Money Talk with Carl Stuart

Carl Stuart takes text questions on whether to pay off a mortgage early or invest the money, discussing the pros and cons of using life insurance as an investment vehicle, and clarifying that life insurance is primarily for estate planning, business continuation, and income protection, not wealth building.

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 [00:00:21] Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. Money Talk is a broadcast about the world of financial and investment planning where you always determine our agenda by calling or texting 512-921-5888. It’s always a terrific idea to call or text at the beginning of the broadcast because I take today’s calls first and then today’s texts. And then texts that I’ve been unable to answer in the past. And I have to tell you, I listened to the podcast this afternoon of last week’s broadcast of Money Talk and I really enjoyed it. Nothing I like better than the sound of my own voice. It was a lot of fun with Jimmy Moss. And if you haven’t listened to that, just go to the KUT website, go to podcasts and you’ll see Money Talk. And there it is, along with all the previous ones, or you can also go to Money Talk But I think you’ll enjoy it, and I think if you have some friends who think they will, tell them about it as well. So five, and you will hear the text coming in, 512-921-5888, here’s a text from last week. Carl, I own a paid for home currently worth $400,000 and I would like to buy a newer home for about $700,000. I also have investments worth about one million dollars. I am 47 years old. Should I buy the house by selling some investments or take a loan for the difference? Thanks for your help, Robert. Well Robert, the issue from my point of view is a million dollars is a whole lot of money. But if we use our traditional financial planning four percent rule, if you had a million dollars and you retired. You’d look to that if it were properly invested in balanced portfolio to generate about $40,000 a year of income, not so much. So I think what we have to talk about here is what I would call the opportunity cost. This was a much easier decision when you could have bought the purchase of 700,000 purchase home and get a three or 4% mortgage because the odds were uh… That your return on your investments over the life of the mortgage would exceed the cost of the mortgage that’s harder to argue when mortgages are six to seven percent but the other argument is the more money you put in your house the more it’s a concentrated investment and to get the money out you either have to borrow against the house or you have to sell it and find someplace else to live and also you’re concentrating more in one asset. And you really, in my view, for your future, and I’m gonna congratulate you on being 47 and have investments worth a million dollars, you wanna have, if you can, several legs to the stool. You wanna have if you qualify for an employer sponsored plan or on your own, you wanna tax deferred investments in IRAs or Roth IRAs. You also wanna have investments in your own name, what we call a taxable account. And to own your home is terrific. But the long-term returns, and this is hard to believe in central Texas, on residential real estate are certainly not as attractive as they are on rental real estate, and the reason’s fairly straightforward. If you own a rental property over a 15, 20-year period based on history, the rents are gonna go up. And as the rent’s go up, the value of the property rises as well in a stable interest rate environment. The return on residential real estate on a national basis is around 4%. Now, I recognize that in central Texas, when COVID hit, then we had a couple of years of ridiculously skyrocketing. But the last 12 to 24 months, the market’s not going badly. It’s down in the neighborhood of one to 3%, more inventory. Based on my reading, it’s a six month supply of inventory, which most real estate experts say is a very healthy one. So that’s good. But you can’t sell off your kitchen to raise an extra $75,000. So concentrating more in one property, and particularly because it’s not an income-producing property, makes me anxious. It’s not that your investments are somehow going to guarantee to grow more than the cost of the mortgage. I personally think they may not if they’re properly invested, but money doubles in 12 years is 6%, doubles in 10 years is 7%, So if you take the 6%. When you’re 59, your million dollars is two million dollars. And you know, that’s a big deal. So if I were in your shoes, based on what I understand from your text, I would be inclined to borrow the money rather than take money from my investments. And if in some future date rates were to fall sharply, you always have the opportunity to refinance the mortgage. Thanks for the text. We have all of our lines available. You may call or text 512-921-5888. Here’s another text. Hey Carl, what are your thoughts on life insurance as a vehicle for wealth? I’m hearing buying life insurance is better than stocks, annuities, to grow and compound wealth. Well, let me answer that. This is a big deal. Many, many years ago, decades ago, I have had a friend, still a friend who is a life insurance professional. And he said, Carl, there are three reasons to buy life insurance, estate preservation, business continuation, and income protection. Estate preservation, if you have today now, you’d have to have an estate with a value in excess of $15 million, or if you were married, $30 million, before you would have an estate tax. There was a day when the estate tax kicked in at $600,000. A lot more people were subject to a state tax. And what they would do is they would set up something called an irrevocable life insurance trust. They would have their kids own it and fund it. And then when they died, the life insurance would show up, there’d be no income tax on the life assurance. It would pay the estate tax, and then the property, the assets could go on fully to the heirs. Today, it’s for many, many people that’s not a particularly relevant situation. But for some people, it’s a permanent liability, and if it’s permanent, you don’t buy term insurance, you buy permanent insurance, and that’s whole life. The second is for, let’s say that you and a friend of yours own a successful small business. You started with one dry cleaning establishment, and you built it over the decades, and now you have half a dozen of them, and it’s your biggest asset and your friend’s biggest asset. And to make things simple, let’s assume that you own it 50-50. So, you take… You buy life insurance on the value of your friend’s asset. She dies, you’re the owner, you are the beneficiary. The money shows up and you pay her errors and now you own the business free and clear. That’s key person life insurance. And the business has a lifetime in perpetuity until you choose to close it or sell it. And so once again you buy permanent life insurance for that because it’s a permanent need. The third, and for most listeners, the most common is income protection. So long time ago, when we had three children in elementary and middle school, and my wife had a much tougher job than I did, she had to corral three kids, so she stayed home and I went to the office, which I’m sure she frequently wished she could have joined me, but nevertheless, that’s another story. And if I had died she would have been in financial difficulty. We had a mortgage. We hadn’t saved all of the money we needed for our kids’ education. She’d been out of the workforce for several years. So we had a real need, but eventually that need for income replacement disappeared. We saved, we paid off our mortgage. Kids went off to school and we saved for our retirement. And today we don’t have a need to replace income. And so we don’t have that insurance. That’s a temporary need. Now, temporary may be 15 or 20 or 25 years, but when you know you have it for a fixed period of time, you can purchase what’s called term insurance, and term insurance is cheap because it’s very, very accurately priced. They know how many people are gonna die. They know by gender. They just don’t know by name, and they price it, and it’s competitive, and that’s when you buy it for that. You’ll notice that none of those, I said, has anything to do with a vehicle for wealth. And the reason is, when you buy insurance, you’re buying, in all three examples that I gave you, you buy what? A death benefit. By the way, we have all of our lines available. Nobody’s texting. 512-921-5888. So if you take an investment, let’s just be completely objective. Let’s suppose that you put your money in a Fidelity, or a Schwab, or a Vanguard. Index ETF, let’s say the total stock market index ETF costs three basis points, 0.03%, pays off no capital gains. It can’t get cheaper than that, okay. And then you buy that, but you buy inside an insurance policy. That insurance policy has what’s called M&E, mortality expense, that has to be taken out. Insurance policy probably has an agent. She or he is going to get paid, and the insurance company is in business to make a profit, right? And so you take the same investment, one is inside a policy and the other is outside a policy, what’s going to happen? Ten years from now, the one that you own straight out on your own name is going to be worth more because every year that index ETF is pulling out 0.03% and that’s a lot less than the insurance product. So. You need to look insurance as something that fits those three needs because if you use it as an investment product, and I’m sure there are certain specific circumstances where that’s the case, but for most people in my life experience, I don’t think that that’s necessarily a good idea. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-588 Let’s just see here if we have another one. Okay. This also came in last week. Hi, Carl. Please elaborate on a better portfolio choice than a 60% stock, 40% bond mix. I am retired with $300,000 in cash and CDs that I don’t need but would like to keep growing. I also have rental income, social security, and about $90,000. In required minimum distribution income to live on. Thanks for your wisdom. Well, we’ll see if it’s wise, but I will respond. First of all, you’re an investor because you have rental income. And cash is not your friend because we know based on history that after taxes and after just the flat rate and after taxes and after inflation, cash has a negative return. So I’m not suggesting that you don’t need cash, but in your situation where you’re retired, you’re unlikely to have a big surprise that you’re gonna need a bunch of cash for. So the first thing you wanna know is, I’m at 60-40, so let’s just stress test that. Let’s suppose that the stock market drops 20% and the bonds are flat, okay, and you have 60% in stocks. That’s a 12% decline in your portfolio when that occurs. So you can look at your portfolio and say, what would that experience be like? Because what I’m going to suggest may or may not cause you to have to stretch some as it regards your risk tolerance. And when you start talking about risk tolerance, we all have to look at ourselves in the mirror. Regular listeners know that I say this. We have a whole field of study that most people call behavioral finance. And they’ve determined. By being in the lab with human beings, particularly two people got Nobel Prizes, Danny Kahneman and Richard Thaler, that as humans we experience a 10% gain as a 10 percent gain and we experience the 10% loss as a 20% loss. So you’re gonna have to, in my view, understand that about yourself so when you start to feel afraid you don’t make a mistake and change your asset allocation. I think there are other strategies out there. That will provide bond like returns and stock like returns that will hold value when stocks go down and they go up or they may hold value when bonds go down or may go up. So as you know, I don’t make specific recommendations on money talk, but I do talk about the categories that Morningstar uses and you can go to morningstar.com and if you’re really a do it yourself investor, you can get a. Premium membership or just a membership. I don’t, it’s not a lot of money. I forget what I’ve paid, maybe a couple hundred bucks a year. But the categories you want to look at, the one of the categories that tends to deliver bond-like returns, which means single-digit returns, but is not correlated to bonds, and tends to be a store of values called arbitrage, but this category is called event-driven. It’s event- driven. That would be a place to put some of your cash. And there’s another one that is called market neutral. These are institutional type strategies that thank goodness now are available as mutual funds and exchange traded funds. And the third one, which tends to do better when stocks do very badly, is called trend following or managed futures. I recommend you look at those to add your money from your cash and CDs to give yourself a portfolio that will be more, in my view, more resistant to a decline in the stock market or to a decline in bond market. 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 call. I beg your pardon to text. After we sold our house, we had $200,000 to invest. Our income from several sources is meeting our needs. The mortgage payments on where we live are $1,200 at 4% interest, good luck, thank you. We are now, after 10 years, paying off more principal than interest each month. The payoff amount is about $180,000 and the maturity date is in 20 years. If we pay off the mortgage, we will gain $1,200 in income that we would like to have. And not be spending any more of our income on interest, currently about 600. Is this the right move? Well, I think it is the right moves if you have these other sources meeting your needs and if the other sources have the ability to grow because if you had exposure to the equity market stocks, your return over the next 10 years, based on history, obviously I can’t make any predictions, is going to exceed. 4%, probably 6% or 7%, and that is important because the cost of living is going to continue to go up. I don’t think I have to be an economist to figure that one out. So paying off the mortgage is getting you a 4% return, and if you have other sources of income that will keep up with the rising cost of the living, and you’re happy with a 4% imputed return, then I would go ahead and pay off. More principle than interest, but if I didn’t, if my other assets were bonds or CDs, I might think about adding an equity component to that because I think that would help you out in the long run. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. We had a lot of calls two weeks ago. We’re not having calls today. If you want to Have a conversation, call, and of course you may text 512-777-9000. 921-5888. Let me answer this one. I may have missed the beginning of what you’ve said to a previous question, but I’m debating selling my brokerage account of $60,000 due to home repairs needed on my 1960s home. I’m 36 and I have about $30,000 more in a Roth IRA and thankfully my parents have about a $200,000 set aside for me. I feel very lucky, but I’m also not sure if I should cash out my broker’s account or take a loan. Thank you. Also, if I took a loan, I fear I would need to sell off the brokerage account anyways to pay it back. Well, I mean, I think you’ve answered your own question. I mean a loan is going to have a higher interest rate and if you don’t think you’d have the cash flow to pay off, then yes, taking it from your brokerage account’s a logical thing to do. I just hate to tell people to do that because you’re a young person and the future value of that $60,000 is huge. But if you If you feel like the 200,000 from your parents and the other 30,000 in a Roth, if you think that that’s the best investment you can make, then I guess it’s okay. You can hear ambivalence in my voice. Are you ambivalent? Yes and no. So that’s deal. It’s okay in a low interest rate environment. I might be stronger in encouraging you not to sell your brokerage, but I know where rates are, so it’s probably okay to do that. You’re listening to Money Talk, it’s time for me to take a break, a perfect time for you to call or text 512-921-5888, stick around, I’ll be back.

Jimmy Maas [00:19:24] Money Talk airs every Saturday at five o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTX Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a non-profit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org

KUT Announcer: Laurie Gallardo [00:20:00] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:20:14] Welcome back to Money Talk. We may be having a technical issue. I just got a call from a listener at 512-921-5888. So if you’ve been listening and calling and not getting through, I apologize because we use the same number for incoming texts and for telephone calls. That number again is 512 921 5888 By the way, would you like to see Money Talk in person? And let’s face it, who wouldn’t. You can. At the first ever KUT Festival coming up on May 1st and 2nd. Join me and the rest of the KUT staff on the UT campus for live music, thoughtful speakers, engaging panels and more. You can grab your passes now and check out the speakers and performers at KUTFestival.org. And I’m going to be doing that with Jimmy Moss and I think it will be a lot of fun and I hope you can join us. Once again, if you’ve been calling and not getting an answer, I’m sure that my friends Raina and Jerry are working on that, but try again, and text me as well at 512-921-5888. Okay, Carl, people talk about having a tax strategy. At what income level do I need to develop a tax strategy? I understand the basics of the federal tax system, but some tax strategies seem complex I wouldn’t know where to start. Boy, that’s a great question. I will tell you over my experience that taxes can be, for some people, an emotional issue. And it doesn’t really matter how much the tax liability is. I was meeting with my CPA last week and had written him a check. We got to talking about, because he’s got a large practice, and we got to talking people’s response to taxes. And we see this as well in our situation, our practice. Some people’s attitude is, I’m paying taxes because I’ve enjoyed success and I’m happy to pay them and income tax rates are as low as they’ve been in quite some time and capital gains rates are really low and other people are just absolutely committed to reducing their tax liabilities. I think your concern about tax strategies is a legitimate one. There’s some very simple ones that I employ and seem reasonable. One is doing something called tax loss harvesting. So if you have investments in your name, obviously not in an IRA or a Roth IRA, if you had investments in you name, as you get to start, just keep track of what your tax consequences are. Reinvest all the dividends and capital gains in your stock funds and your bond funds and your other funds. Some years, because prices don’t go up every year, they go down like in 2022. You might have looked and seen that you had securities that had losses. One of the things that a lot of people don’t think about is if you own a mutual fund or an exchange-traded fund that has a relatively high dividend, it might be a bond fund, for example, or a real estate investment trust or a master limited partnership. If you’re reinvesting those payments, that adjusts upward your cost basis. So you might’ve invested $20,000 in this. Security and now have, over the several years, $23,000 in cost basis and the security might be $21,000. Even though you’ve got a $1,000 gain over what you paid for it, you have an actual taxable loss. So you can actually sell that security and book the loss. And you can’t buy it back for 31 days, but you can put something similar in there and then you can buy it back after that time. And you’ve got yourself a taxable loss. I’m 100% in favor of that. Other than taking securities for a loss, most of the other tax strategies involve pretty sophisticated and complicated strategies, and you really wanna think long and hard about that. You’d have to be in a situation, in my view, where you had a very big tax liability, you had huge sale of a property, or some other event that occurred. And the first thing you want to do is talk to a qualified CPA. What you do not want to do is start looking for investments that reduce your taxes. Because that can be really problematic. In my career, I’ve seen people put money in high cost annuities with high surrender charges to save taxes. And that has not been always, in fact, generally, a good idea. So, first determine. What that tax liability is, and then talk with an accountant and make sure that there are legitimate ways to reduce the taxes. And frankly, sometimes there aren’t any. Jerry, I’m getting a call right now on 512-921-5888. So something’s going wrong mechanically there in the studio. You’re listening to Money Talk on KUT News 90.5. And the KUT app. I apologize if you’re calling and can’t get through. The number is 512-921-5888. Let’s just see. Hi Carl. I am 29. I’ve maxed out two years of my Roth IRA and have been aggressively saving for the last two years. Congratulations. It’s wonderful. I wish everyone I currently have $17,000 in a high-yield savings account. And $1,000 sitting in a brokerage account that hasn’t been applied yet. How much should I keep in my high-yield savings account versus a brokeraged account? I’m currently saving roughly $4,300 a month as of February 26th, congratulations. I should mention, I grew up pretty poor in fear of not having immediate access to cash. Thanks for your time. Well, you are a remarkably mature person and you are just a disciplined person and congratulations. So, There’s something out there in the atmosphere that I’ve encountered over the decades that people believe that they should have six months worth of expenses in cash. It could be in a money market account, a money-market fund, a high-yield savings account, or a six-month CD. I happen to disagree with that because it really depends on your personal circumstances. You obviously have a good job and you are a saver. And you have to look at what are the odds that something so dramatic and negative is gonna happen to your financial position that you need to keep six months or whatever amount in savings. Now, if you have a volatile income or you’re in a volatile career where people are regularly laid off and keeping money in a safe place for those circumstances, yeah, that’s important. But if you’ve got a solid job and you’re generating this significant amount of cash flow, I think you’re paying a real price. For keeping that large amount in the high, the $17,000 in the High Yield Savings account. You have your own brokerage account. I think you ought to start doing something called dollar cost averaging, where every month, you see, first of all, you decide I’m doing this myself or I want help. If you want to study up on this, easiest thing is just to go to the websites of the big do-it-yourself custodians, Fidel, Lishua, Vanguard. And they all have very inexpensive, tax-efficient, exchange-traded funds. And what you want to do is develop an asset allocation. You’re a young person, predominantly in stocks and in global stocks, not just U.S. Stocks. And you put money in every month. Now, some months, the stock market’s gonna go down and that same amount of money’s gonna buy more shares. In other months, the market’s going to go up and it’s gonna buy fewer shares. But over time, you’re buying more shares at lower prices, fewer shares at higher prices. That’s a pretty smart thing to do. And you can really compound your wealth that way. So I’d think long and hard, now I recognize you grew up in a low-income situation, so you don’t have to do this whole hog, but get started because if you could, at your young age, and you’re a saver, if you can save 15% of your income, you could be financially independent at a quite young age. So now is the time. To be putting that money into the equity market. You don’t have all the money you’re ever gonna have. So it’s not like if it goes down, you’re toast because you’re not. So that’s what I would do if I were in your shoes. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We’re having a problem with the incoming phone calls. I apologize. So text 512-921-588-. Hey Carl, thanks for all your helpful information. You’re welcome. I am fortunate enough to be in the 35% tax bracket, congratulations, and with deductions and charitable contributions, have been able to get that down to a 29% effective tax break. However, I noticed that many billionaires, such as President Trump, have had multiple years paying only $750 per year or even less for multiple years. How can I get my tax bracket down to something so low? Ha ha, thanks Dory. Well, first of all, I don’t have any answer to that. Here’s what I do understand. And that is that very wealthy people can use their assets as collateral and then borrow against the assets and not pay themselves a taxable income. But most people, either A, don’t millions and millions of dollars of assets. They have no choice but to take the income as a taxable event. I would tell for the average investor, the margin rates are just too high at your broker, dealer, and custodian for that to make sense. There is something called securities-based lending. If you had a really large portfolio, you could use that borrowing, but you know, that’s not necessarily a good idea. I mean, if a person has millions and millions of dollars and knows that he’s never gonna sell the securities or is gonna go into his estate, and he wants to borrow against his live on, I suppose that’s okay. That’s what the billionaires do. That’s my understanding. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Text me at 512-921-5888. Hi, Carl. All other things being equal, if I have $5,000 a year to invest, should I put it all into a 401k, an IRA, between the two. The employer’s contribution is a big deal. If in your 401k there’s an employer contribution and the most common number, which is sadly low, is 4%, let’s just pretend that your employer will match your contributions up to 4% of your compensation. Well, if you put in four and they put in 4, that’s 100% return, right? We don’t wanna mess that up. See, that’s a good place to go. Other than that, if they don’t do that, then if you put it in an IRA, the benefit of that is you get to select the investments. The liability of that is you got to select investments. Some investment committee, some third party has determined the investment options in your 401k. That may be something that you want to consider. Now, what we didn’t talk about is doing it in your own name. I think this is underappreciated. Let’s just say you took some of the money and invested it in a total stock market exchange traded fund, 3 quarters of it and a quarter of it, and a total ex-US fund. And you just left it there, and every year you added to it. Is it going to increase your taxes? Virtually no, because it doesn’t distribute capital gains. It grows, and you have full access to it If you take money out of your 401k or your IRA, unless you’re over 59 and a half for the IRA, or you borrow against it in the 401k, you’re going to end up paying income taxes plus a tax penalty, not a good deal. So putting some of the money in your own name gives you liquidity, you invest it in tax-efficient funds, exchange-rated funds, and when you do take it out, provided you’ve had it for over a year, it’s going to be taxed at the favorable long-term capital gains rate. So I think you have three choices, a 401k, an IRA, or doing it on your own. I look at that and that’s the way I would think about it if I were in your shoes. You’re listening to Money Talk on KUT News, 90.5 in the KUT app. I’m sorry our incoming phones are not working, but I’d love to have your question. So text me at 512-921- 5-8-8 What a rebound. I am astounded at the rate of recovery. I just completed my 2025 taxes and I paid a good amount to the IRS due to higher distributions in my taxable investments. What do you have for managing taxes as I embark upon retirement? Perhaps holding back 20% in a separate account to pay quarterly taxes. Your advice is greatly appreciated, thanks. Well, I would say this, and we have had a heck of a rebound, I would say this. In the money that’s not in a tax-deferred environment, if you’re paying a lot of taxes, you may be in mutual funds that are actively managed and they’re required every year to pay out their net realized capital gains. What do I mean by that? Let’s just suppose you own a really good actively managed mutual fund. Every year they have to add up the stocks, the gains from the stocks they sold and the losses from the stock they sold. And if they have a net gain, they have to pay that out to the shareholder. Now, why shareholders usually reinvest that, although it does compound the future payment of it, but if you can sell those, particularly if you have long-term capital gains, so it’s sold at a lower rate, and as you go into retirement, your income is not probably going to go higher, you can manage that and come out of those at long- term capital gains rates, just on the gain, not on the original investment. And then you can invest in tax-efficient exchange-traded funds. There are both the original ones which are passive and follow indexes like the NASDAQ or the S&P 500 or the total stock market, but also a lot of these really fine actively managed mutual fund companies are now offering exchange-traded funds. So if you like active management, you can get that in equities but without the capital gains distribution. I would only hold back, I don’t know that holding back 20 percent, I guess the thing to do to go at this, shall we say, thoughtfully, you may hold back to 20 percent and just as you implement the strategy that I just articulated, it may be that you’ll be able to reduce the tax liability and not have to withhold so much. Good luck. You’re listening to Money Talk on KUT News 90.5 in the KUT app. We’re not taking phone calls this afternoon. We have a little mechanical, or shall I say technological issue. So text me at 512-921-5888. Good afternoon, Carl. I’d like to know your thoughts on purchasing a manufactured home at age 68, because I know I can’t buy a $300,000 above home at my age. I receive a pension, full social security. And work full-time as well as a part-time job. Oh, good for you. My income is above $140,000 annually, and I’ve got $87,000 in savings and a 401k through my union. I don’t want to be a forever renter. The problem is manufactured homes and chattel loans don’t seem to be a safe and legitimate path to home ownership. I intend and can work for another 10 years or more. Please advise and thank you, Carl. You’re welcome. Well, first of all, let me state the important thing. I’m not an expert on manufactured housing. I have read that that industry has matured and that there are quality products in manufactured housing, and since you can’t afford the $300,000 house, I think that’s a legitimate thing to do. You just take your time, do a lot of, you’re obviously a hardworking person, take your times, welcome to talk to friends, people in your social circle, but also do some online studying about quality. Yes, they have a record of not being as made as well as homes, and also that they don’t hold value like homes do, and I understand all that. But I’m responding to you because you have a real desire to not be a renter. And if that’s a real desired, then I think the manufactured home business is, frankly, a lot better today than it has been in the past, so good luck. It’s about time for me to take a break. Good time for you to text 512-921-5888. I’ll be back.

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KUT Announcer: Laurie Gallardo [00:39:05] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:39:19] Welcome back to Money Talk. You’re listening to KUT News 90.5 in the KUT app. When you have a question, send me a text at 512-921-5888 and you can go to kut.org and listen to the podcasts of previous broadcasts. If you enjoy them, you might tell your friends about them as well. Can fit it into their schedule. 512-921-5888. Hi Carl, last week you mentioned the amount of money one should have to retire. You mentioned something like 4% tentative inflation plus something else. Could you please repeat that? In my case, my current monthly expenses are around $9,000, which includes $3,000 toward my home loan. I have a 6-year-old child and I intend to save for her college through a 529 plan. Given these circumstances. How much money should my wife and I have to retire? Also, could you suggest a book where I can read more about this topic? Okay, well this goes back probably decades and it’s a rule of thumb. It’s not guaranteed. The question we all have is, am I gonna have enough money to retire. And we have to start this whole thought process with a big dose of humility because we don’t know. The return on our investments is going to be. We don’t know what the rate of inflation is going to be, and we don’t how long we’re going to live. Other than that, it’s simple. We know that keeping the money in cash or CDs or all in bonds is, based on history, highly unlikely to work, unless you have a vast amount of money. And so you want to have exposure to the equity markets, just like you do for your six-year-old child, because the cost of a college education is going up faster than the rate of inflation. And so this study was done, and it said, Let’s take. Thousands of various mixtures of stock and bond market circumstances, good years, bad years, mediocre years. And let’s ask the question, what is the percentage of that pool of capital that I could take out and not run out of money? And while this is always up for debate, the number tends to be around 4%. If you have a good allocation to the equity market, 55 to 65 percent. And you look at the value of your portfolio at the end of the previous calendar year and take 4% out of that, that’s the rule of thumb that many financial planners use. I wanna hesitate, I don’t wanna hesitate. I wanna say this. There are periods of time where you could take a lot more out. If it turns out that you had your money invested from 1995 to 1990, well, actually to 2000 in the U.S. Stock market which went up over 20% a year. Now you could be retired and taking out more than 4%. But if you started investing at the beginning of 2008 and the market dropped over a year about 50%, then you’ve got a long ways to go. So this is a rule of thumb. And so the way to think about it is, because we can only think in today’s dollars, how much money if I were retired and I didn’t have any financial liabilities, I didn’t have a mortgage or car note or credit card debt. How much could I live on? Take that number times 25, that’s the 4% withdrawal. But you should have, by that time, you’ll have Social Security benefit, we hope. You may have other benefits, but you’re trying to get a handle on what would be my expenses in today’s dollars, and how much would I have to have saved to take 4% out of that to meet those expenses. That’s a very simplified way to do it, but I think that’s how I would begin with it. If I were in your shoes. You’re listening to Money Talk on KUT News 90.5 and on the KUT app and I need to read this promo again because it’s important. Wanna see Money Talk in person? You can at the first ever KUT Festival. It’s coming up on May 1st and May 2nd. You join me and the rest of the KUC staff on the UT Austin campus for live music, thoughtful speakers, engaging panels and more. Grab your passes now and check out the speakers and performers at KUTFestival.org and Jimmy Moss and I will be doing Money Talk Live. It should be a lot of fun. Today you can text 512-921-5888. Let’s see, okay. I’m going to read this but I’m gonna give you an answer that’s not going to please you. Hi Carl, great show. Thank you. Do you offer personal financial services? I know I can ask a question on KUT and get a great answer, but our financial situation is elaborate. Three houses, multiple IRAs, 401Ks, et cetera, et cetera, looking specifically for advice about aging parents’ potential trust. I’m going to tell you, I’ve been doing this, and I’m now into my 32nd year. And one of my rules, I have four rules. Number one, I treat every caller and texture with respect. Number two, I explain things in plain English. Number three, I never talk about what I do professionally. I don’t tell people how to find me. I will break the fourth rule and say that I spell my last name Stuart and if you wanna go to our website, you can go there and click on. I don’t wanna talk anymore about it here on the air. You’re listening to Money Talk on KUT News 90.5 and the KUT app. You know the number, 512-921-5888. Okay, let’s see here, that’s another text. Hi, Carl, please comment on a strategy I am contemplating. We’re in the most favorable tax environment in a long time. I agree. My strategy is to accelerate my required minimum distributions, but not so much that it pushes me into another tax bracket. Plus, if I put it in an ETF, my heirs would get the step up and not have to liquidate in 10 years. Okay, this is a really thoughtful person. And let me just start with the conclusion. I agree with you a hundred percent. So what this person is saying is that she or he has submitted required minimum distribution. So they’re in their 70s. And every year they have to take the money out, whether they want it or not, and they have pay taxes on it. But if you start with the assumption that over the next few years, tax rates are not gonna go down, they’re likely to go up, then maybe you should take more than your required minimum of distribution, pay the taxes, and reinvest in tax efficient exchange traded funds. Because if you don’t do that, and say you’re filing jointly, when both of you are gone and your kids get your IRAs, those are called beneficiary IRAs. And they have to take the money out within 10 years. So it’s a good thing, if you’re willing to pay the taxes, to do exactly what you’re considering. I think that’s a great idea. The other thing you could do is you could take the money out and you could put it in, you pay the Texas. And put it in a Roth IRA and invest it. And once it’s been in there five years, you have total access to it because you’re over 59 and a half and you’ll pay no income taxes on it. But when you both pass away or you pass away, if you’re single, the kids get it. That’s a beneficiary Roth IRA and they are subject to the 10-year withdrawal rule. Of course they won’t pay taxes on them. So either investing it on your own and tax-efficient funds. Or in a Roth IRA both seem like interesting ideas to me. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Text me at 512-921-5888. Hi Carl, it’s Bob. We all know the stock market is a prediction machine, but not as accurate as the bond market. It looks down the road at six months and we know you have perfect future vision. I certainly do, yes I do. Judging by what happened this past week, where do you see the market at the end of the year? You can’t be serious. If I had said to you, we have an intractable war in Ukraine, we have a huge tension between the United States and our Western allies. People think the NATO alliance is having more stress now than it’s had. We have this, shall I call it, standoff in the strait of Hormuz. The Iranians have proven that they will take a pounding and keep on going. And the inflation numbers are not bad, but they’re starting to tick up. And we’re going to spend $2.5 trillion more this year at the federal level when take in, and we’re talking about increasing. Budget deficit. Now, by the way, the S&P 500 just hit an all-time high. Are you serious? Yes. This is why I never make predictions and I don’t invest based on the headlines. If you got out of this market when we started dropping bombs on Iran, you’ve paid a heavy price called the opportunity cost. I would tell you before the war in Iran that I that But again, Lindsay, my colleague and daughter, we were looking and she found that over the last 50 years, with the exception of that great internet that we call dot com bubble, that great five years of 20 plus percent a year, the number of times that the stock market has delivered four consecutive years of positive returns is once. So a person who looked at history could have said on January the 1st, the eyes of four consecutive good years. Double digit years are just really low and stock prices are not cheap by historical valuation. So I have to be prepared for a negative year, maybe not a big negative year but a negative year in 2026. Here we are with all these terrible geopolitical things I said and the market’s up. I have no clue. This is shocking in obviously a positive way, but I think the odds of interest rates and the market’s still betting. Still betting that there may be one cut left this year. But that’s starting to shift to thinking there’ll be no Fed cuts this year, we’ve had a little move up in interest rates on the long end, the 10 year treasury’s around to 430, it doesn’t look like that’s gonna come down, which means interest rates across the board don’t come down mortgage rates don’t come down et cetera. I’m very cautious, just frankly for the historical reasons of four consecutive years. Then I add into all of that what’s going on geopolitically, and I can’t find a geopolitical analyst who’s got an answer to opening the straight of her moves. So call me skeptical. You’re listening to Money Talk on KUT News 90.5 and the KUT app, 512-921-5888. Carl, I just stumbled on your show on KUT. You’re amazing. Wish I’d discovered your show sooner. Well, Fajia, you’re very welcome. We’re here every Saturday till five. And if you’re busy and you can’t make it at five, you can go to Money Talk, actually go to kut.org slash Money Talk and you could listen to podcasts of all the previous shows. Thanks for your comment. Five one two nine two one five eight eight eight. As a follow-up to my tax withholding question earlier. Your analysis of holding too much inactive funds is spot on, Batman. Ha ha ha ha! I plan on shifting to ETFs or funds in my Roth. You’re very welcome. Well, we’ve got some time left. 512-921-5888. Hello, long-term listener. Good. I am 37, single, and a physician. I recently finished training. And my income is around a million dollars a year. Congratulations, you paid the price for this. You spent a lot of time in training and I admire you. My practice offers a cash balance plan with a guaranteed rate of return of around 5%. I am in Texas so I have no state income tax. I understand this is well below the average return of investment of the stock market. Does it make sense to utilize the cash balance I can put $110,000 per year in it. That’s a tough one because you get some tax benefits, but you’re only 37. Now, the math is, the sooner you start compounding, the faster you’re gonna become financially independent. And the sooner, you can decide that you wanna be a physician because you love it versus because you have to make a living. It is attractive from a tax standpoint, but I just think you’re early enough in your professional career. I think I’d be dumping that money into my retirement plan. And on my own. I will say this, when you max out that retirement plan, keep doing it but give it to yourself. Open your own individual account, if you’re married, joint account and do this dollar cost averaging that I’ve been talking about. Every pay period, dump some money into there, into the funds I talk about because I’ve seen this work over the last 47 years and it’s a magical and wonderful thing. So at this early point your career. It’s time to build assets. And the 5% number, even with the tax benefits, is not, in my opinion, the best opportunity for you. Thank you. Here comes another call. I’m sorry you’re calling KUT, but we’re having mechanical problems at whatever it’s called so I’m sadly gonna have to hang up on you because I can’t take the calls here. Okay. Hi, Carl. I have restricted stock units from the company I work for, which I’ve never sold. I feel that I might be overly invested and would like to sell some to fund a family vacation. Does it make sense to sell a lot that is severely underwater, cost basis about 25 and now worth 15, so that I can also offset my income tax burden? This lot is also short term, so I think it can help my tax burden. I’m in the 32% bracket, thanks. That is precisely what I would do if I were you, uh… Is take the loss uh… Because it’s short term and you’ll go against your income unless you have other gains. The other thing I would say, and you didn’t ask me this… A famous investor in 1929, his name was Bernard Baruch, and he said, put all your eggs in one basket and watch the basket very carefully. That’s a clever phrase and it’s a terrible idea. Yes, there are people who are wealthy today because they had all their assets in one bucket. But Jimmy and I talked about this last week. I remember when AT&T split off Lucent Technologies, it was a blue chip and it went from something like $60 to $3. I remember when Enron went broke and there were stories in the Houston Post about people who had all their money in Enron stock and now it was worthless. I remember When Dell was a fantastic investment and then it went from $70 to $10.50 and went private. You are investing your time, your intellect, your energy, and your company and keeping a lot of your net worth, your financial net worth not your house, your finance net worth in company stock, I think. Is not a good idea. Let me get this next text. Hi Carl, second time texter, good. How should I invest my mildly disabled son’s portfolio was 42, he’s 42 now. It has a small retail part-time job. We fund his, I’m gonna turn off the phone, we fund his Roth IRA every year and his portfolio has now grown to half a million dollars. Congratulations, that is a loving and thoughtful thing to do. I have him invested in a few Vanguard Broadbanks. Based ETFs like VT, VTI, and VXUS, fine. We also have a regular tax brokerage account for him where we put extra money saved in broad-based ETFs, good. At work, he has about 60,000 as 401k, which are in Vanguard total target-dated funds set for him to retire at 65. He lives with me currently and will inherit my money as home and home when I pass. Am I invested appropriately for him? Can you suggest a way, as a parent, I can set up a stream of income for my son should I pass prematurely? My son does not get any government benefits and I am now 70 years old. I own my home completely and have a two and a half million dollar portfolio. Thank you, Jan. Well, Jan, I’m honored you asked that question. The first thing you wanna do is you get yourself a competent estate planning attorney. There are things called special needs trusts. Where I think you can accomplish what you’re trying to do. Find someone who deals with that and go through this process so that you can properly style maybe certain kinds of trusts so that your son will be taken care of in the future. I think that is a wonderful thing and that’s the first thing I would do if I were in your shoes. We’re coming down to the end of the broadcast. I wanna thank Raina and Jerry for doing such a good job. I wanna apologize for our technical problems today which we will have settled next Saturday. And always on Saturday at five, be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:57:16] 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.