Money Talk with Carl Stuart

Carl Stuart takes called and text questions on investment strategies for different life stages, tax-advantaged retirement accounts, and bond markets and interest rates.

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 [00:00:02] 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 90.5 and KUT App. Welcome to money talk as we come close to finishing our 32nd year on Money Talk. This 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. Earlier in the broadcast, give me a chance to do my best to answer your questions. I take today’s calls first and then today’s texts and then any previous texts that I haven’t had the opportunity to answer. We have all of our lines available. You’ll hopefully hear the text coming in at 512-921-5888. I got a question last week about the Trump account which is set up for people born during a certain period of time, the government will put in $1,000, but anybody with a child 18 or younger, based upon my reading, can open a Trump account. And it’s my understanding that up to $5,000 per year can be added to it. It is, you don’t get to choose how it’s invested. And anybody can put money in for the child. Uh, and then there’s a list of, uh, circumstances, things for which the money can be spent, um, and, uh the question was if I want to put money in, how do I do that? So I did a little homework and I think the best place to go to really answer that is to go the Trump accounts as plural, trumpaccounts.gov, G-O-V, because they have a frequently asked questions section there. And I think it answers all the questions that you might have. So that’s Trump. Accounts.gov. You’re listening to Money Talk on KUT News 90.5 and the KUT app and sometimes I forget to say this but you can listen to past shows at kut.org money talk just go to the website and you will see the various podcasts of all the different broadcasts on Kut or you can to wherever you get your podcasts. 5-2-1, I beg your pardon, 5-1-2. 921-5888. So If you follow the financial news, well, maybe you ought to find something else to do. But if you follow all the financial news, you see that there’s been some downward pressure on bond prices and rising interest rates, obviously, if you’re in the market to purchase a home and mortgages are seven and a half percent. Well, now that’s a different situation than clearly you’re aware of interest rates. But why is this a big deal? Well, there’s several reasons beside the obvious one that for consumers Credit card costs will go up, what it costs to finance an automobile will go up and of course if you’re borrowing money to buy a house or a piece of real estate that’s going to go up. The other factor that’s going on that is somewhat unique this time, in fact I wouldn’t even say it’s somewhat unique, I’d say it was quite unique, is that there’s a massive amount of debt being issued, money borrowed to fund artificial intelligence. In fact, I was reading today in the Wall Street Journal that even Metta, the people who own Facebook, etc., are in the negative cash flow. That’s a hugely profitable business, and yet they’re borrowing more money than they’re taking in, and they have negative cashflow. Why are they doing that? Because they’re in the race along with OpenAI, AnthropicX, and presumably others. To get into the winner’s position with artificial intelligence. I see we have a call coming in, so I will stop bloviating and give you that number one more time. 512-921-5888. Here we go. Bob, you are on the air, how may I help?

Bob [00:04:42] Hi Carl, I have an inflation adjusted bond fund that’s not giving as much income this year. I was doing a little bit of reading about it but really didn’t understand what’s going on, why this year the income is going to be down on that.

Carl Stuart [00:04:58] There’s this, my understanding, if it’s a bond fund, then let me ask you this question. Is it actively managed or is it passively managed from follows an index? Do you know Bob?

Bob [00:05:13] I don’t think that it follows an index, but it is inflation adjusted.

Carl Stuart [00:05:18] Yeah, so what’s possible is because there are lots of treasury inflation protective securities out there, it’s plausible that the managers have moved out of some bonds into other bonds and the bonds in the portfolio. What you get from the bond fund, if it’s a traditional mutual fund, is you get the income from the bonds in the Portfolio and they can distribute that typically on a monthly basis. So they don’t own a fixed number of bonds. They trade those bonds based on where they think the best value is in the bond market. Well, that means that the dividend can change. It’s not just set and stays there because the bonds can change in the portfolio. And even though the CPI is 3.7, and there’s an inflation type bond that you can buy up to $30,000 a year. And they reset the interest rate periodically. But if it’s an actively managed fund, my best guess is they’re making changes in what they own in the portfolio, and that’s why the distributions are not what you would anticipate. Be my best guest, Bob.

Bob [00:06:32] Okay, and I’ve had it many years, and right now I’ve got a capital loss in it. I was thinking about going ahead and selling it to offset some capital gains, and then moving that money just to a regular tax-free intermediate bond fund.

Carl Stuart [00:06:48] Yeah, I think that’s a terrific idea without knowing all your personal circumstances and your taxable income. But one of the nice things about investing in bond funds is if you reinvest the dividends, you can frequently actually have a bond fund with a market value more than you paid for it, but you actually have the loss for tax purposes because your cost basis has been going up every time you reinvest the dividends. And it’s frequently my experience that you get towards this time of the year. You can sell that fund, create some taxable losses per your suggestion, use those to offset capital gains and other parts of your portfolio, and you can carry that forward, and then you can also take $3,000 off your taxable income. Going into an intermediate-term taxes and bond fund, provided your taxible income is high enough, is probably a good idea. I like staggering the maturities personally. I like the idea, and I do this with taxable bonds as well. I’m using Morningstar categories. I like the ultra-short or short municipal bond fund, the intermediate or core bond fund and then the multi-sector bond fund. I like that for tax exempt as well as taxable. You know, I noticed, for example, I just looked through yesterday and the benefit of that is showing up this year. Now I’m use taxable bond funds. I didn’t check the tax exempts. But as you would imagine, with the bond market down slightly, that the core bond fund, which follows the Brunberg Ags down about 1.27 percent, but the ultra shorts up 3.25 just benefited from rising short rates. So I would do the same thing in tax exempt. I’d buy a short core, which would be intermediate, and then I’d by a multi-sector if it were my money.

Bob [00:08:41] Great. Thank you for your help. I sure appreciate it.

Carl Stuart [00:08:43] You bet, thanks for calling. 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. Sarah, you’re on the air, how may I help?

Sarah [00:09:04] Hi, Carl. I have a little bit of a more generalized advice question for you. I am 26. I’m in my last semester of graduate school, and I’m very fortunate in that I have found myself in a salaried position making $100,000 a year. Thank you. I rent. I would like to own a home one day. I m in Austin, Texas. But quite frankly, I just I don’t know what to do to set myself up for success. I will have some extra income now that won’t go to rent and student loans, which is my only debt. And I just, what do I do?

Carl Stuart [00:09:42] Sure, so I think that the benefit of compounding is the earlier you start investing The bigger the amounts going to be when you’re older and the more financial independence and freedom you’re going to have So if I were in your shoes, I would get into a regular investment program There’s a fancy term called dollar cost averaging where you pick and I’ll get into how to implement this you you invest the same amount that you can afford with your cash flow every month, pick a date, and set it up on an automatic investment out of your checking account. You retain control, it turns out you’re more cash flow positive, you can increase it if you’re less cash flow-positive, you could decrease it, and you invest because what’s going to happen over your lifetime based on my life experience and history is that Sometimes You’re going to have good returns and sometimes you’re going to have poor returns, but that amount of money when prices are lower because the stock market’s going down, you’re going to buy more shares. And so I would start with a two, one or two passively managed index exchange traded funds. Now that’s a lot of jargon, but you can get these from all of the big providers like Schwab and Fidelity and Vanguard and I’m sure there are others. I like the domestic total stock market because it owns all the stocks in the US equity market so you’re not stock picking. And then the same kind of fund, but outside the United States, total international. There’s no guarantee or rule about the mix of those. My favorite’s probably 75%, the total stock markets 25% international. I might, just because international. Has done well very recently, but over the last few years underperformed. You could even, instead of doing 75.25, do 70.30, set that up with an automatic coming out of your checking account and do that. You can buy these, they’re extremely inexpensive, and they do not throw off taxable capital gains. And you do that, start now, and as you move on your professional path, Sarah, and start to make more money, you increase those contributions. And when you run the numbers Let’s say you make 6 or 7 percent, that doubles in 10 to 12 years and you’re putting money in over the next 40 to 50 years. If everybody in the United States started when they were 26 doing this, we wouldn’t have to worry about the future of Social Security because people would be financially independent and that’s my advice to you Sarah.

Sarah [00:12:27] Thank you sir, I really appreciate your help so much and I wanted to say my dad’s name is Carl too, so shout out Carl.

Carl Stuart [00:12:36] Thanks for calling. Bye bye. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. You’ve been hearing these texts coming in. Let’s just catch one here. Carl, what’s a good way to optimize return on a recent house sale? We will not buy another home for nine months. It’s a CTCD better than a money market. I would say that one is not a lot better than the other. I think they have different characteristics. For example, the CD has a fixed maturity and a fixed rate of return and is subject to the FDIC insurance. A money market fund does not have a fixed majority and does not a fixed rates and is not subject to FDIS insurance. What I like about money market funds is the daily liquidity because You might find, I don’t know your situation, but you might buy in eight and a half months or you might in ten months or you may buy in a year. And the benefit of the money market fund is you don’t have to think, do I have to break the CD? You just, you’re going to get daily liquidity. When you want the money, you place the sale and the next business day the money is available. There are three kinds of money market funds. Their tagline is Prime, Government, or prime government or treasury. I like the government one that owns US treasuries and US agencies like Fannie Mae and Freddie Mac. And again, all the big securities firms offer these. And I lean toward that versus the CD, although there’s nothing wrong with the CD but I like the flexibility of the money market fund. Thanks for your question. You’re listening Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888 CC, you’re on the air, how may I help?

Cee Cee [00:14:44] Hi carl and thank you for taking my call you bet um quick background i’m near retirement age but not quite there yet i never had the chance to do a roth because of our income yes so with this and the long-term you know investment thesis is four percent so with the advent of the tenure t bond i don’t know what the bond or bill or no i don’t know the difference is at over five percent. I had this idea to buy ten years in my IRA and convert them to the Roth because I think I pay tax on the current price and then when it matures all that will be tax free.

Carl Stuart [00:15:28] So, when you take money from a pre-tax IRA, you’ve got a deduction for putting money in, you’ve paid no taxes on the growth, if that’s the case, then whatever you convert, that amount is added to your income, taxable income, that year. Correct. Now, the question I have before I go further is, because you do make a sizable income Do you know? If the money you contributed to your IRA was tax deductible or was it after tax.

Cee Cee [00:16:01] It was pre-tax but we’re going to be in the same marginal tax rate in retirement as we are now

Carl Stuart [00:16:06] Good great So, it really doesn’t matter what security you purchase. I mean, you can buy the 10-year treasury, it’s called a note, and then convert and move it over there, and it’ll mature. The note is priced at par $1,000. You’ll buy it whatever the market rate is, and you’ll get the rate of return on that, the yield to maturity. You can do that Or you can just simply convert cash from your IRA to your Roth IRA and buy the Treasury note over in the Roth IRA.

Cee Cee [00:16:48] Yeah, yeah, yeah.

Carl Stuart [00:16:50] That seems to make sense. Yeah, that makes sense to me. That’s what I would do, C.C.

Cee Cee [00:16:56] Excellent. Well, thank you so much. That’s very helpful.

Carl Stuart [00:16:59] You’re very 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. Here’s a text. Hi Carl. Thank you so much for your show. You’re welcome. My question is about Teacher’s Retirement System account, TRS, that I have. I want to retire in the next year or two. Should I roll it over or keep it as, and the annuity would pay out $250 monthly. So, and a follow-up question is, should I roll over all of my retirement accounts, which are 403B accounts into one? Thanks for your advice. So, um, the benefit of keeping the TRS annuity is it’s guaranteed income. Uh, it’s, it is subject to some inflation adjustment, but you can’t that, but you know that no matter how long you live, you’re gonna get that income and it’s not your responsibility to make the investment decisions. $250 a month, if I do the math, is $3,000 a year. That’s not a whole lot. I’m not sure that that is necessarily particularly attractive because what you could do is you could, as you say, put that into an IRA rollover and should you rollovery your retirement accounts, which are 403B. Great question. So let’s argue this both ways. The benefit of staying there, if your employer will allow you to do that, is the costs are low because they’re spread across in the case of TRS, in the cases of hundreds of thousands of people would be my guess. And so the costs of the investments are quite minimal. On the other hand, you’ve got to use the fund choices that are offered. And if you like that… And you’re comfortable with your own decision making process, you can say, you know, some entity has spent a lot of time and some money hiring outside people to make these investment choices, I’m just going to leave it there. On the other hand, if you did it into an IRA rollover, you now retain on your own or if you choose, have an advisor with an advisor to do it the way you want to. Because it’s a smaller amount than all of the money in the 403Bs. It will be more expensive. That’s not bad. You have to weigh the benefits of having a sense of personal control and having it designed for yourself, or doing it the other way. They’re both okay as far as I’m concerned. As far as keeping the TRS inuity, I would just close by saying what I said. It’s not all that much. For life, maybe it would be simpler to put the whole thing in an IRA rollover. If you’re gonna stay with the 403B, and keep it TRS as well. Thanks for the text. Time to call and also time for me to take a break. 512-921-5888. I’ll be back.

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KUT Announcer: Laurie Gallardo [00:20:56] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:21:10] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. And you can listen to previous broadcasts by going to Kut.org slash Money Talk or wherever you get your podcasts. The number to call or text is 512-921-5888 and we currently have all of our lines available. Here’s the text. Carl, my wife once… To move from Texas to Connecticut as we retire. My understanding is Connecticut has a 5% income tax. How can we adjust our funds to account for this sort of circumstance? What are our options? So I’m going to take you at your word. I don’t know what the tax rate there is, but how can you adjust your funds when you retired. Really depends on your asset allocation. In other words, if you’re moving to Connecticut and you’re selling, I’m just going to make this up obviously, you’re selling a personal residence in Texas and you are buying a personal residency in Connecticut and you paying cash for it or you’re move into some kind of retirement community where you’re not taking on any debt, then that reduces your monthly expenses. And allows you to be more conservative in your asset allocation. The other thing is, it depends on longevity. We all know the concept of life expectancy, but the fact is that listeners to Money Talk, in my opinion, and I’ve observed this, tend to live longer than the life expectancy. They tend to have higher education, take good care of themselves, have access to quality healthcare. And so you have to plan on living into your nineties. So what you want to think about is there’s three things you’d like to know. What’s going to be the return of my investments? How long am I going to live? And what’s going happen to the cost of living? Of course, I say it this way because we both know that none of us knows the answers to those. So we have to plan on rising cost of Moderate return on our investments. And a long life because, you know, the fact is you do not want to be 88 years old and know that you’ve got a year’s worth of expenses left. So you want to, to the extent that you want outpace inflation, you’ve gotta have money in the equity market, the stock market, and because you’re gonna have this income tax as well, and there’s no reason to think that the income tax is gonna go down, You’re going to want to have a balanced portfolio. I prefer mutual funds and things called exchange-traded funds in the equity market and then also some in the bond market. One way to test your ability to withstand a decline both financially and psychologically is to take the amount of your savings and say, okay, how much do I have to put aside to sleep nights? Because the more I put aside, what I know is… That if I put it in a certificate of deposit or I put in a money market fund it’s going to be safe. Well, yes and no. It’s going be safe from going down in value. It’s not going to safe from inflation and the rising cost of living. So you put a minimal amount in there that you have to have to sleep nights and or if you know that you’re soon going to making a large purchase. And then when you look at the balance of it, you say, okay, and again, I just hypothesis. The classic is 60% stock, 40% bond. So if you had that, and the stock market went down 20%, and the bond market just stayed flat, then that’d be a 12% decline in the portfolio. And you think about that, and think about not only in percentages, but in dollars, to think through how that’s gonna look and how that gonna feel. The risk that I see people who retire. Is that they get too conservative too soon. If you have millions of dollars you can do that, but if you don’t have millions, then you need to be sure that that money grows faster than the rate of inflation and it’s not designed to do that in the bond market or in CDs. Good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-58 8 8 here it’s a text She saw I’ve noticed it’s interesting isn’t it? I’ve Noticed over time that as soon as you come on the air there’s static when you start speaking includes right now I’m not am I too close to the mic no the static is not there when your collars are speaking We don’t know why a listen I talked about this before the broadcast. We don’t understand what it is And what we’re going to do is get a hold of an engineer this week and see if he can figure it out. So I apologize. I can’t hear it, obviously, but there’s nothing that I can do about it. Thanks for your text. Caller text 512-921-5888. Hi Carl, I have about $80,000 in a Roth IRA. I am no longer eligible to contribute to a Roth IRA. What this means is this person’s taxable income is above a level. Where he or she can no longer put money into a Roth. I’m wondering if I should do a backdoor conversion. My financial advisors don’t seem excited about that option. I don’t know why, question mark. So what we mean by backdoor conversion is if you have money in a tax-deferred account, probably an IRA, okay, where you put money in, You’ve got a tax deduction for putting it in, and then it grew and you didn’t pay taxes on it. You can take that out and do a conversion. If you do a backdoor one, you put new money in, and then because there’s no limit to income as to put the money in an IRA, it’s not tax deductible because you’re in a high income bracket, and then you have a Roth IRA, and you take the money out of the IRA, may or may not have earned anything and you put it in or convert it to a Roth IRA. Now there’s something that you have to be careful about and that is when you do when you convert money from an IRA to a roth IRA if any portion of that is pre-tax let’s say you started early in your life and you made you had a lower income some of your IRA contributions were tax deductible and then as you money grew, your income grew, some of the contributions were after-tax. When you convert, some of that’s going to be taxable income and if you’re under 59 and a half, that’s gonna be taxible income plus a penalty. So if it’s all, if your IRA is all after- tax contributions, my understanding, I’m not a CPA, then you can convert it. By opening that IRA, putting in an after-tax contribution, and then right away putting it into a Roth IRA. Yes, that’s a reasonable thing to do. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here comes some call, text I mean. Here we go. Carl. Thank you. Good night. Long time listener, first time messenger. Love your show, thanks. My question is regarding retirement strategies. I know that it’s always best to invest more, but if I only invested 5% of my $100,000 salary with a 3% match in a standard job offered 401k since I was 25 throughout my working years, would that let me be financially independent at the typical retirement age? So… What you think about it is if you put the money in and you choose some conservative retirement asset allocation, and I would say you six or seven percent have it grow, and you start in when you’re 25, then the question becomes if you could put in using your hypothesis eight thousand dollars a year, would you have enough money? I can’t do the math in my head, but that’s the process. Take. $8,000 the first year and then $8000 the second etc etc compounded over time and then see what that number is uh let’s say when you’re 65 okay see you look at that number and you say okay in today’s dollars if i take four percent a year out of that would that be enough to live on now the answer may be yes but we haven’t taken into account the rising cost of living So you also have to consider the fact that Yes, and maybe it’s worth, let’s just make a number up, $500,000 and 4% of that is what, $20,000 a year. But that’s in today’s dollars, but it’s going to be worth less because of the decline in purchasing power. So I’m throwing a lot of stuff at you, but you asked a complicated question. If you put in $8,000 a year and compound it, let’s just say 7%, okay? What would that look like in the future? Okay, thanks. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Let’s see what this says. Hi Carl, I’ve started to put the maximum allowed per year. Pre-tax and 401 and 457 plans since April this year. I don’t understand these plans yet, but I see the return is a negative 3%. Both plans are managed through my employer. Are these a good option to continue with for a 55 year old with no other savings? And what is a Roth IRA, for example? Appreciate your advice on what to do. Well, first of all, you’ve been in a really, really short time. And of course, I don’t know what investments you are in, but if it’s in a pre-tax 401, you have investment options. And so you need to look at those investment options and see what they are. But I, generally speaking, properly invested in a 401k or a 457 with investment options that would heavily weight towards stocks. And you do that over that time. That is a good option for a 55-year-old now. The good thing about financial assets is you can ask this question because you know that since April it’s gone down. The bad news is you could look at it and you know it’s going down. And the key to this whole thing is not to take that day-to-day kind of perspective and that week-to week. What you’re investing in is human intuition. That’s not right, human innovation. There’ll be periods of time that are down and there’ll be periods of times that are up. Fortunately, the majority of the times are up and at 55, you have a long life expectancy. And so what that means is you need to lean on the stock accelerator, not put it in cash, not put a bunch of money in bonds. If you’re offered target date funds or life cycle funds, you can look at those. Those are very common in plans. Where you can pick a retirement year, and then you put the money in every pay period, and Vanguard or American Funds or JP Morgan or Charles Schwab or whoever the plan has will adjust the mix of domestic and foreign stocks and bonds, and they will make it more conservative as you approach that year. One thing you need to consider, If you were 55 years old is if you don’t have a lot of money, you don’t have a lotta time to save before you retire, then you probably need to pick a retirement date that’s not your anticipated retirement date, but one that’s a lot further in the future to kind of game that system to have more money in the stock market. A Roth IRA, you can put your own money in. It’s not an employer-sponsored plan. That IRA stands for individual retirement account. But what you have to do is you have to check and see what your income is because there’s a taxable income test for Roth IRAs and if you make too much money you won’t be able to do much. If you don’t and you have the cash flow to do it, it is a terrific idea because the 457 and the 401K plan, which are excellent, someday that money’s got to come out and you’re going to pay tax on it. And the Roth IRA, you’re not subject to having to take it out. And you don’t have to pay tax on it. So having that leg to your financial stool is a great idea. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. We have all of our lines available. Let’s just take this text. Hi Carl, I just had a baby. Congratulations. And want to save enough money in a 529 plan. To fully pay for in-state college tuition when they are 18? Maybe you had more than one baby. Roughly, how much should I be saving and investing in a 529 plan? Okay, I can’t do the math in my head, but there are plenty of programs online. You can even go to a 5 29 provider. You can go to one of the big mutual fund companies and just put in this hypothesis about How much do I have to put in? In fact, I’ve seen these where you can put in a public university, you can put in University of Texas, you put in Texas State, you could put in Texas A&M uh… And and then they will take the current total published cost and then you give a compounding interest or growth rate in those costs and don’t be, you know, be fair about it. Put five percent Some years is higher and then put in what you think your investment return could be and use 7% and then say how old the child is and then I’ve seen this where it works and it tells you how much money you need to put in to accomplish your objective. So there’s a lot of moving parts there and you can go to a variety of places so you don’t have to count on just one and that’s what I would do if I were in your situation. Well we don’t have any lines available. We have all our lines available and no incoming texts, so I’m just going to take a break. Call or text 512-921-5888. I’ll be back.

Jimmy Maas [00:37:11] 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 nonprofit 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 [00:37:41] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:37:55] Welcome back to Money Talk, I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. When you have a question, call or text 512-921-5888. I’ve got to tell you after that last spot, I actually knew someone who was in the early days of television here in central Texas and actually. Uh… Was a famous humorist some of you will know who i’m talking about and we became friends and he talked about the early days of television and there just wasn’t any programming for children uh… And so what most stations did was that they would take a uh… A person like this person create a character like uncle j and then there were also that there were no you know the cartoons were from the 1940s and 50s. Uh, and sometimes they would play, uh, old, what they used to call serials where you’d have, uh Flash Gordon or hop along Cassidy or Roy Rogers. And this person worked at the radio station and the TV station came in and he was working there and he went to uncle Jay, who’s that wasn’t his name. And said, you’re going to be the host for the kids. And this man said, I hate children. I don’t want to do it. And they made him do it anyway. I love that story. You’re listening to Money Talk on KUT News 90.5 in the KUT app. Call or text 512-921-5888. And here’s a call. Hunter, you are on the air. How may I help?

Hunter [00:39:38] Hi, got a couple questions for you. I was recently laid off and I had to transfer my 401k over to another account. I’m looking for advice on what I should do there, whether to keep it in traditional or anything like that, in IRA of course. And the second question is, do you have any criticisms, positive or negative, for the Bogle head investors?

Carl Stuart [00:39:59] Sure. So, um, since you took the, the, where’s the money now? Is it your former employer or was it in an IRA hunter?

Hunter [00:40:07] Uh… It’s transferring over so it’s in the process i haven’t selected the target uh… Funds for it yet

Carl Stuart [00:40:13] But you’ve got it. You’ve selected a custodian and you’ve opened an IRA. Is that correct? Correct. Okay. Good. We’ve done the right thing there. Now, what you are referring to for the rest of our listeners is that many, many, years ago at Wellington Asset Management, which still exists, a fine asset management company, they had an analyst there named Jack Bogle and he went to management and he said, I think there’s a concept that we could have, we could set up. Something called an index fund and we would have a mutual fund that would simply follow simply follow an index like the standard of poor 500 And they said now bad idea never work. So he went off and created Vanguard he kept the relationship with with Wellington because if you follow Vanguard, you know They have the Vanguard Wellington fund for example, and I’m pretty sure the Vanguard balance fund may be managed by them And so he believed that the majority of active managers picking stocks could not do as well as the index and he started that business. And it’s been backed up by academic studies. And so Bogleheads are people who follow the advice of Jack Bogle. Clearly, there’s absolutely nothing wrong with that. It has stood the test of time. And if you are particularly, what I would call, passive. You’re not interested in asset allocation and you’re not interested in following the investments than using a passive index fund. And of course now, and I know you probably know this, these index funds are available in exchange traded funds. It’s less of a big deal than an IRA. While they’re very tax efficient, it doesn’t matter because you’re an IRA, but they may be slightly cheaper and that gives you a little bit better turn as well over time. And then you have to decide what I’ve mentioned before, what’s the right asset allocation. How old the person are you, Hunter?

Hunter [00:42:25] Uh, mid-thirties.

Carl Stuart [00:42:26] Yeah You want to be heavily in equities. I mean, when I was in mid-30s, I didn’t have any bonds. So I think you want to heavily in equalities. And the question becomes how much domestic and how much foreign? And do you want get granular by, instead of just buying the total stock market, do you wanna buy the NASDAQ? Do you wanna by the S&P 500? Or do you break it down? Do you want buy a growth index? Or do want to buy a value index? Small, mid, large, the challenge with doing that kind of more active selection is that you diminish some of the reason to be buying an index because now you’re more concentrated. So frankly, I’m not a big fan of that. And I would say to you that an all equity allocation for someone who’s 35 is a perfectly reasonable thing to do. I’ve told listeners for quite some time. I like a 7525 domestic foreign. But I’m, I’m beginning to wonder since domestic has outperformed form with the exception of last year for quite a long time, I might lean as I were 35 towards maybe a more 70, 30 domestic foreign. That’s, that’s how I see it, Hunter. Great advice. Thank you. Okay. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-922-512-5113. Hi Carl, I’m 50 years old and my 20 year term life insurance is about to expire. I could retire now and my family would be fine, so I think this technically meets the threshold for self insurance. However, I am still pretty young and it makes me nervous not to have a little nest egg if something were to happen. Would it be worth getting another, say, five or ten year term policy? Just to make myself feel better. I think you have just nailed the only reason to do it. There are three reasons to buy life insurance in my view. Estate preservation, business continuation, and income protection. Estate preservation doesn’t affect many people because you are walking around with a $15 million lifetime exemption, and if you’re married, a $30 million lifetime exception, which means your assets have to exceed that before you need life insurance to help pay the estate tax. Secondly, if you’re retired, You’re not owning a business. If you and I own a business and it’s our largest asset and we own it 50-50, we get it appraised and you buy life insurance on my life and I buy life on your life, I pass away, the insurance shows up and you pay up my beneficiaries, you pay my heirs because you’re the beneficiary of the life insurance policy and now you own the business free and clear. That’s a permanent need so you need permanent and not term insurance. But when you were financially independent and you know that if you were to predecease your spouse, he or she would be fine financially, then there’s no reason to do it. There just isn’t any reason to it. So the fact that you recognize that it’s basically to make yourself feel better, that’s if you want to pay that premium to feel better be my guest, but I don’t recommend it. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text. 512-921-5888. Hi Carl, what are your thoughts on life insurance as a vehicle for wealth? I’m hearing buying life insurance is better than stocks, annuities to grow and compound wealth. I completely, totally disagree. You are not hearing what matches my life experience. If you’re going to buy life insurance that has an investment component, that has to be whole life. Because if you’re buying term insurance… What you’re saying is, should I die during this term, this cash will show up. But at the end of the term, it goes away. Permanent life insurance, you pay premiums over a long period of time. A portion of your premiums go to pay the life insurance agent. Another portion of the money goes to pay for the investments. And another portion goes to pay the life-insurance company, because they’re in the business to make a profit, as they well should be. If you made the same investment not in life insurance, but in tax-efficient exchange-traded funds. You’d have to have a better return because you don’t have those three costs associated with it. So no, as a vehicle for wealth, it is not a good idea based on my experience. Thanks for your text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here’s a call. Elizabeth you’re on the air, how may I help?

Elizabeth [00:47:37] Hello, Carl. I enjoy your show very, very much. Thank you for listening for years.

Carl Stuart [00:47:42] Thank you.

Elizabeth [00:47:43] Because my husband and I are retired and we sold our business and so we have a huge amount of cash. It’s been wonderful. We know what to do with it. We do have some in money markets and we also have some invested in the stock market. But right now it’s in money market so we are trying to get the courage to move it into a VOO or one of the NASDAQ funds and S&P funds. But we also heard you a couple of weeks ago, you mentioned derivatives, that they’re What a bad word. And I’ve done a little bit of dabbling in long options where I’m buying a stock like Nvidia or Taiwan semiconductor way out with an option in 2027 and selling it more quickly. It’s kind of like playing with the stock market. I don’t know if you would say that that has really no place in an investment strategy. It’s a different thing and consider retirement money separately or you you know that there is a mechanism that that works

Carl Stuart [00:48:45] Sure So what you were talking about for the rest of our listeners is that there is a very liquid global market in options and you can buy an option called a call option that gives you the right to purchase a stock at a future date at a specific time. That’s called a option which allows you at a future date to make someone buy a stock from you at a specific price. Put options are for when prices go down and call options are when prices up. And the risk is that the stock doesn’t go up and the option expires worthless. So you know going in that the downside risk is 100% loss. If you bought the stock itself, unless the company went broke, you don’t have a hundred percent loss. I consider buying options as speculation and not investment. And I would never do it for retirement. Having said that, if you think it would be fun, and I use that term fun on purpose, some people call it play money, I would separate it from my retirement savings. I would make sure that I could live with it going away before I did it than if you want to buy long-term options. I’m okay with that. What I was talking about, I believe, is that there are other categories of investments, other strategies available in daily liquid mutual funds that don’t mirror the movement of the stock market. And there are others that don’t mirror the movement the bond market. And I never make specific recommendations on Money Talk, but I do use the categories that Morningstar uses, and the ones that tend to. Not performed in the same way as the stock market, are what are called trend following, T-R-E-N-D, trend following. Another kind is called market neutral. Trend following, those strategies trade futures contracts, but they trade thousands of them in the foremost global asset classes, which are stocks and fixed income or bonds and interest rates that is. And commodities and currencies, okay, those four. They can benefit from price declines because they can be short the dollar or stocks or bonds. So in a year like this, if bonds go down and it’s a sustained trend, they can make money. And a market neutral strategy, which comes out of the hedge fund world, They will have own stocks and be short stocks And the reason it’s called market neutral is because the direction is not tied to the direction of the stock market. And when it works, it can go up rather nicely and serve as a hedge in the declining stock market and so can trend following. But just like the stock markets, it doesn’t work every year. I tend to think of these kind of like homeowner’s policy. I always say this to long-term listeners, many years ago we had hail damage and I ended up with a $300,000 replacement of my roof, and 90% of it was covered by homeowners insurance. I luckily haven’t had another claim, but I’m not going to stop paying the premiums because I don’t want that risk, right? And so that’s how I think about these other strategies. So they’re more conservative than what you’re considering. They don’t have the ability to go to zero. And so you might look at those using those Morningstar categories.

Elizabeth [00:52:46] Okay, friends following, that sounds great. Thank you very much, Carl.

Carl Stuart [00:52:51] You’re listening to Money Talk on KUT News 90.5 and the KUT App. Call or text 512-921-5888. Scott you are on the air, how may I help?

Scott [00:53:10] I have a question or looking at maybe for your comments on loaning against stocks to borrow money that I have in my investment portfolio, using this as collateral without actually selling shares, which then lets my investment keep growing and helps me avoiding capital gain taxes.

Carl Stuart [00:53:38] Yeah So what this is is margin. Your broker dealer holds your securities. They can and will loan up to 50% of the market value. And they love to do this because they have the collateral. There’s no term to it. You can leave that open as long as you want. You sign a margin account agreement. And this is a big source of profits for Wall Street firms. The rates are extremely high and so I would not do this if I were you because I think the rates are too high and you can check with wherever your stocks are held. I will say they tend to have a graduated rate the more you borrow the lower the rate but it’s still going to be high and that’s a that it will be a big drag on your all performance. So I personally wouldn’t do it. The other risk and it really is a lower risk, is if you have a sharp decline in the value of the collateral. It can trigger what’s called a margin call and you will have to either put up more money or you will to sell shares to reduce the debt. But based on my 48 years of doing this, I think margin trading by and large is a more speculative activity. If you thought that the money you were borrowing would get you a higher rate of return than what you’re paying. That might be plausible, but by and large, in today’s environment, I suspect the rates are quite high, so it’s not an idea that appeals to me, Scott.

Scott [00:55:21] Okay, well I appreciate you kind of clarifying that.

Carl Stuart [00:55:26] You’re listening to Money Talk on KUT News 90.5 and the KUT app. Howdy, just wanted to share some recent awesome news, exclamation point. I just passed eight years of working for Travis County and because of this, my pension is vested. Congratulations. Ha, ha, ha. Hi Carl, I’m 45 years old and have just started saving for retirement. I have two teenage daughters. Good luck. What is your suggestion for savings versus retirement? I have a health savings account and a Roth IRA through Acorns. Plus investment accounts from me and my daughters through Acorns. Do you recommend I stay with Acorns or maybe consolidate everything to Fidelity? Also, any other investment options I should look to. My name is Sean. Well, Sean, I’m not familiar with Acorn. Certainly, if you are a do-it-yourself person, then you will be able to have a broad and deep selection at Fidelity. I would say that’s true of Charles Schwab. I would also say that true of Vanguard. And the price, I suspect, just based on my experience, that the cost will be less, which means you get to keep more of the money. And I would say that investing in your, and you do your Roth IRA to the extent that you can. And then investing on your own is a great idea, because you’re creating non-tax long-term capital gains. All those companies have exchange traded funds. If you don’t need that money to help with your daughter’s costs, you get to keep it. If you need the money, you sell it at a favorable long-term capital gain rate. So I think consolidating at Fidelity or a company like that, as long as you’re prepared to make the investment decisions, then I think that’s a perfectly reasonable thing to do. Thanks for your call. Here’s someone who wants me to explain dollar cost averaging, but I’m looking at the time. I don’t think I’m going to be able to do that. So let me just say I want to thank Alyssa for her good work and she and I are going to do something we hope about the static. I thank you for your patience and to remind you that next Saturday at 5, be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:57:51] 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.