Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on emphasizing the importance of avoiding large losses, understanding market cycles, managing risk psychologically, and not letting taxes drive investment decisions.

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 [00:00:00] 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, if you’re a new time listener. Money Talk is a broadcast about the world of financial and investment planning where you always determine our agenda by calling or texting 512-921-5888. It’s a terrific idea to call or text early in the broadcast, giving me ample opportunity to do my best to answer your question. I take today’s calls first, and then today’s texts, and previous texts that I have not had the opportunity to answer. So you will hear the texts coming in. I’m going to get to one of those right away, but we naturally have all of our lines available. Call or text 512-921-9228. 5888. This is a bit of a long one, but I think it’s interesting and I just got it today. Hi Carl. I’ve enjoyed and benefited from your bloviations since 2018. Good for you and I’m happy I can catch the new program on Spotify. I’m glad you’re doing that. I am sending this early due to the time difference, which you’ll learn about in a minute, and I hope it reaches you. It does, and did. I’m 39 and retiring from the military next year. My pension will be a little over $40,000, which has a cost of living adjustment each year. I currently have about $220,000 in my TSP, that’s the military 401k plan, with $120,000 of that in the Roth and the rest in traditional, which I plan on converting over the next few years. Good for you, now that the TSP allows you to. Normally, I contribute about 30% of my pay, think of that, into our retirement. Bonds, never heard of them. With my investment horizon, I have all gas and no breaks into human innovation, good for you. I plan on working another 20 years or so and anticipate my second career will compensate me well. My wife and I have no debt other than an income producing property. This financed a 2.25%, congratulations. With less than $300,000 left on the mortgage. We have a daughter, and I’ve transferred my military education benefits to her, so college is basically covered, which is terrific. So here’s the brain buster. My wife, who is 10 years older than I, has only paid into Social Security for about two and a half years. Is it worth having her get a part-time job to reach the minimum requirement for Social Security? The thing is, She is an elite level long distance runner. And with her family’s longevity and advances in healthcare, I expect her to outlive me by 160 years or so. While I don’t anticipate a Social Security benefit, she might be able to have long-term benefit from one. Once I pass away, she would get 55% of my retirement benefit or $22,000. Thank you for your insight. Listen to this, Jeff in Italy, which I believe is seven hours from now, so. No doubt Jeff hopefully is sleeping. Well, Jeff, I think because of a couple of things, because you do have lifetime income and your spouse is going to get a fair amount of that upon your demise, my understanding, while you didn’t mention it, is you have healthcare because of your military service and you don’t have a college expense. And I think the thing that’s really important is that you save and invest. After all, you said you’ve been saving about 30% of your income. So I’m going to presume that you’re going to be able to save a lot in the future because you’ll have your military pension and you’ll had savings. I don’t think in your particular situation that your wife should go back to work unless she wants to. I should back to go to work unless she want to. I mean, she has, obviously… Terrific skill and athletic skill, and she may find something that has interest for her in the athletic arena. And if she does, then I think she should get a job. But given the lack of debt, the very good interest rate on your income producing property, which should appreciate over time, given the growth in your 401k, your TSP over time. I don’t see that there’s compelling reason. For your spouse to get a job just to get Social Security benefits. Thanks for the text and thanks for the last eight years of listening. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888 and it looks like I have an incoming call. Jaime, you’re on the air, how may I help?

jamie [00:05:37] Hey, thanks for taking my call. You’re welcome. I have a retirement account that’s separate from all of this, but I work for one of the, like, magnificent seven tech companies, and the stock has been doing very well. I’ve just been sitting on it for years. I don’t necessarily need it right now.

Carl Stuart [00:05:54] Mm-hmm.

jamie [00:05:54] I’m kind of worried about leaving it there versus diversifying. It’s worked out so far, but it has a wonder about taking the tax kick or what I should do with that. Sure. Right now it’s just kind of…

Carl Stuart [00:06:06] Sure. So more or less, I mean, it changes every day, but more or less, what’s the value of that, of that of your holding in that company? Half a million? About half a million dollars. Do you have other savings and investments, IRAs, 401ks, investing on your own? Do you other financial asset investments, Jaime? Yes. What would you guess is that not guess? Estimate is the total value of those.

jamie [00:06:38] Maybe a little more than that, maybe about 600,000.

Carl Stuart [00:06:42] Okay, good to know. So, I would suggest this. I think I would substantially reduce my exposure for a couple of reasons. You have what we think of in my world as a concentrated position. Fortunately, it’s really, really worked out for you, but it could easily not have, as you well know, and you’re in a bottleful sector and you have this huge tailwind with the so-called AI trade in the stock market. If I were in your shoes, I would liquidate a vast sum of it. Now, remember, if you’ve held these shares for longer than a year, you’re going to pay taxes at the long-term capital gain rate. The maximum on that’s 23.8, versus the maximum income tax rate of 37%. So if I were you, I’d start to sell it, and there’s a couple of ways to do this. One is to say, How much, at the end of this process, do I want to have in there? If I’ve got a million one in financial assets, a big position would be a 10% position. So that’s $110,000. Let’s just pretend that that’s it. So your target is to get your holding down, your MAG-7 holding down to that value. Now you can do it all at once, what we say in a not very investment way, rip the bandage, or you can choose to do it over time. The risk pretty obviously in doing it over time is that we’ve had three and a half years of terrific returns for US stocks. That’s very, very unusual. Secondly, we’re in the midterm year, and when you go back, as I have, and study the long term, probably 100 years or so, of the four years of the presidential cycle, the midterms is the weakest of the 4. So I would sell sooner rather than later. I probably would sell the whole thing. If you’re uncomfortable with that, I would set myself some guardrails. I’d sell some if I were you on the next business day, which would be Monday. And then I would have plans to sell it down to that level that I’m comfortable with every, say, month to six weeks. But if there starts to be a sharp sell-off, accelerate that, because you don’t know if it’s gonna come back. Don’t write it all the way down. We’re overdue for a bear market. I hope it doesn’t occur, but I don’t want you to write it down and lose all these profits. So if I were in your shoes, I mean, that’s what I would do.

jamie [00:09:18] And then what would you do with the proceeds? Thank you for that.

Carl Stuart [00:09:21] Yeah. So you’re already in the stock market. How old a man are you? 40. And do you have any exposure to international stocks?

jamie [00:09:35] It’s a little bit to the 401k that I have, not a lot.

Carl Stuart [00:09:38] Yeah So you need to do that. You need to look at your stock allocation, and in my view you should have 25 percent of it in international stocks. There’s two ways to do this. You can buy a very inexpensive ex-US exchange traded fund for anywhere from three to seven basis points cost. And if you do it with your own money, there’s no capital gains tax liability. Because you’re underweighted there and we’ve had a long period. Of U.S. Outperformance until last year, and this year they’re both about even. So I think you wanna do some international. And because you’re already, if this were cash, I’d say, okay, I want you to take six months to get invested, but it’s not. You’re already in the equity market. So I would go ahead and spread that out among the various parts of the equity market, including for sure, 25% of my million won in international equities. Okay. Okay, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a question, call or text 512-921-5888. Here’s another call. Eric, you’re on the air, how may I help?

Eric [00:11:04] Hey Carl, I really like your show. Thank you. I’m gonna be leaving the company I work for in a little while, it’s a small private company and I have a fair number of stock options available to me, none of which I’ve exercised. I understand my ability to exercise those options is gonna disappear 90 days after I leave the company. So what I’m trying to do is decide whether or not to exercise any of them and if so, how many? Yeah. I don’t have enough spare cash to exercise anything so I’d have to sell some regular investments in order to buy them. I really hate to just let them go up in smoke, but I also know that there’s a significant risk in buying stock in a private company. I don’t know if I’ll win or if I will ever have the ability to sell their shares. So how do you advise? I’d go about deciding what to do.

Carl Stuart [00:11:48] Yeah, I think that’s a terrific question. So when any of us makes an illiquid investment, we ought to anticipate a higher return than we can get on a public investment. The academic term for that is the liquidity premium. Because I don’t have liquidity, as you’ve just said, I can’t sell it when I want to, I should expect a substantially higher return. Now, without knowing anything about the company. The number of companies, private companies, far exceed the number of public companies, but the failure rate of private companies is quite high because things happen outside the company’s control, like tariffs or a COVID pandemic or other things. You know the inside of the company. I don’t know if you know the competitors both domestically and globally. And I would say, if you’re optimistic about it, of your other investment assets away from this private investment, what’s the total value? Wherever they are, 401ks or wherever, what is the total value of your financial assets?

Eric [00:13:04] About 250,000.

Carl Stuart [00:13:06] Yeah, so I would keep this pretty small if I were you, because if you put, say, 25,000 in, and it doesn’t work, it’s a little bit like watching your 250,000 go to 225, right, and so if you can swallow that, if you could live with that, that’s how I would think about that. I would thing, how much can I, let’s suppose I put x in there and it goes to zero. Number one, how’s that gonna be for me psychologically and how’s it gonna be for my long-term financial independence? And that’s how I would size it if I were in your shoes, Eric.

Carl Stuart [00:13:44] Okay, great. Thank you.

Carl Stuart [00:13:46] You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. We’re off to a great start. All of our lines are available. Call or text 512-921-5888. And by the way, as our friend in Italy has done, you can catch past shows at kut.org slash Money Talk and obviously you can do what he did and does by going to Spotify. I heard a couple of texts, let’s see. Hi Carl, I am looking to sell my house in Austin and live with my girlfriend for one year so we can save money to move and purchase a new home up north. My thought is that, one, I can’t risk losing the money from the sale. It will be approximately $500,000. Would buying two one-year brokered CDs through Vanguard be the safest way? To modestly grow and retain my principal. Any better advice to grow and hold money that can’t be subbed to market losses? Thanks. I would compare the CD rates to the Vanguard Government Money Market Fund. Remember, I don’t make recommendations of specific securities on Money Talk, but you’re already talking about that. Vanguard has three money market funds, a prime, a government, and a treasury. My favorite would be the middle one. Fidelity does as well. Schwab does as well. Most broker-dealers and custodians have them. You get daily liquidity. I think they’re safe. And they will follow short-term interest rates. So what’s the risk? I guess the risk is that over this next one year interest rates go sharply lower and the return will fall over time from the money market fund. Where we sit today, I don’t know that that’s particularly plausible or likely, but I would look at the government money market fund is probably around 360 or so, and I haven’t checked recently, and then compare and contrast that to the CD, or split it, put some of the money in the CD and some in the money market. I think that’s the way I would go if I were in your shoes. Thanks for the text. You’re listening to any talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. My wife has a pension and I have investments. If I die then she has all my investments and nothing to worry about. If she dies, then I have nothing because her pension would stop paying. Life insurance is very expensive at 60 years old. So are there any other options? Well, first of all, you’re right about life insurance. Just, it’s just purely actuarial. You might look into term insurance and determine what the costs are. It’s gonna, the whole life is just out of the question. But look at term insurance. They all, when I’ve looked, they’re very, very similar because all the insurance companies. Have the same database, they have the same actuarial facts. Other than that, I think what you would have to do is look at assets and determine if you can take a reasonable amount from your assets to live on. And then you don’t say this because I don’t know whether you have a home or not, then the other alternative is ultimately to either access the equity in your I’m kind of reluctant on a reverse mortgage, but you might look into that, or a home equity loan. Or for that matter, or this may not sound very attractive because we all get very attached to our homes, you may end up having to sell your house if you have one. But if you if you any kind of other assets other than your investments. Now, since you are a relatively young person at 60, the odds are pretty good that she’s going to live a long time. Nevertheless, think about this. Think about your investments. If they’re properly invested, that means not sitting in a money market fund and not sitting in the savings account. And the older you get, the higher the level of income you can take from your portfolio. You can probably start around three and a half to four percent. And as you grow older, if she does predecease you, you might get up to five to 6%. But I think reducing your liabilities if you have them, pretty obviously. There’s no way unless you know something that you didn’t say about increasing your income. And ultimately, if you own a home, that’s a source of equity for you. So good luck. You’re listening to Money Talk. It’s time for me to take a break. A perfect time for you to call or text 90. Call KUT 90.5, call 512. 921-5888 and I’ll be back.

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KUT Announcer: Laurie Gallardo [00:19:41] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:19:55] Welcome back to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 in the KUT app. When you have a financial or investment plan in question, call or text me at 512-921-5888. Here’s a text I got this afternoon just before we went on the air. Hi Carl, on this program there’s been a lot of discussion about finding and evaluating a financial advisor. The understanding is that a person has a portfolio for that advisor to manage. That’s correct. What if a person were to need advice about financial calculations bearing on whether or not selling a house makes more sense financially than fixing it up and staying at it, factoring in retirement income, age, physical condition, and tax status? Can one a person pay hourly for such calculations? What type of financial professional? Would you look for? Asking for a friend, yours again, Linda. Linda, this is a really difficult conversation for me to come up with a good answer because a lot of people who are investment advisors will do financial planning which is what you’re asking about as part of their services but they’re paid for the investment advisory fees. So it’s not profitable. For a lot of investment advisors and financial advisors to provide what you’re talking about. Secondly, if you select someone with fiduciary responsibility, they really take a risk telling you what to do unless they have expertise in the area. So that’s really difficult. Now I will tell you my understanding of the marketplace and my colleague Lindsay and I were talking about this yesterday. There are some people earlier in their career who will offer financial planning services for a flat fee. And their hope, of course, is to build in a business where they can get paid more because they deserve to make a living. So there is a designation called Certified Financial Planner. And there is local organization, the Financial Planning Association of Austin. I’ve not looked at their website, but it’s plausible that there’ll be people on there. And then if that’s the case, what you would do is just take some time and contact these people, tell them your situation as you’ve just shared with me, and see if this is something that they will help you with. And I hope that they would, but good luck, it’s not going to be easy. And thanks for your text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here we go with somebody’s calling in, good. Lawrence, you’re on the air. How may I help?

Lawrence [00:22:56] Thank you so much. I recently heard that it was possible to use your RMD to you have money to invest in a Roth. Is that true? Is it possible in any consequence?

Carl Stuart [00:23:15] Uh… It’s not true uh… The uh… You’ve got it you can take money out of an ira and you can invest it uh… But you still gotta take their r m a the required minimum distribution r m d i suppose let’s just suppose you had a million dollar ira required minimum redistribution was uh… A hundred thousand dollars you could take that you can’t take that uh… Uh, and then, um, you could, I’m just thinking out loud. Um, I. If we have accountants listening, they’ll make sure to correct me if I’m mistaken. I suppose, you know, I suppose that dollars, a dollar is a dollar. You could take that, in my hypothesis, the $100,000 and you’re still going to have to have no, because you’ve got to do a Roth conversion. If you do a roth conversion, you’ve gotta do that, you still gotta take your RMD and then if you want to put money in a Roth, I think you take additional money out. To do the Roth conversion. That’s my best guess. Yeah, I think that’s my biggest guess. I’m not positive, I’m think so, so I want to thank you for your question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. And if I’m mistaken and we have an expert listening, you too, like everyone else, can call or text 512-921-5888. Sarah, you’re on the air, how may I help?

Sarah [00:24:49] I first want to start by saying I really enjoyed listening to your show.

Carl Stuart [00:24:55] Thank you, I really enjoy it too. Listen, I love the show.

Sarah [00:25:00] Thank you. My question is twofold. The first part is I have two adult daughters and I have a will. My question, is what is the difference and the benefits of having a will as opposed to a trust?

Carl Stuart [00:25:14] Yeah, okay, so generally speaking, the will is simple for most people. What you want to have in your will that’s typically not in a trust is a directive to physicians or a healthcare power of attorney so that you identify one or both of your daughters if you ended up in a comatose state. That goes into will, that wouldn’t be in a trust. Typically a bequest, you have two daughters, I happen to have two, I happen to have to daughters and my wife has some lovely jewelry and so she’s explained to them the process about how they will divide up the jewelry. So there’s some things that are not necessarily in a trust that would be in a will. The reason you have a trust, I would guess, is that you could put the money in there and if it was an irrevocable trust that you can never change, then it would not be part of your estate, generally for most people, unless they have massive amounts, more than $15 million of net assets as an individual, getting assets out of your state’s not particularly a big deal. And so I’m having a hard time coming up, you don’t need a special needs trust, you don’t have a situation where you believe that the money that you’re going to give one daughter, she has a, I don’t know, she has an addictive personality and you don’t want to have her control of it. I mean, there are situations like that. Other than that, a straightforward will, in my opinion, would be just fine for you, Sarah.

Sarah [00:27:03] Perfect and then the last question is that the will have to be notarized in the state of Texas to be valid

Carl Stuart [00:27:10] I think it has to be witnessed. I’m not sure if it has to be notarized. That’s really out on the edge of my expertise. I hope we get a lawyer or an expert to answer that. I haven’t, I just don’t know. I am not sure. Sorry, sir.

Sarah [00:27:26] Well, now you answer my question. Thank you very much.

Carl Stuart [00:27:29] You’re welcome, you bet. I’m appreciate you calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a question, call or text 512-921-5888. Here’s a text that just came in. Hi Carl. Love the show. Thank you. Heard about you talking about saving some managed futures in a portfolio. Would you explain a bit about managed futures? Yes, I will. So… Here’s how my interest first came to this. So if you’re a long time listener, you know that I tell people I’ve lost money in every conceivable asset class, stocks, bonds, real estate, commodities, you name it. And I’ve been through the rise and collapse of energy prices, the rise and collapse of Texas real estate. The rise and the collapse of technology companies that we now call the dot com bus, the global financial crisis. And what I’ve learned is… It’s not a secret, but the key to making money over long periods of time is not losing a lot of money in bad times. Let me give you an example. Let me use the global financial crisis because I think most of our listeners were around in 2008. Think of this. In 2008, more or less, the S&P 500 was down 40% and the international market was down 50%. And high-yield bonds were down about 25%, and real estate investment trusts were down over 50%, and the oil went from above $130 to $30. So you could have had all of those in a portfolio and been perfectly diversified, and you still had a really bad experience. If you lose, let me just give you an example. If you had a million dollars and you lost 40%, now you have $60,000. You’ve gotta make. $400,000 on your $600,000, that’s a 66% return. If you lost $250,000 not any fun, now you have $750,000. You have to make 250 on that, right? That’s a 33% return, so what I’m talking about here is the sharp, what happens in sharp declines and it’s even worse if you’re retired and you’re taking money out to live on. So I started looking for assets that are non-correlated to the stock market. And one of the ones that jumped out, the fancy term, is trend following, and this has been around for, I don’t know, a couple hundred years. It started, actually, probably not as an investment, but as a way for people to guarantee future prices, and let me just give you an example. So my grandfather had a 100-acre farm in northeastern Missouri, and he grew corn and soybeans. So if he wanted to, even before he harvested the corn, the soybeans, he could have sold that production in advance in what’s called the commodities futures market. Whatever the market was, he can say, okay, I’m gonna sell that at that price. I now have taken the price risk out of the equation. I know what I’m going to get for it. If the market price at harvest time is higher, well, that’s the way it goes. If it’s lower, I’ve locked it in. So that is how this thing all started, but it moved on because what developed and it really expanded with the advent of computers is the ability to trade the four global asset classes in the world. What are those? Stocks, interest rates like bonds, commodities and currencies. But here’s the key. A trend following strategy properly allocated. Can benefit from falling prices as well as rising prices. So when you look at 2008 and you look something called the ST Trend Index which is that way I’m not cherry picking a particular investment it returns seventeen percent. The good news is this, back when I got started in this profession, the only way you could get to this is you would go into a limited partnership. That’s all your choice. Well it’s illiquid, you can’t sell it when you want. You don’t get a Form 1099, you get a K-1. And typically they were hard to understand and they were expensive, they had a lot of high fees. Today, there are exchange-traded funds and Fortiac open-end mutual funds. That have this strategy. And you can go to Morningstar and look for trend following and look at various managed futures businesses. Now, I will warn you that you pay for the non-correlation. There may be good years in the stock market, like last year, and your fund might make 2%, okay? So, the way I think about it and talk about it on Money Talk is if you’re interested in managed futures, what you’re really interested in. Is reducing your risk to a sustained longer-term decline in the stock market, or for that matter the bond market, or for the matter the dollar, or for matter any other kinds of currencies or commodities. I treat it a bit like homeowners insurance. Many years ago, we had a hail damage to our roof and we had to have it replaced and it was $140,000, and I was real glad I had homeowners insurance, and I didn’t stop paying it the next year and I still pay my premiums every year. I don’t want to have hail damage again, but I don’t want to worry about having another hundred and forty thousand dollar claim. So when you put money in managed futures based on my experience, you have to understand that in good years for stocks or good years or bonds, you may well not have much of return and it will be a detractor to your return. So this is not something to go into lightly. Now, I will tell you the most recent example of how this worked was in 2022. When the Standard& Poor 500 was down 19%, the NASDAQ was down 33%, and these strategies were up between 15 and 20%. So it doesn’t work all the time, didn’t work well for you in 2023, 2024, 2025, so you really have to decide if you understand this and you understand what we call the return profile, whether it’s appropriate for you, and I hope that’s helpful. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888 and you can catch past shows at KUT.org slash Money Talk or as they say, wherever you get your podcasts. Here comes a call. Brian, you are on the air. How may I help?

Brian [00:34:25] Good afternoon, Carl. Good afternoon. I like everyone else, enjoy your show. Thank you. My question is this, you’re welcome. My question’s this. I have about a million and a half dollars in Charles Schwab, part of that, like 400,000 was in an IRA, and it’s in moderate growth funds. I also have about 120 a year, in pension and social security. I’m 74 years old. I have been listening to your remarks about, and I’ve been concerned about this, upcoming bear market. Do you think I should instruct my financial advisors at Schwab to take a significant portion of my equity investment and put it into a much safer investment.

Carl Stuart [00:35:28] Terrific question. So as I know, because you’ve been listening, as you know, I’ve been doing this 48 years. And if there’s one thing that I’ve learned, this sounds silly, but it’s true, good times last longer than I thought they would, and bad times last long than I though they would. And so the way I judge it is, because your 74 and I’m a contemporary of yours, I’ve come to understand. That there are other people out here who have done a good job of saving and investing, who are never gonna spend all the money. So first is, am I investing for myself or am I am investing as a legacy for my children or my grandchildren or my church or synagogue or whatever? Because if I’m investing for a legacy, I’m probably not gonna make a big change in my portfolio and the reason for that is, there’s an old saying about trying to pick the bottom when to get back in is like trying to catch a falling knife. We might have a sharp sell-off like the COVID sell- off look like you would close the global economy and from the beginning of this COVID sell off until the time it came all the way back guess what 43 days that’s it. So I would look at my I would do two things I’d ask myself the serious question Am I investing this for myself or for my beneficiaries? And if the answer is for myself, then I probably need to be more conservative. If it’s for my legacy, I’m gonna probably be more on the growth side. Secondly, I wanna look at my asset allocation and say, if the stock market dropped 20%, what would that mean to my portfolio in dollar amounts? 25% and 30% because We are emotional human beings and all of the research shows that we experience a 10% profit is a 10 percent gain and we experience the 10% loss is a 20% loss. And you know Warren Buffett, arguably one of the great living investors said you don’t know who’s swimming without a suit until the tide goes out. If you have the ability to work through these bad times and you like your asset allocation and you’re investing for your for your heirs and beneficiaries. I wouldn’t touch it. If on the other hand, you run that test at 20, 25, and 30% down and you go, whoa, that’s a couple of two, $300,000, I’m not sure that’s what I wanna do, then I’d lighten up on my equities and that’s how I’d think about it, Brian.

Brian [00:38:08] Well, I do appreciate it and That’s an thank you so much. I will ask you a clarification for their 10 20 30 percent. Yes What were you referring to?

Carl Stuart [00:38:23] Okay, so let’s say you had 60% stocks and 40% bonds. Just make that up. 20%, let’s assume we have a 20% in your stock portfolio and no gain in your bond portfolio. Well, 60% going down 20% means the whole portfolio is down 12%. So I start with a million dollars. I’m 60, 40 stock bonds. I get a 20 percent decline and that’s 20% on 60. That’s $120,000. That’s a 20% decline. A 30% decline to $180,000, if you see what I’m doing, is I’m stress testing my portfolio. I’m looking at my current allocation, and I’m saying what would it mean in terms of dollars if I experienced a 10, 20, 30% percent decline? That’s how I run through that in my own mind.

Brian [00:39:13] Well, Carl, thank you very much, and I’ve been listening.

Carl Stuart [00:39:17] I’m so sorry. I thought you were finished. I apologize, Brian. Thank you for calling. Time for me to take a break. Perfect time for you to call or text 512-921-5888. I’ll be back.

Jimmy Maas [00:39:37] 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 [00:40:07] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:40:22] Welcome back to Money Talk, I’m Carl Stuart and you’re listening to KUT News 90.5 and the KUT App. When you have a financial and investment planning question, call or text 512-921-5888. Here is a call. Matt, you are on the air. How may I help?

Matt [00:40:45] Hey Carl, my question is about Austin real estate. So I bought a house with about 625,000 in equity and my monthly 3,200 with property taxes and everything and I have a high interest rate and I currently have about 525,00 in equity if I’m lucky. My other assets include about a half million invested in the market. So my question to you is just looking at the house as an investment, what should I sell? What should I wait on?

Carl Stuart [00:41:27] Yeah So if you sold what would you do? Where would you live?

Matt [00:41:32] Well, I move in and I’m moving in with my my partner who she owns her house outright. So there’s no monthly payment.

Carl Stuart [00:41:39] Okay. So what we both know is that financial assets, stocks and bonds particularly, are short cycle assets. Because of liquidity, they tend to go up and down more over the short term. Whereas real estate, because it’s an illiquid asset, tends to have longer cycles. So back in the late 80s and early 90s in Central Texas, we had a declining real estate market of about seven years. When you look at the dot-com bus It peaked in March of 2000 and bottomed in September of 2002. And if you look at the global financial crisis, it started at the beginning of, so let’s just say the Lehman Brothers September of 07, and it bottomed and March of 09. So what we’re looking at now is we had a huge bull market in central Texas real estate during COVID. Prices up based on public data, about 40%. Where we are now is we’re in this, what’s happening in the metro area is that prices are going down, but they’re not going down dramatically. They’re going down less than 1%. So right now, the most recent data I have, the median price per square foot on a year-over-year basis is down just under 1%, nine-tenths of 1%. On the other hand, if you look at the number of, days on the market, they’re 90 days and that’s up about 6% year-over-year. So I don’t see anything happening out there that’s going to cause you the benefit of waiting to put it on the mark. I understand I’m not a real estate agent and I’m an expert. There’s some seasonality. More people look in the spring than they probably do in the depths of the winter. And yes, I hear stories of all cash offers for really expensive properties, but I think if you have realistic expectations and you price it properly, I don’t see anything that’s gonna cause it to rise sharply over the next 12 to 24 months. It would take a really, frankly, it’d take a heck of a recession for the Fed to lower interest rates so dramatically that we would get back to three or 4% mortgages. If that happens, it’s because the economy’s in the tank. And it doesn’t look like that’s going to occur anytime soon. So if you’re a motivated seller, I can’t give you an argument for waiting around, frankly, Matt.

Matt [00:44:14] Okay, I appreciate that. And so would you think that money would be better invested in the stock market than in the house?

Carl Stuart [00:44:22] If you have three to five year, I think the odds of stocks doing better than Austin real estate over the residential real estate, over the next three to five years is positive. I think in the short term, the stock markets do for a pullback may not happen, but I don’t see the benefit of residential real-estate going up over that time period, Matt.

Matt [00:44:49] That’s so helpful. Thank you so much, Carl.

Carl Stuart [00:44:51] You bet, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a question, call or text 512-921-5888. Here is a call. Gary, you’re on the air. How may I help?

Gary [00:45:13] Yes, Carl, can you hear me okay?

Carl Stuart [00:45:15] I sure can, please go ahead.

Gary [00:45:17] Okay, wonderful. You had talked about wills and trusts and talked about those other documents as though they were parts of a will. There are separate documents you should, regardless of whether you have a will or a trust, you should have a medical power of attorney, a financial power of an attorney, direct it to a physician, and hit the release. Those are usually the five that a lawyer will make for you. And the lady was asking if you get a will notarized and you’re quite right. You don’t get it notarized, but it has to have two witnesses, and I remember maybe one of them can’t be your heir or something like that, but you can get a, and a lawyer will generally give you a self-proving affidavit with it, which is notarize, which the witnesses sign, and as a result of having a self proving affidivit, you don t have to get the witnesses into probate court, and so that’s a nice plus. You can also handwrite a will. I don’t recommend it, but in Texas it’s valid. But also I always recommend whenever I call, read the law on this because you might see some things that you find interesting and useful, although some of it’s not particularly understandable to us who are lay people. And I was going to mention that, and I sent a text, but I thought I’d mention the gentleman who was talking about his wife was going get a pension. If she hasn’t started drawing it yet, then she might look to see if she could take a reduced amount and include him. That’s what I did with my TRS for my wife.

Carl Stuart [00:46:54] Yeah, I would I agree. I am I believed I just inferred since he didn’t call I inferred that she already took the life-only option. That was why I answered it

Gary [00:47:02] And if so then then that’s not an option unless she might be you may have 31 days I don’t know they’d have to ask their her pension program for sure All right. Thank you

Carl Stuart [00:47:15] Okay Gary, thanks for calling and helping me out there. You’re listening to Money Talk on KUT News 90.5 and the KUT App Call or Text 512-921-5888. Here’s a call. John, you are on the air. How may I help?

John [00:47:35] Hey carl thanks for doing the show you do a great job thank you a couple of questions whenever i hear about people losing money when the uh… Dot com or whatever yes i was invested at the same time i just stood firm and uh… Didn’t touch anything and it came back so i didn’t lose anything so you only lose when you cash out right Am I wrong?

Carl Stuart [00:48:00] No, you’re not wrong, but what you do lose is opportunity cost. I’ll give you a fact. The NASDAQ, which was heavily tech oriented from March of 2000, took 15 years to come back to where it was. Dell Computer went from $70 to $10.50 and went private. Cisco Systems, which is one of the best performers, didn’t come back for at least a decade to the price it was before. So you if you held on and you held Dell, you were forced to sell at 1050. If you held onto Cisco, it came back, but the question is, what else was going on? And so if you had tech stocks, but you didn’t also have exposure to the other parts of the market, we had a really long time from the bottom in 2002 until the global financial crisis in 2008, where value stocks… Trounced growth stocks, so you’re right, you’re absolutely right, but the challenge is the things that led the stock market up over 20% a year for five years were the things the dropped the sharpest. Some of them went out of business and others took decades or longer to come back.

John [00:49:19] Quick question, Carl. I’m 65 years old. I have no debt. I own a large piece of property. I have, you know, mutual fund and money market with Schwab. And I guess I’m just concerned about the tax implications when I finally start withdrawing this money and what the strategies would be. I really have no expenses and and you know the single-person and i have no uh… We call it dependent or uh… Airs so to speak you know i have nephews and nieces but i don’t have any self-help i’m in a tough spot most of what i’ve been doing is just ignoring it you know it just kinda enjoying my life and just going day-to-day but you know there’s always this looming thing that hangs over your head about, you know, time moves pretty fast.

Carl Stuart [00:50:15] So, of course, yeah, let me ask you a question. The mutual funds, are they in your name or are they on an IRA or a retirement account?

John [00:50:24] No, they’re in my name and I have Roth as well. But those are less significant. Those are, the main one is the mutual fund. I have mutual funds that have just performed really good.

Carl Stuart [00:50:40] So yeah, so let me interrupt you. Here’s the good news You’re gonna pay a lot less tax than you think when you start selling those funds because you held them a long time So so you’re gonna play 20% tax Rather than 32 percent 34 percent or 37 percent probably the maximum If your taxable income including the gains is over Forget what it is for a single taxpayer. They had an additional 3.8 So if you choose to sell these over time, because you’re in no rush, you’re gonna only pay 23.8%, but that’s not on the sales price. That’s on the gain. So, you know, if you have something that has a $100,000 cost basis and a $200,000 market value, and you pay 20, you sold the whole thing, you’re not paying 23. 8% on 200, you’re paying 23 .8% on 100. So you have to think this through. Do not let the tax tail wag the dog. Now, the other good thing is this. If you don’t spend this money because you own these in your own name, when you die, your heirs are gonna get those mutual funds. If they sell them the day after you die do you know what the tax on that is, John?

John [00:52:00] I would say the higher percentage.

Carl Stuart [00:52:03] It’s zero.

John [00:52:04] Oh zero.

Carl Stuart [00:52:05] Zero, because when you have assets, that’s the reason I ask if you had them in your own name. If you have capital assets in your name and you die, your beneficiaries, your heirs get those, their cost basis is not what you paid for it. Their cost basis, is the value at the time of your death. That’s called the step up in basis. So, here to get these mutual funds that have done terrific for you. Now they’ve got them and they have a wonderful choice. They can begin to sell them and pay little or no taxes or they can keep them and now they have a new higher cost basis. So you’re in the perfect tax situation. So I want you to be comfortable about this. You’re not in a bad tax situation, if you sell some, you’re at the lowest tax bracket you can be in and if you don’t sell them, your ears are gonna get them and either sell them with no taxes or have a new, higher cost base.

John [00:53:02] Hey uh… One last thing i have a hundred seventeen thousand dollar one twenty whatever it is annuity it’s uh… And it’s coming i’ve ignored it since i got it basically just act like it was uh… Uh… Cd or whatever but now uh… I think i’d the last statement i got from them they said i have one year uh… Before whatever no penalties for withdrawal whatever that period is, is going to be one year away. If it’s the same uh… It’s a great point

Carl Stuart [00:53:38] No, no, no. It’s much worse than that. You’ve never paid taxes on the gain in value. And so when you take the money out, because you’re over 59 and a half, you’re going to pay income tax on the amount over what you put in. If you take all of it, you pay income taxes on what you’ve put in if you take part of it out. The first thing from taxes that comes out is the non-taxable growth. So if I put $50,000 in annuity, and it’s worth $75,000 and I cash it in, I pay taxes on income taxes on $25,000. But if I say, no, I’m just gonna take $10,000 out, I pay income taxes of $10k because I have $25k of gain in my hypothetical example. So since you’re very tax sensitive, if I were you, once the penalties disappeared, I’d begin to take it out and invest it on your own name like those mutual funds that have done so well that are going to have the favorable tax treatment, John.

John [00:54:36] Right carl uh… The last thing is that they said that there’s some portion of that annuity that i can take out it you know i’m not free to take whatever i want to do that’s cool

Carl Stuart [00:54:46] That’s called the penalty-free withdrawal. I would take it if I were you.

John [00:54:53] All right, absolutely

Carl Stuart [00:54:56] Okay, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. I’m not gonna ask you to call or text because we’re down to about the last four minutes. So let me get the couple of these texts that came in this afternoon. Carl, I’m a 73-year-old female with a moderate pension and moderate social security and just under $1 million in investments. Good for you. I’m wondering, what is an appropriate amount to invest in bonds? Well, you’re a 73-year-old female. Unless you have a chronic health condition, I know you won’t agree with me, probably. You need to plan on living until you’re 90, 95 years old. We’re talking 22, 23 years. And if the pension is like having a bond fund, you can’t make it go up when the stock market goes up. Social security is not going to do that. Your big risk is inflation. And if you have nothing in the stock market… And you’re wondering about percentage in bonds, I think you’re thinking about this incorrectly. I think that you need to put money in the stock market. Not all at once. You said you have a million in investments. If your investments are in stocks and 100% in stocks, yes, then having 25 to 35% in bonds is absolutely appropriate. I can’t tell from the text how the $1 million in investment what your asset allocation is. I think because you have stable income and a long life expectancy, I would have less than the classic 40% in bonds. I’d probably have 25 to 30% in bond. I’d make sure the other portion, I’d have 25% of my stock investments in international stocks if I were in your shoes. Thank you. Hello, sir. I love your show. Thank you, and I’ve been listening for years. Thanks again. I have an IRA worth 650,000. I want it to be managed by my broker. I want it to be managed by my broker who’s charging 1% reasonable. The answer is yes. What your broker is doing is not being a broker, he’s being an advisory fee based advisor. That means he’s not getting any commissions or transaction costs when he does a trade. He wants the money to grow or she does just like you do because then the dollar value of the fee goes up. You’re on the same side of the table if your portfolio declines, his or her fee declines. And I think that’s a perfectly reasonable fee. And there’s nothing wrong with it whatsoever. Okay, we’re running out of time. I want to thank Alyssa for doing her usual terrific job. I want thank you for listening and to remind you that next Saturday at five o’clock be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:57:50] 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.