Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on bond fund strategy, treasury-inflation protected securities, and insights on the Austin real estate market.

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 Stuart. Carl Stuart is an investment advisor representative of Stuart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:00:20] Welcome to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and the KUT App. Money Talk is broadcast now in our 31st year 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 terrific idea to call or text. Earlier in the broadcast to give me ample time to do my best to answer your question. We do not have any texts from previous weeks. I think, but there’s a couple I think I can do a little more with, and what I’m referring to is my plan is if you call, I will take your call. If you text, then I will the text after the call and finally any previous text. So, let me give you that number again, 512-921-5888. If you’re a regular listener, you know that once a month I get updated details on what’s called the Austin Metro Area Market Snapshot. This is residential real estate in the Austin area, and I know a lot of listeners are interested in this. They’re homeowners or perhaps considering becoming homeowners. So this is through June of this year, June 30th, just a couple of weeks ago. The median sales price is $443,632. That’s down three tenths of 1% year over year. That just seems to me, without having going back and looking at previous reports, that’s the kind of slow drip decline that we’ve seen now for a while. The median sale price per square foot is $209 per square feet. That’s done a bit more, 2.7% year-over-year. The total number of homes sold was up nicely, 2,666 in the metro market, that’s an increase of 8.7%. The median days on the market continue to climb, 87 days when the median number on the market is up 7.4% from a year ago. The supply of inventories, 5.8 months of inventory, that is down about 9.4 percent year over year. And those homes sold above list price. About 9.1% sold above this price. That’s slightly up 3.4% from last year. And the new listings grew. This is a month over month statistic. The new listings in the Austin Metro Market were 3,817 and that’s up 3,1% since the last month. So there you have it. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Lawrence you’re on the air, how may I help?

Lawrence [00:03:24] Well thank you so much i’ve got two questions for you first call that number of years ago uh… Amy a in his full barbara was set up uh… And i have done much with it uh… It gave me about five to a month in dividends uh… Now i’m at a prostitute transferring in kind to my brook to count My crush on the Bonds. Is when is a good time to buy them or sell them? I I haven’t done anything with them Because you know gave me some interest free income, but what’s your advice on that?

Carl Stuart [00:04:03] Are they individual bonds or mutual funds, Lawrence?

Lawrence [00:04:07] These ones are individual bonds.

Carl Stuart [00:04:10] And are they, I’m interested in the typical size. Are they 5,000 bonds or 25,000 or 500,000? What’s the typical sides of the various bonds that you own?

Lawrence [00:04:23] Well, I will say, good question, Carl, there are twenty bond accounts and each of them

Carl Stuart [00:04:37] $20,000 face value of each individual bond, is that what you mean?

Lawrence [00:04:41] No, ten thousand dollars.

Carl Stuart [00:04:43] 10,000.

Lawrence [00:04:43] And i have twenty how about one of them

Carl Stuart [00:04:46] Okay, I would say unless you have a real need for the money It’s not a good thing to sell them and here’s the reason why the Municipal bond market when you start talking about Ten five or ten or fifty thousand dollar pieces is not a liquid market Because the big players buy them in million dollar pieces, maybe five hundred thousand dollar Pieces, it’s okay once you buy them, but you’re going to get a Disappointing price if you sell them and the reason for that is there just aren’t a lot of buyers out there who want to pick up bonds in that size. So I would say the best time to sell a municipal bond is never, unless there’s some other reason for you to raise the cash, municipal bonds have, and I know you know this because you own them, municipal bonds as a category of financial assets have a terrific track record of paying long time and paying their principal at maturity. They’re considered among the safest of financial asset. So if I had a bond portfolio… And I had 20 bonds and they’re more or less $10,000 of each of those, unless I had some reason that was more compelling than what I was getting at the time, I would just let them mature. I wouldn’t sell them because you’re going to get a disappointing price if you sell them based on my experience.

Lawrence [00:06:12] Okay, Carl, there are a lot of bonds, some of them have maturities, probably, you know, like years after I passed away, but that’s okay.

Carl Stuart [00:06:23] That is okay. If you want the income, you’re right. Please go ahead, excuse me.

Lawrence [00:06:28] Thanks carl check question is i have to well i i have inherited i a r a account i was set by our account yes the inherited i r a count is a non spousal account and and i’m not subject to the ten year withdrawal now both of those both of the good those accounts have done well but the challenges They are 100% equities. So i’m thinking i’m picking to kind of give me a head to get the market i may be adding some kind of bond fund to them uh… At first i thought and get on them on this report about perhaps perhaps any mutual bond site a he had an initial bond from to the book i think that might be a bad idea i’m trying to lead to a a tip e t f one but i want to ask you the pros and cons of that and what would you do Yeah

Carl Stuart [00:07:21] So, first of all, your thinking is accurate. Putting a tax-exempt bond inside of an IRA is not a good thing. You’re not getting the benefit of the tax-Exempt interest. And typically for most taxpayers, the income is better from the taxable bond, and you’re gonna pay income tax when you take that out anyway. So, I like your idea of not buying municipal bonds. Back when- Back when treasury inflation protected securities, or TIPS as we all call them, really kind of showed up many, many years ago, it seemed to me like a good idea. And the reason is because the biggest risk to a bond owner is rising costs of living, because you own a bond and you lock in the income, let’s say 4% for 20 years. But if we get into a period where inflation is greater than 4% It eats away at the value. And then when the bond finally matures, it says $1,000 or $10,000, but it doesn’t have the same purchasing power as it did when it was originally purchased. So inflation is the enemy of the bond holder. Having said that, what we find is that they’re not nearly as defensive against inflation as we might think they were. The most recent test of this was relatively recently in 2022. Inflation spiked a bit over 9% using the consumer price index, and the index that follows bonds, called the Bloomberg Aggregate Bond Index, declined between 13% and 14%, and while I haven’t got the TIPS index off the top of my head, it declined substantially as well. So I’ve lost some of my confidence in TIPS. If I could build a bond portfolio of taxable bonds, I would use the following three categories from Morningstar. I would have a short-term bond fund that invests in securities. These are all investment-grade. I’m not talking high-yield bond funds now. These are shorter-term bonds that constantly mature and then reinvest, the proceeds are reinvested. And then I’d have an intermediate-term fund. Morningstar category is called CORE, C-O-R-E. And then I would have a bond fund that would allow the managers to go anywhere in the bond market. And that’s not surprisingly called a multi-sector bond fund. And the reason I would divide my money this way is it helps protect you in various kinds of bond markets. So if interest rates rise, the short-term bond fund will go down less. And as the bonds mature, they’ll be buying the bonds at a higher yield. So for example, The index so far through yesterday, this is the Bloomberg Aggregate Bond Index, and you can’t own an index, so I use the Exchange Traded Fund, AGG. Its return on a price basis is flat, 0.16, but the short-term bond fund that I follow as an indication is up 2.47. That’s a whole lot more. On the other hand, because the market’s flat, the intermediate bond fund is flat 0.11. And then finally, the multi-sector bond fund, which is the go anywhere, do anything within reasons, it’s not gonna be speculative, it’s a bond fund is actually up 1.17. But here’s the other thing that you wanna not overlook. What is the yield? Well, a mutual fund trades every day. So what we use, Morningstar uses, it’s called the trailing 12 months yield. What they do is they take. They’ll let dividend payments for the last 12 months, and they divide that by the closing price the day that you’re looking at. So that short-term bond fund has a trailing 12-month yield of 4.29%, and I said it was up 2.47. So that’s closing in on 6.5% to 7% total return. And even though the intermediate bond fund’s flat, 0.11 positive, is paid 4.09% dividend in the last 12 months. And then multi-sector fund, which I said was up 1.17, has paid over the last twelve months, 5.66. So that’s closing in on 7%. So I would own three different bond funds in three different categories using the Morningstar categories. And I agree with you, since you’re 100% equities. Taking some of that equity money off the table, we’ve had three and a half excellent years in the U.S. Stock market and now also a year and a half of good returns in the foreign stock market. Taking some money off of the table Lawrence and putting it in these three types of bond funds I think is a wise thing to do.

Lawrence [00:12:16] My last question is, when you talk about short-term, medium-term bonds, are you talking more specifically about some kind of government bond as opposed to a corporate bond?

Carl Stuart [00:12:26] I’m talking about investment grade bonds, which include government bonds, but also higher grade corporate bonds, and a big segment of them are what are called agencies. These are government agencies, primarily Fannie Mae and Freddie Mac, so they’re mortgages. They carry very high ratings, and these bond fund managers, benefit I like of active management in bond funds is, so for example, the multi-sector bond fund, I happen to know, they think right now that. Mortgages are attractively priced when compared to other bonds, but they can move around so they would be a straight treasuries and would be mortgage-backed securities and high-grade corporate bonds loans

Lawrence [00:13:09] Thank you, thank you, and thank you so much.

Carl Stuart [00:13:11] Okay, you’re welcome. Thanks for calling. You haven’t heard the text coming in because there haven’t been any. You call or text now at 512-921-5888. And by the way, you can catch past shows at kut.org slash Money Talk. I hope you had a chance to listen last Saturday as I did. We did an evergreen show, the Kenny. Let’s see, Jimmy Moss and I did, and it was a lot of fun, so I hope you had a chance to listen to it. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. You know, we think about, we talk about the stock market as if it were one thing. How did the market do today? And I understand that, I do that. But the fact is that it’s made up of a lot of different kinds of companies. I also just heard a text come in, so let’s see if we can get a hold of that. Okay, Carl, if I have to take a required minimum distribution withdrawal this year in December, is there a better reason to take the total $20,000 and invest somewhere else rather than the yearly amounts? It’s in a 403B now, and I’m healthy at the age of 73. So I would say this to you. Take your required minimum distribution. You do not have to take it in December. You can take it any time that you want. That’s number one. Number two, if you’re retired, you are 73 and healthy. A 403B is the 401k equivalent for not-for-profit enterprises. If you are working, then you keep it at the 403b, and you may want to do so anyway because you have a menu of investment options. But if you’re retired, you can take that, if you choose, and roll it into an IRA. You still be subject to the required minimum distribution. I’m guessing because if you are getting an RMD, I’m pretty sure you’re not working because I have this vague recollection that if you were a full-time participant in a 401K or a 403B, even though you’re at retirement age, you don’t have to take it. So I’m gonna work on the assumption you’ve gotta take it out. Is it good to take it out and invest it? The answer is you bet. Absolutely. Now you’re gonna obviously pay tax on this and you can either pay the tax out of your pocket or you can instruct your custodian to withhold a certain amount and they will send it directly to the IRS. There’s a lot of people I know withhold 20% and send it off the IRS now the people who don’t do that say, well, why would I give the government my money? To have when I could use it myself. And I’ve got enough savings I can pay the income tax later. That’s entirely up to you. But there’s a good reason to take it and invest it elsewhere. And because you’re a healthy 73-year-old, I would say to you, you want to invest both for growth and for safety, because people who have 403B plans usually. Have also access to health care. You’re probably either on an employer-sponsored health care plan or you’re on Medicare You need to plan on living another 20 years and you don’t want to stay in CDs and cash Investments because you couldn’t run out of money. So I hope that’s helpful You’re listening to money talk on KUT news 90.5 and the KUT app call or text five one two nine two one five eight eight eight Hi Carl, I am 45 and have no life insurance except for a policy my employer provides which would pay out two times my annual pay to my beneficiary who is my husband and who is 47. My husband also has a similar employer provided policy but also has no separate policy aside from the employer provided one. People in my parents generation tell us not having life insurance is a bad idea. But we have chosen instead to invest the money we’d spend on life insurance and index-based mutual funds through Vanguard. Do you see any reason why we should change our strategy and purchase a life insurance policy? This is a terrific question, and it’s one that you would imagine I’ve gotten over the last 31 years. And I had a chance to work with and to understand life insurance with a really first class life insurance agent many, many years ago. And what he taught me has really stuck with me. There are three reasons to have life insurance. Income protection, business continuation, and estate preservation. The income protection, if you’re a young person, let’s just say, take my situation. When I was a young and my spouse stayed home with our three kids and I worked, if I had passed away, even though the odds were low, that that would have occurred when I was in my 30s. Nevertheless, it would have been a huge financial strain on our family, and we didn’t have money for the kids’ college. Today, the kids are grown-ups. I don’t have financial liabilities, and so the need to replace my income is zero. So I needed to have life insurance for that span of time, 10, 15, 20 years. Then I buy term insurance, which is what your employer’s sponsored plan is, and it’s cheap. If you want to buy it when you’re 70, it’s expensive. That’s not your situation. The second, which is seldom, but a lot of small business owners, let’s suppose you and I own five dry cleaning establishments and it’s our biggest asset and we own it 50-50. You buy life insurance on my life, so I’m the insurer, you’re the owner. I pass away, we’ve agreed upon the value of the business or we’ve had it appraised. The money shows up on an income tax-free basis and you pay my beneficiary, okay? That’s not your situation, then you don’t buy, it’s a permanent need, you buy permanent life insurance. The last one which affects very few people is if you have a very large estate, if you’re married, over $30 million this year, and you don’t wanna have a high estate tax liability, you can set up something called an irrevocable life insurance trust and buy life insurance inside there so the money shows up. It’s not part of your estate because it’s in this other instrument and it pays the estate tax. So I think you’re doing the right thing. Uh, and I know your parents’ generation said that, but I think it’s a very individual decision, so thanks for your texts. Time for me to take a break. A perfect time for you to call. We have all of our lines available. Call or text 512-921-5888. I’ll be back.

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KUT Announcer: Laurie Gallardo [00:20:42] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:20:56] Welcome back, I’m Carl Stuart and you’re listening to Money Talk on KUT News 90.5 and on the KUT app. When you have a financial or investment plan in question, give me a call or text at 512-921-5888. Here’s a text. Hello Carl, I am a week away from retiring, congratulations. I have been a very good saver and investor over my lifetime. Again, congratulations! I would appreciate your advice of how to transition from saving to spending. I have a sizable portfolio and I don’t anticipate running out of money in my lifetime. Congratulations. So here’s something that I learned the hard way. Well, I was taught that bonds were for income and stocks were for growth and you could live and spend the income from the interest on the bonds. And also if you wanted the income from the dividends on the stocks. I’ve changed my mind. I think that you’re much better off to take money from your investments in such a fashion that you retain your asset allocation. That’s a mouthful, and I understand that. But here’s the deal. Your mix of whatever the investments are, stocks, bonds, cash, other alternative investments and strategies. So you’ve been a good saver and investor. So I’m gonna make this simple. If you had 60% of your money in stocks and 40% of money in bonds, I’d reinvest the dividends. I’m using funds now, either exchange traded funds or mutual funds. I’d re-invest the dividends from the mutual funds, both bond funds and stock funds. If I got capital gains distributions, if they were actively managed funds, I’d reinvent those. And then I would take money out to support my life in a way that it sustains the asset allocation, it keeps it 60-40, why? Because that’s the single biggest determinant of risk and return. And you’ve been thinking this thing through for years and you have an asset allocation that fits you and there’s no reason for you to change it. And so it’s very common for me to see people, I’ll just give an example. Someone’s retired and they have an IRA rollover and it’s a million dollars and they want $30,000 a year out of it and they wanted in $2,500 per month increments. They set up their IRA with their custodian or their advisor, they set up a link to their bank account and every month they get $2 500 into their bank account. The advisor or themselves if they’re do-it-yourself investors. Ought to look at the mix and rebalance it. If we have a good market for stocks and your goal is 60% and it sneaks up towards 65, 66, 67, you’re gonna take more of your expendable income from that than you are from the bond side. On the other hand, during a bear market for stock where your 40% bond might be 44, 45, 46, not because you bought more bonds, but because your stock portfolio declined. Take more of the income needs from the bonds. So to recap, determine your asset allocation, keep that target and take income out in such a fashion to keep the target. Now, if this is in a taxable account, meaning in your own name, and you’ve been investing for a long time, there is a little bit of an extra tax benefit, which is as you take this out, because you’ve held these securities for longer than a year, you’re coming out at the long term capital gains rate. And only the gain is taxable. So, if you have a million dollar portfolio and you’ve doubled your money and half a million dollars is cost basis and you take something out that you have 50, that you take out $10,000, 5,000 attributable to your investment, you only pay long-term capital gains tax on the other 5,00 and the maximum you pay is 23.7%. So, there’s some tax benefits to doing that as well. Thanks for the text, that’s a good question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. We have all of our lines available. Call or text 512-921-5888. Here’s a text. Hello. My wife and I have two young children and are ready to make a will. We have simple assets, but to want to avoid probate and make it financially easy on our family and children if we pass away. How do we find a person or service that is both reputable and economical that can help guide us through this process? I really think that you don’t want to write the will yourself. I’m dubious about doing it online. The first place I would start, because you’re looking for professional guidance, the first place I’d start is your circle of friends, your social circle. Because the odds are they are people like you who are in similar circumstances and ask them how they did it. And don’t just ask one couple or one person, ask people in your similar situation. It’s worth it to have a good will. Now, you mentioned something about avoiding probate. I must tell you, I learned this many years ago, that Texas now has and has had for a long time one of the fastest and cheapest probate processes in the United States. I was told by an estate attorney that on the contrary in Florida where they have a lot of older people, it is long and arduous and takes time and so a lot of people try to take all of their assets and take them out of their own ownership. So that they legally have no assets when they pass away, and therefore they avoid the probate. That is unlikely for you in your situation. If you have retirement plans at work or your own IRA, you are married, your spouse is your beneficiary, but they pass outside probate, if you have a bank account or you have a securities account, if it’s a joint account with you and your spouse, first die the spouse. Retains it on the second to die. So the surviving spouse would put on the securities account Jane Doe Transfer on Death, TOD, and it passes outside of the probate process. And banks, I think, have a different phrase than transfer on death. Maybe I’ve heard it as POD, but I’m not sure what that stands for. You can really get into a situation where you have very little issue with time and expense. To do a probate. So I would seek my friends who I have confidence in what they did in my situation. I wouldn’t be afraid to pay a lawyer. You have a straightforward situation. You can shop for attorneys who do this, but it’s worth it because you don’t want to have a situation where you think you’re in a good situation and you’re not. Thanks. You’re listening to Money Talk on KUT News 90.5 and the KUTF. Call or text 512-921-5888. Hi Carl, if I’ve never invested in anything but my credit union CDs, where would be a safe place to invest for minimal growth with $18,000? Well first of all, I certainly hope they gave you lots of toasters and blankets because you’ve kept your money there and they’ve made a pile of money off of it. Okay So when you think about financial assets and you think about them from risk and return and always remember that it’s like gravity, it’s a law of nature, that there’s a relationship between risk and returned. So in CDs, the nice thing about CDs is they’re easy to understand. They’re simple. Do you know how long it’s going to be? You get the stated interest rate. If you don’t need the money, you roll it over to a new CD. I would say then you’ve got to look at what’s the next step out that I might get a better return and I’m taking just a little bit more risk. That would be to invest in a bond mutual fund or exchange traded fund. You want to avoid bonds that are called high yield or in the financial world junk, which is a pretty critical name. So you don’t want to go shopping for yield because there’s a relationship, like I just said, between risk and reward. And the higher the yield, the higher, the risk of the bond. Also, because you’ve been buying CDs, I’m presuming they’re fairly short-term in maturities. And so the first kind of baby step out is to buy a short- term investment grade bond fund, either a bond mutual fund or a bond exchange traded fund, as I was mentioning earlier in the broadcast. I follow three different kinds of bond funds. I’m using the Morningstar categories of short term, core and multi-sector. The short term this year has a return to 2.47% through yesterday and over the last 12 months has paid a dividend of 4.29%. So that’s almost six and three quarters percent. Will it go up and down? Unlike your CD, the answer is yes. It will go up down. Will it go up and down a lot? The answer is no. So if you want something as you say, minimal growth, then you will get some growth in that because you don’t need the money. You reinvest the dividend and it’ll be a little bit like watching grass grow slowly over time because you’re buying more shares every month. The Bond Mutual Fund pays a dividend every month, you buy more shares, doesn’t cost you anything and over time you’ve got more shares and then those shares are also paying out dividends, so you’re growing slowly this asset that you cannot grow with the CD. And finally, the benefit of the bond fund, unlike the CD, is it’s daily liquid. Now, I know you’re not likely to need this, but in the case of an emergency, you can sell the bond with a telephone call and have the proceeds the next day. And maybe you don’t need $18,000, but maybe you need $5,000. You can call and get that done. It’s painless. So. That would be my answer. Thanks for the, thanks for the text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Pretty quiet here on Money Talk today, but we’ve got texts. Call or text 512-921-5888. And I always want to remember to say this. You can catch past Money Talk shows at kut.org slash Money Talk. Hi, Carl. I am 64 years of age and retired. My $650,000 IRA is totally in a target date 2025 fund, which is earning 8% year to date. What are your thoughts on moving a portion of the assets to mutual funds or exchange traded funds or mixing this up with a second later date target fund? I am unmarried and have no debt. House is paid for. And I have $50,000 in high-yield savings accounts and CDs. I plan on holding off until age 70 until taking my Social Security. Well, congratulations, you’re in good shape because the best thing to do when you retire is to owe nobody nothing and you have accomplished that. So let me explain for everybody else what these target date funds are. Sometimes they’re called lifestyle funds or life path funds. Many years ago… These didn’t exist inside 401k plans and people were given a menu of mutual funds from which to choose and it was overwhelming. It’s still overwhelming and Some there were data that said a lot of people just sit in cash money market fund They don’t know what the heck to do and they just don’t want to think about it That’s a terrible thing because it won’t grow and then the second was they put all their money in company stock And we learned when Enron failed There were stories in the paper about people who had worked their 25-year career and had everything in Enron stock, which was a fantastic performing stock until it collapsed. And the Department of Labor said, look, we need to give people a better way to select an investment option. And they created these target date funds. And the big companies have these, the big mutual fund companies, Vanguard and Fidelity and Schwab and American funds and lots of others. And And you pick the date that you want to retire, even if it’s not the date you’re planning on retiring, they’re going to assume it is when you pick that date. And they’re gonna manage a mixture of stocks and bonds. And as you approach that date, they are going to get more conservative in their asset allocation. Now, there’s not a formula. They don’t all have to do the same thing. So, there are some who think of you retiring at 64. And having to plan for the next 25 or 30 years, and they’re still gonna have you more heavily in stocks. Others are gonna assume that you’re 64 years old and you wanna be super conservative, and they gonna have more in bonds. If it’s a kind of fund, what you wanna do to do some homework is you wanna look up what the asset allocation is of the particular 2025 target date fund you have. You can do a couple of things here. One of them you alluded to, which is you can play the game and get a 2040 fund, right, which is 15 years from now, so you have more access to the equity market, or you can select your own exchange-rated funds or stock funds, or you work with an advisor. You have enough money at 650, you can do it yourself, or you could do it with an adviser. If you’re in an IRA, so perhaps if you’re with Fidelity or Vanguard or Schwab or whoever you have a menu from which to choose. Just do not make the mistake, since you are debt free, and you’re not gonna have to worry about taking income, and you gonna get more in six years, do not get too conservative. I see this as one of the great challenges in the United States today, is that people say, gee, I’m 65, I need to have my money in CDs and bonds. That works if you have millions of dollars, but people are living longer, particularly people who are savers and investors. And if you get too Conservative, And $650,000 is a lot of money to the average person walking around the street, but it’s not a lot of money that will last the rest of your life because there’s three things you need to know, which is how long are you going to live, what is going to be the return on your IRA, and what’s gonna happen to the cost of living. And the answer is you don’t know any of those. So you have to err on the side of being conservative. When I say conservative, I don’t mean investing conservatively. I mean, and making some conservative assumptions about how long you’re gonna live. And so you wanna keep your, you wanna lean into risk. I don’t mean 100% in stocks, but you wanna have somewhere between 50 and 60%, probably, in the stock market because you’re only 64 years old. Thanks for the text. Well, you heard a text come in. We still have all of our lines available. It’s about my time to take a break. Good time for you to call or text 512-921. 5888. I’ll be back.

Jimmy Maas [00:37:25] 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 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 [00:38:00] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:38:14] Welcome back, I’m Carl Stuart and 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 and you can catch past shows, past Money Talk shows at KUT.org slash Money Talk. All right, let’s see here. Hello, Carl. I appreciate your advice today about buying low-risk bond funds. Are there bond mutual funds that are filtered for social and environmental responsibility? I’m especially interested in investing in bonds that support renewable energy and other climate solutions.” You know, I don’t know, and I’ve never encountered one. It doesn’t mean they don’t exist. Wall Street is very, very innovative, if nothing else. They may be out there. You’re probably just gonna have to go to your friends’ Google and chat GBT to ask them, because the other problem that I’ve seen in my career is the definition of environmental responsibility. Many, many years ago, before the ESG movement came around, there was something called SRI, Socially Responsible Investing. And Vanguard even had, and for all I know, They may have. An SRI index, but it got pretty controversial about who selects what’s in your case environmental social responsibility. And the bond funds are going to have to buy bonds from whatever the market offers. And right now, for example, a huge portion of the corporate bond issuance is in data centers which are pretty controversial. You can argue pro-recon about artificial intelligence, but they’re going to use a lot of energy and that’s probably not going to be something you’re going to want to be associated with. So I don’t know of a specific fund. You can do a search. I’m skeptical that you’re gonna find much simply because of the nature of the bond market. I am sorry it couldn’t be more helpful. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Gabe, you’re on the air, how may I help?

Gabe [00:40:48] Hi Carl, I’m a young investor. My parents invest a lot and I wanted to get into the market with all the new chain investing accounts? How much, what do you recommend investing in?

Carl Stuart [00:41:08] I think there’s two ways to look at this. There’s no question that over your lifetime in the future, based on history, the stock market has the superior returns and the reason is because of human beings and innovation. Probably before you were born in 2007, we didn’t have an iPhone. So investing in common stocks is investing in human innovation and growth in the future. So that’s where you want to get started. Now, the best way to do this, there’s two things you can do. You can pick your own stocks. The benefit of that is you have this sense of full control, agency. You’re picking what you want to own. The problem is that’s much, much riskier, Gabe, because you may pick a stock that you like. Let’s say it’s something that it’s a retail company that you like and I get a better idea. You pick Nike because you like Nike shoes. And it turns out that Nike’s business is under pressure and the stock doesn’t do anything for four years. And so unless you really want to own individual stocks which have higher risk, you would want to own a fund that owns a lot of companies. And today you want to own something called an Exchange Traded Fund. That’s an ETF. They’re very, very inexpensive. And you can buy one to cover the total U.S. Stock market. From the big companies like Fidelity and Schwab and Vanguard, and you can also buy one that owns all the companies outside the United States, and that’s a total international market. So if I were gonna get started, I would own a total U.S. Domestic stock fund, and I would put money in over time. You’re not gonna have all the money that you’re ever going to invest if you have the ability to invest a little bit at a time. Then the market goes down, you get to buy shares at a better price, and over time you’re buying more shares when the stock market declines, and you’re buy fewer shares when the stock market’s up, and that gives you a better cost and a greater profit. So I would start with an exchange-traded fund, total stock market, and then add to it later on to total international, and that’s how I would get started if I were in your shoes, Gabe.

Gabe [00:43:29] Thank you, Carl.

Carl Stuart [00:43:31] You’re welcome and congratulations on your desire to want to be an investor, that’s terrific. You’re listening to Money Talk on KUT News 90.5 and the KUT App. Call or text 512-921-5888. All right, we have some texts here. Oh, here’s a helpful one. POD means payable on debt. Thank you. I knew it was different at banks than it is for securities firms. Let’s see what this is. That’s not a text. Here we go. Carl, we are considering selling a property and buying a different property, but not sure where the new property might be. What is your opinion of 1031s? So this is technical stuff and it has to be investment property, okay? So you’re not talking about a personal residence. And I think if you are a person who owns her or his own income producing properties, you’re a hands-on kind of person. I have a good friend and she has several properties in another Texas city and she’s starting to sell them and she was looking at a way to reduce the tax liability and so she looked at 1031 exchanges. It doesn’t eliminate the tax, it simply postpones it for a long time. You put your property into a pool and then that pool owns real estate, and you kick the can down the road until you take it out of the pool. What was hard for her was the loss of control, the loss in knowing what she owned, and there were pretty significant fees in it. So I’m okay with 1031s, but if you don’t wanna go into a pool, then you’re gonna wanna work with somebody who specializes in these, where you’re picking the next individual property. They are legitimate, they’ve been around forever, they’re a tax favored way to defer capital gains on income-producing property, and so my opinion is a positive one. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Hello. I’m a new listener and I’m loving your show, thank you. Could you recommend a book or other source to educate a 25 year old regarding saving and investing? They are starting their first career job and do not have debt, thanks. Sadly, this is a really common question I’ve gotten over the last 31 years and I haven’t come up with a good answer. I don’t know how… How committed they are, I will tell you that I got into this world when I was 32 years old and I didn’t know a stock from a bond from a mutual fund. And the best education I’ve gotten is my annual subscription to the Wall Street Journal. And the reason is it has given me this deep understanding of the global economy. But it did it on a nice limited basis. I get the Wall Street Journal. Listeners who get the journal know what I’m about to say. The front page has some articles, and on the left hand column it has a list of stories. I read the left-hand column, and if the articles on the front page interest me, I read them. But like all good journalism, you read the first paragraph of an article, and it tells you exactly what the thrust of the article is and what the journalist is going to talk to you about. A lot of them you don’t care about. You don’t have to read them, if you just read the paragraph, you will find through kind of an intellectual osmosis, if you will, that you become more knowledgeable. You understand what’s happening in the airline industry. You understand with hydraulic fracking is. You understand that what the purpose of the Federal Reserve Bank is. You begin to understand the relationship between interest rates and bond values. I mean all kinds of stuff is going to make you a lifelong intelligent investor. And the book’s going to say, do this, do these three things, whatever. And I just push back against that. I think there is a better way to do it. Your 25-year-old person is wonderful. If I could tell my 25- year-old self to do it, I would have done it. I think that’s what I would do. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512- 921-5888. Laurie, you are on the air. How may I help?

Laurie [00:48:25] Kick-ass hi i mean it’s very i have a quick question for your car no but it was i’d i’d starting to and then on the fnb five hundred yet i have somebody who was telling me that it waiting so i would like to know the difference between the f n p five hundred and it’s really and which one if that’s the one

Carl Stuart [00:48:49] Yes, yes, yes. The S&P 500 is far and away the best thing. Trading means buying and selling securities and there’s, I’ve been doing this for 48 years and I learned early in my career about buying individual securities. There’s a lot much a lot greater risk. Occasionally you’ll pick a stock and it’ll do really well but it can also go way down. When you buy the S&p 500 index You’re still buying a lot of different companies, although you have a concentration right now, more of the companies are involved in artificial intelligence. But if I were gonna pick two funds, I would pick an S&P 500 index fund, or I would take a total stock market fund is slightly more stocks. That’s choice number one. And choice number two is I would pick a total international stock fund. I would use exchange traded funds. Use exchange-traded funds rather than mutual funds. They’re a little cheaper and they’re very tax-efficient. They don’t throw off capital gains taxes. So I completely disagree with the person who recommended trading. I think it’s a very bad idea and you’re doing the right thing, Lori, by buying the index fund.

Laurie [00:50:02] Thank you, Kyle. Thank you so much.

Carl Stuart [00:50:03] 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. There we go. Let me see what I can get. Hi, Carl. Thanks for sharing your knowledge. I have a question about managed bond funds. What allocation would you recommend between the various types you discussed earlier if the new investment is in addition to other existing investments? My target would be, just a second here, my phone’s acting up a little bit, okay. My target would be to have equal amounts in those three Morningstar categories. In other words, if I had $100,000, I’d have $33,000 in the short-term bond fund, 33,000 and the core, and 33,00 in the multi-sector. So if you’ve already got bond funds and you’re already fully invested in one of those, fine, add out the other ones. Because you’re going to take some of what we call the duration risk out of your portfolio because let’s suppose that inflation fires up and the Federal Reserve starts raising interest rates. The longer the duration of your bond fund, we call it the longer the maturity, but the technical term is duration, it’s a little more accurate, the more risk you have. On the other hand, if you have a recession and the Fed lowers interest rates, your longer term fund is going to give you some very good returns because the bonds are going to go up in value. So I spread it across those three maturities because I just think that’s a way to avoid specific. Duration risk in your bond portfolio. 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. Randy, you’re on the air, how may I help?

Randy [00:52:14] I have a friend who retired recently uh… Last couple years and uh… She claims that she is it has money her her retirement in investment i happen to know that the place that she has it is just one particular uh… Activity and it is actually an annuity no wonder what your opinion is should i Should I… Consult with her to convince her to get other ideas about her investment and how she can get it out of the annuity and actually have real investment.

Carl Stuart [00:52:56] Yes, so… As you probably know, because you’re a listener, I’ve been doing this for 48 years and early in my career, I was using what were then very simple ones called variable annuities, which invested in mutual funds, but they also had a death benefit. So if the owner died, the beneficiary would get the market value or the original investment. But over time, I stopped doing that. And that’s not because that people lost money in it. But they didn’t lose money in it. But I came to realize that annuities are a life insurance product and that you’re paying for mortality expense. And back in the day, they also were only sold from people who were life insurance agents. Today there are annuaries that are sold by other people called registered investment advisors. But what I’ve observed over my career, Randy, is that a lot of times people are buying annuites because they are being sold them. Because they’re being sold on the benefits. You can get the lifetime income. You can do a variety of things. I have found them to be expensive. And if they’re sold through an agent, the agent deserves to get paid, but they’re also expensive that way as well. And the other thing is the annuities that I see when people come and talk to me about them have what are called surrender charges. And the reason they have these charges that make it expensive to get out. Is because the agent is going to get paid and the insurance company is going to get pay so what she needs to do before you uh… Before she makes any moves uh… Is find out the two things what is the market value and what’s the surrender value if she’s had it a long time the good news will be that the market that you equals the surrender value and she’ll be able to liquidate without a penalty if she’s had it a relatively short time. There may be a significant penalty that she has to pay, and she may or may not be willing to do that. The other thing is, is it in a tax-deferred environment like an IRA, a Roth IRA, or 401K, or did she purchase this with her own money? And if it’s in a taxiable environment, it’s called a qualified annuity, and if she purchased it with her after-tax money, it’s call non-qualified, and if takes it out of the non-qualified, All the money that comes out over and above what she put in will be a subject to taxable income. So she may not take it out all at once, depending on what the tax liability is. But just as a pure investment, and this gets to the core of your question, if you took the same mutual funds and you put one in an annuity and another one in your own name or in your IRA, but not in the annuity, 10 years from now, the second one would be worth more. Even though you had the same investment because of the drag on expenses. So you’re thinking, I agree with your thinking, obviously it depends on her personal situation, but having the investments, she could have the same or comparable mutual funds and not be paying those fees and over time, those fees are a drag on her return. That’s my view.

Randy [00:56:16] Okay i will uh… Think diplomatically and uh… Conversation

Carl Stuart [00:56:21] with her. Thank you very much, Carl. You bet. Thanks for calling. Ah yes, always pays to be diplomatic. Well, we are running out of time so I am not going to take another text or a call. I want to thank Alyssa for doing a terrific job this afternoon handling the calls and everything else. And I want remind you that next Saturday at 5, be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:56:58] You’ve been listening to Money Talk with Carl Stuart. Carl Stuart is an Investment Advisor representative of Stuart 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.