Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on guidance on consolidating and managing multiple parent plus student loans, pros and cons of renting vs. buying a home and investing the down payment, and insights on inheriting assets and the tax implications.

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 [00:00:22] I’m Carl Stuart and you’re listening to KUT News 90.5 and on the KUT app. Money Talk is a broadcast about the world of financial and investment planning where you always determine our agenda by calling or texting 512-921-5888. Coming up on our first anniversary at KUT, we’re in our 32nd year here together. I always take today’s calls first. And then today’s texts, and then previous texts that I haven’t had the opportunity to answer. So it’s a great idea to call our text right away to make sure that you do either get on the air or I have a chance to answer your text. So I’m going to start with some texts from last week, but remember 512-928-5888. Hi Carl. Do money market funds have an annual interest tax the way an individual bonds do? Thanks, Gary. The answer, Gary, is a conditional yes. Most of the money market fund answers that I provide here on Money Talk are funds that invest in either high-grade corporate debt or government agency debt, Fannie Mae and Freddie Mac, or strictly U.S. Treasuries. And all of that interest, which is considered dividends, is subject to tax. There are tax-exempt money market funds which would buy things like tax anticipation notes and other short-term tax- exempt instruments. Remember that the money market fund instruments, or I shall say the underlying bonds or debt instruments have to be mature in a year or less. And so you’re going to get whatever the short-term market. Yield is based on the nature of the money market fund. So if taxes are a really big deal to you, then you want to do research on a tax isn’t money market. But for most people, the taxable money market is probably a better idea. Thanks for the question. You heard that noise. That’s text coming in at 512-921-5888. Hello Carl. Enjoy your show. Thank you. The SEC is preparing to propose a rule change that would allow public companies to report financial results every six months instead of quarterly. Your thoughts would be most appreciated. PS. 60 minutes is not nearly long enough. They once said, the Texas lawyers said, I can argue it long and I can argue it wide. The argument for moving it to twice a year is that it’s expensive to comply. Now, certainly, big corporations can go ahead and deal with that, but smaller companies, the cost of doing this every quarter can be so expensive. Some experts think that it is one of the factors. Causes companies to postpone public offerings. And I think the more investment opportunities we have with public companies, the better deal that is. The other thing is it could, one could argue, cause some companies to really focus on quarterly results, right? How do our earnings do versus Wall Street expectations? And that creates, or could create, some pretty short-term thinking, and I don’t like that, Because You can sacrifice making investments that would be good for your company if you’re the CEO of a company because you’re really focused on those earnings numbers that you’re going to release to Wall Street. So I frankly don’t have a big problem with moving from quarterly to twice a year. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921. 5 8 8 8 okay let’s see here that’s alright, I’m just looking at last week’s text we’ll go beyond that one, let’s try this one You’re confident someone who is 60 years old will get their social security benefits, and you’re not as confident for someone who’s 30. What is your level of confidence for someone who’s 52, asking for a friend, wink, wink. Love your show, thank you. Well, first of all, I’m not an actuary, but I think that these decisions are frankly not actuarially driven. I think they’re politically driven, and that’s not a criticism, But as I say… You are not going to be a senator or a representative and stand up on the floor of your respective venue and say I’m for cutting social security benefits. I mean that’s just not going happen. And so I think what happens is the younger cohort will end up having either a lower guarantee or a later age at which the benefits can be accessed. I think the answers to how this can be fixed are very straightforward. Right now, once your income exceeds more, I can’t remember exactly, but more or less $170,000, you don’t pay any social security tax, which is 6.2% for you and 6.4% for yourself if you’re self-employed or you’re an employer if you work for somebody. So for people who make a lot of money, if you make $500,000. Basically 330,000 of it you don’t pay Social Security tax on. So one way would be to increase the limit that would be taxable by Social Security. Another would be to change the way the inflation calculation happens to dampen the possibility of large increases in income. And the third is to extend the years or age I should say before you can get the full benefit. Now, I’m not suggesting that these are popular, but they are straightforward answers. I just think that if you’re 52, you’re likely gonna get your benefit. But when you think about your retirement, remember that it’s not as if you have an account at Social Security. There’s not a Karl Stuart account at Social security. I’m gonna get back when I paid in. That’s just simply not the way it works. The whole idea was that people who were working paid in and people who retired took money out. And so there you have it and I think that we have to be skeptical if we’re in our 30s 40s and 50s that social security is going to be a significant part of and the foundation of our retirement income. 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 and you can catch past shows Or go back and just want to listen to this one again, and you have some time on your hands, go to kut.org slash money talk or tell your friends or colleagues. 512-921-5888. Jeff, you’re on the air. How may I help?

Jeff [00:07:58] Hi Carl, good to hear from you.

Carl Stuart [00:08:00] Jeff, I cannot hear you. Can you get closer? We’re really low volume unless Mark you can do anything with that.

Jeff [00:08:06] How about now? Can you hear me now?

Carl Stuart [00:08:08] I can barely hear you.

Jeff [00:08:12] I’m in the car, I’m on the road, I’ll try to talk louder, will that help?

Carl Stuart [00:08:17] Yes, it will help, Jeff. Please continue.

Jeff [00:08:20] Okay, quick question, how do you best recommend to consolidate multiple parent plus student loans, consolidate for multiple loans with multiple children to best pay them down? What are your recommendations and thoughts about that, Carl?

Carl Stuart [00:08:39] Okay, thanks for your question. This really is outside my area of expertise, and frankly, I don’t, you know, it would be the same, the answer I would give you is gonna be unsatisfying, because it’s an answer whether they’re student loans or they’re any other kind of liability, and that is, obviously, what you wanna do is you wanna have the lowest melded rate that you can get, but I just don’t know enough specifics about the student loans that if you went to a traditional lender, If you went to your bank and said I have these liabilities, these are my assets, how much would you loan me and at what interest rate and would that be sufficient and would the rate be so attractive that it would be better than what you’re paying now. But I just don’t have any experience in this area yet and I don’t want to make a guess and misinform you so thanks for your call. You’re listening to Money Talk on KUT News 90.5 and the KUT app. One of the things you learn when you grow older is when you don’t know the answer, don’t make it up. 512-921-5888. Sandra, you’re on the air, how may I help?

Sandra [00:09:51] Yes, hi Carl. Love the show, listen to it constantly. I’m getting ready to be 72 in a couple of weeks. I receive my Social Security, I wait until I was 70 to collect, so I get the maximum. I also work PRN or just part-time, but I’m getting ready receive $30,000 from my, the sale of my mother’s home and we already had to pay tons of money. For taxes and penalties and stuff on the house though what i’m asking is uh… I don’t know if uh… Because of that windfall so to speak uh… If i have to pay any taxes on it and should i just put it my regular savings right now

Carl Stuart [00:10:42] Well let me ask you a question, did you sell the house after your mother passed away? There’s no capital gains tax to you because whatever it was, whatever it were sold for, you inherited the proceeds and there’s no tax to your on that, okay? Okay. So that’s the good news. So then the question is what do you do with the $30,000? Let me ask you a few questions. This is why I prefer phone calls over text so we can have a conversation. Uh-huh. And you say we, so I’m guessing you have a spouse. Or do you have any? No.

Sandra [00:11:19] No no my brother my brother and i are actually going to be splitting it unfortunately he’s uh… He won’t be uh… He’s incarcerated

Carl Stuart [00:11:31] Okay.

Sandra [00:11:31] It won’t be out until the end of next year. So half of it goes to him, half of goes to me, but I’m in charge to make sure everything stays good.

Carl Stuart [00:11:45] Well, I’m really glad that you said that he will be, uh, released next year because then you want to be sure that he gets his, you want to be, sure he gets a share. So what that does is it basically not eliminates, but almost eliminates taking any risk with the money. Because if, if, you know, if you put $30,000 in the stock market and it drops 20% and now it’s. $24,000 and he only gets 12 instead of 15, that’s probably not acceptable. So what I would do, yeah, so what I would do is, and this is an answer that I commonly give because I think it’s appropriate, there are these things called money market funds. Money market accounts are typically at a bank or a savings and loan. A money market fund is technically a mutual fund, but it doesn’t invest in stocks and it doesn’ invest in longer term bonds. And there are three kinds of them, Sandra. There’s one called a prime, one called government, and one called treasury. And what you can do is you can go to the websites of the large custodians like Schwab and Fidelity and Vanguard and look at money market funds. The one that I like is the government money market fund. It invests in US treasuries and also in federal agencies and the price of the cost. Is that it’s one dollar a share every day, it doesn’t go up and it doesn’ go down, and it distributes whatever interest they earn on those short-term securities. Right now, it’s above three and a half percent. We don’t know over the next year whether interest rates will rise or fall. If interest rates rise over time, you could actually get more income from it, and if they fall over time you’ll get less. But the thing is, you have absolute daily liquidity. You can… Let’s say you do it at Vanguard. You can contact Vanguard, and the next business day, the money’s available. In my experience, it’ll pay more than a savings account at the bank. It’ll pay probably more than a high yield savings account at the Bank. So take some time, do some research, but consider a government money market fund. I think that’s what I would do.

Sandra [00:13:59] I’d like to say that, thank you.

Carl Stuart [00:14:02] Okay, you bet. Okay, thanks for calling, bye bye. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Okay here’s a text. Carl, say the bank is making money off you by letting them handle the extra payments just at extra principal each month, typically monthly payment. Okay, this is the answer. This may be the answer to the question about student debt. The bank is making money off you by letting them handle the extra payments. Just add extra principal each month, typically a monthly payment divided by 12. I’m sorry, I just don’t understand this. I’m going to pass. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. How do you suggest selecting a financial advisor? Not happy with the current person. He’s with another company. I’m not going to mention which one it is. She is. Thank you, Rose. OK. This is a really, really, big deal. And is any other kind of selection of a financial professional or any kind of professional, it’s both somewhat, shall we say, left brain and statistical and somewhat right thing and intuitive. So here’s what I think. First, you obviously want a financial advisor. You’re not a person who wants to do it yourself. So that’s good. You’ve made that decision. There are essentially two ways in which advisors can be compensated. One is by the transaction. And there’s some fine, fine people that do that. And this is the way real estate agents are compensated when you buy or sell a home through a real estate agent. And then the other kind are called investment advisors. And they’re under either the State of Texas or the Securities and Exchange Commission, and they do not charge commissions or sales charges. They charge based on the value of the assets. If you have a choice, and you do, I would prefer the second over the first. I’ve been doing this a long time, and when I started out, what I’m about to tell you wasn’t really available. But many, many years ago, it became available. So you have this money. This person invests it on your behalf. She or he gets paid on the value. So they take the value of your portfolio at the end of a three month period, times whatever the fee is, and they debit your account. Now what I like about this is several things. One, it eliminates the appearance of conflict of interest. If your advisor says, Rose, I think we ought to move from this investment to that investment, you don’t have to say to yourself, gosh, is Joe doing this for or to make a commission, because there is none. The second which I’ve talked about is that it has a mutual alignment of your interest. Both of you want your money to grow because if it grows he gets paid more and if it shrinks he gets pay less. And then the third thing, and this is generally true, it’s not always true depending on where this advisor works, it opens up a huge range of what I like which are mutual funds and changed for a good time. So they can pick this one from Vanguard and that one from Fidelity and that one from American Funds and that one from T. Rowe Price. It’s, I think, a powerful model. So if you had a choice, I would look for investment advisor. People call themselves registered investment advisors. Technically, the companies are registered investment advisor and these people are investment advisor representatives. Now, a lot of these people in central Texas, So what you want to do… And it’s perfectly fine to ask friends, to ask people in your social circle, people who you believe have some commonality with you about their attitudes, perhaps their age, perhaps their income. But you wanna go visit this advisor. And two or three things oughta happen at this initial consultation. First, the advisor should seek to get to know you. All of a sudden, you walk in and sit down and she says, I’ve got just the right thing for you. You probably ought to get up and run away. Because it’s a bit like going to your annual physical. The doctor’s going to ask you about various parts of your health. And so this person ought to to get to know you. Perhaps even, where’d you grow up? What’s been your professional path? Because the more you disclose, which is it should be in confidence, the more they understand you and your situation. Then they ought to be able to do at least three things. They ought to able to answer this question. If I were to give you my money, how would you invest it? In other words, what is your investment philosophy? What is your strategy? They have to be be able to articulate this in a fashion that makes sense to you. If it’s filled with a lot of jargon and you start to feel your eyelids getting heavy, not a good thing, okay? Secondly, They ought to talk about what does a happy, healthy client relationship look like? There’s some data that I’ve read years ago that when people are unhappy with their service professional, their architect or CPA or investment advisor, it’s lots of times it’s a mismatch or a misunderstanding of what services were going to be provided. When are you going to meet? When do you return calls, et cetera, et cetera? Just basic understanding of the relationship. And then third, what I said a few moments ago, is how are you compensated? My preference is they’re compensated on asset-based advisory fee. That’s how I would go about it. And because you’ve had experience, trust to some degree, trust your intuition. Not 100%. These people ought to be able to do the three things I just said, but if you just if you don’t get a good feeling There are plenty people out here who offer those services. Just keep looking and good luck to you, Rose. It’s time for me to take a break. A perfect time for you to call or text 512-921-5888. I’ll be back.

Jimmy Maas [00:20:51] Money Talk airs every Saturday at five o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTx Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a non-profit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org

KUT Announcer: Laurie Gallardo [00:21:22] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:21:35] Welcome back to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and the KUT App. Call or text 512-921-5888. Here was the text, it says, Hi Carl, do you recommend Trump account over 529 savings or even a normal brokerage account? I’m going to be able to answer this partially because I haven’t studied the Trump account So I don’t have. An educated thought on that. I will tell you, the idea behind 529 accounts was, gosh, post-secondary education is exceedingly expensive, and if we, the government, can give people some extra incentives to put money away for college, that’s a good deal. So, along come 529 college savings plans, you put money in. And then they stopped making them college savings plans, they just became education savings plans. And as long as you take the money out for a long list of education-related expenses, you don’t pay any taxes on it. And when they first came out, I thought they were terrific. I will tell you that I’ve changed my mind over the years. I really like simply setting up an account. You can call it an education account, like you’re talking about a brokerage account. And you put the money in, and you invest in tax-efficient exchange-traded funds or other tax-sufficient funds, and you allow the money to grow, you put money in regularly, and you have maximum flexibility. Uh, if you want at some point to buy a used car for your 16 year old son, don’t do it, buy it for your daughter, but nevertheless you have that ability, there’s no limit as to how you can spend the money. The other thing is, if you’re doing this to benefit a grandchild or a young child, you don’t know how, to use an old phrase, you don t know how they’re going to turn out. And maybe they’re not, you know, they maybe decide to spend a few years, as the old phrase said back in the 60s, sex, drugs, rock and roll. And having them not go to college or not use it for some education expense, and there sits the money. So personally, I would set up an account with your custodian, with your advisor, call it the Jane Doe Education account and invest that way. I’m sure I’m going to run into information about the Trump account, and when I do and I study it, then I’ll be able to compare and contrast it with what you call a normal brokerage account. Great question. 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 and here we have a call. Bob, you’re on the air. How may I help?

Bob [00:24:46] Hey, Carl, how you doing?

Carl Stuart [00:24:47] All right, great. Thanks.

Bob [00:24:50] I just want to let you know you are the Warren Buffett Financial Talk Radio.

Carl Stuart [00:24:57] Well, I’m close to his age, but I’m not nearly as smart and I’m sure not as wealthy.

Bob [00:25:01] You’re not even close to today. You still got a few more years to go, I’m sure. I just want to thank you for the service you provide to all of us out here. It’s kind of scary that, thanks to the internet, you’re heard around the world. But you’re very good at what you do. I want to give you thanks. I think your portfolio might be doing pretty do it because … Yeah. Of what’s going on. My question concerns basically the big banks and you know like Bank of America, Citi, Wells Fargo. I said they seem to be stuck. I understand I own the regionals too. I understand the region’s going down because the interest rates have a flat line. I’ve said I’d like for you to explain for lack of a better word the fog around the Federal Reserve and interest rates. I mean the 10th year is up like 13 bips this week and you know that that that points toward mortgages being up too so.

Carl Stuart [00:26:14] Yes, it does.

Bob [00:26:14] If you could, if you could reflect on that a little bit, I’d appreciate it.

Carl Stuart [00:26:18] You bet, happy to. So for everybody else, because this is a really thoughtful question, our central bank, the Federal Reserve, has two mandates. These are legal mandates. One is to keep inflation under control, and two, to do whatever they can to support what’s called full employment. And so they are in now, with this war in Iran, they are really in, between the rock and a hard place. If the war ends in relatively short period, based on history, oil prices fall back, it’ll be a short-term inflation spike and that’ll be it. That’s the best thinking I can find because if you look at what oil is priced at in the futures market, it implies that global Investors believe oil prices will be lower in the future than they are today, which is not the way normal commodities are priced. On the other hand, if the inflation shock continues because of high energy prices and the war drags on, and we’re not able to get control of the straight of our moves, and inflation expectations work their way through the global economy, and businesses are having to pass on higher prices. It’s going to be very, very hard for the Fed to lower interest rates, regardless of what the President wants. Now, so far, while he’s a bit on the controversial side, the betting is that Kevin Warsh will be able to be affirmed by Congress. Until he is, Jerome Powell is still going to be there, and Tom Tillis, the Senator from the Carolinas, is not going to let Warsh go through. But the bet is that worse we’ll get through because the Trump administration’s investigation of Powell will go away, that’s the bet. And so what you’re looking at is inflation expectations in the short term are moving up. And as a result of that, you saw what you just said. We went from maybe 390 to 425, 430 on the 10 year. We touched five on the 30 year. So the reason that the banks are flat The worst thing that can happen to a bank is stagflation, where you have a weakening economy and rising inflation. In a weaking economy, naturally their loan portfolio quality weakens because the businesses to which they’ve loaned the money are struggling. And in an inflation environment, interest rates go up, so they’ve got to pay more for deposits. So they have a weaker loan portfolio and higher cost deposits. That’s just about the worst thing that can happen to a bank. And so the reason you’re seeing this lack of performance in the big banks is that all of those unknowns are out there. And it’s hard for investors to make a bullish case for banks until we get through the duration of this war. That’s the way I see it, Bob.

Bob [00:29:30] Okay Carl, one more question, look into your crystal ball and tell me if we’re going to have stagflation.

Carl Stuart [00:29:40] It’s so different now from what it was in the 70s. You know, that’s when we had it. We were net energy importers, now we’re exporters. We didn’t have the productivity that came along in the 90s from the internet, and now it’s coming along in the form of AI. I don’t see it yet. I just think there’s some real push. Uh… Productivity push going on around the world in particularly in the united states you know the two things that drive uh… Growth are immigration which we flattened out but increase productivity and you look at some of the announcements of some of these large companies where they’re laying off thousands of people because they’re doing more work with fewer people now if you’re one of those persons getting laid off obviously that’s terrible But that’s productivity. That’s a tailwind to the economy. So, I haven’t seen the signals yet, Bob, of the stagnation.

Bob [00:30:42] Well said, Clark. I agree with you. Okay.

Carl Stuart [00:30:45] 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. All right, let’s see if we got some, here we go. Hi, did I just hear you say the proceeds from the sale of an inherited house are not taxes capital gain? Is this the case in all circumstances or what are the limitations? Work and I read rules about this. It’s not really about an inherited house. It’s about an inherit asset. If you receive stocks, bonds, real estate, mutual funds, exchange traded funds, okay, and a person sold those and you receive the money, that’s an inheritance, that’s not a taxable event to you. If the person died and still owned the home and you didn’t sell the home, then your cost basis in that home becomes the date, the value at the time of the decedent’s passing. So if they bought a house in Austin 50 years ago for $100,000 and they died and it’s worth a million dollars and you don’t sell it, your cost base is a million dollars. Now, if you sell it two years from now for a million $100000, yes, you have a tax on the gain of $100k if you’ve held it longer than a year. Long-term capital gain. All this is different if you’ve moved in and made it your primary residence. So inheriting assets is not a tax liability view. If you inherit tax-deferred accounts, if you inherit an IRA, or if you inherit a Roth IRA, and you are not a spouse, then you have a period of time, 10 years, to take the money out. If it’s an IRA it’s taxable income to you, and if it’s a Roth, it’s not taxable income to you. But receiving assets that you inherit, it is not a taxable that. You’re listening to Money Talk on KUT News 90.5 and the KUT App, call or text 512-921-5888. Let’s just see. Here’s an interesting one. Carl, could you talk about renting versus buying a home in today’s economy? Using your money for a down payment versus investing it? It seems in Austin, you can rent a house for less if a monthly payment than a mortgage. So renting seems like a better long-term option. What an interesting question. If you look, and you’re looking at it from a purely economic standpoint, which is wonderful, good for you, but we have this, I don’t know, mythology is probably the wrong term, but narrative in our country about the benefits of home ownership. I’ve read that in some countries in Europe, maybe Germany as I recall, a lot of people don’t own their homes. And if you have friends who live in Manhattan. You can’t afford to buy an apartment in Madhattan. So my sense is that if you are purely objective and you find the apartment that you like and it’s less expensive than owning a home, then renting the apartment and investing the money will be better to your long-term benefit. If you look at the history of residential real estate, it goes up about 4% a year. I know people are screaming at their radios right now about what a great investment Austin residential real estates has been. Tell that to somebody who lost everything in the late 80s and the early 90s here in Austin, Texas. On a national basis, the two things that deliver better returns and inflation are income producing real estate. Not residential, and common stocks. Income producing real estate because all things being equal and not every year, rents go up and if rents goes up and interest rates are stable, the value of the future cash flows make the value the underlying property appreciate. When you invest in the stock market, I’m not a fan of individual stocks, when you invest in a broad-based index of U.S. And foreign securities, you are betting on human ingenuity. That’s Ben. Over history, a darn good bet. So I’m answering your question in a long-winded fashion, that’s not very unusual for me, but I think if you don’t have that narrative about owning your own home, the nice thing about having the apartment, you probably don’t need to make a commitment of longer than a year, and you don’t have all those operating expenses, all the things that can go wrong in home ownership, because you’re listening to a homeowner right now. Those things don’t occur to you. So as you have phrased the question, yes, I think that you could rent and invest the money. I think, that’s a perfectly reasonable idea. Thanks for the text. I think we don’t have any incoming texts this afternoon or calls, so I’m gonna do a little bloviation and then go back and see if there’s something else that I wanna talk about that I haven’t answered. Five, one, two, nine, two one. 5 8 8 8 We’ve had either three or four consecutive negative weeks in the financial markets. I guess that’s not a terrible surprise, given the conflict in Iran. And those of you who are regular listeners know that when it comes to the bond market, I’m a fan of not just having one bond fund. And the reason I’m bringing this up is that it’s been very interesting since the war started how bond funds have responded. For those of you who have not heard me say this before, I like active management in bonds as opposed to passive. What do I mean by that? Well, passive would be like you own the S&P 500 or you own a total bond market fund or a fund that follows the bond, a Bloomberg bond aggregate index. They’re cheap, they’re tax efficient, but I think when it comes to the bond market, It’s much less of an efficient market than the stock market, and I think there are ways that you can participate in the bond market. And when things don’t go well, then doing what I’m about to tell you will actually be, in my opinion and based on my experience, helpful to you as an investor. But before I do that, I’m gonna tell you that I’m going to take a break, and it’s a great time, because as I said, we have no incoming texts and we have calls right now. 512-921- 5888.

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KUT Announcer: Laurie Gallardo [00:38:46] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:39:00] Welcome back to Money Talk, I’m Carl Stuart and you’re listening to KUT News 90.5 and on the KUT app. When you have a financial or investment plan in question, call or text 512-921-5888. So when I think about adding bonds to a portfolio, I could just do the really inexpensive thing and buy the AGG, the Bloomberg egg. And, you know, I don’t make individual security recommendations or any kind of recommendations on Money Talk, but that’s available, symbol AJJ, it’s dirt cheap to own, and it will mirror the underlying index, which is an intermediate-term six, seven-year duration portfolio. But what I like is to buy three different funds, one that invests in high-quality, very short-term bonds. One that does invest similarly to the AG, that’s those are called core funds by Morningstar. And then the third is what Morningstar calls a multi-sector fund, where the managers of that bond fund can buy bonds anywhere all over the world. They can buy investment grade, they can buy below investment grade et cetera. So now, here’s what’s happening year to date. I think it’s very interesting. So as of yesterday that the AG that you could own, you can’t own an index, but you could have bought, you could’ve purchased this exchange traded fund. As of year today, it’s down 0.59%. It’s not exactly terrible. And if you had an actively managed one, I’m just looking at one that I like, it’s done 0.42, no big deal. And the multi-sector is down 1.26%. But the reason I bring it up is the short-term one’s up. 0.77% year-to-date. That’s the deal. In a rising rate environment, you have an absolutely better chance of having a positive return in the short fund, whereas in a falling or flat rate environment you may do better in the core or in the multi-sector. That is why I like the three of those. You’re listening to Money Talk on KUT News 90.5 and on the Call or text 512-512-9000. 921-5888, here we go. Kelly, you’re on the air, how may I help?

Kelly [00:41:29] Hi, Carl. I have a question. I’m 66. In 2024, I inherited an IRA worth about 100k. I have just kind of had it sitting safely, very low risk because of my age and I do want to like I’m going to try to keep working till I’m 70 before I claim social security. I do have to have the inherited IRA. Taken out by I think 2034, what would you recommend, like how could I maximize, like get that money to make money for me but not be so afraid of the risk of losing it all?

Carl Stuart [00:42:14] Well, you’ve just asked the hardest question in the investment world, congratulations.

Carl Stuart [00:42:19] Ha ha ha ha

Carl Stuart [00:42:22] What I’d like, please, please sir, may I have an investment that has good returns but no risk? And the answer, of course, is that doesn’t exist. It does not exist. And so you’re going to have to either learn the hard lesson about taking risk or you’re just going to put the money in a government money market fund. You’ll earn between three and four percent. You’ll be able to get your hands on the money every day. If interest rates go down, the return will go down. If interest rate go up, the returns will go up. You can go to Schwab or Fidelity or Vanguard. You can look at their government money market fund and you’ll know that no matter what happens in the war in Iran or what happens geopolitically or inflation or recession, that money’s gonna be safe. Okay, full stop. Will it grow faster than the rate of inflation? Absolutely not. Absolutely not, it’s not designed to do that. That’s what we call a cash alternative. When you want safety, you have to decide how to define that. Most people, and I suspect this is true for you, Kelly, is if I put my $100,000 in there, I don’t want to wake up one morning and find out it’s $95,000. That’s not safe. The problem is, you put it in and it grows, let’s just pretend it grows to 3%, and when money comes out, you pay taxes on it, and your after-tax return. Is lower than the rate of inflation. That’s just the way the world works. So either do that and just accept the fact that it’s going to be a modest growth but then what we call the nominal value. It’ll look like a hundred. It’ll grow slowly. You reinvest the dividends. It will grow slowly it’ll be fine. If you want more than that you have to step out and take some risk. Now there’s two or three ways to do this. You can buy bond mutual funds. And I just described, you can go back and listen to this podcast. I just describe the three kinds of funds to buy, okay? You’ll get right now, today, their yields are 3.9, 4.5, 5.8. That doesn’t mean that they’re risk-free. They go up and down, not a whole lot, but they go up an down. That’s the next step out. And the last step out, would be for you to own some stock mutual funds. You’re not gonna do that. I can tell in your voice, you would lose sleep doing that. And so you don’t want to invest and then have a bunch of anxiety in your life. Either go with a government money market fund or the bond funds. I don’t make specific recommendations. I talk about the various categories that I did earlier today. We’ll do one of those two things, Kelly, But I must push back a little bit. You’re 66. That’s not very old. You know, we have this concept of life expectancy, but life expectancy is the whole population. That is not the people who listen to Money Talk. I’m guessing you’re pretty healthy. I am guessing you don’t abuse alcohol and you’re not a heavy smoker. I am guessing that you have access to quality healthcare. And when you talk about those things, Life expectancy is not the concept, it’s longevity. You could live to be 95. Now if you have some major health issue, then that’s, which is obviously none of my business, fine. But don’t think of yourself as an old person when you’re 66 because you’re not.

Kelly [00:46:01] Okay, I have a question then would it be like something that I think I might feel comfortable with but I’m not sure Like what if I took half of it and got risky with it? Years be enough

Carl Stuart [00:46:15] Yes, yes, yes. Your risk is always in the short term. We, you know, you and I could have had this conversation six weeks ago. You could have done this. And then the war broke out and no, neither one of us knew that was going to happen. So absolutely that it’s, but when you start talking about, you say, show me what the risks are, if I have an eight year holding period for owning, uh, a total stock market mutual fund in a total. International stock market mutual, and what are the odds of me losing money? They’re very, very small. So here’s what you, if you can do that, give it, now’s the perfect time to get started because the headlines are so negative. You don’t take the 50,000 and put it in all at once. Keep 50,00 in the money market fund, take 10,000, and you put 70% of it in what’s called a total stock market exchange traded fund, remember you can listen to all this on the podcast. You put 30% of what’s called the total international stock fund, but you start with $10,000, and you put $10 thousand in when you set it up, and then you wait six weeks and you put another 10, and you wait 6 weeks and another 10 until you’re fully invested. Don’t look at the headlines. Don’t let that change your strategy. If things continue to go down, you’re buying shares at more and more attractive prices. That enhances your odds of success over the next eight years.

Kelly [00:47:47] Okay, and one last question or I don’t know if this will open up a can of worms to different questions, but Doing that Then do I pay taxes when I move it into there or when I take it out?

Carl Stuart [00:48:02] Yeah, when you take it out, because it’s an IRA, you take it out and then you pay the taxes.

Kelly [00:48:08] And then does that count as the money being moved out of the IRA so that like within, because I think they told me I have 10 years that it can sit there, but I have to move it because it was inherited?

Carl Stuart [00:48:21] You have to have it in your name. It’s called a beneficiary IRA. You have select a custodian. Either you have an advisor or you do your homework. You’re a smart person. Go to the websites of Fidel de Chouab, Vanguard. Read all about that. You pick one of them as a custodean and do what I told you to do.

Kelly [00:48:40] Okay, every six weeks, put in 10,000 and then I can leave it there and in eight years, I do have plenty of time to make more money.

Carl Stuart [00:48:51] Yes you do indeed, that’s exactly correct, Kelly.

Kelly [00:48:55] Okay, well thank you so much and you have a good evening.

Carl Stuart [00:48:58] Well, thank you. I love this show you’re listening to money talk on KUT news 90.5 and the KUT app 512 921 5 8 8 8 and you can catch past shows or as Kelly’s going to do go back and listen today’s show at KUT org slash money talk here is another call. I Just dropped it, you know mark That, can you tell me what Catherine wanted? I hit the wrong button on the software here. I guess not. Okay, Catherine, I apologize. I’m trying to look at my phone and I’m trying to look at the time and I am looking at the software, so I apologize, please if you can call back that would be just terrific. Thank you. You’re listening to Money Talk on KUT News 90.5 and the KUT App 512-921-5888. Here’s the text. On the topic of capital gains tax. On an inherited house that the property value increases between the date of death and the sale date you will cap the gains tax. I know, I just said that. But the other side of it is it could go down. You’re exactly right. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. 512-921-5888. I’m good. Hi Katherine, I apologize for hanging up on you. How may I help?

Katherine [00:50:28] Oh, that’s okay. I will be brief. My sister and I are going to see my mom. She was an only child and she’s on the West Coast and she actually agreed to have us meet with her lawyer which stunned us and she is 84 and I’m wondering what kind of questions on her finances and so forth should we maybe be prepared to ask. We don’t get see her very often, and she’s pretty resistant to sharing.

Carl Stuart [00:50:57] Well, I understand that. That’s part of a generational thing. You’re talking to somebody. I’ve struggled with that. And my children have beaten me up enough that I’ve started to let loose. So I get it. I think you wanna make sure that on all her accounts, she’s listed what’s called a trusted contact, okay? That’s a very big deal. And then if she has any kind of retirement accounts, like an IRA or a wrong IRA, make sure that she has the beneficiaries and beneficiary information is up to date so the dates of birth and social security and all that stuff of the beneficiaries and what percentage of the accounts she wants to go to you and your sister or somebody else. Okay. Right. Another question. Is your mom philanthropically inclined? Does she donate money?

Katherine [00:51:51] Well, we’re worried she might leave all of it to the church.

Carl Stuart [00:51:56] All right.

Katherine [00:51:57] So yeah, she is fairly philanthropically inclined, and I should point out it’s just her, obviously. There’s not a spouse involved.

Carl Stuart [00:52:06] Right, right. Well, if she decides to leave it to the church, that’s going to be in her will, and may well be in the beneficiary designation. But if she had tax-deferred accounts, she’s old enough, she’s got to take money out every year, and if she’s not spending it, she can do something called a qualified charitable distribution and give the money to the church and not have to pay taxes on the required minimum distribution. That’s something you want to look at.

Katherine [00:52:33] Yes, she may be doing that because she’s not retired yet.

Carl Stuart [00:52:36] Okay good for her, okay now other than that you’re meeting with her lawyer, does she do her own investing or does she have an advisor?

Katherine [00:52:47] I don’t think she invests her money, she just owns two homes outright.

Carl Stuart [00:52:52] So then you ought to ask.

Katherine [00:52:53] She also has a very small salary. She’s never had a lot from her salary. It’s really inherited.

Carl Stuart [00:53:00] Okay, so what do you think she does with the inheritance? How is it, where’s it sit, how’s it invested, do you know?

Katherine [00:53:07] I do not. That’s what you want to find. Other than the two homes that she owns outright. One she lived in, one she went.

Carl Stuart [00:53:14] If you can get her to break loose and she’ll show you the statement of where the inheritance is, that’s a big deal. She sounds like a strong person, she’s probably doing just fine, but you ought to get a hold of the most recent statement to see how her money is invested. Now, when she passes away owning that real estate, if you and your sister are the beneficiaries you’re gonna get what’s called a step-up in basis. And when you sell those, unless it’s appreciated after her demise, that will not be a taxable event to you. So, given her age and the fact that she uses a rental income, I would just leave it alone, but make sure there’s trusted person on the various documents. If she has an account and her name, she can put on it TOD, transfer on death, and she can you girls on there. Uh, and sometimes they use POD. I’m not, I’m, not familiar with California, but it’s a way you can do that. And you don’t have to probate because it goes directly to you or to whomever.

Katherine [00:54:26] We have one here, so I’m familiar.

Carl Stuart [00:54:30] Okay, Cap.

Katherine [00:54:32] Thank you so much, Carl. I love your show.

Carl Stuart [00:54:34] Thanks a lot. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 in the KUT app, and I’m not going to give out the number because we have a caller. Mike, you’re on the air. How may I help? Hey, Carl. Appreciate it.

Mike [00:54:49] Thank you. I got a quick one. This is not a big deal. I’m retired, but all this really just involves flat-out cash. We had a checking account, it was doing nothing, so we put it over in a Capital One high-yield account, which at the time was getting five, about a year and a half ago. Yeah. And now it’s down, of course, to about a little over three. Yes. So I was wondering what you might do in this case. I got three choices the way I see it. I got a money market Vanguard that’s got 75,000. And that’s you know doing i think it’s a federal money market and then uh… I have the option uh… Capital was offered a temporary one month four uh… Percent cd i don’t really need the money that bad or uh… I could swap all the money from the capital one account into by money market fund or flop at the other way all into a capital one uh… Cd early so i’m not a bit like maybe have a little cash left out Or is there any other, what would you do with a situation like that, or do you have any other advice that I might do with it?

Carl Stuart [00:55:49] So we’ve got 75, what’s the total amount of the capital?

Mike [00:55:53] Uh, probably about 225 just generally.

Carl Stuart [00:55:57] Okay, so, obviously the global bond market doesn’t know whether rates are gonna go up or down from here, given what’s happened to the price of oil and the duration. I like, I take a part of the money, I take part of money and lock it in for 11 months. But I wouldn’t take half of it, I’d take less of it. I’m prepared to take the market risk that rates are going to stay where they are or slightly go higher. I think I’d put the majority of the in the money market fund. If rates go higher, you’re gonna participate. If you’re willing to, I don’t think this is taking risk. Look, if you’re at Vanguard, they have a prime, a government, and a treasury. Look at the prime, it’ll give you a few more basis points of interest. Nobody at Vanguard or Schwab or Fidelity is ever gonna let these money market funds fail. I’m just telling you. Back when rates were virtually zero, the Wall Street Journal said, that Schwab was losing money because it cost them more to operate the money market fund than they got in interest, but they sure didn’t let it go. So put the bulk of it in that prime money market fund and take maybe a third of the money and put it in the capital one. That’s what I would do if I were in your shoes. All right, I appreciate it, man. Thank you very much. You bet, thanks for calling. Well, it’s been a lot of fun this afternoon. I wanna thank Mark for doing his usual terrific job. Thank you for listening and to remind you the next Saturday at 5 o’clock. Be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:57:32] 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.