Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on tech concentration concerns, Roth conversions, and what the future holds as AI interfaces with the economy.

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. Thanks for listening. Money Talk, now in our 32nd year, is a broadcast about the world of financial and investment planning where you always determine our agenda by calling 512-921-5888. I take today’s calls first, and then you just heard that coming in. Today’s text second. And then any texts that I’ve previously received and haven’t had the opportunity to answer. So it’s a great idea to call or text at the beginning of the broadcast and better opportunity for you to get the best of my answer or the worst, whichever the case is. Call or text 512-921-5888. Here we go. Hi Carl, thanks for a great show. You’re welcome. Over time, I have been steadily investing and in an S&P 500 exchange traded fund. I’m getting concerned about the overweight in technology. Is it time to consider an equal weighted S&p 500? Thanks for your response. This is a terrific question. I struggle with the same thing. So what we’re talking about is the Standard& Poor 500, which is a widely followed index of what’s going on in the U.S. Stock market. Is what’s called a market capitalization weighted index. What that means is every company, every public company that is, has a market capitalization or the abbreviation market cap, which is simply the number of shares outstanding times the price per share. So as the price for share goes up, so does the market capitalisation. And in a sustained bull market for a particular say a particular industry like technology, then naturally, technology stocks take a bigger and bigger portion. This has reached, I hesitate to use the word extreme, but it’s really, your concern is legitimate because we’ve had such great returns. I was reading today, I think Intel’s up over 200% this year, I mean it’s just crazy. And so. If you own the S&P 500 in a mutual fund or exchange traded fund, your percentage invested in the winners grows. Now here’s where the debate occurs. Most academicians that I can find believe that the majority of active managers, stock pickers, underperform their benchmark. And let’s say their benchmark is the S& P 500. And that over time, the value of the S&P 500 represents the collective wisdom of global investors. And if we had a period, say I’m guessing, back in the late 70s and early 80s when oil prices were skyrocketing, I would bet that energy stocks and everything related to the world of energy had a dominant position. So we can buy exchange traded funds that eliminate the market capitalization. And give you an equal weighting. So instead of the tech companies having a huge percentage of the market capitalization, the each company would be one 500th, if you will. I’m frankly not persuaded that that’s the best thing to do. I’d probably stay with the S&P 500. Personally, I own the total stock market. Obviously, I’m not gonna say the name of which ETF, but it gives you some greater diversification. But it’s still market capitalization weighted. I think if I were really concerned about this, I might look to some alternative equity funds that have different investment styles. You might start to look at, say, a small cap value fund. They’re doing well this year, but boy, they’ve been in the doghouse for years. And you can put some money there that I think would be beneficial as well. And then you can also look some non-correlating strategies. So if you hear me being the old joke is, are you ambivalent? The answer is yes and no. I am ambivalant, but I think I’m sticking with the market capitalization. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Let’s see the next text. Hey Carl, my job accidentally added a zero to my stipend. And I got around $7,000 extra on my check. Do I just need to cut them a check and count my losses? Yes, if it’s an accident, you absolutely do. The last thing you want to do is keep that money because it is not yours. 512-921-5888. Okay, here’s a good one. Hi, Carl David here. Okay, I keep seeing all these ads on social media. About a Roth conversion is bad because you’re going to pay so much tax and you have to live to 92. Is this correct? I’m single and 63 years old. I have no heirs or dependents with about a half million and a 401k and Social Security will be around $2,000 per month when I retire at age 65. I’ve only done one Roth conversion, but are they bad for of my situation. Also… I wanna add that a lot of those online advertisements for free retirement seminars at local libraries, et cetera. When I drill down, often you find their life insurance companies sponsoring those things. One of them I even traced directly back to Lincoln Savings in San Diego. Not kidding. Caveat vendor, everyone. Okay, I think. The decision to convert, and let me just back up, what we’re talking about is if you have money in an individual retirement account, and you want to open a Roth IRA and take money out of the IRA and put it in the Roth IRA, that’s called a conversion. And if all of the money in the IRA is pre-tax money, you got a tax deduction when you put the money in, you haven’t paid any taxes on the gains. Then whatever you take out of that and convert into the Roth is taxable income. So there you have it. So why would a person do this? There are several reasons. One may be that in fact you do have beneficiaries and that you are not planning on spending all the money in your IRA and you’re willing to take the tax hit today to provide your beneficiaries tax-free income withdrawals. In the future. If your beneficiary is a non-spousal beneficiary, say a daughter or a son, they would have ten years to take all the money out tax-free. That’s not a financial decision as much as it is an emotional decision. Another one would be, and this is probably in a rare case, you anticipate being in a higher income tax bracket in the future, but it’s not unusual for people to stay in a similar income tax bracket. Or drop, for example, from only 24 to 22% marginal bracket. I also find that there are people who have done a good job of saving and investing, and maybe they worked for a corporation to have a large 401k, and perhaps they roll that into an IRA, and they get to an age where they’re subject to the required minimum distribution, and they do not want that much money. They’re prepared to bite the tax bullet, if you will. To build a pool of capital that’s not subject to income tax. So I really think it’s a case-by-case example. If you run the math and you say I’m in the same tax bracket when I put it in as when I take it out, you’re probably six of one half dozen of the other. So I think those other characteristics or other considerations are frankly the more important ones. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-877-9000. 921-5888. We have a call coming in. Terry, you’re on the air. How may I help?

Terry [00:09:02] Hey, Carl. So I’ve had an employer at a sponsored 401k program, and I’ve been able to save about 15 to 17% over the last 30 years, I’m 64 gonna probably retiring in two or three years. And so that’s, you know, that’s you know I’ve been very aggressive in investing that up until maybe the last five or six years when I got a little nervous, I moved stuff into more fixed accounts. We’ve also accumulated quite a bit of cash just for good savers and so I’m kind of wondering, I don’t like that cash just sitting there, but strategies for being able to take advantage of the market at some level, but really with a focus on not losing money. Should there be a big swing one way or another in the stock market? What kind of options would you suggest for that cash. Yeah.

Carl Stuart [00:09:50] Well, of course there’s a relationship between risk and reward. You’re old enough to have had that experience. I mean, you know that there was a period of time here in central Texas, and it didn’t matter what the price of your house was. When you bought it, the price started to decline. There was nothing you could do about that. And the stock market’s gonna decline from time to time. That’s just the history of it. But what I would consider, if I were you, is what the academics call a risk-adjusted return. The money that’s in cash, I would really recommend, because you are good savers, to come up with an investment plan where you start taking some modest amount of risk, and here’s the reason why. Over your lifetime, based on history, obviously I can’t see the future, you’re betting on human end of the innovation, and the money that you or you say we, if you and your spouse invest in that account in tax-efficient mutual funds and exchange traded funds will grow. And you’re not subject to the required minimum distribution like you will be in your retirement plan. And if you don’t spend all of it in the really long-term, in its account that you hold jointly, upon the first person’s demise, that all that gain, all that profit disappears and the surviving spouse has a new cost basis, the value of the decedent’s death, and now she or he can keep it or begin to sell it for no taxes, whereas he or she is going to be subject to the required minimum distribution. So I think building a pool of capital that’s invested in growth in an individual or joint taxable or brokerage account, whatever phrase you want, is actually attractive. In fact, I would say because you’re close to retirement, you may even want to consider them. CPAs are starting to scream all over central Texas. You may decide you may want to not be contributing or contributing only then amount to get the employer match, which increases your cash flow, which allows you to invest in this other leg of the retirement stool. And because you have a lot of cash, you’re in a perfect position to be doing dollar cost averaging. So, for example, now we’re on radio so no one knows who you are, so you can answer my question frankly. How much money and cash have you accumulated? A million bucks. Okay. So you take a million dollars and you say, I’m going to invest this over the next 12 months. Now, I think this is a particularly opportune time to do this, and why do I say this? Because This, right now we’re having a good year in the stock market. We’ve just, and I’m sad that you did this, we’ve just missed, you’ve just missed three terrific years in the Stock Market. So what are the odds of four consecutive years being really good in the Stalk Market? They’re really, really slim, unrelated to geopolitics. Other than the five years of the great internet communications boom, 1995 through 1999. In the last 50 years, there’s only been one other time that we’ve had four consecutive good years in the stock market. So in a kind of perverse way, you can hope for a decline. Decide how much money you’re gonna have in there and take an equal amount, select your securities, select a day of the month. You can even have your custodian do this automatically. You can transfer securities to a bigger partner. You transfer cash to the custodians. You put the money in a government money market fund, making 3.6%, interest rates go up, it’ll go up. You have daily liquidity, and you set up a monthly contribution so that you’re fully invested, whatever that number is, by the end of the year. The odds are, or in 12 months, not the end the year, 12 months because you’re risk averse, give yourself 12 months. I’m just pretending, the 15th of each month, you put in $75,000 or whatever it is. I will tell you that odds are really high based on my 47 years of doing this, that three years from now you’re going to look back at that and be really grateful that you did. And you had this conservative allocation over in your 401k which is large, so when you look at your total portfolio regardless of which bucket it’s in, if it’s the joint account or it’s into 401k, when you put the conservative assets together with the cash assets that you’re that’s going to reduce your overall downside risk and the inevitable decline in the stock market. And it puts you in this really interesting position of having capital and taking advantage of declining prices. As long as you stay with broadly diversified exchange traded funds that are in indexes that don’t pay capital gains and because dividend yields are quite low now because of the higher price of the S&P 500, I think you’re going to look back and be glad that you did that. Is that a risk-free strategy? There’s no such thing as a risk free strategy. But particularly, if we stay in this period of rising interest rates and rising inflation, what outperforms inflation over time? Do bonds? No. Do CDs? No. Do money market funds? No. Do stocks? Yes. So I think that’s where you ought to go and that’s what I would do if I were in your shoes, Terry.

Terry [00:15:09] Thank you very much. I appreciate it.

Carl Stuart [00:15:10] Okay, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888 and you can catch past shows at kut.org slash money talk. Here we go. Let me get the back to the to the text that I that you and I have been hearing coming in 512-921-5888 Let’s see, 30 year listener, good for you. Two questions, our daughter is a young teacher and has saved $90,000 that she wants to invest. What do you recommend? Secondly, have you heard of the K-shaped economy? That’s when AI and or robots become very prevalent throughout, I’m gonna tell you what, I’m going to answer the first one first. Your daughter is young teacher and she saved$ 90,000. First of all, given the… Rotten income that we give teachers for one of the most important professions in the world. I’m amazed that she can save the money and you should be, I’m sure you are very proud of her. She is going to be, if she chooses to make a career as an educator and she’s in the public school system, she’s a participant in the teacher’s retirement system. If she is, she’s not having a choice. She’s making contributions every pay period into TRS. And TRS is putting money in from the school district and investing it, and guaranteeing a future lifetime income once she has attained a certain age and a certain number of years working there. She is going to have a guaranteed income that she cannot live, and the risk is not hers to make it happen. It’s the risk of this TRS, and believe me, TRS is not going to default on that. And so she’s got this really safe, growing investment. She then needs the second leg to the stool, which is to have money grow faster than inflation. Because once she retires and the cost of living continues to grow, she can’t call up TRS and say, you know, by the way, I’d like a little extra income this month. So she ought to do what I just talked about, Terry. She ought to take that $90,000. If she needs to peel off $5,000 to sleep nights, fine. Then she oughta do that. And she ought to then do a regular dollar cost averaging. Because she’s cash flow positive, she’s going to be continuing to replenish her capital. And as it gets down to her safe level, let’s just pretend that’s $5,000, she continues to invest an equal amount and draws that $90,000 down to whatever the sleep at night level is, five or $10,000. She can do this in broad-based, passively managed, tax-exempt, that’s not accurate, tax. Tax-efficient exchange traded funds and in my view that’s what she should do. Now I’m going to take a break and then I’m gonna look at your second question. It is a perfect time to call or text 512-921-5888. I’ll be back.

Jimmy Maas [00:18:33] 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 [00:19:08] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:19:23] Welcome back to Money Talk. I’m Carl Stuart and you’re listening to Money Talk on KUT News 90.5 and the KUT app. And when you have a financial or investment plan in question, call or text 512-921-5888 to finish that text. Carl, have you heard of the K-shaped economy? That’s when AI and our robots become very prevalent throughout society that the economy is going to kind of freeze. Those with less will be stuck on the lower leg of the K, and those with more will have greater access to benefit from the changes related to AI. What are your thoughts about how AI is going to impact wealth and particularly investing? Well, actually, according to my reading, the K economy, if you will, metaphor was invented to not just talk about AI, but talk about, and boy, there’s a big term, income bifurcation in the economy. Where certain groups of people are on the upward escalator of the leg of the K and others are on the downward escalator. And we all know that there’s a high level of consumer frustration in the country and that’s exacerbated with rising costs, rising inflation and higher gasoline prices. That’s stuff that’s going on separate from artificial intelligence. There’s no question that artificial intelligence is one of the main factors driving global stock values. I mean, you’ve got huge jumps in, say, Korea and Taiwan because of their position in semiconductors. My reading of history is that, yes, there will be dislocations and people who have careers will see those careers go away. On the other hand, I hope that you listen to the podcast because I’m going to really get into this because I think it’s really important. So, we get a daily piece from the Apollo Asset Management Global Economist. And he talks about something called Joven, J-O-V-E-N-S, Joven’s paradox, you can look this up. There was a fellow named William Joven in 1865, a British economist, who wrote about the fact that the consensus was, in England at the time, that the invention of the steam engine was going to reduce the demand for coal because steam engines were much more efficient and railroads would use less coal. And that would sustain a longer life of the reserves of coal in England. Turned out that wasn’t the case. What happened was, as the steam engine became more productive and costs dropped, there were more uses for which it was taken. So it was for, let’s just say, clothing mills, as an example, fabric mills as an examples. Another example, probably a decade ago, the consensus was that, AI could read MRI and CT scans and radiologists were going to go away. The latest data indicate we have more radiologists than we’ve ever had and their average income is $500,000. So what happens when productivity comes along in the form of a new technology? More of it is used and ways are found to use it that we didn’t even know before. Can you imagine going into some place you don’t know and not having Google Maps on here. On your iPhone or your Samsung phone. I mean, our lives have been transformed, but there’s dislocation. So I think it’s gonna be tough on some people. I don’t wanna be Pollyannaish about this, but I think one reason the stock market’s doing so well is because investors believe in the productive capacity of the artificial intelligence. Just like anything else, it can be used for good or it can used for ill, but so can the internet. Look at social media, look at. What’s happening to adolescents on social media in some aspects? Are we gonna give up on the Internet? No, we’re not. So I think as an investor, I think that this is good for the long term stock market. I think it’s entirely plausible after three fantastic years, and actually three and a half years, that we have a sharp decline in stocks. Of course we could. And you shouldn’t be overweighted in stocks over and above what your overall plan is. But when new technologies come along and you look back when the steam engine came along or other technologies, look what happened to agriculture, the industrial revolution, the internet revolution, not only has there been a benefit to society, but it’s been a growth aspect for the economy and it’s a good thing and that’s how I see it. Thanks for the question. You’re listening to Money Talk on KUT News 90.5. The only talk show where we talk about Jobin’s paradox, I would guess. Call or text 512-921-5888. We have a call. Jay, you’re on the air. How may I help?

Jay [00:24:38] Hi Carl, thank you for taking the call.

Carl Stuart [00:24:41] You bet.

Jay [00:24:41] I am expecting to receive a $25,000 unexpected payment from somewhere. This was not part of my plan and I was not waiting for it. So I’m wondering, once this payment comes to me in the next few weeks, what is the best thing I could put it in where it could give me decent returns? I would love to make it like a vacation fund for myself. Okay

Carl Stuart [00:25:09] Uh, let me ask you a couple of questions. Jade, do you have, uh, any current outstanding credit card debt?

Jay [00:25:16] I do not.

Carl Stuart [00:25:18] Do you have any automotive debt? I do not. Would you say that after you pay all of your expenses, monthly expenses, et cetera, et, would you say you’re breaking even or would you that you’re cashflow positive? I’m cashflow-positive. Okay, that’s it. All right, so what I would do is a combination of things. The cost of travel is going up, actually in some instances, faster than the rate of inflation. And if we put the money in a CD or a short-term bond fund, we’re probably not gonna keep up with what you would like to do from a travel standpoint. On the other hand, investing in the stock market on a short term basis, and I think short term is 12 to 24 months, is dangerous. I mean, the internet bubble, if you will, popped in March of 2000, and it bottomed in September of 2002. Took a long time to come back. Your $25,000 would have been underwater for a long time. So I would peel off a piece of it that I thought I could live without for the next two to three or four years. That’s my growth piece and then I would take the other piece and I would put it in a short-term investment grade bond fund Which will in current times will pay you about Gosh, I’m looking here one that I follow about four point four percent in terms of dividends Reinvested dividends don’t spend the money. Let it grow compound If interest rates continue to rise, and who knows if they will, you’ll get, you’ll have a higher return. If interest rate, by income, you’ll slight downward pressure on the value of the fund. If interest race start to fall, you have a better return because you get some appreciation in the bond fund. So figure out a modest withdrawal rate from. The $25,000. I mean, if you take $2,500 from them, you’re never gonna have an investment to catch up with that, right? So take some risk with some percentage of it, somewhere between 10 and 25%, and maybe even more depending on your risk tolerance, and put the balance in the short-term bond fund, reinvest the dividends in both the, an index exchange-rated fund and the bond fund. And if you wanna take a trip in the next year to 18 months, Don’t put it all in the bond fund. Put it in a money market fund, not a money-market account at a bank or a credit union. There’s three types. One’s called prime, one’s called government, and one’s call treasury. We like the government one, government money market. All the big custodians have them, Schwab, Fidelity, Vanguard, and all the broker-dealers too. I think I would have a three-legged stool, some safe money that I want for that near-term. Trip and then some intermediate money and then some longer-term money to deal with the rising cost of travel and entertainment. I think that’s what I would do, Jay, if I were in your shoes.

Jay [00:28:35] Carl, I hate all the advice, I was thinking about a real state investment trust to put it in.

Carl Stuart [00:28:42] I think it’s a bad idea because it’s an interest sensitive asset and if you do that and rates go up, you’ve got downward pressure on the price of it. If we go under recession, then you’ve get downward pressure price on it. If you want to put a modest amount in, then be sure that you’re geographically diversified inside the trust. And make sure that you’re also diversified by property type. Think what happened if you owned a shopping center, real estate investment trust when COVID occurred. It didn’t matter what the dividend was, you were in trouble, so be careful with that. Thanks for your call. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Okay, let me just see what I’ve got here. My friend has dementia. I’m her power of attorney. She owns a house that I’m currently leasing for about $1,700 a month. Her mortgage payment is about $1200. The lease is up in about a year. She owes $88,000 on the house with an interest rate of 3.375%. That’s good. The house is worth about $300,000. My question is, When the lease is up, should I sell the house and invest the money or continue to lease it? She’s in assisted living at the moment. We pay close to $10,000 a month. She has about $650,000 in fidelity, all in Apple stock. I should add that she’s only 62, so not eligible for Medicare, though I’m in the process of applying for a Social Security disability. I’m gonna answer a question that you didn’t ask. Sell the Apple stock. No one in her position should have one stock that’s worth that much money and that’s that big a portion. Sell the apple stock. Pay the long-term capital gains tax. I would sell the house if I were you. She’s not going to be coming back. The net cash flow, but it doesn’t include all the money. In my opinion, she shouldn’t have any business owning the house. And this is not a market where just because you want to sell it means you can sell it. She needs liquidity and she needs growth because the cost of maintaining her life are not going to go down, they’re going to up. So I would sell the Apple stock on Monday morning because it captured the game and you have substantially, substantially reduced the risk. If we go into a bear market and that stock drops 40%, she’s in real trouble. Sell the Apple stock, put the house on the market, and then when you’ve got that accomplished, we can talk again about what to do with the proceeds. She needs to build, or you need to build on her behalf, a conservative portfolio, but with some growth, because two things you don’t know. The nature of the dementia, the slide, the glide slope on dementia is very, very different for each person. You don’t how long she’s gonna be around, and you don’t know. How much more it’s going to cost. And that’s what I would do if I were in your shoes. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here is a text. Carl My daughter just turned 15. We’d like to introduce her to the world of investing. If we were to start her with $1,000, where do you recommend that she invest that? So, Because she’s 15, and if you want this money to be hers, you would open a custodial account, and you use the term we, you or your spouse would be the custodian. You want to involve her with this, and when she, if it’s under the Uniform Transfer Miners Act, it will be her money when she is 21. That’s fine. On the other hand, you can invest the money and just call it special account, education account, whatever you want in your name. And that way, when she’s 21, she can have the money if you wanna give it to her, but it’s not hers legally. Any tax liability would be yours, but properly invested would be modest. Now, here’s the bad part. A thoughtful investment would keep her diversified. So. Ah. Sometimes adolescents benefit by investing in something that they can relate to. I did this with our kids. And I admitted to myself that this was not good advice because if they invested in something they liked and it went out of business, they learned a lesson, but I’m not sure it’s the best lesson for long-term investors. Now, as it turned out, one of our children, who shall remain anonymous. Picked Dell computer at the right time and it helped pay for a down payment for her home and her husband But getting that connection between the investment and and and their lives May be worthy of taking the risk that I would never do otherwise if you think she can learn from following an exchange traded index fund that’s a total stock market with Fidelity or Vanguard or Schwab or somebody that will she have a better return, I don’t know. She’ll have a better risk adjusted return because all those companies are not gonna go out of business. So that’s the dilemma. If you want her to follow companies, then let her pick some stocks that she relates to and do that. If you wanted to get the concept of diversification and prudent investing, buy the exchange traded fund of the total US stock market. That’s the way I would go if I were in your shoes. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here comes a call. Chris, you’re on the air, how may I help? Hello Carl, good to talk to you. Thank you. Carl.

Chris [00:35:35] I have a question about an opinion piece that I read in the Wall Street Journal yesterday. I would bet that you’ve seen it. It was entitled, you’re probably over-invested in bonds, and it was authored by a fellow named Robert C. Posen, who was evidently at MIT Sloan School of Management and a former president of Fidelity. Carl, he is making the case that… If you have a certain amount of money, a certain amount of assets, you’re probably better going with only about with no bonds and really going about 90% stock and maybe keeping 10% in a money market fund as an emergency fund. I’m wondering what you think of this.

Carl Stuart [00:36:25] From time to time this comes up, I mean there have been some great academics who have written and come to the same conclusion, and the conclusion that if you’re in the stock market properly diversified long enough, there’s not another investment that you’re going to make that you are going to do better, and to the extent that you add bonds, you’re going to diminish your future return. Absolutely true, full stop. It doesn’t take into account human psychology. You and I have talked on the air for many, many years, so you know me well. And what I’ve learned is that, and I’ve read this, this isn’t something I’m making up. There are two other academicians, Richard Thaler and Danny Kahneman, who got Nobel prizes in the area of what we now call behavioral finance. That says when humans experience a 10% gain, they experience a ten percent gain, and when they experience the 10% loss, they experience 20% loss. And there’s all kinds of data. If you look at mutual fund flows, meaning money coming in and money going out, when the stock market’s moving up, money roars in, and when the market’s going down, money rowers out. So he’s right on a purely objective standpoint, and maybe you, Chris, can do that. But a lot of people can’t do that. And I have to deal weekly on Money Talk with people saying, I’m gonna get the heck out. We had a call earlier this afternoon, if you were listening, that the person had a million dollars in cash and he’d taken his 401k and gotten conservative with it and probably missed the last three years of 20 plus percent returns. It’s a combination of facts on the ground and human psychology. So I agree with him for those rare individuals that can do it. And for everybody else, you know what I think. He needs diversified, non-correlated assets to help reduce the downside risk. Because you have a 40% decline, you gotta get a 67% return to come back. That can take years, years. And most people, in my experience, don’t have the intentional fortitude to do that.

Chris [00:38:38] Well, that brings me to my next question on this. I am starting, I am approaching the middle of my septuagenarian decade, but…

Carl Stuart [00:38:52] Now, I’m impressed you can say septuagenarian, you’re doing great.

Chris [00:38:57] Well, we’ll wait till octogenarian and see how that’s right. But I expect to live a long time because I come from a long line of long living antecedents. Yes. So I told my investment people prepare me to live to be 100. I don’t know if I’ll make it but you better prepare me. Yes, with this sort of thing. I, I don’t really worry too much about the ups and downs of the markets, I just… Don’t do it. But I want to make sure I have an emergency fund, but I want to prepare to live another 30 years.

Carl Stuart [00:39:33] Yeah, but you can do it. Overweight stocks, absolutely. Overweight the heck out of stocks, whether it’s 90-10 or 80-20, we can debate. But given your scenario and the fact that you are one of those rare people like Warren Buffett who lives through these things and doesn’t get bedraggled or frustrated or fearful. So yes, if you can that, you’ve got the facts on your side, Chris.

Chris [00:40:00] Carl, I appreciate the comparison to Warren Buffett. I don’t know if he’ll appreciate the comparison though.

Carl Stuart [00:40:07] Well, you know, I’m disappointed because I’m thinking Warren may not be listening to Money Talk, but if he was his, we may hear from him.

Carl Stuart [00:40:14] Thanks for calling. Thank you, Carl. You bet. You’re listening to Money Talk, it’s time for me to take a break and a perfect time for you to call or text 512-921-5888 and I’ll be back.

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KUT Announcer: Laurie Gallardo [00:41:16] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:41:30] Welcome back. I’m Carl Stuart and you’re listening to Money Talk on KUT 90.5 and the KUT app. And you can listen to past broadcasts at KUT.org slash Money Talk. Here is an incoming text. I have a relative wanting to gift my partner and me a portion of what they plan to leave us when they die so that we can put a down payment on a house. But the money is all in mutual funds. Any advice for when they should pull the cash out with this market if we have a few months before we need to pull the trigger? Tell them to sell Monday. When I have a short term need, I have long term need and I know it’s coming, I can see it’s comeing. I’m gonna make a payment for college. I’m going to take a big trip. I’m goona purchase a car. Something that’s significant. Then I want to take the market risk out of it immediately. Now, if you told me you were going to buy a house three years from now, I’d have completely different advice. There’s absolutely no reason to stay invested at these, because you say mutual funds and you’re implying and I’m inferring their stock funds. They may be bond funds for much less volatile than you could wait if you want. But if they’re in stock mutual funds and they’ve been there for years, they’ve got terrific returns and they ought to sell it right away. Put it in a government money market mutual fund this government money market fund or give it to you and you put it into government money-market fund and then you’ll have the money there stock market goes up so who cares you’re gonna buy a house and if it goes down you’re going to be glad you sold it and if he goes flat it won’t make any difference that’s what I would do if I were in your shoes you’re listening to money talk on KUT news 90.5 and the KUT app call or text 512-921-5888. Here’s the text. A good friend of mine has just turned 50, has half a million dollars in his 401k, and he recently got impacted and got laid off. Sorry to hear that. He’s hoping to find a job that will pay him $100,000 in the next six months to one year. He’s able to take care of his operating expenses until he finds a job. How much money in his 401k does he need before he retires in the next 10 years? Okay, well there’s a lot of moving parts there. So how much money he needs is a function of a number of things. First let’s start with the liabilities. When he retries, is he going to have credit card debt or automotive debt or mortgage? Because if you retire and have those liabilities, they don’t go away just because you’re retired. So… He has to work on making sure that he’s debt-free when he retires. That’s the number one thing. Because if he is, he has a lot more flexibility. If for some reason he can’t make the same amount of money or whatever the case is, then he can adjust his expenses. He can’t adjust expenses on your mortgage. So that’s first and foremost. Secondly, because you’re talking about retiring at an early age. He’s got to think about health care. If he’s going to retire in 10 years, he’ll be 60. He’s got five years where he doesn’t qualify for Medicare. And that’s really, really, really expensive. So I would caution him about retiring at 60. Secondly, when you retire at 60, unless you have a life-shortening situation, if you have access to quality health care, In today’s world, you need on planning to live to at least 90. That’s 30 years. 30 years is a long time to depend on your portfolio. So I’m going to go with that. The data indicate, and this is age old, and it’s a rule of thumb. It is not, or there’s no such thing as a mini, no, that’s not accurate. There’s a lot of rules about investing, but this isn’t one of them. It’s a rules of thumb, and if you’re a regular listener, you know what I’m about to say. If he retired, when he retires, if he has 60%, 65% of his 401k in global stocks and the balance in bonds and hopefully some other non-correlated, he can take 4% a year out of that and he won’t run out of money. Now can he run out money? Yes. Could he have ran out of the money doing that in the 1970s? Yes. But that’s based on a thousand, what are called Monte Carlo simulations of real financial market returns over history. So think about that. If he wants $40,000 in 10 years, he’d have to have a million dollars, because that’s 40,000 to 4% of the million dollars. And if you want to become more depressed, 10 years from now, the $100,000 isn’t going to buy what it’s going to buy today. So he needs to be aggressively saving. He needs to have an emphasis on stocks. And he can do the math by saying, given my current living expenses and… The ability to be debt-free and my future social security projected benefit. How much am I going to have to have the live I want to live the life I want to live? That’s going to be a number, going to a big hole. He can take that times 25 and say that’s my target. That’s what I would do. You’re listening to Money Talk on KUT News 90.5. And the KUT app, we’re down to about 12 minutes. So if you’ve been thinking of calling or texting, now would be a very good time to do that at 512-921-5888. Let’s see here about some other, okay, let’s see. I’m just going through the text here, so bear with me. Carl, I’ve heard that earnings are up by about 20%, person meets corporate earnings. And that is driving the market up. Where did all that spending come from? Is it a result of the tariffs bringing production back? Absolutely not. There’s not any data that we’re bringing production back, that we bring some back, but the net numbers don’t show that that’s actually occurring, based on my reading. Corporate profits are really, really good. Business is sound, and corporations are doing a good job of keeping their expenses in line. And profits are double-digit. Now, those are retrospective. That doesn’t include $105 a barrel of oil and $4 to $6 per gallon gasoline. So who knows how long those profits are gonna last, but it’s not production coming in, and it’s a not AI. I know there’s some companies that are benefiting from AI because they’re providing the infrastructure. For the build out of data centers, for sure. But just frankly, corporate profits are good. I mean, this is the thing that I was looking at today and I wrote this down to just say this out loud. Consumer sentiment is measured by the Michigan study, which is when everybody looks to, is at an all time low. I recall that I read that that was started in 1947, so that’s 79 years of data. We’ve been through some really rotten times over the last 79 years, yet consumer sentiment’s at an all-time low. Guess what this week? The Dow Jones Industrial Average hit an all time high. Really? Yes, really. You cannot invest profitably and with discipline by how you feel and the consumer sentiment, obviously. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Hi, Carl. I’m newer to your show, but I love it. Thank you. And all the information you offer for free even. What a country. I’m in my late 30s with significant credit card debt. I’m sorry. I’ve taken a second job to help pay things off. But I was curious if it’s better to pull from my 457B to pay off the credit card dead or just keep chipping away as I’m able. Well, you can check on your own, but I think if you take money out of that 457b and you’re a young person, you’re under age 59 and a half, I believe you’re gonna pay income taxes on that plus a 10% penalty. That’s really, really, really expensive. So I think chipping away is the better thing to do and congratulations on getting a second job. Now I think because you’re doing this aggressively, probably the advice I’m gonna give now is for everybody in credit card debt. And this is something regular listeners know I’m going to say. We didn’t get in credit cards debt with intentionality. We got there because we spent more money than we made and The majority, if not all the things that we used our credit card for, disappeared. Their entertainment and clothing and coffee and whatever the case is. And so the only way we’re going to get our credit-card debt is because the interest rate is 20 to 30 percent, is yes, get a second job, but changing our behavior. And we live in this consumer society where every turn we’re encouraged to buy stuff, right? And so. The psychology is if you have a sincere desire to change your behavior, in this case get out of credit card debt, the first thing you have to do is measure your current behavior. So I use the charge card all the time and I would tell you if I were in your situation I would get a cash receipt for every expenditure, whether it was $1.50 for bananas or it was expensive, and then every week or two I’d sit down with those receipts and put in categories. And listeners have told me over the years that when you do that, you end up saying, wait a minute, I didn’t know I spent that much money on lattes, or I didn’t know that we went out that frequently to eat. And there are ways that you can begin to, to use a worn phrase, bend the curve. You’re not gonna get out of, you didn’t get into credit card debt overnight, and you’re not going to get out it overnight. But that’s what I think I would do if I were in your shoes. I’ve got about six minutes, let’s see, you know the number, 512-921-5888. Let’s just see if I’ve another, bear with me while I go through the various texts to see if i can find another one. Here we go. Oh good, one just came in, so I don’t have to sit here and you have to watch me listen to me trying to figure out what it is, so we’ll go to the next one. 512-928-5888, here we go. Carl, not a question for the show, but do you reply to the Contact Us message portal on your business website? I’ve sent two messages and no reply, that’s shocking. I’m sorry, I don’t know, we’ve been responding as soon as we get them. I wonder… If there’s some kind of block. We have problems in time to time, you may have this, where we’re not getting emails come through. If there’s a phone number on that website, would you call it please, or Google it or whatever? I don’t like to promote myself on the air, but I’m happy to answer your question. If we’re getting it, we’re get other contacts on the website, so give us a call this week, I’m sorry for that. You’re listening to Money Talk on KUT News 90.5 and on the KUT App 512-921-5888. Let’s just see here. I’m going to go on down some of the ones that came in earlier that I haven’t had a chance to answer. Here’s a good one. I really appreciate your show. Thank you. I have a question about renting a room in my home. There’s a room, access to a second room with a TV and sofa and desk and gym equipment in the finished garage. I’d love a tenant like a travel nurse, but I’d like to hear some of the issues a homeowner should avoid when they rent out a room. I’ve heard horror stories about destructive tenants for squatters, but are there solid ways to avoid a bad situation? Just curious to hear your thoughts. Well, I’ve heard those same bad stories as well. Getting a renter in your home is like hiring a new person, hiring an employee. It’s a big deal. And you’re going to have to be perceptive, you’re gonna have to answer some thoughtful questions because I’ve hear these horror stories about people trashing the place and about how difficult it is. To get them evicted, so this is a risky deal. And yes, you can use your intuition, but that’s not enough. I would ask for some references of human beings I could talk to. I’d ask for a work history. You can validate that by calling former employers. It’s a risky, deal. One of my favorite columnists, Tom Friedman, said, there’s an old joke, no one ever washed a rented car. That’s right. So no one’s ever going to treat their part of the house the way you treat it. So be very, very careful. Okay. Let’s see here. That was a thank you text. Here’s one. Carl, does the 4% rule of thumb withdrawal rate assume any contribution of Social Security income or does it only assume withdrawing your personal assets? No. You want to take that Social Security, give yourself a target income that you believe you need. To take out from that your projected Social Security amount, right? So if you want $50,000 and you’ve got $15,000 in Social Security, then what you want is $35,000 from your investments and savings, and you take that times 25, and that gives you the number you’re looking for. So I’m putting aside Social Security. Thank you. And here we have, hey Carl, I just started listening to your show. Right now. Good. 28 wanting to invest and build my portfolio. Where’s the best place to start? Well, congratulations on doing that when you’re 28. That’s a great deal. If you want to get invested and you’re willing to take the time, get yourself a subscription to the Wall Street Journal. You read it every day. Don’t read it cover to cover. Read the front page. The column on the left-hand side gives you the headlines. Go through, read the first or two paragraphs of the articles that pique interest and put it down. Six months from now you will have a deeper understanding of the global economy, you’ll have a deep understanding of investments. The second section is always about investments, there are columnists in there, and if you do that, don’t go out and buy a book that tells you how to get rich quick, somebody just trying to sell you a book. If you do that and you’re patient with yourself, you will absolutely learn. Secondly, you can go to the websites of the big do-it-yourself custodians like Vanguard. And Schwab and Fidelity and you can read there as well and do those things and be patient with yourself and I think you’ll be very, very good at this and of course let me be blatantly self-aggrandizing and tell you to keep listening to Money Talk because we’re here every Saturday and now we’re at the end of today’s broadcast. I want to thank Mark for doing his usual great job and remind you in this last texter next Saturday after the news of We’re not even after the news, right at five o’clock. Tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:58:07] 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.