Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on personal finance, including discussions about asset allocation, Medicare reimbursement issues, upcoming tax law changes, retirement savings strategies, and commercial real estate investments.

The full transcript of this episode of Money Talk with Carl Stuart is available on the KUT & KUTX Studio website. The transcript is also available as subtitles or captions on some podcast apps.

KUT Announcer: Laurie Gallardo [00:00:01] This is Money Talk with Carl Stuart. Carl Stuart is an investment advisor representative of Stuart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:00:20] Welcome to Money Talk, I’m Carl Stuart and you’re listening to News Radio KLBJ. No I’m not, I swear I was for 30 years, that’s what has a bad habit. You know exactly where you’re listen and where I’m so happy to be, at KUT News 90.5 and on the KUT app. I hope when we put this up for you to listen to rebroadcast we take that one out. But this is live radio my friends, Money Talk is a show about the… World of financial and investment planning where you always drive the agenda by calling 512-921-5888. It’s a terrific idea to call or text at the beginning of the broadcast. If you’re a regular listener, you know my rule is that I take today’s calls first and then today’s texts and then any previous texts that I haven’t had the opportunity to answer. And I hope you’ve had the opportunities to listen to the last two weeks of broadcast. Where my friend Jimmy Moss and I had a lot of fun. Jimmy tells me that in short order, those shows will be up on the website. And I mentioned the website, you can catch past shows at KUT.org slash Money Talk. Let me give you that number one more time. And if you’re a first time listener, you’ll hear the text coming in, but call or text 512-921-5888. Here’s a text that I received previously. Hi Carl, I’ve been listening to your program for many years and always learned something from you. I have inherited an IRA. I know that I have to withdraw those funds over a 10-year period. So what this means is when you are married and your spouse predeceases you and he or she has an IRA, you are automatically the beneficiary. You would have to have signed a document declining that opportunity and you can then put the your spouse’s IRA into your IRA. When you are a non-spousal beneficiary, as this person is, you get what is called an inherited IRA. And if the person from whom you received it passed away after 2019, you have 10 years to take the money out. It’s called a required minimum distribution. I would like to move the inherited IRA funds into my own personal Roth IRA. I am aware that the IRA will increase my income when I withdraw those funds. However, I have sufficient income and supplemental funds to be able to manage the taxes that I would pay once I move the IRA into the Roth IRA I read an article last week in the Wall Street Journal that some research was done showing that if you can afford to pay the income taxes, that doing the conversion at once is better than gradually doing it over 10 years, but only if you have the financial circumstances to do so. I’d like to know if there’s anything else I haven’t thought of before I make this conversion. Thanks as always for your help, you’re welcome. Well, I would argue that it’s not necessarily wise to do it all at once, because whatever money you take out of an IRA to do a Roth conversion, or you take it out of a inherited IRA, That’s taxable income, and that goes, obviously, in addition to any other income you have from employment or dividends or interests or pensions or social security. And if it’s a large sum of money and you take it all at once, it may well thrust you into a higher tax bracket. Now, the tax brackets are fairly narrow at 22 and 24%. They go up, you hear me getting up my tax tables. They go up a lot from 15 to 22%, but what you want to avoid is going from 24% to 32%. So, make sure before you take a big lump sum out of an IRA to convert or out of a inherited IRA, figure out what that’s going to do and cost you. Now, I would tell you this, and I’m gonna bloviate a bit. I checked into this, and I believe that you cannot do what you are. Planning on. That is taking money from an inherited IRA and putting it into your own Roth IRA. Based on my research the Revenue Service does not allow that. Obviously you can do your own Roth ira if you have earned income and you’re above below a certain level but you cannot do what you’re looking to do so I’m sorry but that’s that’s according to my research you’re welcome to do more on your own or talk to an accountant or a CPA. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here is another text and bear with me because this is a long one but I think it’s also I think educational for other people who listen as well so let me just find this here. OK. Hi Carl, my name is Billy and my wife and I enjoy your show. Thank you. We wanted to get your opinion on our asset allocation plan. Here is our current situation. I am 71 and my life is 70. We’re both in good health. We earned about $600,000 per year in pensions, social security and rental income. Other than outstanding mortgages on low interest loans on rental properties We don’t have any debt and have fairly substantial investments. Brokerage account, we have $5 million, which is a substantial amount, I agree, invested in a brokerage account with 2.5 million invested in individual stocks, 2 million in stock index exchange traded funds, and $500,000 in a Schwab Prime Advantage account that earns about 4.5% interest and we reinvest all the dividends. In IRA accounts, we had 3.5 millions. We have about $600,000 of that invested in individual stocks and the remaining $2.9 million in stock index funds. We have been converting the stock index to bond funds into a specific ETF, which is a high dividend, one that generates income and captures potential growth for the S&P 500. We allocated $250,000 to that strategy and then moved another $200,000 into BND. That is Vanguard’s total bond market. It’s a very large exchange traded fund. The remainder is largely invested in high-dividend paying ETFs. We have $100,000 in a Schwab Prime Advantage account. Given that we’ll be required to begin taking our RMDs in a few years, we wanted to start building up readily available funds to cover RMD’s and QCD’s. Those are qualified charitable distributions, which you can start at $70.50 and when you reach the age where you have to take a required minimum distribution. For example, at 73, you can use that to give to qualified 501c3 organizations up to an amount of $100,000. We won’t need the income from the RMD, so plan to gift that money to our children and grandchildren and distribute charities through the Qualified Charitable Distributions. As it regards real estate, we don’t have a mortgage on our home and its estimated value is 1.2 million. And we own five rental houses in Austin and have low interest mortgages on those rental homes. But rent more than covers the principle that the PITI, which would be the taxes, insurance, et cetera. And we’ve never had a vacancy in the five years we’ve owned the properties, congratulations. Those properties have a value of about three million and our equity is about one and a half million. We plan to remain in our house and keep our rental properties and let our home and rental properties to be a part of our estate. Other than that, we have about $300,000 in other accounts, checking and savings, and have fully funded education accounts for our three grandchildren. Our question for you. We are working through a reallocation plan to reduce exposure to individual stocks, and with the proceeds from the sale of individual stocks invest in broad market exchange-traded funds, and expand our exposure to bond funds. The allocation is 50% domestic stocks and exchange-traded funds. 25% international exchange-traded funds, and 25% bond exchange-traded funds. And fund the Schwab Prime Advantage Asset with at least two years of RMDs. Does this strategy make sense? Well, thank you listeners for paying attention to this. First of all, congratulations to you, Billy, because you’ve done a wonderful job at saving and investing. And you’ve planned ahead. You’re going to be doing QCDs. I want you to know that you don’t have to wait. You can start doing those because you’ll be 70, you’re 70, you’ll 70 and a half, and the other person’s 71. So you can start giving QCDs right away if you chose to do it. You have the predominant amount of your assets are in what I would call growth assets, rental properties and stocks. If you have listened to me before, you know that. It’s my view based on my experience and on my reading that if you’re trying to have your money grow faster than the rate of inflation, the two asset classes that do that are rental real estate and common stocks. By the way, while you’re listening, if you have a question, call or text 512-921-5888. If you’re comfortable with that and you’ve done very well, I’m comfortable with it. So I think your allocation is fine. It’s probably more at risk than a lot of people in your age cohort would have. I don’t have a problem with that. And because the rental properties will be in your estate, I know you know this, but for the rest of our listeners, if those properties are there and both you and your spouse pass away, then your heirs sell those. And if they sell them right away, that sales price could be used as the market value. And that would be then, there would be no capital gains tax on that because they get a step up in basis. And of course, the same thing would happen in your brokerage account. So you have a well-constructed portfolio. It will outpace inflation based on my experience over the next 10 years. And you will have some volatility. You’re old enough to remember probably when real estate really went and crashed here in Texas That’s is that look likely to happen again. Of course. I don’t know but probably not the one thing I would think about Two things, actually, as I think through this. One is your bond allocation, and then the other I’ll get into in a minute. I like to have more than one bond in my bond allocation because I don’t know which way interest rates are gonna go. I don’t know if they’re gonna go up or down or sideways, and so I like to have a bond portfolio that’s spread across what we call the yield curve. BND, as I understand it, is designed to be the same as the big index that represents taxable bonds, the Barclay Global Aggregate Index. And that has a duration of, I don’t know, six to eight years somewhere in there. So if we have, during the rest of your lifetime, a period of rising interest rates, you will have fairly significant price risk in that. In 2022, now just three years ago, the egg was down about 13%. And we had a period of time that year where both stocks were down and bonds were down. And so I would start to think about, you’re obviously a sophisticated, thoughtful investor. I would spend some time looking at some other types of investments. I’m gonna give you some categories to do for your homework. As you know, I don’t make specific recommendations on Money Talk. So I would take a look at B and D is fine. I’m not recommending it, but it’s what we call a core bond fund. This is what Morningstar calls. And then I would like to have a fund that invests in shorter term bonds. And I’d like to a fund that Morningstar would call the multi-sector fund that allows the managers to go in any direction they want. Now, when interest rates were higher, That short-term bond fund… Held up a lot better when interest rates went up, because it had much shorter maturity. And then the Barclays Ag went down, as I said, 13%, so I’m guessing so did BND. On the other hand, as rates have come down, that core bond fund has done quite nicely. The BND year to date is up 6.67% through yesterday, and the short-term bond fund is up 4.54. But the multi-sector bond fund is up 10.22, so it’s having a terrific year. And I would just say to you that I would have three bond funds rather than one bond fund. The other thing, I really like your 50% domestic and 25% international, and I really liked the idea that you’re reducing your exposure to individual stocks because I learned a long time ago that when you own individual stocks, What’s going to happen is, in good times… You’re gonna do a lot better if you have the right stocks. Anybody who’s owned Nvidia has done a lot better than any mutual fund in the last period of time. But when something bad happens or an industry goes out of favor, you’ll do a a lot worse than a broadly-based mutual fund. Now you mentioned that you’re using income-oriented exchange-traded funds. By the way, if you a question, call or text 512-921-5888. Those are going to be more interest sensitive. So you’re building into your portfolio by emphasizing dividend paying exchange traded funds. You’re building in to your portfolio greater interest rate risk. And I don’t know that I would do that if I were in your shoes. I would stay with the broader indexes as opposed to ones that emphasize income. And then I think the other thing I would do is I would just take some time. And look through the Morningstar categories. One of the ones that I like is called event-driven and another one is called market-neutral. Event-driven strategies are designed to not have a correlation to both bonds or stocks so that when you have a period like 2022 and I give you those numbers, the S&P was down 19 and NASDAQ down 33 and the bond market was down 13. That type of strategy was probably flat, maybe up 1% or down 1%, so it really contributed to return. And then this market neutral is a strategy where it tries to deliver closer to stock market returns, not bond market returns but doesn’t have that sensitivity to the stock market. So that’s a long question, you get a long-winded answer. It’s a great question. When you have a question, call or text 512. 921-5888. Again, if you listen regularly, you know that once a month I get data on the metro area real estate market, and I got that this week, so let me share that with you and I will interrupt myself if I get a telephone call or a text. So the November Austin metro area residential real estate transactions. The median sales price, meaning half of them sold for more and half sold for less. $440,000. We’ve been seeing a slight decline almost monthly, and this turned a bit. That was up 2.1% from where it was a year ago. The median sales price per square foot did go down slightly to $215 a square foot, and that’s now 1.8% on a year-over-year basis. Here’s an interesting one. The total number of homes sold, 2,296. Was down 8.6% year over year. And this is, if you’re thinking of selling, you need to have perhaps realistic expectations. The median days on the market in the metro area was 95, and that was up a substantial 23.4% on a year over a year basis. As you might expect, the supply of inventory is also up. It’s up 17.6%, over the last six months. And the number of homes that sold above list price were down 7%, 11.3% of houses sold. And a slight increase in the number of new listings, 3,104. That’s up 3.9%. I’m gonna take a break. We have no calls coming in and no texts, so if you’ve been thinking of doing one of those or the other, please do so now at 512-921-5888. I’ll be back.

KUT Announcer: Jimmy Mass [00:18:29] 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 [00:19:00] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:19:13] Welcome back to Money Talk. I’m Carl Stuart and you’re listening to NewsRadio. There we go again. I apologize. You’re listening KUT News 90.5 and on the KUT app. When you have a question, call or text 512-921-5888. Here’s a text. Carl, I know this is outside your wheelhouse, but it is a financial concern of my wife’s and mine. We’re both on Medicare Supplemental Plan. And the statements indicate our doctors receive almost nothing for our visits. Is this correct? If so, why would any doctor take Medicare patients? Or do they receive payments that do not appear on our statements? If not, we are afraid they may stop taking Medicare patients. Thanks Gary.” Well, what Gary is experiencing I am extremely aware of, you get a statement showing the Name of the treatment. And then what the billing price was, what the doctor sent you, and then, what Medicare paid. And in some cases, if it’s not fully covered by Medicare, then you will have the supplemental insurance to pay that part as well. It is stunning. My wife had a rather major bill recently, and what the physician got paid was a fraction of that. I have enough friends who are physicians that I believe that they are getting paid that. I don’t think they’re getting any other pay. I’m not, as you point out, I’m an expert in this, but it’s stunning the difference between the billable amount and what the physician has paid. And frankly, I get off my soap box here, but it just part of our broken system. I mean, we spend, according to my research, we spend more money than any other country in the world for healthcare, but when we measure outcomes, we rank 17th. That’s right. We’re wasting a lot of money and there’s a lot of hands in the till, besides the physician, between the patient and the physician. There’s a lots of other operational stuff and bureaucracy and it’s a mess. And I share your concern that there are, why would a physician take Medicare patients? I think in the primary care field, what I’ve experienced is that if you are a patient before you go on Medicare. The physician will keep you as you transition to Medicare, but certainly there have to be physicians who just say, look, I’m just not gonna take that. I can’t pay my expenses and make a living on that. So it’s a big problem and I share your concern. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Okay, I read something that’s coming into the 2026 tax law that I haven’t seen in the financial press. Most of the things I see are what to do at the very end of the year to reduce your tax liability, and that certainly makes sense. And it’s my understanding that I’m not a tax that the first one-half of 1% of your taxable income applied to your contribution will not be tax deductible. So if you have income of $100,000 and one- half of 1 percent of that is $500 and you give your favorite charity $500 away, I read it, you’re not gonna get a deduction. Let’s say you’re married and filing jointly and you have joint income of 200,000 dollars, then If you make a gift of $1,000, that will not be deductible. It’s possible that for really high earners, this could be a significant thing. It may cause you to reconsider how you give. One of the answers, and again, I’m just sharing with you information that I’ve learned, is to consider donor-advised funds. You can do a donor-Advised fund with a custodian. It can be with your advisor. It can be with Schwab or Fidelity, if you’re a do-it-yourself person. And what you do is you put money into this, and when you do, you get a tax deduction for the money you put in. It’s also very attractive if you have securities that you have significant gains in. You can donate those securities to the Donor Advised Fund, and it’s called Donor Advised because that’s what it is. You get to identify and select charities that it goes to and you get to select and identify the time that it does so you’re not required to put the money in and to immediately give it out. You could put in a lot of money and then dole it out over time if you chose. I think we’re going to see a lot more more information about this. I think we’re going to see a lot more companies, custodians. Start talking about donor-advised funds, because I think that they, in this new environment, if you are a higher income person, I think, that becomes a really significant thing. Excuse me just a minute. Okay, you’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. All right, we’re gonna keep bloviating here this afternoon. What else shall I talk about that has been common questions for me over my radio career? I would say since I talked a bit earlier about rental real estate, I was visiting with some people. This week who had several rental properties, and as they grew older, they decided that maybe it was time for them to begin to think about selling, and having been around this for 47 years, here’s what I’ve observed about rental properties. If you have the right personality and you actually enjoy it managing the property, And over time, you reduce and eventually eliminate. A debt and you can continue to manage the property. It’s a nice source of income. The odds are that the rents go up because we’re in a growth area. It doesn’t happen everywhere. And if rents goes up and interest rates are stable, the value of the property goes up as well. That’s why it’s one of the two assets that keep up with and outpace inflation. But if you are more of what I would call a passive investor, You invest in stocks and bonds and real estate. If you don’t enjoy the hands-on aspect of rental real estate, then it’s no fun. Uh, it rent real estate is a long cycle asset. It will go up for a long time and then it will level out as it has in central Texas, it can also go down. And the other thing is it’s very hard to have a diversified portfolio. So if you own Fidelity S&P 500 ETF, you are diversified across a lot of different companies and different industries. You can’t get diversified in rental properties because you’re not gonna have one in Florida and one in New Jersey and Minnesota and Texas and Washington State and Los Angeles to have true diversification. And what all of us have seen when there have been real estate problems. They aren’t necessarily clearly across the nation. They can easily be in a region as we had in the southwest where we had to have the government basically bail us out. So when you think about rental real estate, think about that because most people buy it with borrowed money and if the market goes down, you still got the same amount of debt, the same mortgage. So those are some of the things I’ve learned. 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. Alejandro you’re on the air, how may I help?

Alejandro [00:28:02] Hi. I have a question about HSA accounts. My friend and I have had discussions in the past about whether it’s better to pay medical expenses with funds outside of the HSA.

Carl Stuart [00:28:22] While I’m not an expert in them for everybody else, what Alejandro and I are talking about is that if it’s employer-sponsored plan, you can put money in. There’s a limit as to how much you can put in every year. You can put in the plan. It grows at some modest rate, and you don’t pay taxes on the growth. And when you have a medical expense that’s not covered by your insurance, you’re welcome to take it out and spend it on the metal expense. And you don’t pay income taxes on it. So, whereas when you take money out of an IRA or a 401K, you pay income tax on it, so I would say to you, that just as a concept, I think the HSA is a good thing. It’s not designed to be an investment like your 401K or 403B or IRA, but it is a good thing if your employer allows it. Now, I haven’t memorized the maximum contributions. But they’re fairly modest. But I think they’re a pretty good idea. And I would say if I had my other bases covered, I was making contributions to my retirement. If I had kids, I was saving for an education. If I have all those other bases covered that I needed to have for myself and for my family and I wanted to do an HSA, then I think it would be a very good idea, Alejandro.

Alejandro [00:29:45] Yeah. Well, I mean, about the modest return, my agency allows us to invest in anything. So I haven’t invested in a growth ETF.

Carl Stuart [00:29:57] Good. Well, you’ve had good returns recently then. Good.

Alejandro [00:30:01] Yeah, yeah. And the contribution limit is actually higher than IRAs and I’m over the income limit for Roth IRA anyway. But the question is whether is it better to just leave it in there and continue growing because after age 65 you can just withdraw as if it was IRA. If you do have the money to pay for the medical expenses now…

Carl Stuart [00:30:32] No, it’s better.

Alejandro [00:30:33] Keep it in there.

Carl Stuart [00:30:34] Yeah, I think, I mean, historically, what’s going to happen and said that you will make more money investing in growth stocks or investing in stocks in general, the return on that’s going to be superior to the HSA. And if you own it in your own name, and you don’t sell it when you do sell some, you pay taxes at the lower long term capital gains rate. So if you just if you’re just looking at investment returns and comparing them, then I think keeping the money invested would be more attractive than the HSA personally.

Alejandro [00:31:09] Okay, well, thank you.

Carl Stuart [00:31:11] You bet, thanks for calling. That’s a good thing you didn’t call Mike because I don’t know about those. I just haven’t had experience in that area and I wouldn’t want to get off over my skis because I’d probably be mistaken in that. So I don’t have any real experience or knowledge about conservation easements. If you’re listening to Money Talk on KUT News 90.5 and the KUT App, call or text 512-921-5888. So we have a call coming in. I’m gonna start talking about a question that I get very frequently. And if the call comes through, I will interrupt myself. But we’ve kind of walked around this today a bit, and that is the advisability of doing something called Roth conversions. So what happens is, if you have money in an IRA, you can take some or all of that money out. And put it in a Roth IRA. That’s called a conversion. It’s just happened with Alejandro. A lot of people can’t put new money in a roth IRA because it’s tied to your income and you may make too much money to do it. But if you have money in your IRA, then you wonder, should I put it in the Roth IRA or if it’s in the 401k and you can get your hands on it, should I it in the IRA and then convert it? Oh good, we have a call. Hang on here. Jordan, you’re on the air. Jordan, how may I help?

Jordan [00:33:13] Hey, I currently have a six-month emergency fund in a money market fund in Vanguard, and was wondering if there’s a more effective spot to put it.

Carl Stuart [00:33:27] Yeah, it’s a great question. Uh, you know, when interest rates were really, really low, uh, it was a really difficult to make anything. I remember my bank was paying 0.01%. I still think if you’re in a money market fund, not a money market account, cause if you were in a Money Market Fund with Fidelity or Vanguard or advisor or whatever, those are technically mutual funds and they invest in very high grade, very short term bonds. And so they typically pay more than a money market account, which is an insured deposit account at your bank savings loan or credit union. You get daily liquidity and what will happen over time is that the interest rate that you get will fluctuate based on what the fund is getting on the bonds you’re buying. So for example, just recently the Federal Reserve lowered the short-term interest rate to a to a rate between three and a half and three and three quarters percent. So we’re going to start to see money market fund rates come down. They’re not going to be four and a half. They may not be four in a quarter, but when compared to keeping it in a money market account, in my experience, the money market funds is a place to be. You do have three choices in money market, money market funds, you can do what’s called a prime, which will give you slightly more interest and it invests in high grade corporates. And then you have one called a government. That invests in U.S. Treasuries, and also government-backed securities like Fannie Mae and Freddie Mac, and then you have the treasury one that has just treasurys. As you would predict, that the treasury when pays the least, the government one is in the middle, the prime pays the most. So right now, I think that’s still the best place to be because it’s an emergency money, you wanna have daily liquidity, you get that, you get whatever you want. With one business day holding, and so I think you’re in the right place right now, okay? Thank you very much. You’re very welcome, 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 we go with the call. Joe, you’re on the air, how may I help?

Joe [00:35:51] I’m calling about full security uh… In the top uh…

Carl Stuart [00:35:56] I’ve been listening to you You know what I’m going to start laughing at, it’s so complicated, please go ahead.

Joe [00:36:04] Uh… The easy question uh… I’ve been listening to you for a while and you thank you uh… Talk about this eight you know about eight percent increase in some security if you delay every year and you know yes uh… However that interest rate if i’m is not compounded is that not just the money that you decided not to take early that you are now making up. In the years going forward in the next few years.

Carl Stuart [00:36:36] So here’s, yeah, here’s my understanding. So early retirement is 62. Something called full retirement age is, depending when you were born, around 67, 67 and a half. And then the mandatory age is 70. My understanding is. Benefit, the monthly benefit grows when you hit full retirement age and don’t take it until 70. So let’s pretend that’s two and a half years. That monthly benefit grows by 8% and when the government each year puts out what the new benefit is going to be, You’re going to get that benefit, but it’s, it’s still. Growing at a faster rate, at 8%. If you call that compounding, it sounds awful like compounding to me. So if you get, if you had a, I don’t know, a $3,000 benefit at 67 and a half, they’re going to add 8% to that, another $240. And then you get on top of that, you’re going get whatever the inflation increase is. And the next year when they create whatever your benefit is, you’re going to get. An eight percent bump on that plus whatever the inflation is. That’s the way I understand it’s done, Joe. I’m not positive, but that’s my understanding.

Joe [00:37:57] Okay, so if someone has a substantial amount of money in an IRA, wouldn’t a good strategy be to take your social security because you’re not guaranteed to have that after death?

Carl Stuart [00:38:14] After death, obviously. That’s right.

Joe [00:38:16] And then instead of taking all that money out of your IRA account, which is probably going to increase, which over time increases faster, wouldn’t that be a good, isn’t that a good alternative?

Carl Stuart [00:38:30] So the answer is a qualified yes. It depends on the person. So it’s a risk return calculation. For someone who’s a sophisticated investor or he does it on his own or he works with an advisor and he has substantial exposure to the stock market, then over time, that’s absolutely the case, you do better. But a lot of people don’t meet those criteria. Or you go through a period of a decade where stocks go down like they did in the 1970s and the early 1980s, people who elected to take social security were better off. So periodically, we’re gonna have negative returns in our IRA, so it’s a risk reward trade-off. It’s a little, you have to know yourself is my experience, Joe, because the safety of knowing that you had that guaranteed income then you don’t have to worry about. Anything else, for a lot of listeners and for a lot of people that really matters. You may be one of those people who enjoys investing and has lived long enough to see your portfolio decline substantially like in 2022. And as long as you’re willing to live with that, if you think you can make a better return. But I would tell you that 8%, the stock market over long periods of time is pretty close to 8%. So with no risk, you’re getting that 8% per year for that time. With more risk, you better believe you can do better than that because you’re taking greater risk. And if you feel that way, like if in 2023 and 2024, yeah, it absolutely happened, but not so much in 2022. So that’s how I think about it. Okay. Thank you very much. You bet. Thanks for calling. You’re listening to Money Talk on KUT News, 90.5 and the KUT app. It’s time for me to take a break. Perfect time for you to call. We don’t have any texts or calls coming in. 512-921-5888. I’ll be back.

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Carl Stuart [00:41:13] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:41:27] Welcome back to Money Talk, I’m Carl Stuart. You’re listening to KUT News 90.5 and the KUT app. And if you want to listen to previous broadcasts or share them with friends, you can go to kut.org slash Money Talk. 512-921-5888. Here’s a previous text that I hadn’t gotten to. It’s really a good one. Hi, Carl. At the risk of putting you in the middle of a disagreement between my wife and me, uh-oh, money talk has marriage counseling. Can you please give your opinion on something we’re discussing? We’ve both always agreed you can’t tie in the market and have therefore stayed the course through several downturns. My wife now, however, says that the market has gone up so much that a major downturn is absolutely going to happen. She wants to sell all our equities, wait for the market to crash, then buy back into the market at a deep discount. My wife reads a lot from usually reliable sources and quotes all the experts and statistics that prove the market is way overvalued and therefore going to have a major pullback. I remind her that many of those same experts also say even if there is a pullback it might not happen for another 6, 12 or even 18 months with the market continuing to go up during that period. But she remains convinced we’ve seen most to the rise in the market. We’d be therefore better off selling, holding cash, and then buying back into market after the pullback. I then point out that is the exact definition, which you’re right, of market timing. And we’d have to be right two times, both when we sell and when we buy back in. But you’re married, so you probably know how repeating your opinion doesn’t always convince your spouse. Ha, ha, ha! Can you please help resolve this friendly marital disagreement? I’ve been doing this a long time and I always think the great thing about real estate is when the market goes down, you can’t sell it because nobody will buy it and so it makes you a long-term investor. The great thing is about the stock market is you have daily liquidity. The bad thing is you can do some really dumb things and regret it. I love to always quote my colleague and daughter Lindsay. When COVID hit and we closed down the economy that middle weekend in March of 2020. Now think about what it felt like. I mean, just think about it. People were dying in nursing homes in New Jersey. This thing was going worldwide. None of us had ever lived through anything like this. Did the stock market go down? Of course it went down. Went down, but what happened? Believe it or not, 43 days later, it was back where it was in the middle of March. I mean, that’s nuts. So I have learned that the asset allocation decision, how much we have in stocks, how much have in bonds, how much in alternative strategies, how much of we have cash, that drives return. And so I would say to you and your wife, I would do one of two things. It doesn’t have to be an all or none kind of thing. You can reduce your equity allocation, but not eliminate it, if that will help your marriage. And help her sleep nights. But you make a very good point, and that is no one rings the bell at the bottom any more than anyone rings the bill at the top. I can tell you in 1999, the fifth year of returns exceeding 25% in the S&P 500, nobody was ringing a bell saying this is it. We had the internet driving productivity and we had a federal reserve that was supporting that. It was exactly the right time to sell if you were gonna time the market. And then, when it went down until September of 2000, when it was really doom and gloom, nobody was in there buying in the September of 2000, because we are emotional animals. And behavioral finance teaches us that we experience a 10% gain is 10%. And we experience the 10% loss is 20%. And so, what you wanna do is be aware of that. And have an asset allocation, what I like to do is to say, what would happen if the stock market declined 20%? How much would that be in dollars in my portfolio? What if it declined 30%? So if I had 60% of my money in stocks and it declined 20%, and all that other stuff just laid flat, bonds didn’t go up, cash didn’t go up. If it all stayed flat, well 20% of 60% is 12%, that’s a 12% decline in my portfolios. Take 12% if your portfolio is a million dollars, that’s $120,000. If it’s $500,000, that’s 60,000 dollars. And live through that emotional experience as if that actually occurred. I find that that’s a good way to measure risk tolerance. Because everybody says they have a lot of risk tolerance in bull markets and they don’t have any in bear markets. I know that lots and lots of wealthy people who have become wealthy on Wall Street. To become wealthy because they’ve taken that long-term approach just like Warren Buffett. So I’m with you on this, but you may have to compromise just so that you have a good marriage and peer back a little and do that test that I suggest and see what it really looks like in dollars and cents. Good luck. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text, 512-921-922-5123. 5888, here is a call. Eric, you’re on the line. How may I help?

Eric [00:47:18] Hi, thanks for taking my call. You bet. I had a few questions as a young, inspiring investor. I’m about 35 years old. Yeah. I’m making around 5,200 a month and have a mortgage, car payment and some consumer debt and just got to a point where I can start saving for retirement and really contributing to some investment accounts. And I was hoping to get some of your insight on so what type of maybe percentages I should be contributing from my income towards savings versus retirement and on that balance in the stocks and bonds.

Carl Stuart [00:47:55] That’s a great question. The numbers are daunting because at 35, you have to prepare to live a very long life, number one, and there’s three things you don’t know. You don’t how long you’re going to live. You do not know what’s going to happen to the cost of living, and you don’t know what the return on your investments are going to be. So we have to approach this, Eric, with a sense of humility, but I would tell you that at your age, now that you’re getting started, and of course, you can only start when you can start, you couldn’t afford to start at 25, but the sooner you start, the better. And you have to be willing to accept risk, because if you’re going to retire, you need to have that money grow. And if you put it in cash or you put in bonds, based on history, it’s not just me making this up, it will not grow enough for you to have. Comfortable retirement. So you’ve got to lean in to risk. The kind of good news is it’s not like you have a bunch of money to invest. So what you want to do is get into however your cash flow works, Eric. A monthly type situation where you open up an account. Today the barriers to entry are gone. You can go and study online. Go to Schwab’s website, go to Fidelity’s website. Vanguard’s website and Read the literature and what you want to do is set up an account with one with any a custodian But that I’m just giving you three well-known ones and you set up what’s called an a ch Where money is taken out of your? Checking account every month and put into your investment account What that will do is when the stock market declines and it will your money will be buying more shares so over time you end up buying more shares of your mutual fund at lower prices and fewer shares at higher prices. The term for that is called dollar cost averaging. Today, you can invest at really, really low cost. What you should do is you should look at something called exchange traded funds, ETFs. All three of those custodians have their own ETFs and their expenses are very low and they’re very tax efficient. They do not throw off, based on history, capital gains. So what you wanna do is you wanna set up an account, you wanna take an amount that’s comfortable for you, and do that. Now, let’s hope over the next five years, between 35 and 40 years old, that your income will increase. If it does, the easy thing to do, because we have a consumer-based country, is to spend more. But you shouldn’t do that, What you may want to do now that you have a little breathing room financially is most people hate the idea of having a budget. What I recommend is not having a budge if it bothers you, but keep track of your expenditures. Because when people do that and they want to save, they have a goal, but they keep track of their expenditures and sit down every week or every two weeks and take receipts, get receipts. Gosh, I didn’t know I spent that much money at Starbucks or I didn’t t know I spent that much money. Going out to eat or whatever the case is, you’re looking for ways to increase your investments. Now, I’m gonna tell you that the rule of thumb, and I’m wanna say that carefully, is when you retire, if you retire at a reasonable time, 65 to 70 years of age, that you can take 4% of the value of your savings and investments, investments, as income. And you will not outlive your money because if you take more and then we get into a really bad market, now you’re taking more as your assets decline. So the ugly truth of that is $40,000 is 4% of what, a million dollars. So $80,000 is $2 million. So you want to get to the point where you’re putting away, hopefully 10% of your income in these exchange traded funds, and they will compound and grow. Now, the last piece of advice is, what we’re talking about is financial planning. The investment part of it is, I told you about these exchange-traded funds, I would split mine, I’d put 75% if I were in your shoes, and a domestic, something called a total stock market exchange traded fund. And then 25% in a total international stock market. So you have companies outside the United States. And you keep doing that over time. I’ve just, I’ve seen some, I’ve had clients of 40 years and it’s remarkable the compounding of it because when you step back and think about it, you’re really investing in human ingenuity. And when you were, you’re 35, when you was 16, there was no iPhone. So things get better all the time from an innovation standpoint, and you’re betting on that innovation continuing. So that’s what I, that’s my thinking. What I would do if I were in your shoes, Eric.

Eric [00:53:31] Thank you. That’s that’s excellent. I appreciate that so much, especially the direct ACH payments from income. Yes. Hitting those goals.

Carl Stuart [00:53:40] Perfect. Well, good luck to you and thanks for calling.

Eric [00:53:44] Thank you so much.

Carl Stuart [00:53:45] You’re welcome. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Let’s just see here. I did, here we go, it’s an interesting one. I’m 46 years old, unmarried and no children. A subtle practicing attorney with no employees. I have an SEP IRA, a Roth and a traditional IRA. Before the pandemic, I spent a fortune on rented office space. I quit offices during COVID. I’m thinking about getting an office again. An idea would be to buy or build commercial property for this purpose and maybe for rental income. I fear the money pit. What do you think? And I do not own a personal residence. Well, I own my business and I do no own the building. And I’m just not the kind of person who would be very good at being a landlord. And when things didn’t, when things broke, didn’t work, the HVAC broke, whatever the case is, I’m just, that’s not something that I want to be involved with. I will tell you that my friends who have done, who have purchased them and have been willing to live with the maintenance of it, this turned out to be a nice long-term investment. And if you want to build it so that there’s other office space, based on my reading of the, central Texas market, we had that huge jump in property values in the COVID era, but things have really flattened out. So you’re probably in a better market to consider looking around for that. Now, I’m not an expert on whether you should build or whether you should rent. Pretty obviously, you buy a new car, you by a used car, there’s some depreciation in buying that used car. If somebody else is paying for it, you’re going to buy a used building. Then probably you’re going to get it at a better price in a new building. And you’re an attorney, and you’re not a real estate expert, you can talk to your friends, but if I were looking at doing this, I’d want to talk to an expert about the pros and cons of buying an existing building or perhaps building a new one. And if you’re a do-it-yourself type person, Um, and you invest cause you clearly have. And you’re a professional, if you have the time and the interest and you want to have your own building, I think that’s a pretty darn good idea because you have three assets, your future income from being an attorney, your investments in financial markets, and also the real estate. So that might be an interesting idea for you. Thanks for the text. Well, we’re down to the end of the broadcast. I want to thank Mark for doing his usual terrific job. I want to thank you for listening and to remind you as always next Saturday at five o’clock tune into Money Talk.

Carl Stuart [00:56:59] You’ve been listening to Money Talk with Carl Stuart. Carl Stuart is an Investment Advisor representative of Stuart Investment Advisors. And this is KUT and KUT HD1 Austin.

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