Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on leasing vs. buying electric vehicles, the differences between mutual funds and exchange-traded funds (ETFs), strategies for managing required minimum distributions from retirement accounts, paying off student loan debt while also saving for the future, and more.

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 [00:00:20] Good afternoon. Welcome to Money Talk. I’m Carl Stuart, and you’re listening to KUT News ninety point five 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. It’s always a terrific idea to call or text at the beginning of the hour, giving me hopefully ample time to do my best to answer your question. My rule is I take today’s calls first and then today’s text. You’ll hear them coming in on the phone here, and then previous texts that I have been unable to answer. So it’s a great idea to get started. And by the way, you can catch past shows at KUT.org slash money talk. As I mentioned last week, we did two pre broadcasts with Jenny Jimmy Moss and I did, and I’ve listened and I thought they were really wonderful and lots of fun. And I encourage you to listen to those. All of our broadcasts since the first Saturday of April are at KUT dot org slash money talk. So let’s get started. Again, the number to call or text 512 921 5888. Here’s a text that came in in the last couple of minutes last week. Carl, I’m with Charles Schwab, and they keep changing advisors on me. What should I do? What should I ask the new one? This really gets at the heart of what type of saver and investor And that has more to do in my experience with your personality and outlook on the world than it does what your age is or what your so called risk tolerance is. My career, the good news for investors is that the barriers to entry have collapsed. When I got into this world we we were called stockbrokers, mutual funds had five percent commissions and even higher. Stock trades could have five percent commissions, bond trades could have three percent commissions, and those have really essentially gone away. The real question is, do am I a do-it-yourself person or do I want some help? Do I want to do my own income taxes or do I want to hire an accountant? So my experience is in good times for investors like we’ve experienced during the last three years, it’s pretty easy to think of ourselves as brilliant investors. It’s pretty simple. You can go to Charles Schwab or Vanguard or Fidelity or someplace else and open an account and do it yourself. But when things go, shall we say, not so well, like in 2022, when the stock market was down between 19 and 33%, depending on your selected index, and the bond market was down over 13%, maybe it wasn’t so much fun. And if you were around and you were an investor during the global financial crisis, it wasn’t fun at all. So you’re with Schwab and Schwab offers a service, you can do it yourself or you can have an advisor. But what you have to understand is that that person is an employee of Schwab and she or he will move to whatever platform or whatever job their employer tells them to do. And as a result of that, you’re getting changing advisors. Whereas if you had your own advisor, if she owned her own practice or she worked at Morgan Stanley or Merrill Lynch or Wells Fargo, if they are an advisor that has their own so-called book of business, other than them leaving the firm and or retiring, you’re likely to see keep the same advisor for many, many years. So when you ask what should I ask the new one, I really frankly don’t think there’s a question that you can ask that they can honestly answer regarding their future longevity, because that’s just not the way the business model is made. They may be there for five years and they may be there for five months. That’s the nature of what you have. The question becomes, if you’re a person who wants to have an advisor and is willing to pay the extra fees, then in my view, what you need to do is you need to go into a search process, and I can discuss that later if we don’t have any calls or texts, but I did hear a text come in. And that’s the way you do that, by calling or texting 512-921-5888. Okay, let’s see. Thanks so much for the public service you have provided with Money Talk for all these years. You’re welcome. I get two thumbs up. My request. I need a refresher on the three types of bond funds and which interest rate environment they’re each suited for. I’m worried about the Fed changing rates and how to maybe change what kind of bond funds I’m holding in the changing interest rate environment. Thanks. Well that’s a terrific question. And for everybody else, there’s a mathematical certainty, which is in a period of falling interest rates, bond prices will appreciate, and in the period of rising interest rates, bond prices will decline. But the degree to which they rise, or to the degree to which they decline, is a function of something called their duration. I’m really getting in the weeds, but this is really important. So duration is a way of measuring the price sensitivity of a bond or a bond portfolio when there’s a change in interest rate. So a duration of one means that if interest rates go up one percent, the value of that portfolio should go down one percent, and vice versa. If you have, say, a core bond fund, and here I’m using a Morningstar category, and it has a duration, let’s say, of five, then if interest rates for that portfolio were to rise one percent in the marketplace, you would expect a five percent decline in the value of that portfolio. Conversely, if that if the interest rate had you had a duration of five and you had interest rates fall one percent, you’d expect a five percent increase. And what’s occurred this year on a year-to-date basis is that the Bloomberg Aggregate Index, which is a core type index, through yesterday has risen six point eight percent, which is terrific because that’s before you add in the dividend or the yield, which on a trailing 12 month basis is about 3.8%. You add those two together, and you start talking about close to a 10% total return. However, we never know if this is going to continue. So that’s why I’m personally a champion of owning three different bond funds. The short-term bond fund, which may have a duration of one year or I say year, but it’s really a mathematical thing, a duration of one or less, is going to have much, much less sensitivity to interest rates. You’re not going to get a huge return if interest rates fall, and you’re not going to get, on the other hand, a big re negative if interest rates rise. So the one that that I look at has had a year-to-date value. I’m talking about a fund and its return of about four percent positive, while the index is up six point eight. So you can say, well, gosh, Carl, I’m underperforming the index. Why don’t I just buy the index? And the answer is that when rates were rising, this type of fund had a much more defensive characteristic. So I like a short-term fund with a short duration, preferably under one or under under one and a half. And then I take the core bond fund, which seeks to be the either the same if I want an exchange traded fund, or to outperform if I want an actively managed fund, the index, the core, and then I like the third one, which is called multi-sector by Morningstar. And the reason for this is this is an actively managed strategy that allows the bond manager. Or managers to go wherever they think the best value is, whether that’s longer term or shorter term, whether that’s treasuries or not, whether that’s government enterprises like Fannie Mae and Freddie Mack or corporates or even higher yield and whether they’re domestic or foreign. I that’s an opportunistic strategy. I would not put all of my money there because I don’t think the risk justifies it. But I offset that with the short and the core and I think I’ve set myself up if rates go down I would expect the core and the multi-sector to deliver good returns. If rates are flat from here I would expect bond like returns. And if rates go up I would expect my sh my short duration one to help me out. So that’s how I think about that. I hope that was helpful. You’re listening to Money Talk on KUT News 90.5 and on the K U T app. Call or text 512 921 5888. Let’s just see here. Okay. Hi Carl. First time listener here. Well thank you. I’m glad you’re listening and keep doing it. How do I balance paying off student loan debt and saving for the future? I have a family and we have very little in savings and around $50,000 in debt. We also live pretty much paycheck to paycheck. Thank you for your help. This is just a huge problem, and as you know, you’re not alone in this, but what you are is you’re aware of what’s going on and you realize that you have a challenge. And what a lot of us think about ourselves as an income statement. If we end the end of the month with a few dollars in our savings and checking account, we’re doing just fine. But the truth of the matter is we’re not. Because at some point we would like to obtain financial independence, which longer term listeners know I define as you are financially independent when you get up in the morning and whatever you do that day, you do because you want to and not be because you have to. You may love to work like I do, or you may love to go fishing like somebody else would. Your expenses if you quit working and your re and your work income goes to zero, your expenses don’t go to zero. When you have debt and you and you reduce the debt, that ain’t that’s the same as increasing your assets, because if you had a hundred thousand dollars in your 401k and you had fifty thousand dollars of student debt, and you retired, you still have fifty thousand dollars of student debt, and the bad math is a hundred thousand in assets minus fifty thousand in debt, you got a fifty thousand dollar of net worth. So I would suggest that you tackle both of them. Now it’s easy for me to sit here and say that when you pretty much live paycheck to paycheck. But the only way to get started on this is to take a really long, hard and detailed look at your expenses. And this is age-old advice. I’ve been giving it for a long time, and I think it still remains to be the case. When I encounter people in your situation, I don’t know you, but frequently I find that they if I say, help me understand how what your expenses are, it’s hard for them to say. They just know that they have bills and they have to pay ’em, whether that’s rent or mortgage and food and transportation, etcetera. So what I would do if I were you. Is that I would I would get a cash receipt for every expenditure, whether it’s a small one at Starbucks or it’s a larger one for gasoline, I’d get a cash receipt, and then I would sit down right before I listen to money talk, which is a good thing to do, and I would put those in categories. And what I’m looking for are ways to make savings, ways to reduce expenditures. And they may be very small at the beginning, but this is a muscle that you want to build because you want to generate additional cash flow so that you can attack the two things you’ve identified student debt. Lack of ability to save for the future. So that’s where you start. Now I don’t know the interest rate on your student debt if it’s if if it’s government debt or private debt, but at least it’s debt that hopefully has a productive purpose which has made you more marketable in the marketplace and consequently get you a higher level of lifetime earning earnings. So that’s what I would do. I would start looking for places to save and if I could, and then this is long term, you want to do both. You want to reduce the debt, but you also want to begin saving for the future. So to the extent that you can come up with savings, splitting the difference if you will, and putting part of it towards student debt and part of it towards your financial future would be what I would do if I were in your shoes. So good luck. You’re listening to Money Talk on K U T News 90.5 and on the KUT app. With your questions, call or text me at 5121588. Let’s just see I think I had another one here. Here we go. This came in at the end of the broadcast last week. Carl, is a revocable trust a good idea? This is from Elizabeth. Well like a lot of stuff if you will in financial and investment planning, the answer is it depends. It depends on what you’re trying to accomplish. So and I’m not in a trust attorney but a revocable trust you would typically put in because if you had someone other than yourself who you wanted to be a beneficiary income from an asset you’re putting in the trust or perhaps because A young person, and there’s sometimes people put in revocable trusts in their will. I believe that’s called a testamentary trust, just in case they were to pass away and their beneficiaries would be minors. And of course, the other one would be the so-called special needs trust, where they’re going to have a beneficiary who can’t take care of themselves financially or have some other kind of disability and they want to provide lifetime income. So a revocable trust simply means that you can set up the trust, it doesn’t have to be in your will, and you can change it at any time. You can revoke it as opposed to an irrevocable trust. People use irrevocable trusts when they’re willing to give up assets and put them in the trust and they can’t go get them back. Revocable trust, you can put stocks or bonds or whatever you would like in there, and you can say the income from this goes to this beneficiary. Now, my understanding of trust income tax rates is that they’re relatively high. And so you want to make sure that this is something that you want to do either during your lifetime or at your demise. So is a revocable trust a good idea, Elizabeth? I think the answer is it depends. If it fits your situation, then yes, I think it’s a good idea, but you have to make sure that it does fit your situation. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and the K U T app. We have all of our lines available with no incoming calls. I think I have another text that came in. Yes, this came in late last week as well. I need a new car and want to get a EV, an EV. What are your thoughts on leasing versus purchasing? Love your show. Thank you. Generally speaking, I’ve been opposed to leasing. I think it meets our emotional needs because it allows us to get a new car every short two or three years, and that’s fun for people who like to do that. But, you know, you’re just you’re paying for that pleasure because at the end of the lease you don’t have the vehicle. In the old days, before COVID You could say, well, but the car’s depreciating and it is and it will continue to, but I from my reading, not from my personal experience, what I’m reading is that used car prices have have been quite strong and I was listening the other day to K U T They were talking about the median price of a new vehicle in the United States being sixty five thousand dollars, which I find just remarkable. And so perhaps leasing is because you can’t afford the sixty five thousand, which I completely understand. Now, as it regards an electri an electric vehicle, I’ve had some painful personal experience with this and I would tell you that you used electric electric vehicles are are worth a fraction. What you pay for them. I think it’s basically because they’re pricing, I’m just guessing at this, as an old computer, which doesn’t have a lot of value, I had I’ll just say this, a Tesla. I didn’t buy one until after two years it was Car and Driver Car of the Year. Yeah, that had never happened before as I recall. So I bought the car. I wish that they offered it in bright yellow because I had a lemon. And I will just say that it depreciated about eighty percent over a period of time, even though I seldom drove it. And I learned a hard lesson that unlike a gasoline engine where it does matter how many miles you have, when it comes to an E V it really matters about the age and I had it for a long time, about 10 years. I I’m ambivalent about le about buying or leasing, but based on my own personal painful experience, I’d probably look at the leasing. I’d see if I could understand what the embedded interest rate is on that. That would be useful. You’re listening to Money Talk on KUT News ninety point five and on the KUT app. Give me a call or text at five one two nine two one five eight eight eight. Here we have a caller. Andrew, you’re on the air. How may I help?

Andrew [00:18:46] Hey Carl. I’ve been investing long enough and so I think I have a relatively fundamentally good understanding of mutual funds. Right. Recently I started hearing a lot about ETFs and I started I’ve tried to research them but i I’m afraid I’m just getting myself confused. I I read I realize some some of the mechanics, like they’re they’re register they’re listed on the tr listed and traded on the stock market itself and you can tell the value in real time. But why would you choose one of the other?

Carl [00:19:14] Right, great question. And by the way, I’m just gonna Mark, I know you’re there. I realize it’s nineteen after the hour pretty quickly, but I’m gonna go ahead and visit with Andrew and then we’ll take a break after this. Forever mutual funds from the nineteen thirties anyway. You you bought the fund, at the end of the day the price was called the net asset value. That’s what you paid for it. And if you sold the fund, no matter what time you during the day you did that, you got the price at the end of the day. And the price was the value of the portfolio pardon me, the value of the portfolio. On a on a per share basis. C let’s just say you to make it simple, we’ll use an index fund. You could buy the Vanguard Index five hundred mutual fund called a forty act fund and that that would be the case. But now you can buy the Vanguard Index Exchange Traded Fund. Probably for most investors, particularly if you’re talking about owning it on your own and not in a IRA or a 401k. The exchange traded fund, particularly the index ones, are designed in such a fashion as to not throw off capital gains. One of the challenges in actively managed, say stock funds, is if at the end of the fiscal year of the stock fund, the fidelity fund, for example, let’s say they have a September fiscal year or October fiscal year, they’ve got to add up all the stocks they sold for a gain and all the stocks they sold for a loss, and yet they have a net gain, they have to distribute it to you, the shareholder. You don’t want the money, you reinvest it, but you still have your capital gain. It doesn’t matter whether the fund went up or down that year, you have to pay it. And that’s happening this year when it happened last year. I’m familiar with some actively managed stock funds that are going to have a 10% capital gain distribution, whether you hold it or not, or whether you bought it and it went down or it went up. If you could buy a similar fund to that actively managed fund, and now they’re actively managed exchange traded funds, and it doesn’t ever pay a capital gain, that’s a real benefit to you as a shareholder. The second benefit is typically exchange traded funds have lower expenses. So I know for example, and I’m not making a recommendation, but the Vanguard Total Stock Market Exchange Traded Fund has annual expenses as a percentage of the value of this of the fund of 0.03%. That’s about as almost free. And so I would say if you had a choice, because a lot of times in 401ks you do not, but if you had a choice and you had two funds that you thought were virtually identical, I would go with the exchange traded fund. Now, not you and not me, but some people like the exchange traded funds because they can trade them throughout the day. I don’t think it’s wise to buy and sell funds and try to day trade them, but that is a benefit as you have you have di not only daily liquidity, but you have liquidity throughout the day. I think the two primary benefits, Andrew, are number one, no distributions of capital gains, and number two, lower operating expenses. And that’s how I would look at it if I were in your shoes.

Andrew [00:22:21] Well thank you very much. I appreciate it.

Carl [00:22:22] Okay, thanks for calling. You’re listening to Money Talk, and as I promised to my friend Mark, we’re gonna take a break. It’s a perfect time for you to call or text. Five one two nine two one five eight eight eight. I’ll be back.

KUT Announcer Jimmy Maas [00:22:39] Money Talk airs every Saturday at 5 o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTX Studios as part of KUT Public Media, home of Austin’s NPR Station and the Austin Music Experience. We are a nonprofit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org.

KUT Announcer Laurie Gallardo [00:23:14] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl [00:23:29] Welcome back. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Thanks for listening. We’re here this afternoon till 6 p.m. When you have a question, call or text 512-921-5888. I believe we have some incoming calls, and Mark’s working hard on those right now. So here we heard it. There’s a text. I’ll take that while he gets us set up for a call. Okay. Here we go. Regarding leasing an EV, the CarPro, Jerry Reynolds radio show also recommends leasing EVs because of their steep depreciation. I’ll be darned. Well, why I didn’t know that, but that’s good news. Of course, you learned about lease cost fundamentals, residual value if you buy at the end of the lease. Also, EV technology will keep improving rapidly, so leasing may fit if you change cars in a few years. I think that makes a whole lot of sense. Thanks for that text. Five one two nine two one five eight eight. All right. I waiting. Well I here we go. Okay. Mike, you’re on the air. How may I help?

Mike [00:24:46] Carl, first I’d like to thank you and your wife, especially your wife, for all the contributions that you had made to both public television and to public radio. Thank you.

Carl [00:25:00] Oh, you’re very welcome. Thank you. I’ll tell her that too. Thanks.

Mike [00:25:05] Now we’ve taken some of your classes over at the Ollie program. Oh yeah. And but we have a little bit of a change in our circumstances. Okay. We are signed up to go into Westminster when they have an open Oh now when we sell our current abode

Carl [00:25:24] Mm-hmm.

Mike [00:25:24] Is there a possi is w let’s call it a million dollars, just to make it a round number. Okay. Will there be a consequence for selling this and moving to Westminster?

Carl [00:25:36] So it will d the answer is possibly. They they haven’t updated this for inflation, which is disappointing to me. But right now, if you are married taxpayers filing jointly and you sell your personal residence, the five the five hundred thousand dollars your cost is not subject to tax. Anything above five hundred thousand dollars above your cost. So if you paid six hundred thousand dollars for a home and you’re married filing jointly and you sell that house for a million dollars, it’s my understanding that that four hundred thousand dollars in gain is not subject to tax. If on let me give you another example. Let’s suppose that there’s a married couple and one person dies, then that cost basis of that house becomes the value at the time of the first spouse’s death. Then if she lives there for another five years and sells it and the house grows in value, if it’s she gets no taxes on the first two hundred and fifty thousand dollars above what her updated cost basis was. So if when you move to Westminster, if if your house sells for a million and the gain is above cost is five hundred thousand dollars or less, you will not have a tax. If it’s more than five hundred thousand, the gain will go into and added to your taxable income. It’ll be a long-term capital gain, and the amount of your taxable income will determine whether you pay tax at the ten or fifteen or twenty percent rate. That’s how that works.

Mike [00:27:18] Got it. Thank you very much. I appreciate the information.

Carl [00:27:22] You bet and thanks for listening. You’re listening to Money Talk on KUT News ninety point five and the KUT app. Call or text five one two nine two one five eight eight eight. Alexander, you’re on the air. How may I help?

Alexander [00:27:40] Yes, sir. Thank you for taking my call.

Carl [00:27:42] You’re welcome.

Alexander [00:27:44] So I I I my question to you is I graduated two thousand and seven and my financial aid I applied for forgiveness, I met all the requirements and it was forgiven. I applied and for consolidation. It was consolid consolidated consol consolidated and then I paid off my loan. And the server is still harassing me, they asked for receipts. I sent them all the receipts. The government paid off for my loan. I g I sent them all the receipts and they’re still harassing me today that I should pay the same amount again which already been paid. So I don’t know what to do.

Carl [00:28:22] Okay, this is a this is a legal problem. I think that it’s worth your time and worth an investment to talk to an attorney because you have proof. I’ve seen this happen before with the IRS where they claim that y someone didn’t pay their taxes when they did, and you have an accountant who takes care of that. If you don’t ha do you do you do your own income taxes or or do you have an accountant?

Alexander [00:28:54] I have an account that’s yeah, where they do the my income tax deployment.

Carl [00:28:58] Good. Well, fur don’t go to an attorney first. Go to your accountant. Explain what this is. See if she or he has encountered this and has any advice, ’cause they may be able to help you, and if not, ask that person for a referral to an attorney, because you’re going to probably have to have a professional stand in between you and the people who claim you owe the money. I i i th they’re not gonna go away, they’re gonna keep bothering you. You need to get a professional to help you, and that’s what I would do, Alexander, if I were in your shoes. You’re very welcome. Thanks for calling. You’re listening to Money Talk on KUT News ninety point five and on the KUTF. Call or text 512-921-5888. Charlie, you’re on the air. How may I help?

Charlie [00:29:55] Yeah, I’m of the age where next year I will have to take the required minimal distribution from an IRA.

Carl [00:30:03] Mm-hmm.

Charlie [00:30:03] I’m currently working and I really don’t need the money. Should I take it as a lump sum at the end of the year or the beginning of the year or do it monthly or does it matter?

Carl [00:30:16] Sure, of course. So first of all, and I’m not gonna ask you this personally, I’m just gonna answer this for the for the rest of our listeners. When you reach the point where you have a required minimum distribution and you don’t need the money, the first question you ask yourself is do I have am I philanthropically inclined? Meaning, do I regularly make a gift to my religious organization, my alma mater, the Boy Scouts, the Girl Scouts, whatever. Because if you do, you can do something called a qualified charitable distribution where you can take some of your f RMD and give it directly to that legitimate what’s called 501c3. You don’t have to pay then that portion of it. If I had a $30,000 required minimum distribution and I regularly give three institutions a grand total of five thousand dollars, I could give them that five thousand dollars from my IRA custodian and reduce my required minimum distribution. So that’s for everybody who’s listening. Now I’m gonna answer your question. There’s no evidence that I can find that timing your required minimum distribution is there’s a beneficial aspect to timing it, whether you take it monthly or at the beginning of the end of the year. The one thing I will tell you is a lot of people take it at the end of the year, which can be a real time crunch for your custodian. And the last thing you ever want to get in trouble is you talk to your you you call your custodian on December eighteenth and say, I want my RMD, and they don’t get the job done, and now you’ve got a fifty percent, five oh percent penalty on your required minimum distribution. So my view is I would take it earlier in the year. I have no evidence that taking it more over time is better than a lump sum. So if I were you, I would take a lump sum and I’d take it earlier in the year if I were in your position. You bet, thanks for calling. You’re listening to Money Talk on KUT News ninety point five and on the KUT app. Call or text five one two nine two one five eight eight eight. Here is a text. My question is, I don’t want to put my money into any stocks. I don’t want to contribute to the capitalist system. What are some alternatives to save for the future? I’m not trying to be rich or even standard comfortable. And I’m willing to work way past retirement. Thank you for your time. Well, if you don’t want to contribute to the capitalist system, that’s an interesting. I haven’t gotten that question before. I would say that you could then become a lender rather than an investor. If you owned bond a bond mutual fund, you were loaning money because you own the bond and some company or a government entity owes you money. So you can put your money in a bond fund, you can leave the and it’ll pay monthly dividends and you just leave it alone, like watching grass grow, you reinvest the monthly dividends, pay a little bit of tax on it every year, but if you put it in the bank in a savings account, you’re gonna pay tax on the interest. And based on history in my 46 plus years of doing this, over the next five years, you’ll be better off for yourself being a lender than you will be if you put it in the bank. The bank’s gonna take your money and they’re gonna lend it out to somebody else, but they’re gonna pay you less because they they’re in the business to make a profit. They’re part of the capitalist system, and they’re gonna what they’re gonna do is they’re gonna give you the least amount of interest that they have to for you to leave your money there so they can turn around and lend it to somebody else. Why don’t you step in and be the lender by buying a bond fund? If you’re gonna buy one bond fund and you’re gonna hold it for five years or longer because you’re gonna work past retirement, you buy a bond fund that that’s called a core bond fund or an intermediate term bond fund, and you can do your homework if you’re a do-it-yourself investor, you go to them go to Fidelity of Great Bond Funds, Vanguard, Schwab, and just do your homework online and pick one of those companies if you’re a do-it-yourself investor, look at their various bond funds and put the money in one that’s got something it might say intermediate bond term bond fund or core bond fund. That would be a place, and now you’re not participating in the system. You’re loaning money and getting paid for it. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512. Nine two one five eight eight eight. John, you’re on the air, John, how may I help?

John [00:35:11] Hey Carlton. My dad is in a nursing home

Carl [00:35:20] Yes, John? Can you hear me? I you’re go I’m gonna read what it says you said. It says my dad is going to need some of his investments. He has bonds and stocks and funds. How do I decide? Okay, there you are. Can are can you hear me now, John?

John [00:35:38] Yes, I can.

Carl [00:35:39] Okay, so start over it ’cause you we you cut out so that we n we didn’t hear your question. Please ask it again.

John [00:35:45] I’m sorry. So my dad has a number of investments, invest funds.

Carl [00:35:56] You’re gone again, so I’m going to answer your question.

John [00:35:59] And we have to decide what to liquidate.

Carl [00:36:01] Yeah, he has bonds and stocks and funds. I think what I would do is if he has more money than you think he is going to spend in the rest of his life, and so that money is going to come to you or to his other beneficiaries, the assets that will grow will be to your benefit, and upon his death, his costs will go away and caught your cost will be the value at the date of his death. You can then sell those stocks and mutual funds and pay zero tax. So if he has more money than you believe he’s going to spend, I would sell the bonds. On the other hand, if you think he may go through all of his money before he dies, then I would look at the various funds in stocks and bonds, and I would force them into a category. Bonds are lower risk, stocks are higher risk. If they’re stock mutual funds, higher risk, bond mutual funds, lower risk, and I would add all those up and I would say, okay, how much what’s the percentage in stocks and stock funds? What’s the percentage in bonds and bond funds? I would then sell to keep that percentage. If he’s got I’m making this up, if he’s got sixty percent in stocks and stock funds and forty percent in bonds and bond funds, and he needs two thousand dollars a month, I would sell sixty percent from the stocks and stock funds and forty percent from the bonds and bond funds to maintain his asset allocation. So you’re not changing his risk and you’re not changing his return prospects. If he’s not if he’s gonna outlive the money, then take the money from the bonds because then his errors will get a very positive tax treatment for his stocks and stock funds upon his demise. And that’s it, because you’re gone. You’re listening to money talk. Time for me to take a break. Perfect time for you to call or text. Five one two nine two one five eight eight eight. I’ll be back.

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KUT Announcer Laurie Gallardo [00:38:33] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl [00:38:46] Welcome back to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and the KUTF. When you have a financial and investment planning question, give me a call or text at 512-921-5888. Let’s just see here. Oh, here’s a I I love this show because I have such experienced as smart listeners. Here’s a great response. Carl, about the caller who is moving into Westminster. Please mention that a quote, continuing life care community, unquote, such as Westminster, a portion of the large buy-in and monthly fees are tax deductible because they are prepaid medical expenses. This is something they should understand once they enter Westminster. I know because a family member moved in there a few years ago. This is if they itemize their taxes. That’s a great I did not know that. I really appreciate that. Thank you. Okay, let’s see. Your show is great. Thank you. Regarding the required minimum distribution question, can the RMD be put into a 401 fund or a bond fund and avoid the tax impact? No. Thanks. No, sadly, the answer is absolutely unequivocally no way. Money that would go into a 401k would be money from your employer because a 401k is an employer sponsored plan, so you’d have to have earned income. And if you wanted to put it into your own IRA or your own Roth IRA, sadly the answer is the same. You’ve got to have earned income. Whether if you’re a gig worker or you’re an independent contractor or you’re a W-2 employee, you have to have money from employment, one form or another to be able to put into a 401k. So the only way you can reduce and or avoid the RMD is through the qualified charitable distributions. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and the K U T app 512 921 5888, and I always forget to say this. Listen to past shows at KUT.org slash money talk. Marcus, you’re on the air. How may I help?

Marcus [00:41:07] Oh fantastic. Thanks for taking my call. You are I’ve worked at a company for a couple of decades and we get RSUs regularly or restricted stock and it goes into this morg brokerage account. But I’ve recently thought about opening up some kind of securities backed line of credit, but I can’t do that from that account. So I’d have to transfer the stock somewhere I’m not sure how cost basis and these lines of credit, like how that all works as far as for taxes and if if I need to hire somebody to to orchestrate all of this or is this something I can do online by myself?

Carl [00:41:52] This is really technical. You’re right to ask this question. Normally, if they were if it was just normal stocks or stock mutual funds, you could simply open a Marcus account, transfer the assets to the Marcus account, and then sign the loan the loan agreement with the custodian, and then you could borrow against it up to whatever limit the custodian allows. But because these are r restricted stocks, that’s a very different characteristic because as you think about it, the lender needs to know that it’s good liquid collateral so that if you defaulted on the loan, they would be able to sell the securities. And and and get their money back. So if this is restricted stock and you exercise it or in some way change the nature of the ownership, that may be, maybe a taxable event to you. So this is really a big deal. I’m glad you called Marcus. You need to talk, in my opinion, to a certified public accountant, be willing to pay him or her to make sure that you don’t because what you want to avoid is if you move this and that creates a tac that creates a taxable event, then that’s good that’s gonna be n notification is going to go to the IRS and then you could have a taxable event. But this is beyond my pay grade. You’re you’re right to ask and I would ab I would absolutely pay a CPA to get the answer.

Marcus [00:43:15] Oh, thank you so much. I’m glad I asked you before I did it. Thank you.

Carl [00:43:19] Okay, you bet. I’m glad you did too. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Let’s just see here. Okay. Thank you. That was helpful because I hung up because there was so much road noise. Okay, you’re very welcome. Let’s see what this is. My girlfriend has been paying into an indexed universal life insurance policy for many years. I know nothing about these types of policies, but if I listen to what her broker tells her, there is no way that she cannot lose money on it and she doesn’t need to pay tax on the interest. Can you tell us what you know about these types of policies? She has five adult children as potential beneficiaries. So a universal life pr insurance policy, these came about in my recollection. Years ago, they really got popular during the nineteen nineties when we had the bull market when the S P five hundred went up over twenty percent a year for five consecutive years. To the life insurance industry wanted to have a competitive product. So they said if you buy this whole life policy, it’s a permanent life insurance policy, not a term policy, we will invest your money in a very various kinds of financial assets that look like mutual funds. It looked like a stock index fund. And it’ll grow over time. The cash value will grow. And if you choose later on to borrow against it, there will be no charge for borrowing against it. You can take money out and pay no income tax. And when you die, the death benefit to your beneficiaries will simply be reduced by the amount that you’ve borrowed. That sounds like a great deal. Well, guess what? Not necessarily. I saw situations where and this was particularly sold to people in high income areas, a lot of doctors, for example, because they couldn’t put a lot of money in their retirement plan because it was that was called a top heavy. They couldn’t put as much money in as they wanted. So they put money in these life insurance policies. They didn’t have to worry about get those being taken in a lawsuit. But what happened was their premiums, how much they had to pay, were determined by the return of the cash value. And if the if there was a big bear market, which there sure was starting in March of 2000, the SP went down 40% and didn’t bottom until September of 2002. What they thought their premiums were going to be turned out to not be right. They had to put a lot more money in because I’m really getting in the weege. When you have a permanent life policy, there’s something called the cash value. In the old simple permanent life policies, the cash value grew at a very small rate, low rate, because it was invested in the insurance company’s bond portfolio. But now it’s you’ve got this index and it’s going to have much more stock market like returns. So she’s had it for years. Obviously she’s had the good fortune not having to pony up a big big additional premium. The if she the only way she can guarantee not to lose money on it, frankly, and I don’t mean to be disrespectful, is to die. Then that death benefit will show up for the beneficiaries of that, those five adult children, and the death benefit on life insurance is not subject to income tax. So if she’s been doing this for years, there’s probably no reason to do anything different. If she ever wanted to change her mind and she cashed it in, Okay. You want to make sure you understand this. A portion of that cash value is attributable to her own premiums, her own after-tax money she put in, and a portion of it is attributable to the growth in value. So when she cashes that in, I’m not making an advising her to, when she cashes that in, however much of that money is attributable to all the money she’s put in over the years, is the return of her original premiums, no taxes, no taxes. The amount that she gets out that’s worth more than that is subject to income tax. If she’s past fifty nine and a half and I’m guessing that she is, that would be taxable income. So if she ever decided to do that, she would ask the insurance company. What’s my cash value? Number one. Number two, how much of that cash value is attributable to my own premiums that I’ve paid you all, and how much is attributable to the growth? She may be surprised that not that much of it is attributable to the growth, and now she knows I can keep it. Die with it and my heirs get the death benefit, no income tax to them. Or you know, I think what I’ll do is take the money out and invest it, and I have a modest tax to pay. I don’t know the answer to that. But the when you have a policy like this, you are going to have to pay the expenses. So if you owned that index, whatever it was, let’s just pretend to stand the standard and poor 500. If you owned it in your own name, it’s going to grow more because it’s not being there’s not all the insurance expense associated with it. Now, she may have owned this for so long that what I’m talking about is more relevant to the rest of our listeners than to you and to your girlfriend. But to be knowledgeable about this, you ask the insurance company, they’ve got a customer service line, or you can ask the insurance broker. What I want to find out right now, what’s the cash value, how much of that’s attributable to my after-tax premiums, and how much of it to growth. Thanks for the question. You’re listening to Money Talk on KUT News ninety point five and the KUT app. Call or text five one two nine two one five eight eight eight. I’m sixty two and have retired. My husband is working for a few more years. I believe the stock market is going to have a large correction soon, and I don’t want to risk all my investments. The majority of our money is in retirement accounts. Is there a safer place I can move my money since I don’t have years left to make back the loss if the market does crash? Thank you. Well, first of all, I’m going to tell you, I have no idea. I’m s I and I and I don’t think you have any idea. You may believe the stock market’s going to have a large correction. I will tell you this. You could have said to me in twenty twenty-one, the market’s gonna have a large correction, and I would say, really, I don’t know that. And it did. But who would have predicted that it would go up over twenty percent in twenty twenty-three and twenty twenty-four, and the SP’s up seventeen percent year to date? Just understand this, I’ve been doing this a long time, and good things last longer than you anticipate, and bad things last longer than you anticipate. And that’s number one. Number two, as a 62-year-old female, you should be investing for the next 28 years. You are a long-term investor. I’m just pushing back because I think I think if you get out of stocks because you’re 62 and a female, I think that’s a mistake. I think you can reduce your exposure to stocks, but I think eliminating them is saying I no longer want to participate in the growth of human ingenuity. And I think that’s a mistake. So if you want to do that, and I’m going to answer your question, let me just step back off and get down off my soapbox here. Bonds. Make yourself that bond portfolio that I talked about at the beginning of the broadcast. You select, and I’m using Morningstar categories. You can go to Morningstar.com. Now I can go there, you don’t have to pay for this. Go to Morningstar.com or some other place. Go to Fidelity’s website, go to Vanguard’s website, go to Schwab’s website, and you want three categories. You want a short-term bond fund, an intermediate term or core bond fund, and a multi-sector bond fund. You spread those out, and over over the remaining time that you’ve got, you’ll make more money than putting it in a savings account. You’ll make more money than putting it in certificates of deposit. Will it fluctuate? Of course it will. But if we really have this big lot market decline, based on history, as long as you’re not buying high-yield bonds, bonds will hold their value. In 2007, the U.S. Stock market was down 40%. I’m sorry, 2008. The international market was down 50%. Chinese stocks were down 60%. High yield bonds were down 25%. Oil went from $135 to $35, and treasuries were up. In the worst b year we’ve had in a heck of a long time. So if you insist on doing this, then get the go build yourself a bond portfolio. That’s what I would do if I were you. Thanks for the text. You’re listening to Money Talk on KUT News ninety point five and the KUT app. And remember you can catch past shows at K U T dot org slash money talk. And we have a caller. Bradley, you’re on the air. How may I help?

Bradley [00:52:43] Yes, hello. Thanks for taking my call. So I d I live in Paris, France. Well good. I I used to live in Austin, Texas. Yeah, exactly.

Carl [00:52:56] Yeah. It’s late at it’s seven hours. It’s late at night. It’s like one o’clock in the morning there.

Bradley [00:53:01] Oh well I d I I may have had a couple verdes e in and I decided to listen to K U T on my radio.

Carl [00:53:11] Good, terrific.

Bradley [00:53:13] Yeah. But I I have some investments in in the US. I I still have my my bank account there and so I have about four hundred K there in the US and I have four oh one K two hundred K in in my investments. But I I cannot find anyone who is willing to manage my investments from here because I’m a foreign resident. And I’m I’m wondering how to manage these things while I’m living here and I I intend to live here in in Paris.

Carl [00:53:53] Well, I would tell you my experience is and I have to be careful here because if you’re not a long term listener, you don’t know this, but I just do not talk about my personal practice because I I want to avoid ever being self-serving. But the US advisors, let me just put it this way. U.S. Investment advisors have clients abroad, and the only restriction that I’ve encountered is that cer that that the tax laws are quite different in places like the UK and presumably the EU, and the nature of the type of securities that you can buy may be different. For example, I’ve encountered with British citizens that buying US traditional mutual funds can be quite expensive tax wise, where buying US exchange traded funds are treated like individual stocks and have a much more favorable tax consequence. So I believe that there are advisors in Austin, Texas or New York City or Los Angeles who can manage your money on your behalf on a on an advisory fee, not a commission basis. Using disk you would give them discretion to manage on your behalf. They have fiduciary responsibility, Bradley, they would have to act in your behalf, receive no commissions or sales charges, they have a duty of care, and you’re a US citizen living abroad, based on my experience, that is possible. So what I would do is do if you know some people in Austin, because you lived here, talk about who their advisors are or do a search if you want to do it in Austin, do a a search of advisors in Austin or wherever you want, and then talk with them about that and let them check with their custodian to see if they have any restrictions from doing that, because if they don’t, I think you can accomplish this because I’ve I’ve seen it done personally.

Bradley [00:55:51] Okay. Yeah. That’s good advice. I yeah, and now I’ll search out people from from Austin. I know there are some some good people there.

Carl [00:55:59] Yes, there are. And I wish you the best of luck. Thank you for calling. Well, thank you. You’re welcome. Bye bye. I love it. My first call from Paris, France. Let me see if I can get sneak in here. What is a good Roth IRA for a 25-year-old? I know nothing about these. The main thing is the the investment. You have a custodian. The custodian can be Charles Schwab, you want to do it yourself. It can be Fidelity, Vanguard, or you can go hire yourself an advisor. But the custodi at your age, you want to you want to invest in human ingenuity. What that what means is you want to invest in the stock market. So you want to have a Roth IRA that lets you buy stock funds. I would recommend that if you want to do this yourself, spend some time, you’re a young person, you’re comfortable with online shopping, so to speak, go to the websites of those three companies and look at their various investments. You can open at Roth IRA directly with any of those and you can begin to put money in. Good question. You hear the music in the background. I want to thank Mark for handling all these calls and doing a great job today. I want to thank you for listening, whether you’re in Paris, France or you’re in Central Texas, and remind you next Saturday after the news at five, to be sure and tune in to Money Talk.

KUT Announcer Laurie Gallardo [00:57:29] 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 KUTHD1 Austin.

This transcript was transcribed by AI, and lightly edited by a human. Accuracy may vary. This text may be revised in the future.