Money Talk with Carl Stuart

Carl Stewart takes caller and text questions on investment strategy, diversifying away from concentrated stock positions and why broad index funds are safer than betting on individual companies, asset allocation, employer 401(k) matches, Roth IRA strategies, and the transformational potential of AI investments, and the importance of staying disciplined during market volatility.

The full transcript of this episode of Money Talk with Carl Stuart is available on the KUT & KUTX Studio website. The transcript is also available as subtitles or captions on some podcast apps.

KUT Announcer: Laurie Gallardo [00:00:01] This is Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:00:21] Welcome to Money Talk, I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT App. If you’re a first time listener, Money Talk is a broadcast about the world of financial and investment planning where you always determine our agenda by calling or texting 512-921-5888. It’s always a great idea to call or text early in the broadcast, giving me my best opportunity to answer your questions. I take today’s calls first and then previous and today’s text next, and then previous texts I haven’t had a chance to answer 512-921-5888. I got this really, I’m really, it was a great text. Listen to this came in last week after the broadcast late in the broadcast, I couldn’t get to it. Hi Carl, I like to listen to your show when I’m out exercising. For the most part, you give fairly sound advice. Thank you. Once a few months ago, a woman called in and said she had a substantial holding in Apple. This was back when Apple was trading around 270. You then proceeded to tell her to sell most of her Apple stock. This is quite simply the worst advice I have heard you give anyone. Berkshire Hathaway has 22% of their 13F portfolio. In Apple, about 58 billion dollars. Warren Buffett said at the 2023 Berkshire Hathaway annual meeting, quote, and to think that our criteria for Apple is different than other businesses we own, it just happens to be a better business than any we own. End of the quote. Jim Cramer always says, own Apple, don’t trade it. Apple is the best-run company in the world. He has been saying these things for many years. There are two trillion five hundred million I think that’s right, so many zeros, hard for me to know. Active Apple devices in the world. Apple had the foresight to stay out of the AI build out so they could get the best deal from the hyperscaler. Look like they’re going with Gemini. Apple, will Apple be not a good investment in the future? Yes, but that time is not now or in the near future. I just hope that woman caller didn’t follow through in your advice. Thanks for the text. So here’s. What I believe I said. So I’ve been in this investment profession for 48 years and I have seen the rise and fall of many good companies. And when you have a lot of your capital attributable to equities in one stock, three things can happen. It can do great and you can make a lot money? It can lay an egg, and then you’re paying an opportunity cost because other things are doing well, or it can do really poorly. And you don’t know where you are on the cycle with this person’s opinion notwithstanding. So if you were to own individual stocks, how many should you have? Well, one benchmark that I use is if you owned a highly concentrated stock mutual How many stocks would they have? In my experience, somewhere between 35 and 50. That’s right, 35 and fifty. So what would happen is if they owned Apple, and not Berkshire Hathaway, if they own Apple, and it became a larger portion of the portfolio, if they could not justify continuing to hold it, they would pair it back some. So I have seen the downside of owning individual stocks. And while I could mention Enron… That’s a unique circumstance, MCI communications, another, they both involve fraud. But I also saw AT&T, when it split up, spin off many different companies, one of which was Lucent Technologies. And it was considered a blue chip and went way, way up and then collapsed to like single digits. But perhaps for most of our listeners, the most relevant one would be Dell Computer. There was a moment in time I remember this because I was doing some television work where I said on the air that Dell Computer was the number one performing stock in the S&P 500 for the preceding 1, 3, 5, and 10 years, and that that was the first time that it ever occurred. My recollection is the stock went from essentially almost nothing to $70 a share, but it then went down sharply, and Mr. Deltooth, the company, private at $10.50. That’s a permanent loss of capital for people who owned it at 70 or 60 or 50 or 40. So I was not making any commentary on the fundamental outlook for Apple. I was talking about the risks and dangers of owning specific names in your portfolio in outsized positions. If you wanna have a 50-stock portfolio and you wanna spend your time selecting those stocks, That’s a great idea, and I wish you good luck. Remember the Nasdaq, where Dell and lots of other companies including Apple traded not Dell I beg your pardon Apple traded peaked in March of 2000 It did not reach that the Nasdac did not reached that level again for 15 years So if you’re going to be a long-term investor what you want to own is important But what proportion of your portfolio is also really important? Thanks for the thanks for the interesting and provocative text You’re listening to Money Talk on KUT News, 90.5 and the KUT app. We have all of our lines available, incoming texts, you will hear them, 512-921-5888. This came in this afternoon. Carl, recent market changes would seem to be a good time to acquire exchange traded funds as you have suggested. How would you recommend a younger beginner to start the process versus a retiree? With $200,000 in high-yield savings available to invest. Actually, I would tell you, in some ways, I’m gonna give you the same advice. But the biggest determinant of your future returns in the stock market, and for that matter, in financial asset investing, and I would argue in all kinds of investing, is what’s the right mix of those for you? In my world, that’s called asset allocation, and it really matters. So. You first want to determine what’s the right mix of stocks and bonds and cash. Those are the three classic. There are many others as well, of course, that are right for you. So if you were a younger beginner and you want the money to grow faster than the rate of inflation, and you’d like to have a time in your life where you’re financially independent, you’re going to want to be invested in stocks. Unless you have the time and interest and desire. Based on what I was just talking about previously, to pick individual stocks across many different industries, owning a broadly based exchange traded fund is a terrific idea. Exchange traded funds are like a receptacle. They’re all very different. There are ones that are broadly diversified and there are ones which are highly focused. I would avoid the ones which were highly focused So I would start, if you were a young person, with two exchange-traded funds. And either if you’re an advisor, she or he can do this for you, or if you are a do-it-yourselfer, all of the big do- it-yourself platforms like Schwab and Fidelity and Vanguard have this. One would be a total stock market fund that would get you access and exposure to all the stocks in the U.S., trading in the US. And the other would be a total international fund. And why would I do that? Because 50% of the public companies trading in the world are based outside the United States. And what I know from personal experience is that there will be fairly long periods of time when domestic will outperform foreign and times when the opposite occurs. So I would start with that. If you’re a retiree, then the question becomes how much risk am I willing to take? Because periodically the stock market goes down and it goes down a lot. The last time this occurred was simply four years ago when the Standard& Poor 500 was down 20, let me think this through, 19%, and the NASDAQ, which had lots of technology companies, was down 33%, and the bond market was down between 13 and 14%. So if you think about your $200,000 that was in the S&P 500, rounding up, that’s 20% declines, a $40,000 decline. So you have to kind of walk through that and ask yourself as a retiree, how am I gonna react to that? Is that going to interfere with the quality of my life? Am I going to lose sleep over this? Am I gonna be stressed about this? If the answer to that is yes, you’ve just determined that an US stock allocation is too risky for you. So what if you had 60% in US stocks and the other 40%? Let’s just say in your high yield savings account, and 60% of your stocks went down 20%. Well, if you have 60% of your money in stocks, that’s a hundred, see 60 times 200 is $120,000. And so 20% of that’s $24,000, you see the difference? That’s how you kind of think about your risk tolerance when you’re a retiree. When you are starting out, You need to accept that risk if you ever hope to have enough money to be financially independent. The other thing that would be relevant to both a beginning younger investor and to a retiree is you don’t have to do this all at once. This isn’t real estate where you either buy the property or you don’t buy the the property. Because they’re a daily liquid, you can invest in these exchange-rated funds a little bit at a time, and that’s exactly what I would do. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. And you can listen to previous broadcasts of Money Talk by going to kut.org. You’ll see on that opening page, you’ll have podcasts. You’ll money talk there, or you can go to wherever you do get your podcasts. 5 1 2 9 2 1 5 8 8 8 8 Hi, Carlos. What’s your opinion on artificial intelligence? Would AI have the demand that the hyperscalers are expecting? Why do you think they’re investing into AI so heavily? Boy, I tell you, this is a question that I would think globally investors are struggling with. We had a real sell-off this week led in the NASDAQ led by the artificial intelligence companies. So, my opinion, just based on reading… Uh… And going to seminars in fact i was in one uh… Earlier this past week is that artificial intelligence has the potential to be one of the largest changes in global history some people compare it to the invention of the steam engine or the uh… Arrival of railroads or the arrival of the internet when you think about your life today and you think of that the fact that the iPhone. Came into existence in 2007. Imagine your life without the internet. Imagine your live without a mobile device, whether it’s an iPhone or a Samsung or Galaxy or whatever it is. It’s ubiquitous, it’s part of your life. That’s going to happen to artificial intelligence too. One of the seminars I attended last week I thought was really interesting. That was given by a Stanford professor who really specializes in the area of artificial intelligence. And he said, Siri and similar apps have turned us into robots and that we’re beginning to treat artificial intelligence like chat GBT as a super Google. And he thinks there’s much more to it than that, that when you’re thinking about something, you can ask provocative questions of your AI app. And really, really branch out. So I think AI will have a huge impact. Now, apparently, it takes massive amounts of computing power, which now people call compute. And so what’s happening is these hyperscalers of what they’re doing, and I know you’re aware of this, is that they’re demanding huge amounts of capacity. So they’re borrowing lots of money, and the people building data centers. Uh… Which have become quite controversial because of their use of electricity and water this is transformational i suspect that when uh… People when america was an agrarian country and the railroad started coming through and tearing up people’s farms and ranches and that probably wasn’t so popular and when automobiles were first invented and there were no traffic rules and no traffic signs and people didn’t know how to drive I suspect that that was very disconcerting. Could things go off the rails, both figuratively and perhaps actually with artificial intelligence? The answer is yes. Plain and simple, the answer is, yes. Do I think investing in AI is what do I think they are investing in? Why are they? Because they perceive what I just said, which is, this is the change in the world, and we’re not going to go backwards. Can things go wrong? Yes. Will things go, wrong? Yes. It’s way too early to know what those things will be and what. Humanity will do to react to it. Thanks for your text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We have all of our lines available. You’re also welcome to text 512-921-5888. Okay, here’s one from last week. Carl, I’m in my mid-50s. And probably going to stop working soon, one way or another, okay. I have a net worth of about $3 million. About half of that is actively managed by someone. Half of the remaining amount is robo-invested, and the other half I have, got three halves. The other half, I have in three low-cost exchange-traded funds by Vanguard. I feel okay in terms of money and retirement, but what would you recommend going forward? In terms of overall management of my money, I want to avoid paying the 1% management fee any more than I need to. This is from Marty. Well, Marty, I think the fundamental decision is do you want to do this on your own because you’ve done robo-investing, that’s a do-it-yourself thing. And so the question is, do you wanna do this own your own? And around this, this is really important. Issue. I think what I have observed in my career is when prices go up for a sustained period of time, do-it-yourself investing is very rewarding. I think back to how real estate went up in the 1980s in the Southwest and here in Texas, and it was very common for people who were not in the real estate business. Whether they were scientists or lawyers or doctors or accountants or whatever, to get in to invest in income producing properties. We then had the collapse of the commercial real estate market, the income producing market. A lot of people discovered that there really wasn’t a lot of fun being a do-it-yourself investor. What we see in sustained periods of rising stock prices is several things. We have an increase in speculative activity because it’s fun. And we have new kinds of investment vehicles come out which tend to promise even ever higher returns. And then we have the ultimate collapse and a lot of those ideas blow up and a lotta those types of investments go away. Now, that’s going to happen. I just don’t know when and I don’t what the trigger will be. If you can live through that on your own and make thoughtful, prudent decisions and follow your plan and put aside the reptile portion of your brain, you don’t need to pay the 1% management fee. Plain and simple. You can invest in low-cost, tax-efficient, exchange-traded funds and move on down the road. But what I’ve observed is through a market cycle, which doesn’t just include rising, but also collapsing or falling prices. The benefit of an advisor to not to everybody, but to some people is to help keep you on your plan. If that’s a valuable view, 1% is frankly no big deal because if you were on your own and COVID hit, and it was frightening because it was, and you sold your stock portfolio, One percent management fee, if that person that helped you stay along with your plan, was peanuts compared to the cost you had by doing that. So, the one percent management fee, in my view, is not the issue. The one percent manager fee is to help you work through your plan work through, your strategy and to stay with it. If that doesn’t seem valuable to you, then using low cost exchange traded funds is a perfectly reasonable thing to do on your own. It’s time for me to take a break. We’ve got a quiet afternoon here with lack of phone calls and texts, so 512-921-5888. Give me a call, shoot me a text, I’ll be back.

Jimmy Maas [00:19:25] Money Talk airs every Saturday at five o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTX Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a non-profit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org

KUT Announcer: Laurie Gallardo [00:19:57] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:20:11] Welcome back to Money Talk, I’m Carl Stewart and you’re listening to KUT News 90.5 in the KUT app. When you have a question call or text 512-921-5888. Here’s a text. Carl, I am 48 and just starting to invest. Is it too late for me to amass any type of retirement? Well, first of all, I’m sorry you didn’t get started sooner, but let’s face it, that’s the case for a whole lot of people. Yeah, I think the ugly math is the later you begin to save for your retirement, the more you have to save. If you had begun when you were 28, you would had to put in less money, or 38, more money, or 48, a lot more money. So you have figure out a way to generate cash flow. To begin to invest. Is it too late? The answer is no. But you’re going to have to look at what you believe you will need to live on. And then you’re gonna take, in today’s dollars, 25 times that, okay? If you want $100,000, that’s two and a half million dollars. Why do I say that? I can’t prove that that’ll work. I would just tell you that in this profession, that’s kind of the standard belief of taking a four percent. Withdrawal from your retirement savings every year. You can adjust it upward for inflation if it’s properly invested, and it should last well into your 90s. So you’re going to have, for most Americans who are 48, they’ve got to put away a lot of money. And what you want to think about is what is it about my daily life? What is it my expenses where I can change my behavior in such a way is to generate cash to invest. The good news is you’re not going to have all the money at once, which reduces your short-term risk, and you want to begin that investment program. And because you’re getting started late, you have to accept a higher level of risk if you hope to attain where you’re going. So it’s not too late. You should be putting in at least 15% of your cash flow, meaning your income after taxes. If you can’t start with that, start with whatever you can. Put money away every month. Put it in a global, a bigger pardon, a total U.S. Stock market exchange traded fund and a total international exchange traded fund as well and good luck to you and it will be totally self-serving. Keep listening to Money Talk because I think you will enjoy it and I believe you’ll learn something. You’re listening to money talk on KUT News 90.5 and the KUT app. Call or text 512. Nine two one five eight eight eight I say you’re on the air how may I help

Speaker 4 [00:23:13] Hi, I am 27 and I’m currently making around let’s say $60,000 a year.

Speaker 5 [00:23:25] Mm-hmm

Speaker 4 [00:23:26] what do you think about the trade-off between investing as much of my income as I can into retirement accounts and let’s say stock purchasing programs offered by my employer agency or like the trade-off between that and quality of life.

Carl Stuart [00:23:49] Great question. And you’ve grown up in a consumer-based society, the United States of America, where 70% of all our economic activity, the largest in the world, is consumption. So you are bombarded on a daily basis with opportunities to consume. The challenge is that people wait till they’re 55 or 60, or in this last text, 48. And wake up and realize that they’re never gonna quit working because they don’t have enough money. And so by the benefit of being 28, you can start with a smaller amount of money because you have so many more years for it to grow. Now you mentioned an HSA. Frankly, the HSA is not going to help you retire. It’s going to put away pre-tax dollars for medical expenses but if I had to choose between that and participating in an employer-sponsored plan, 401K plan, for example. The benefit of that is every dollar you put in there, you don’t pay income tax on it, and it’s yours. And if your employer puts money in, that’s called a matching contribution, that’s yours provided you work there long enough. But at your age, you’re likely to work in several places throughout your life. When you go to a new employer, You can take that accumulated capital with you and either put it in your new employer’s plan, if that’s allowed, or you can take it and put it into your own individual retirement account, again, with no taxation. So for someone who’s getting started, getting into that habit and have it taken automatically out of your paycheck is a wonderful way to begin. And let’s hope that your compensation grows over time, and when it does, you want to increase your, I don’t know. Is you want to put in as much money as you can to get the employer match. So let’s say your employer matches 4% of your compensation. You want to start putting 4% in. So now you’re doubling your money. And then next time you get a raise, take that 4% up by one percentage points to five and the following time from five to six so that it’s not painful. People tell me that they don’t even notice it. Cause you’re building a pool of capital so that at some point in the future, you can start taking money from that and you can live the life you want to live or the, you want it to keep working like I do, or you want to go off and do something else. So it’s painful to not want to consume, but when you consume, you’re robbing from your future self. And that’s how I would see it. If I were in your shoes, I say, all right. Okay, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Let’s see here, text. Hey Carl, I’m thinking about doing a living trust. Can you talk about it? Thanks, a little bit about it. So I think you have, whenever you’re considering trust, what you have to do is you have to ask what is it I’m trying to accomplish. So living trust, frequently people do that because they want to avoid the legal process upon death called probate. Now I would tell you, for a lot of people, in my experience, of course I’m not an attorney, but in my experiences, the avoidance of probate may not be. You know, as my colleague Lindsay says, the Jews isn’t worth the squeeze. I’m not sure, frankly, that it’s worth it. In Texas, we have something called independent administration, and if you have a bank account, if you a securities account, let’s say that you’re single. If you have securities account not a retirement account, you put at the end of that transfer on death T.O.D. And if you’re married, you have a joint account. And then when the first person passes away, they put on TOD. If you have retirement accounts, you have to have beneficiaries. That’s mandated by statute that you don’t have to have a, that’s not a probate process either. Probate is very straightforward and simple and inexpensive in Texas. So doing a living trust to avoid probate would seem to me. Is a very costly trade-off unless you have some very specific circumstances. You know, some people may have tens of millions of dollars in assets and they’re concerned that when the first person dies, the second person might be taken advantage of because that probate process leads to a publication of the value of their assets. And so they want to put everything in a living trust so that the probate doesn’t occur. I get that. But that’s for people with lots and lots of money. For other people, I’ve watched this probate process happen many, many, many times over my career and properly handled, it is a straightforward process. So I would be cautious if I were you. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here is a call. Ariana, you are on the air, how may I help?

Ariana [00:29:32] Hi. Yeah, I’m calling my teacher. I’m 33 years old. I invested in the retirement system because I have five years under my belt and I’m interested in taking a break from being a public school teacher. But I’m not sure if I should leave my money in that retirement system and I’ve got about 20,000 in there. Or roll it into a Roth IRA. I currently have about 30,000 in that Roth IRA and I’m trying to match the data as much as possible.

Carl Stuart [00:30:04] Of course.

Ariana [00:30:05] Yeah, I wanted to know your thoughts.

Carl Stuart [00:30:08] So I think if you, and you can take your time, you don’t have to decide right off the bat. If you think that the odds or chances of you going back into teaching and going back into the teacher’s retirement system are fairly high, you’d probably leave it there because you start putting more money in five years from now when you go back. If you go back, on the other hand… If you think that more than taking a break you’ll be looking for some other career path then the benefit doesn’t really get large until you’ve worked there a really long time it’s reasonable since you have a Roth it’s a reasonable to do that ariana what you would do is you would take the money from TRS into it you would set up an IRA okay and then the money would go in there and then you would take the money from the IRA to put it in the Roth, that’s called a conversion, and you would control the amount that you did because that is totally subject to income tax, and so you wanna make sure that what the tax consequences are, you wanna study up on that. I’m with you, I think when you’re 33 and building assets in a Roth, it’s a terrific idea because as you well know, you’re not subject to the required minimum distribution. And you can take the money once you’re 59 and a half whenever you want to. And it’s not subject to income taxes. So if I thought I weren’t gonna be a teacher seven, eight, nine years from now, or probably never again, yeah, I’d probably do what’s called trustee to trustee transfer. Wherever my custodian is on my Roth, talk to them about how to do it. They’ll probably have you open an IRA. The money goes in there. And then you can convert whatever amount you want over into your Roth. I think that’s a reasonable thing to do, Ariana.

Ariana [00:32:09] Okay, yeah, thank you. Um, is there kind of a tipping point where it’s, for example, if, would you say, is it a point where, it’s like, okay, if you were working as a teacher and investing into the pension plan for 15 years, that would yield more than investing into a fire a where is there no such kind of well if

Carl Stuart [00:32:31] Well, I wish it were that simple, but the difference is, yeah, the difference is about a pension is, and they’re legally called a defined benefit plan. And the reason they’re called that is because once you qualify through a number of years of teaching and reaching a certain age, you get lifetime income and you’d have no market risk in that, right? It doesn’t matter whether you live to be a hundred or 105, you’re going to keep getting the income. And you can’t outlive it and there’s no investment risk in it because you’re not in charge of it. In the case of Texas, the teacher’s retirement system is in charge. And they have been paying out thousands to thousands of teachers over decades. And I can assure you that they’re going to continue to do that. It’s just simply their number one priority. And so as a result of that, it’s hard to compare because let’s suppose you don’t. You take the money out and you invest it wisely in the Roth. It, we don’t know how long it’ll last. And there are two, there are three variables. One, how long are you going to live? Two, what’s going to happen to the, to the cost of living? And three, what your return on your investment. And you, you can use historical numbers, but you don’t know, and as a healthy 33 year old female, you could live easily deep into your nineties. And so. If the flexibility and the tax free treatment and the control of the investments is more attractive to you than the guaranteed lifetime income. That’s how I would look at it because there is a number out there, but I don’t know how to do that in my head. I just have watched people. I’ve watched people make this decision and it’s that sense of, Oh, I love it that I don’t have to worry. I’m going to get that check every month. Or I’d rather have the ability to have a Roth IRA and have a sense of personal control.

Ariana [00:34:29] Okay, okay. Thank you so much. Yeah, I appreciate your input

Carl Stuart [00:34:33] Okay, you’re welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. You know, you can listen to previous broadcasts by going to kut.org slash Money Talk, you’ll see all the podcasts of what we do here at KUT. You can click on Money Talk and listen to any and all of the ones that we have up on there. 512-921-5888 Hi Carl, can you explain, when you reference tax-free municipal bonds, what the tax- free applies to, please? Since Texas doesn’t have an income tax, I’m curious if there’s any advantage to these funds. Thanks, I enjoy the show. Well, you’re welcome. So you’re right, Texas doesn’ t have a state income tax. The bonds which are issued for public purposes, to build schools, or build hospitals, or roads. The interest on those bonds are not subject to federal income tax. If you buy bonds that are issued by a corporation, that interest is subject to Federal income tax if you buy bonds which are issued the U S government, those at interest is the subject to income tax, so that the attraction of municipal bonds, whether they’re individual bonds or whether they are, um, they’re bond funds. Is if you’re in a high enough income tax bracket that you can get the money income tax free and it’s worth more to you than getting a bigger number and paying the tax on it, then that’s the case. Now there are states with high income tax and there are bonds that are what are called doubly tax exempt. They have even lower interest rates, why? Because the people who live in that state, let’s say California or New York, they don’t have to pay California tax on it or New york tax on. So you have to be in a high tax bracket for those to make a lot of sense. Thanks for the question. It’s time for me to take a break. It’s a perfect time for you to call or text. We have all of our telephone lines available. 512-921-5888. I’ll be back.

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KUT Announcer: Laurie Gallardo [00:37:25] This is Money Talk with Karl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Karl.

Carl Stuart [00:37:39] Welcome back. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a question, call or text 512-921-5888. OK. I am an early 80s single with a state pension and social security. I have about $1.6 million in stocks and bonds. About 75, 25, that would be 75% stocks, 25% bonds. No debt, living in a retirement community where future nursing home care is covered. I spend about $6,000 per month more than my income. What are your thoughts about putting a chunk of money into a defined benefit annuity to hedge against global financial crisis, which is probably coming. And by the way, I’m a healthy-ish, healthy-is. Female. Well, the thing about the annuity is the way you describe it. Define benefit means, obviously, it’s like a pension. And as a result of that, like your state pension, ERS, when you pass away, it’ll go to zero. So you, first of all, have to be comfortable with that. I’ve seen people look at immediate annuities, which has, which they have the same feature where you get a monthly income. You can’t outlive it, and it brings a level of comfort. But then people say, wait a minute, I’m the healthiest female in my early 80s, and that money’s gonna go away upon my death. So I would first and foremost be comfortable with that because I think if you have 1.6 million in stocks and bonds, and about 75, 25 stocks and bond, if you’re worried about the coming crisis, reduce your allocation from 75. 25 stocks to 60 40. Okay, and Make sure on your bond side that you have short bonds, as well as intermediate term bonds. I hate to see you get completely out, but if you’re going to, well then you wanna reduce your risk to decide what’s the right asset allocation for your 1.6 million. If it’s 75.25 and you’re gonna do this other annuity, make sure when you’re done taking the money out for the annuity that you still have the asset allocation that you want. It’s really the idea is the comfort of knowing that coming in greater than the awareness that it’s going to go away when I pass away. And that’s how I would think about it. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. And we have a call. Dan, you’re on the air. How may I help?

Dan [00:40:36] Hi, Carl. I really appreciate it.

Carl Stuart [00:40:37] We really appreciate listening to you.

Dan [00:40:39] And I have a question about market volatility and rebalancing. Last Friday, my portfolio dropped by $150,000, and some of it was in strange areas, like I have an ETF that’s in Latin America, foreign investments in Latin American. That dropped like 17% for some reason. And so my question, yeah, my question is, basically, should I… Rebalance at this point or you know i mean and then we have the whole thing coming up with uh… You know trump and what where he’s going to go to war with the ran after the leon and it’s going be so much volatility that i’m not quite sure when i should rebalance you have any advice on that

Carl Stuart [00:41:25] Yeah, I do. I think, first of all, because you’re an experienced investor, that I would look at any investment that drops 17%. And I would ask myself, is that a level of risk that I’m prepared to take? If the answer is yes, um, then I, when I rebalance, yes, I wouldn’t rebalance back to my total target. Because I think there are, but there are you, I think any of us who pays attention to what’s going on in the world. Knows that things can get worse. And you also know we’ve had four terrific years in the stock market. I don’t invest in those more narrow areas like you are, Dan. And so if I had an allocation to that particular strategy and it dropped 17%, would I rebalance into that? The answer is yes, but not completely. I might rebalance a third of it and hold the rest of it. A way to see what happens. That’s my gut feel.

Dan [00:42:28] Okay, that’s good. You know, and I’ve actually I’ve had a case where when I looked at my international, I was trying to increase my international exposure. Yeah, and that’s why FLN is the one I did for Latin America. But what I’m trying to do is I find that a lot of the international ETFs all are like heavily Japan based and they’re they have all the same countries as their investment. Yeah, diversify, diversify my ETF, international ETF categories to like, you know, that emerging markets uh… Without china and and you know latin america i’m trying to get more diversified in like a dozen different uh… International eqf

Carl Stuart [00:43:07] Yeah, I think the reason you saw that phenomenon for everybody else, because Dan’s obviously an experienced investor, when you buy something like the Total International from Vanguard or Schwab or Fidelity, it’s a market capitalization weighted index, just like the S&P 500 is. And so when the S& P 500, when the Magnificent 7 AI stocks go up so much, you end up owning more and more of those. And you can go get yourself an equal-weighted one if you want. There’s a lot of arguments in the academy about market capitalization and whether it’s the way to go or not. A lot of academics say it is because you’re participating in what the globe is, voting is the most attractive. Other people say, no, you shouldn’t be so concentrated. So you’re gonna get that, you’re going to get, see, that phenomenon is exactly what you’re seeing internationally. So then I think if you’re going to be more granular like you are, I think you’ve got to start thinking about allocating proportions. How much is EM? How much as Asia? Because is Korea really an emerging market? No. Is India? Maybe. Maybe not. I mean, you’re going to have to decide the level of granularity that you want. And then you know that the risk profile of emerging markets tend to be much more volatile of the experience you’ve just had. I mean, the Nasdaq was down, I think, 2% last week and one day, or 3% last week and the one day it was down to 2%. That’s a heck of a lot different than 17. I mean my goodness. So if you’re okay with your allocation, yeah, then I do a little dollar cost averaging back in. Uh, but I wouldn’t, I’d hold some cash out and let’s see what happens.

Dan [00:44:55] Okay, and in the next week or so, would you recommend I just wait until after the election?

Carl Stuart [00:45:01] There’s some indication that the small cap markets tend to do very, very well from about November into the following year. There’s no theme that was written up today. And, uh, I think it was Barron’s or the wall street journal. I wrote, read both of them. It’s been, it’s a terrific time to invest in a small cap. It’s got amazing track record, but, uh. As it regards emerging markets, um, I, I just, I don’t, I just don’t have any. Historical data to be helpful there, I’m sorry.

Dan [00:45:31] Yeah, I understand. Okay, thank you very much.

Carl Stuart [00:45:33] Thank you very much, sir. You, you’re welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Another caller. Ken, you were on the air. How may I help?

Ken [00:45:55] Hey, hi, Carl. Great show. Love listening to it. I just wanted to clarify a little bit when you were talking about muni bonds, municipal bonds. If the person buys a separate muni bond, individual bond, and they sell it for more than they paid for it, that would be subject to a capital gains tax. Right. Right, of course.

Carl Stuart [00:46:20] If they bought a municipal bond fund, same phenomenon.

Ken [00:46:26] Correct. The other thing about munis that you have to be careful with is a thing called adjusted gross income. That adjusted gross income the government uses when it’s looking at your social security benefits, Yes.

Ken [00:46:41] And a possible increase in your Medicare parts A and B, which might subject you to a higher or that Irma.

Carl Stuart [00:46:51] Yes. Yeah, that’s really good. Yeah. That’s yeah. Yeah good points.

Ken [00:46:56] You’ve got to be really, you know, when you say tax-free, believe me, I’m not an expert, but you’ve got take a couple of things into account. I’m curious about you thinking with Texas not having a state income tax, it’s almost not worth getting the lower return on a muni bond and just take a regular bond

Carl Stuart [00:47:17] Yeah, I think for most people, that’s the case. Um, I agree with you and, and you know a lot more about that other stuff than I do. Uh, so if someone really wants to do his math, he has to look, as you know, for everybody else, what, what we’re talking about is something called the marginal bracket, meaning if I, what how much, what’s going to be the tax rate on the next dollar, next dollar that I earned in, in 2026. You get into the 37 bracket, which is the top, married filing jointly with taxable income over 768,000 and then single over 640, that’s not a whole lot of people, frankly. And so yeah, I’m not sure it’s worth it. It is for some really high income people, but I think I’m inclined to the vast majority of people with the taxable bonds personally. Yeah.

Ken [00:48:11] I would agree with you a hundred percent, Carl, and thank you. Great show. Keep it up.

Carl Stuart [00:48:15] Okay, okay, thanks for your call. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. David, you’re on the air.

David [00:48:34] How may I help? Okay Carl, I’m gonna skip all the other salutations and get right to the point. You know I love your show. Situation, I got a Vanguard 401k and I’ve been putting my extra money into this Cash Plus account. You know what I’m talking about there, the checking account. It’s a little bit of interest, but regardless, Carl I’ve got a four, I’ve gotta rollover IRA, a Roth IRA, two brokerage accounts, one brokerage that I’m waiting to use for a tax offset, which you’ve helped me with before as well. What I want to know is, I don’t want that money sitting in that cash plus account. I talked to Vanguard and I want run it by you also, can I take, let’s say 5,000, just go with a rough balance, so it’s $10,000. Put five into any of those brokerage accounts. I don’t think I can put it into the Rollover IRA or the Roth IRA, let me explain. I’ve already maxed out my $8,600 for a person over 50 or whatever for this year. I just did that. And I’ve still got this extra cash. So go ahead. I’m wanting to know where I can move it so I get that good interest.

Carl Stuart [00:49:37] Okay, I think there are two quick answers. One is Vanguard has three different kinds of money market funds, prime, government, and treasury. For most people, I recommend the government, which invests in treasuries and also government agencies, primarily Fannie Mae and Freddie Mac. But you may want to pick up a few extra basis points by doing the prime. They still invest in investment grade corporate credit. So Prime Money Market Fund. Will get you between three, seven and four right now percent and you have daily liquidity and no risk to principal. The second place is to look at an ultra short bond fund. I happened to follow one, I was looking at it today and year to date it’s up 3.4% and the trailing 12 month dividend yield as of yesterday was 4.1%. So if you’d held that for a year, that’s a 7.5% total return. But you have some volatility and you have to be prepared to take that. If you’re willing to do that, an ultra short bond fund or a prime money market fund, the two places I would think of, David.

David [00:50:48] Could I move it into either one of the, because the vanguard, the young man I talked to, and this is why I’m worried about tax bombs going off. He said I could roll into the two accounts. They’re donor advised. However, they don’t show the percentage, the performance, unlike the other accounts do, but either way, they’re just called brokerage accounts. Can I put it into those? Because I’m worry he might not know, and they’re really always have to say, well, I’m not a tax advisor.

Carl Stuart [00:51:17] So are you saying these are not IRAs or not retirement accounts, but they are donor advised funds? Yeah. Okay. Well, if they’re donor, if their donor advised funds, then the, what I just said to you, he ought to be able to do that.

David [00:51:32] Okay, good. Because I actually already did and I’m kind of worried like, you know, because I could still I just literally just place that order on Friday without calling Carl first. Yeah, well, I

Carl Stuart [00:51:40] Well, I based the way it’s a donor advised fund. I believe that you can do any of those things in the death. I w you know, and yeah, I’d push on that if you got, if they were reluctant to do that, if I were you, David. Okay. Well, thank you very much. You bet. Thanks for calling. You’re listening to money talk on KUT news 90.5 and the KUT app. Have you been thinking of calling or texting? We’re starting to run out of time. 5 1 2 921-5888. Let’s see. Okay, that’s finishing. All right, I don’t understand that one so I’m not going to answer it. Carl, for the teacher considering rolling her TRS account into a Roth, she should also check TRS rules governing at what age she would be eligible to take retirement if she opts to keep her TRs account and an estimate of her pension amount at that time. Thank you. I am not an expert on that, so that is absolutely good to know. 512-921-5888. Here’s one that came last time. I’m in my mid-50s and probably going to stop working soon, one way or another. No, I answered that one. I apologize. Let’s just see here. Here we go. Hi Carl, how can I learn how to manage my account myself? I’m 72 years old and just want growth. I’m a heavy in individual stocks. Thanks, Vicki. So I think managing individual stocks is extremely difficult and it’s difficult for following reasons. You don’t have the, and I mean this respectfully, I don’t have the ability to do in depth balance sheet analysis, income statement analysis, to understand the status of the industry and why do I want to do that? Because the stock market, I always use this metaphor, the stock markets like this, you and I are in a boat. In rough seas, it’s a small boat, we both are rowing like crazy. And on shore, up on a cliff is a lighthouse. And periodically, because it rotates, it rotates in such a fashion that we can see exactly where we’re going, we see how we can avoid the dangerous rocks. The problem is, it keeps going and now we’re back in the darkness again. So there will be periods of time when consumer non-durable stocks will be in the light, and you’ll make a lot of money in Coca-Cola or Procter& Gamble, and then the lighthouse will move on, and they won’t do anything. And there’ll be a period of time when health care stocks are there, and then they’ll move away, and there’ll a period when energy stocks. So who would have known this year, not the best performing group being artificial intelligence, the best performing group being energy stocks. Well, guess what, when oil goes to $100 plus a barrel, people buy those stocks because the profit outlook is quite positive. So that’s one problem. Secondly, you’re stuck with household names because you don’t know small cap stocks. There’s a lot of data that over really long periods of time, small cap stock outperform large cap stocks, now you don’t know when that leadership’s gonna change. And you don’t know what industry it’s going to be. So I don’t that it’s possible to learn how to manage an account yourself when you’re heavily in individual stocks. I would say this, this is what drove me out of the individual stock investing, because when I started, energy prices were skyrocketing. We’d had something called the OPEC embargo. Houston was a boom town. The narrative was we’re not in charge of supply. And as a consequence of that, we’re gonna have high oil prices forever. And it turned out the oil prices collapsed. You could shoot a cannon through Houston and not hurt anybody. And if you were on energy stocks, they were dogs for years. The same thing happened with technology stocks from 2000 to when everything blew up in 2000 and the NASDAQ went down. I think you’d be much better off and broadly based. Index funds and if you are a hands-on person you can also pick some actively managed ones. Carl, why did Morgan Stanley switch me from mutual funds to individual stocks? They said they mirror my previous investments. You must have something called a separately managed account where they’re picking a whole bunch of individual stocks rather than mutual funds. I have no data to indicate that one is better than the other. They will say, I mean, I’m not saying this is not true. That they will be able to manage for taxes by selling some of your losers to help you on the tax side. Is that true? The answer is yes. Will you over the next five years do better in mutual funds or individual stocks or just simply too many variables for me to know? But if they did that and you’re asking me because you don’t know, that’s bad. You need to have a relationship with your advisor so you can ask that kind of question and she or he will answer it playing everyday English. Just like we do here on Money Talk. Thanks for listening this afternoon. I wanna thank Alyssa for doing your usual terrific job and to remind you next week at five o’clock, tune in to Money Talk

KUT Announcer: Laurie Gallardo [00:57:40] You’ve been listening to Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. And this is KUT and KUT HD1 Austin.

This transcript was transcribed by AI, and lightly edited by a human. Accuracy may vary. This text may be revised in the future.