings, but you still have $680 less than you would have had you not sponsored the golf tournament.

And it gets worse.

If you take the standard deduction, and most people do, starting this year, there's a small deduction for cash gifts up to $1,000 or $2,000 for married couples.

That's the ceiling if you do.

Itemized new rules this year mean that the first half of a percent of your income in donations doesn't count at all.

The top bracket earners get their benefits capped at 35 cents on the dollar.

And if the chick goes to something that isn't a registered charity, maybe a GoFundMe account, maybe a political campaign.

There's no deduction at all.

Now, a nuance for business owners.

And make sure you're working with your tax professional on this.

A real sponsorship.

That's where you get actual advertising.

Maybe your logo on the banner, your name in the program.

That can be a legitimate marketing expense for your business.

But a straight donation from your LLC or S Corp usually just flows through to your personal return as a charity.

So that's a different bucket.

So give because you believe in the cause.

That's a great reason.

Don't just give because somebody told you the IRS is paying for it.

The IRS may be chipping in, but you're still covering most of the bill.

All right, let's move on to some of the least sexy parts of financial planning.

We're going to talk about risk management.

We're going to talk about insurance.

And remember, insurance really does one thing.

It protects your money.

Nothing more, nothing less.

So one great way to protect your money is with an umbrella policy.

More than likely you have home insurance and auto insurance.

That includes liability coverage.

And that's what pays if you're sued because you caused damage to somebody else.

But those limits are often lower than what people think.

So an umbrella policy sits on top of them and adds another layer, usually in million dollar chunks.

So picture a serious accident involving a teenage driver in your household.

That judgment can blow right through your auto limits.

And then they the person that you hurt could come after your assets.

Have you seen all of the Personal Injury lawyer billboards?

Have you seen all of the Personal Injury lawyer commercials on tv?

Yes, they are coming after you if you cause a major damage.

So the more you've built, the bigger the target.

So if you have an MD after your name, if you have a DMD after your name, it may not be fair, but you're likely going to get sued for more.

So umbrella coverage is often one of the cheapest policies you'll ever buy.

You can see seven figure households with no umbrellas all the time.

That's not a coverage gap, that's a canyon.

And typically, their umbrella policy could literally cost several hundred dollars per year for millions of dollars of coverage.

Now, when we're looking at insurance and home insurance, we also sometimes hear questions about replacement costs versus actual cash value.

Two policies can cover the same house and pay out completely differently.

Replacement cost pays what it costs to repair or replace that thing.

That house today, actual cash value pays what the thing was worth after depreciation.

So let's say a storm takes out your 15 year old roof on replacement Cost, you get a new roof minus your deductible.

So let's say the roof costs $30,000 to put on today and you have a thousand dollar deductible.

You'd get $29,000 to pay for a new roof.

Now on actual cash value, the insurer would say the roof was most of the way through its life and it would write you a check for a fraction of the cost.

So that's the same storm, the same roof, a very different check.

So some policies settle older roofs for actual cash value.

Don't read yours after the storm, read it before.

Ask your insurance agent if your home and your properties are covered through replacement cost or actual cash value.

And quick plug Ashley A S H L E I G H at join the nia.

She can help you to answer these questions.

What about own occupation disability?

This may also be known as own occ.

So disability insurance typically replaces your income if you can't work.

But the question really becomes can't do what work?

An own occupation policy pays you if you can't perform the duties of your specific occupation.

And any occupation policy pays only if you can't do any job you're reasonably suited for.

So picture an orthopedic surgeon with a hand injury.

Picture a dentist with a hand injury.

With the true own OC definition, they can't operate.

So the policy says, even though they could go teach, even though they could go work in a fast food restaurant, even though they maybe could be a consultant, they can't do their own ock.

So they would have their income replaced based on the terms of the contract.

So there could be a completely different outcome if you have an any AWK vs an own OCC policy.

This is a pretty big detail.

So make sure you know that if you have disability coverage, which one of those provisions is on your policy?

All right.

I want to move into business owners.

You know, I love the business owners.

I am a business owner.

Business owners have to know a lot.

So let's talk about key person and buy sell funding.

So key person insurance.

If your business has partners, you probably have a buy sell agreement.

And that document says what happened to an owner's share if they die, become disabled or leave?

Great.

Where would that money come from?

So if your partner dies tomorrow, the agreement might say that you have to buy their half from their spouse for, I don't know, $2 million.

Do you have $2 million sitting around in cash right now?

The odds are that you don't.

Right?

So that's why buy sells are usually Funded with life insurance and disability insurance and key person coverage, gives the company cash to survive losing someone it can't run without.

So you can see these all the time.

They're signed, they're notarized.

These are beautifully drafted buy sell agreements with $0 behind them.

So a buy sell with no funding isn't a plan, it's a lawsuit with a nice cover page.

All right, if you are in the exit planning world at all, if you've probably heard something called ebitda, and you've probably heard multiple.

So EBITDA stands for earnings before interest, taxes, depreciation and amortization.

So the translation on that and this is not exact, but it's roughly your cash profit your business produces from operations before financing and accounting decisions muddy the picture.

So when a buyer values a business, they usually take ebitda, adjust it for things like the owner's above market salary, and multiply it maybe by four times, six times, or sometimes more.

And what drives that multiple?

You hear me talk about it a lot.

It's how much of your business depends on the owner, how predictable is revenue, how concentrated your customers are, maybe interest rates, maybe recurring revenue.

So I talk about it all the time.

We should be building our businesses as assets that we can potentially sell to fund our lifestyle at retirement.

If you want to know more about what the buyer would see about your business, take the sellability score@www.weeklywealthpodcast.com sellabilityscore.

It takes about 13 minutes and it shows exactly what's pulling your multiple up or maybe even down.

And let's begin to close it out with sequence of returns risk.

So number 18, two retirees can earn the exact same average return over 25 years and end up in completely different places.

How's that possible?

The order of returns.

If the market drops hard in your first few years of retirement, while you're pulling money out to live on, you're selling shares at a low price and those shares never get a chance to recover.

The same drop 10 years into retirement does a lot less in damage.

So your average return isn't what matters most at retirement.

Your first few years are.

That's why the near term money shouldn't ride on whatever the market does next and why I'm a fan of splitting money into different buckets.

You hear me talking about buckets of money all of the time.

All right, so that's 18.

You made it this far without nodding along to the single one.

Congratulations.

You are officially more dangerous at cocktail parties.

So here's a takeaway.

Nodding is expensive, right?

They say that what you don't know can't hurt you.

That's not true.

What you don't know can hurt you.

So if you don't understand, quote, write offs and you think that the government is basically paying for your entire donation or sponsorship, you're wrong.

That will cost you money.

The wrong disability definition can cost you thousands or hundreds of thousands of dollars.

Words matter because decisions follow words.

So two ways to take the next step.

If you want clarity on your whole picture.

Investments, taxes, insurance, all of it.

Book a vision call@www.weeklywealthpodcast.com vision.

So next month we'll cover some other terms.

Maybe we'll cover elimination periods, maybe coinsurance, maybe percentage deductibles.

And why Volatility and risk are not the same thing.

So make sure you send me the term that you nod along to.

But maybe you're not 100% sure of what they mean.

I'm David Chudick.

This has been the Weekly Wealth Podcast.

Go ask the right questions and have a blessed week.

The information presented on this podcast is for general educational purposes only and does not constitute financial investment, legal or tax advice.

Parallel Financial is registered with the U.S. securities and Exchange Commission as a registered investment advisor.

Registration does not imply a certain level of skill or training, nor does it constitute an endorsement by the sec.

All investing involves risk, including the potential loss of principal.

Please consult a qualified financial professional before making any financial decisions.

And here is is this week's bonus content and it is one that is actually in the title of our podcast and it's Wealth.

And this is the one that I see misunderstood by most successful people.

Most people think that their wealth is income.

Surgeon makes 600, 700, $800,000 a year.

They're wealthy.

Or maybe he or she spends 680,000 of it per month and if the paycheck stopped, they would be in trouble.

Other people think wealth is stuff, right?

The big home.

But a big house isn't wealth, is it?

If it has a really big mortgage with it.

So here's my definition of wealth.

How long could you live the life you want?

If the paychecks stop, that's it.

It's not measured in dollars.

It's measured in time and it's measured in freedom.

I know plenty of people that make a whole lot of money, but if the paycheck stopped, they would really struggle.

So what's your definition of wealth?

Let me know.

Go to www.weeklywealthpodcast.com Click on the microphone icon and let me know your definition of wealth.

Thanks, everybody, and we'll see you next week.