Listen
Carl Stuart takes caller and text questions on managing rental properties, transferring investment accounts, retirement planning, and the differences between mutual funds and ETFs.
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 Stewart. Carl Stewart is an investment advisor representative of Stewart 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 Stewart and you’re listening to News Radio, no you’re not, you’re listen to KUT News 90.5 and the KUT App. I’m glad you’re here and eventually I’m going to get that coming up on my 31st anniversary at Money Talk. Money Talk is a broadcast about the world of financial and investment planning where you always determine our agenda by calling 512-921-5888. It’s always a terrific idea to call early in the broadcast to give me ample time to do my best to answer your question. However, if you didn’t have a chance to hear previous shows or you’d like to share this program with one of your friends, you can catch past shows at kut.org slash money talk. As you know, if your regular listener, I take today’s calls first and then I take today’s texts and then take previous texts. I got to tell you a funny story. I’m such a tech guru. I wondered why, over the last couple of broadcasts, I wasn’t receiving any texts. And I’m using, at the generosity of the University of Texas, a Galaxy phone, which you will hear go off when texts come in, and I own an iPhone and I don’t know anything about a Galaxy Phone, and was not getting any texts, so I did what you would do. I went to our good friend Google and said, what the heck do I do when my Galaxy phone Samsung phone doesn’t come through a text that says turn off the airplane node. Really, I didn’t turn it on. And I looked at the screen and guess what? There was a little airplane up there. So I have some text to answer and I’m going to get started on those. But before I do, one more time, I will tell you that you can call or text right now at 512-928-588. Here we go. Hi, we’re planning to relocate, but because our home’s current market value. Is lower than our remaining loan balance, we are considering converting it into a rental property rather than selling at a loss. The house was purchased in 2023. We currently have a 10 year arm that’s an adjustable rate mortgage at a 3.7% interest rate. Given this scenario, does it make sense to make extra principal payments or should we prioritize other investments? We’d appreciate any broader financial guidance on managing the underwater property. Thank you. Well, I’m sorry you’re going through this and you are relocating, which will make this having a rental house even more complicated. I’ve observed a lot of people over my 47 years of doing this, some of whom have been quite successful at rental properties and some of them have been quite unsuccessful. And what I’ve noticed is that there are two characteristics of those who are people who are successful. First, they don’t have a lot of debt, which unfortunately is your case. They’re not over-leveraged, as we say. And secondly, they have take-charge, hands-on types of personalities. They’re prepared to deal with the inevitable problems that you would have in home ownership, and they’re going to happen in your rental property, and perhaps could even happen more. Because the people living there don’t own the property. And you’re not gonna be in central Texas, apparently. And if you’re gonna be central Texas you’re going to have to have a property management firm. And if your going to do that, that’s gonna reduce your cash flow. You still have all the same liabilities of property tax and property insurance. And then you have the upkeep. And as I just said, the up keep may even increase. So I would think long and hard about my aversion to taking the loss, frankly. Now, to your second part of your question about investing, I would not put more money into the house because you’re concentrating your investments in one thing, a piece of underwater Central Texas real estate, not a good planning idea. You should go about, if you have an employer-sponsored plan, investing in that. If you have the ability to put money away for a long time considering an IRA or considering a Roth IRA and then otherwise investing on your own so that you can build for your financial independence and good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. You heard those texts coming in and let me take one. I have been with a financial advisor for a number of years. I have be unhappy with his performance for several years, but I don’t know how to get my money out of his firm. By the way, it’s a nationwide firm. Will I have to pay a fee to leave with my money? Will the current investments remain in my name or will they be cashed out? Well, first of all, I’m sorry you had a bad experience. You have full control of this portfolio and this account, whether it’s what we call a taxable account, meaning it’s in your name or a joint account or an IRA or a Roth IRA. So the first thing you do is you make the decision, where am I going to take my money? The choice is very straightforward. I’m gonna go manage it myself. And if you do that, then you can go to the well-known do-it-yourself firms like Schwab and Fidelity and Vanguard. Or you can search for another financial advisor. That’s a whole other process and one that I talk about from time to time. So what you do is you determine where you wanna go, you take that custodian, a copy of your recent statement, and you open an account, and the account has to be exactly styled the way the one is that you’d like to leave. Then you signed an account transfer form and back office to back office electronically. Your securities transfer from where you are to where you want to go. Now, there’s one caveat there. Occasionally, I have observed, less now than in the past, you have had investments at this nationwide firm that are not transferable. I’m going to assume you have mutual funds and stocks and bonds that are fully transferable, there may be a closing fee. I’ve seen that on. Retirement accounts may be $100 closing fee because of the paperwork associated with that. But other than that, I’m not aware of any other fees. They will not cash you out. And I can’t imagine you would have signed a document that would have allowed them to do that. And those securities will transfer what we call in kind to your new custodian. Then you will have the option, if you’re going to do it yourself, to hold those securities or sell them or have a conversation with your advisor. It’s up to you. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Let’s just see it. I’m gonna try to do something here. It looks like we’ve got some callers, so let me get started. Michael, you’re on the air. How may I help?
Michael [00:07:37] I’m 73 years old. I should have called before the end of the year, but I guess I can use information for next year Okay, working. Yes. I’m still working I was going to take put some money into I’m self-employed so I can control the salary in the IRA I was gonna put some in a pre-tax IRA People told me I’m crazy because I’m having to take minimum required distributions But I’m thinking if I put it pre-tax, I’m basically getting 20% more into the investment now and other people say, no, I should put it into a Roth. What are your thoughts? If I’m 73, I don’t need the money right away, it can fit for a long time.
Carl Stuart [00:08:21] I suspect, I haven’t memorized the order this happens, but I suspect you will be subject to the required minimum distribution in a couple of years when you’re 75. But that won’t be the entire amount of the IRA. It will be a small amount based on your life expectancy. And of course that will come out at your income tax rate. Let’s just assume that’s 20%. So the real question then is, do I have the tax savings now? That would encourage me to do a pre-tax IRA. Or are the features of a Roth IRA sufficiently attractive for me to forego that? And those features, as you may well know, include that there would be no required minimum distribution. Secondly, since you’re a person who doesn’t need the money, you’re probably a prudent, savoring investor. So that may make the lack of an RMD attractive to you. And secondly, if you open a Roth IRA… And you start to take the money out, and it’s been there for five years, then any of the money you take out is fully tax-free. Now, if you anticipate that you’re going to be in a similar income tax bracket in retirement, and a lot of people are. I used to be told that wasn’t the case, but that’s not my observation. You’d wanna go look at the tax tables. You’re going have, or you have now, Social Security, you may have other sources of income. If you’re going to stay in the same tax bracket once you close down your self-employment, then you’re either gonna save the 20% taxes now on a pre-tax IRA, or you’re gonna pay 20% on taxes when you take the money out of the IRA. So you have to prioritize either the tax savings today or the flexibility of no taxes in the future and no required minimum distribution. And that’s how I would think about it if I were you, Michael.
Michael [00:10:16] OK. Thank you. By the way, the required minimum distribution start at 73 now. So basically.
Carl Stuart [00:10:21] Yeah, but I’m thinking you’re already there. Okay. I didn’t know if you would, I get very confused. I know that they go up every year. So you’re saying you would put it in and then immediately have to take some out then I guess.
Michael [00:10:33] Right. But I would still get 20% more in there.
Carl Stuart [00:10:38] Yeah, you would. And you’re not going to take all of it out either. You can take out a small portion. That’s right. Good enough.
Michael [00:10:44] Okay, thank you, Carl.
Carl Stuart [00:10:45] You bet, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Cynthia, you’re on the air. How may I help?
Cynthia [00:11:04] My husband and I were talking about ETFs, I was wondering if you could talk about what that is and if those are guaranteed.
Carl Stuart [00:11:14] I’m gonna give you the history because you’re not the only person listening who doesn’t know what they are, okay? You just have the courage to call and ask, so congratulations. Okay, mutual funds started back, I’m pretty sure, in the 1930s, and the idea was that an investor could put money in and there’d be a large portfolio of stocks or bonds and she would own a tiny piece by having a share of the mutual funds. They were authorized under something called the Securities Act of 1940. So people in my profession frequently call them 40 Act funds. And the way they work is that the value that you pay for when you buy a share or the value you receive when you sell a share is determined at the end of the day. The mutual fund company is required to add up the value of all their stocks and all their bonds divided by the number of shares outstanding. Before they get the price per share. The technical name for that is the net asset value. You buy a Vanguard fund, it’s a mutual fund, you pay the net assets value at the end of the day. You sell a Fidelity mutual fund. You get the net as at the the end the day, then along came ETFs. That stands for Exchange Traded Fund. And that’s a very appropriate name because these funds trade on the stock exchange throughout the day. So what you pay when you buy them or what you pay when your sell them is whatever their price is at that moment. It fluctuates throughout the day. Now, why would someone do this? Generally speaking, there are a couple of benefits. Without going into the technical stuff, because frankly, I don’t think it matters. The regional exchange traded funds that follow indexes like the Standard and Poor 500. Have been able to operate without paying out capital gains distributions. When you own a traditional mutual fund, let’s suppose it invests in stocks. Every year, that fund company has to add up the profits that they’ve made from selling stocks, and the losses that they lost from selling stock, and if it’s a net profit, what we call a net capital gain, they have to distribute that to you. Now you may not want it, Most people should reinvest and buy more shares. But nevertheless, you pay the taxes on that net realized capital gains. One of the features of exchange traded funds is they have a way to avoid the distribution of capital gains while allowing you to reinvest the capital gains, that’s a very nice feature. So they have daily liquidity and they trade throughout the day. And finally, for the last part of your question, they’re absolutely not guaranteed because they’re investing. In financial instruments, primarily stocks and bonds, although you can buy something called exchange traded trusts that own gold and silver, for example, and so they are going to fluctuate day to day, just like a normal mutual fund. There’s no guarantee associated with them whatsoever, Cynthia.
Cynthia [00:14:21] So I was interested in the silver and a silver ETF. Yes. You’re saying that’s different?
Carl Stuart [00:14:28] I’m saying that the silver ETF, the one when I look at it, I use SLV, that’s actually a trust because if you were to study it, go online and study it. And you looked at SLV or for gold IAU, you would see that they actually own the metal. They own the medal. So when you buy a share, you were buying a share of that metal and there was no guarantee. I mean, silver was up 144% last year. It could be down 50% this year. In their videos. The price of the ETF will follow the price of metal because that’s exactly what you want.
Cynthia [00:15:03] Right, but you own the metal. That’s the, I guess that was the question that I had. You bet.
Carl Stuart [00:15:09] You bet yeah there’s no guarantee but what you do get is you own the metal this is why it’s such a great innovation because in the old days you had to buy the ingots silver ingots which was not good or you had To buy coins and you paid way too much for those to buy and sell now you can own silver through an exchange traded fund and you can add to it or reduce it and put it in your portfolio so the answer is yes that’s that you understand it correctly
Cynthia [00:15:36] Oh, good. That’s what I was telling my husband and he did not believe me. Thank you.
Carl Stuart [00:15:41] Well, you know, I often find that this is a marriage counseling show as well, Cynthia, so I’m glad. Ha ha ha.
Carl Stuart [00:15:49] Thanks for calling. 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 Talks. All right. I heard a text come in. All right, hi Carl. What are your thoughts on dimensional world equity, symbol DFAW? Or Avantis, all equity markets, symbol AVGE, versus a portfolio of 60% VTI, which is Vanguard Total Stock Market, and 40% VXUS, which is Vanguarde Total International. Let me start by saying, I make no recommendations of specific securities on Money Talk. I never have, and I never will. I’ll talk about the distinctions. I’m happy to do that. So dimensional funds was an early proponent of what is called Factor, F-A-C-T-O-R, Factor Investing, where out of the work of Eugene Fama and Ken French, primarily at the University of Chicago, for which they received a Nobel Prize, they determined that over long periods of time, and the key is long periods of times, certain factors can create better performance than a market cap weighted index. How’s that for a bunch of jargon? Jack Bogle. The founder of Vanguard said, look, if you replicate the S&P 500 in my fund, you’re gonna get the S& P 500, and each stock in there is gonna be value in that the percentage of that stock in that index is a function of the price of the stock times the number of shares outstanding. So you can bet Nvidia has a much bigger position in there than some small company. All right, having said that. They said, we have identified factors like small cap versus large cap, value versus growth, momentum, those kinds of things, right? And we believe we can prove that over long periods of time by tilting towards those factors, but having a very diversified portfolio like an index, we’re gonna build our own so to speak, we’ll provide better returns. So one time their chief financial, I beg your pardon, their Chief Investment Officer is a man. Named Repetto, and he left and started Avantis, which is owned by American Century. Dimensional Funds is headquartered here in town, was founded by David Booth. Okay, Avantis is a factor-based as well. It just uses some other additional factors. Naturally, the folks at Dimensional Fun believe theirs is superior, and the folks as Avantis believe theirs superior, and the people at Vanguard believe theirs’ superior. I’m not gonna put the finger on the scales and say one or the other. You’ve gotta decide if you want factor investing or market cap investing, and that’s how you make the decision. Great question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. It’s time for me to take a break, a perfect time for you to call or text 512-921-5888. I’ll be back.
KUT Announcer: Jimmy Mass [00:19:18] Money Talk airs every Saturday at five o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTX Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a nonprofit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org
KUT Announcer: Laurie Gallardo [00:19:49] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:20:02] Welcome back. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. When you have a financial or investment plan in question, call or text 512-921-5888. We’re going to take a call. Virgil, you’re on the air. How may I help?
Virgil [00:20:24] Yeah, Carl, I read in the paper the other day, they had an article that I didn’t quite understand, it was about robo-investing, looks to me like you’re dealing with a computer rather than live investors.
Carl Stuart [00:20:39] So my understanding is this started a few years ago and the idea was to allow people who wanted to uh invest and or trade uh stocks they could do so themselves and they even back then perhaps were able to buy in very small dollar amounts or they may also have a particular program where you put in a bunch of information. About your age and your objectives and then they manage the portfolio for you. You can put in modest amounts and their, if you will, sales pitch is that it’s very inexpensive and it’s just they have a program that they, I don’t know if you want to call it an algorithm or not. I don’t t follow it so I don t know a lot about it Virgil, but it is, you’re right, it is an automatic kind of thing. That’s why they called it Robo. And at first, it made a real splash in the financial press. But based on my reading, it’s never really become as big a deal as some of these things like Robin Hood trading where you trade your own stocks. So I think you’ve got a good idea of what it is. I think it’s inexpensive. You’re not talking to a human being. Human beings are not making decisions and you give them enough information about your goals and objectives. And then they go implement the plan. I think that’s my understanding, Virgil, of what it is.
Virgil [00:22:09] Well, thank you very much. Also, I discussed Bitcoin and cryptocurrency with my friends, and I consider it just like buying an individual stock. You take your chances, and it’s up today and down tomorrow.
Carl Stuart [00:22:25] I happen to agree with you, thank you, and bye-bye to you as well. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here’s a text that came in, Hi Carl, I have a lot of cash, I want to put it into bond ETF, seems like the long term bond ETF would be best now since rates are going down. Let’s just help everybody here. Let’s start with a mathematical fact. When interest rates rise, bond values decline. And when interest rates fall, bond value rise. In 2022, the Bloomberg Aggregate Bond Index, which is kind of the S&P 500 of bond world, was down a bit over 13%. I can tell you that the long-term bonds we’re down substantially more than that. And then you have a year like this, where the, I’m talking about 2025, where the Bloomberg Ag was up 7.19%. And so that’s what you got if you own that index, which has, I gonna get into the weeds here, has a duration of around six or seven, which means if interest rates rise, that portfolio would be predicted to fall six to 7% in value. And if interest rates were to fall, that portfolio would be predicted to rise six or 7%. When you, I’m getting more jargon, extend your maturities, you are going to have greater returns in falling interest rate environments, and you’re going to worse returns in rising interest rates environments. So if you think that interest rates are gonna fall, and you wanna take the highest leveraged way you can to take advantage of that, then a long-term bond fund, regardless of whether it’s exchange-rated fund or it’s managed fund, is going to have the highest return. I’m answering your question. I’m going to say, editorially, I don’t like the idea, because you could be mistaken. And so, remember, the Federal Reserve controls short-term interest rates. The Federal Reserve does not control long-terms interest rates, we could easily have what’s called a steepening yield curve. Where the Federal Reserve lowers interest rates and the long end of the bond goes up, in which case you would lose a lot of money. After all, we still have inflation in the system. We have a terrible fiscal situation in the United States. Central banks have been taking money and buying gold over the last few years. So that’s why I have a short term and then an intermediate term and a go anywhere multi-sector bond fund that I would use in my portfolio. But technically you’re absolutely right. If you believe not rates are gonna come down, if you believe long-term rates are going to come down then yes, that would be the place to go. Thanks for your text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. And here is a call. Whoops, I just hung up on Chris Correa, and I’m so sorry, I hit the wrong button. Chris, if you’re listening, you call back in. I apologize. I’m trying to do about three things here at once, and I hit wrong button, so I apologize, here’s the text that just came in. Hi Carl, long time listener. From what you just described about exchange traded funds not throwing off capital gains like mutual funds, should I sell all my mutual funds and buy like ETFs? Why would I want to keep mutual funds? Well, first of all, If you own them in a taxable account, you’re gonna generate capital gains. So you need to take into account the tax consequences. Secondly, depending on the nature of the mutual fund that you have, will you be buying exactly the same one? Say, let’s just say you have the Fidelity NASDAQ mutual fund and you wanna buy the F fidelity NASDAq ETF. That’s a like security. And if you didn’t, and if tax considerations were not relevant, then you would do that. On the other hand, if you had another fund that you had gains in, and the company came out with an exchange-traded fund, which a whole lot of them are, because that’s where, as they say, that’s were the puck is going. Lot of money moving into ETFs. In my experience, most of the large, actively managed fund managers, stock and bond managers, either have or are bringing ETFs, and I’ve talked to many of them, it will not be exactly the same. You need to understand that. You will have different performance characteristics. I’m not suggesting drastic. It’s way too early to know that. Same people managing, if you buy an active ETF and sell an actively managed mutual fund run by the same company with the same goals and objectives, and you don’t have tax considerations, that would be a perfectly reasonable thing to do. 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. Chris, I’m sorry I hung up on you. You’re on the air. How may I help?
Chris [00:28:05] Yeah, thank you. I was wondering if you were aware of any investment tax credit options for like the everyday investor where you don’t have to have a super high net worth to get started saving money on your taxes.
Carl Stuart [00:28:22] I, the short answer is no. I will tell you that they have these opportunity zones, I think they’re called, where you put the money in for I think it’s 10 years. And then when it comes out, it’s a very tax advantage thing. But that’s not, I don’t know enough about that. Plus, I’m not a big fan to bill liquid investments. Tax credits that Chris is asking about are even better than tax deductions because you make an investment. And you have an ownership position and you get a tax credit for it. Back in the good old, bad old days, when we had tax shelters, you could invest in a limited partnership that owned an offshore drilling rig and you would get tax credits as well as write-offs. Those days are long gone. I have not seen a tax-credit investment that would be available to what you and I are individual investors. You may find that there are people who offer limited partnerships, you would then have an ownership of an asset for which there was a tax credit. Those are extremely opaque and very difficult to analyze what the true costs are and you are in there for a long time. You should get a lot of money for that because you are paying what’s called a liquidity premium. So no, I’d be very careful and I don’t know any word to go to get those, Chris. I’m sorry. Thank you very much. You’re welcome. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Bob you’re on the air, how may I help?
Bob [00:30:05] Yes sir, I wanted to ask you about my TSP account. I have about 50% in my C fund, which is a large cap. Yes. And then I have, I think it’s 10% in like a bond fund. It’s earned like two to 3%, it’s steady, but it doesn’t earn much. And then, I have an S fund, which is small cap, but I was noticing this past year, it just doesn’t do that well for some reason. Well, I know small caps haven’t done that well. Exactly right.
Carl Stuart [00:30:38] Yeah.
Bob [00:30:39] So I started putting about 40% in the i-Fund. In the iFund, last year and the year before, well, last year for the end of 2025, it posted a return of 32, over 32%. That’s right, that’s right. Do you have a, not a problem, I mean… Yeah, so here’s… Do you like the idea that I don’t have anything in the C Fund, I
Carl Stuart [00:31:08] So let me go over several things here. You move money into the international fund at the right time, but you have to be careful when you’re real. And I know you do, you’re sometimes you’re lucky and it comes out looking like smart. The international market trailed the U S market for either 13 or 14 years until 2025. So that C fund would have outperformed international for over a decade. And now it hasn’t. The small caps have underperformed large cap, both domestic large caps and international stocks. The C Fund is, I beg your pardon, the small cap fund is way out of favor. I like the idea of having a substantial portion in international, my own view for most people, and again, I don’t know your situation, so I’m not making a recommendation, but if I’m gonna own stocks, I like about 75% domestic and 25%. International. I’m starting to think about maybe more international. Now, having said that, the reason to hold that small cap is I always remember Warren Buffett said I’m fearful when others are greedy and I’m greedy when others are fearful. And I got to tell you in the stock market, small cap stocks and particularly small cap value stocks are so deeply out of favor. I don’t know how long that’s going to last. I would have a small portion. I just like owning things that nobody likes. I have a smaller portion in the small cap. I like the fact that you don’t have too much in bonds. I think the outlook going forward for bonds is just frankly okay. I think we’ve had a good year this year. And I think I’d wanna have a nice portion in international. So that’s how I would think about it if I were in your shoes, Bob.
Bob [00:33:00] All right, I’ll just keep on monitoring this year’s monthly return on it, and I’ll see what happens, and then I’ll move some over to the…
Carl Stuart [00:33:13] Okay. All right. Thanks a lot. You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here’s one text that came in. What advice do you have for someone that only has $10,000 to invest? Thank you. Okay, first question, can you leave it alone for five years? If the answer is no, I’m going to have to really limit my answer. If the answers yes and it’s $10,000, you want to invest in two exchange traded funds. One that covers the U.S. Stock market and one that covers international stock market. They’re inexpensive, they’re tax efficient, they pay dividends which you will reinvest to compound your growth. The big do-it-yourself people, the Schwabs, the Fidelis, the Vanguards, all have these. So you go to their three websites and you look up their, they’ll say investments or products. You look up exchange traded funds, ETFs, and you’ll look for a total, US total stock market and a total international market. And you put some, as I just said, just a moment ago, I would say without knowing anything else about you. That it’s seven, I would say 70, 30 maybe, domestic, international. This will work based on history if you leave it alone for five years. But don’t get scared when things go to heck in the hand basket because they periodically do. If you need to have the money sooner, then you’re gonna have to do one of two things. Add a bond fund. If you’re going to do that, you go to those same three. And you look for something called the Bloomberg aggregate, there’s, for example, an iShare, the symbol’s A-G-G, again, not personally recommending, and you put part of the money in those two stock funds and part in the bond fund, so when we have our periodic decline, we’ll just hope the bond funds will go down less or will hold value. It’s the holding period that matters the most and our ability to stick to our guns when it looks like everything’s going to heck in a handbasket, so good luck. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Carl, where do you stand on the question of whether to pay off a mortgage early or don’t pay off early and use spare income for other investments? What a terrific question. I haven’t had this question in a long time, but I gotta tell you over the last 31 years, This is one of the most. Common and popular questions. So it starts like this. A house, everybody says, that’s not true. I’ve heard people say, by golly, my house has been my best investment. Well, I disagree because you’d have to add in all the interest you’ve paid over 30 years, all the property taxes, all the operating expenses to really true it up and give yourself an honest analysis of that. Secondly, investments. It’s not liquid. You can’t sell off the bedroom if you need an extra $30,000. A house ownership, it’s a wonderful thing. I’m a homeowner. I’m not suggesting it’s bad thing, but it’s concentrate, let me just say it’s an investment. It’s a concentrated investment. It’s one thing in one neighborhood, in one city, in one country. Now, that, to use one of our early collier’s comment, that’s like owning one stock. If you’re right, boy, that’s fantastic. If you wrong, it’s not. We just, at the beginning of the broadcast, I read a text of someone who bought a house in 2023 here, and now the house is worth less than their mortgage, okay? Don’t put more money in the house unless you are already fully invested and have a diversified portfolio elsewhere, because you need to have more than one leg on your retirement planning stool, chair, whatever. You need to have your home right. But when you sell that home, you gotta go live somewhere. So you gotta reinvest it in some other form of housing. No, I would not put more money on the mortgage. That’s wonderful, it feels good. It’s emotionally satisfying. I’m mortgage free, I get all of that. But the opportunity cost of not building up another pillar, if you will, another leg to the stool, that opportunity cost is really, really high. So, in my view, I would not do that. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. It’s time for me to take a break. A perfect time for you to call or text 512-921-5888. I shall return.
KUT Announcer: Mike Lee [00:38:23] If you’re a regular KUT listener, you know by now that members’ support makes everything we do possible, and you know all about becoming a sustaining member, but you might not know about another way to support the reliable news on KUT. If you have a donor-advised fund, you can support the station by recommending a grant to KUT! It’s a great way to show your support and to help ensure that KUT is your reliable news source, and it is way easier than it sounds. Find out more at KUT dot org slash legacy.
KUT Announcer: Laurie Gallardo [00:38:54] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:39:07] Welcome back to Money Talk, I’m Carl Stewart, and you’re listening to KUT News 90.5 and on the KUT app. And if you would like to hear today’s broadcast again, and after all, who wouldn’t, or you have friends who you think might enjoy the broadcast, tell them they can catch past shows at kut.org slash Money Talk. One more time, 512-921-5888. I have a long-held mutual fund in qualified and non-qualified accounts. Let me just tell everybody what this person’s talking about is qualified means it’s in a tax-deferred account like a 401k, an IRA, an SCP IRA, a Roth IRA, okay. I have long-hält mutual fund in qualified in non-qualified accounts. The fund is recently converted to an ETF. That’s interesting. I’m not aware of substantial changes in the holes. What are the implications of this change? And will the impacts be different based on the type of account where this ETF now is held? I am, I gotta tell you, I am really, really surprised by this because I have talked to mutual fund experts and said, can a Fortiac traditional mutual fund be converted to an ETF? And the answer I get is no. And I would love it if that happened for everybody who’s a long-term investor because you would be going from a fund that periodically pays capital gains to you and has higher operating expenses to a fund, that doesn’t pay capital gains and has lower operating expenses. If you have done this and you’re willing to share this with me, send me a text and Tell me what the fund is because I have researched this, and I have hit just a brick wall. When I’ve talked to people who are bringing out ETFs, big companies like Massachusetts Financial Services and Capital Group with over a trillion dollars of capital, they tell me that their new ETFs will be similar to, or extremely similar to their existing funds, but not the same, and that you cannot convert. Now, having said that, The implications are terrific if you can do it. I just stated, no more long-term capital gains and lower expenses. And will the impacts be different based on the type of account where the ETF is held? The answer is no. Whether you own an ETF and a qualified or non-qualified, you have exactly the same characteristics. So if you have a chance, today or sometime in the future, if you research that and you’re confident that’s the case, I’d sure like to know about it because I could. Really use that information. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call with your questions or text me at 512-921-5888. Carl David and Austin here, faithful and appreciative listener, and I want to know Is there a limit to how many times and what is the frequency? That you can convert an IRA to a Roth IRA. I did one a few months back, and I’m not sure if it’s once annually or if there’s a maximum amount. Well, let me tell you, David, I saw your text when I finally figured out how to get rid of the airplane mode on this Galaxy phone, and it was on my list to answer, but I’ve been getting a lot of text today. The answer is you can do as many as you want. There is no limit to the number of times that you… Do the conversion of an IRA to a Roth IRA. So I’m glad that you texted back and that you told me that you asked that. You’re listening to Money Talk on KUT News 90.5 and the KUT app. You know the number 512-921-5888. Here’s the text. Carl, I’m nearing retirement with an IRA and I have a few questions. Is the age to begin required minimum distribution 73 or 75? I’ve been told both and that it depends on when you were born. You were right. You have been told, both. I’m older and it was 70 and a half when it happened to me. I know it’s going towards 75. I have not memorized that table, but you could easily find out by just going online. So they keep raising the required minimum distribution age. They may well, they being the government, they will continue to do that. When you take the required minimum distribution, what is the IRS form that needs to be submitted with the tax return? I do my own taxes and could use help finding the form among the thousands of forms the IRS produces. You’re asking the wrong person, I’m sorry. I do not do my taxes. Many years ago, I did my taxes and got a very unpleasant letter from the IRS that they were not happy with my return. I decided that was the end of that. So I know that there’s, I know it with my person does the taxes that he puts it on there but I don’t know the name of the form I’m sorry if someone knows the name of that form the number of that forum and you’re listening this afternoon either call with that form number or text me and I will share it on air so far I’m over two three if I want to make a charitable contribution directly from the IRA the broker will cut the check or transfer the funds but do I need to do anything more on my tax return other than fill out the No, you don’t. Now you finally found something I actually have a little knowledge on, because I do this. I like sending the check myself with a note from me or from me and my spouse directly to the non-profit. But you don’t have to do that. I like to make sure that way they know it’s coming from. Now what we’re talking about here is really important. If you are philanthropically inclined, you want to make the world a better place and donate money. If you’re 70 and a half or older and you have an IRA, you can make qualified charitable distributions, QCD, to other nonprofits up to $100,000 in a taxable year. Once you hit your required minimum distribution, you can take that required minimum of distribution on which you are going to pay income tax, right? And you can use that as a qualified charitable distribution. And what that means is you won’t get a tax deduction for giving it to your church or synagogue or mosque or university or the Girl Scouts, but you also won’t be paying taxes on something you wouldn’t have a choice but to pay taxes. It’s a terrific idea and that’s all you have to do. This at the end says, thank you for your help on this matter. I’m another of your many long time listeners. And appreciate your enduring commitment to providing general advice and education on financial matters. Thank you very much. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Writing back on your, Carl, writing back on you request, AKREX converted to AKRE. Happy to provide this for you. Terrific. Okay, I’m going to look at that this week. First time I’ve heard that, which looks like it’s one of the ARC actively managed funds. So I’m gonna have to look into that because I know somebody who works at that firm. You’re listening to Money Talk on KUT. I’m not gonna look up here because I’m sure I do three things at once. You’re listen to Money talk on Kut News 90.5 and on the KUT app. I am gonna go look at some previous text. By the way, caller text 512. 921-5888. Hi Carl, this year I am participating in a Roth IRA under the 401k with my employer. How is this different than my Roth IRA with Vanguard? Is there an additional benefit? I do understand that I can contribute $8,600 total this year for all Roth accounts that I have, including a traditional IRA also with Vanguard because I’m 50 years old. This Roth IRA concept has gained so much popularity for, I think, obvious reasons. I’ve discussed with you today the benefits that employer-sponsored plans, 401K plans, I presume 403B plans, but I haven’t seen that, so I don’t know that for a fact, that 401K Plans are offering plan participants the option to continue to make pre-tax or to make pretax contributions. Out of their paycheck or to make after tax contributions into a Roth 401k option. Now, when the employer makes a contribution, it’s my understanding that’s pre-tax. Now, the benefit of that is that the maximum contribution number for defined contribution plans is much higher than for IRAs and Roth IRAs. The number 23,000 sticks in my head, it’s a big number, you can look into that. So if you are saving and you have the cashflow ability to do so aggressively and you fill the bucket of your own Roth IRA and you confidence in the menu of investment choices at your employer, then that’s a wonderful opportunity. And the difference is the Roth IRA has the symbol IRA, and actually the 401k is a 401k Roth. It’s not actually a 401K Roth IRA. Is Roth IRA, like IRA says, individual retirement account. You have a custodian and it is in your name. A 401k is a defined contribution plan that is an employer-sponsored plan, and in most circumstances, you have a limited choice of how it’s invested versus doing it on your own at Vanguard, and you can’t take the money out until you terminate employment under most circumstances. So that’s the difference. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888 and we have a call. Bob, you’re on the air. How may I help?
Bob [00:49:53] Hello, Carl. Carl, I’m in my mid 70s. And how much return do I need to get each year to outlive my investment?
Carl Stuart [00:50:05] I would say that if you are, part of it is, are you taking withdrawals from your investments to supplement your retirement income?
Bob [00:50:15] Yes, I am.
Carl Stuart [00:50:17] The rule of thumb, I’m saying it carefully, for someone in your situation, is that if you have a projected return of 6% or greater, you can take 4% out of your previous year-ending value and you won’t run out of money. Now, we both know there are gonna be years where the 4% is gonna come out and the portfolio is gonna go down. But the only way that you can obtain a 6% or greater return is to have a significant allocation to the stock market. So I would say if you have a significant allocation which I would say is 55% or a greater, and if you take 4% or less, naturally I like less, because it increases the odds of it lasting. Based on history and something fancy called Monte Carlo simulations, the odds are significant, not guaranteed. That you will make it. What you and I know about retirement planning is that there’s three things we do not know. We do not how long we’re gonna live. We do know what will happen to the cost of living, and we do know what our rate of return will be on our investments. So we do this with humility, but those are the numbers based on history that I would use if I were in your shoes, Bob.
Bob [00:51:38] Does that take inflation into account?
Carl Stuart [00:51:41] It does take inflation into account. Obviously, there are multiple risks to this. One, you have a prolonged bear market and a stock market, or two, you a period of sustained high inflation. I suspect in the 1970s, this didn’t work worth a darn because we had super high inflation, bad bond market, bad stock market. But it does take into account inflation, just again, based on history, yes.
Bob [00:52:08] Thanks for the great answer.
Carl Stuart [00:52:09] Okay, thank you, you’re welcome. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-58. Roy, you’re on the air, how may I help? Hi, how are you? Good, thanks.
Roy [00:52:30] Uh… So i have been contributing to a rock for one k with my employer for a number of years uh… In their literature they always advertise that the uh… Match uh… That they do with six percent however i was going through the numbers uh… Over the last couple days and discovered that for at least the last two years they’ve been matching fifteen percent Wow! Yeah, exactly. And that’s what I’m afraid that they’re going to say when and if they ever discover it. Yeah.
Carl Stuart [00:53:06] DON’T TELL ANYBODY!
Roy [00:53:08] I’m keeping it on the down low, but if they do ever discover it, I’m wondering if they attempt to call back any of the contributions that they’ve made at that rate, will I face a penalty of any type, shape, or form that you can…
Carl Stuart [00:53:23] I’ve never seen this occur where somebody’s been penalized for an employer-sponsored plan mistake on the part of the employer. It’s also possible that the way the plan document is written that they have the six percent match, but that’s not a ceiling. We’ll put in up to six percent of your comp if you put in six percent, but maybe the plan document doesn’t limit that and maybe there are some circumstances. That have caused them to be much more generous. But even if it was a mistake, and for two years, I would tell you this, plans have to do an audit. That’s the law. That would have shown up in an audit and somebody’s head would have exploded. I’m involved as a volunteer on the finance committee of a couple of institutions, nonprofits, who naturally have 401Ks or 403Bs. We have to do an audit. We don’t have a choice. And our administrator has to do the audit. So there’s something, and I know you know this, there’s some haywire there that they could get through an audit with a 15% employer contribution and not be within authorization of the plan document. So I bet the audit is done, I’ll bet that they’re allowed to do it and you are one lucky guy. But even if all of my bets are mistaken, You do not have a liability in my opinion. Okay. Super. Right. That answers the question. Okay. You bet. Thanks for calling. You’re listening to Money Talk on KUT News, 90.5 and the KUT app. And do not call because we do not. I have time. Let’s see. I heard the noise and so did you. Hi, Carl. I’m in the fortunate position to be in the 35% DAX bracket and subject to the net investment income tax. I want to hold money I plan to use in the next three years. Would you recommend municipal bonds instead of a mix with a high-yield savings account to minimize taxes? The answer is yes. You can, I believe, I have seen that you have municipal bond exchange traded funds with various aspects of maturities and so you could do an ETF. Of a 1 to 3 or 3 to 5 or whatever it is of tax exempt because I agree with you, you are fortunate in 35% and it seems to me I would do that. I’m not sure a high yield savings account after you take the 35% away is necessarily going to be that attractive. You also have the chance for some appreciation if it turns out that rates do in fact come down. And by the time you need it, it may turn out that you actually have a gain. So yes, that’s what I would do. You’re listening to Money Talk. I’m going to keep going. Hi Carl. I have an IRA through Vanguard and I am 32 years old. Good for you. I currently pay 3% for account investment management. Does it make more sense for me to manage my own account and fire the financial advisors? So I don’t know how much money you have. 3% is high. I think if it’s a modest amount of money, maybe one and a half percent. Now, does it make more sense? That’s a wonderful question. But then it begs the question, how do you measure return? I had this conversation with a friend this week and he said, I just think I’ve done better than my advisor when I look at their returns and my returns. And I said, do you both have the same investment strategy? How did your account on your own do in 2022? And how did the advisor do? Because maybe what you’ve been doing is investing in growth stocks and momentum, and she or he is investing in something that’s lower risk and therefore didn’t go down as much as 2022. So do some more thinking about this and be sure that you’re comparing apples and apples. And if I think 3% sounds high to me and I would take a look elsewhere. That’s it for today. I’ve had a lot of fun. I hope you’ve enjoyed Money Talk. I wanna thank Corinne for doing a terrific job and as always remind you that next Saturday at five o’clock be sure and tune in to Money Talk
KUT Announcer: Laurie Gallardo [00:57:56] You’ve been listening to Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart 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.
