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Carl Stuart takes caller and text questions on the pros and cons of taking a lump sum pension payout versus a monthly pension payment for life, the importance of considering investing in index funds and diversifying their bond holdings, and the problem with relying solely on CDs or savings accounts.
The full transcript of this episode of Money Talk with Carl Stuart is available on the KUT & KUTX Studio website. The transcript is also available as subtitles or captions on some podcast apps.
KUT Announcer: Laurie Gallardo [00:00:01] This is Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:00:20] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. Here on our 31st year anniversary, the last Saturday of 19… What? That’s right, this was started 1995, amazing. But this is 2026 and this is Money Talk, a broadcast about the world of financial and investment planning, where you always determine our agenda by calling or texting 512-877-9000. 921-5888. I always take today’s calls first and then today’s texts and then texts that I haven’t had the opportunity to answer in the past. When those texts come in you will hear the noise. 512-921-5888. Here’s a text. Hello Carl, I’m about to retire and I’m 59 years old. Most of my retirement income will come from a 401k account. However, I have a small pension. How can I decide whether to take the lump sum on my pension and invest that myself or to take the monthly pension payments for life in 20 years certain? This is from David. Well, this is, at least in central Texas, a pretty common question because we have a lot of people who work for governmental entities, for firefighters, police officers, state employees, uh, teachers. These people have a defined benefit plan. What that means is every pay period, money is taken out of their paycheck, they don’t get a choice, and their employer puts money in, they’re committed to that. And then once they qualify through the number of years of employment, and perhaps age, they are given a lifetime income, or a lifetime for themselves and their spouse, or a life time income is the case for David with. Minimum of 20 or certain. So the question is should I take that which is worth a lot of money or should I turn it into cash and do an IRA rollover and invest the money? I don’t think there’s a right answer to this. I think it really depends on your total situation, both financial as well as psychological. The benefit of that defined benefit plan, the It’s not your problem whether the stock market goes way up or collapses, whether interest rates go up or down, whether inflation goes up or down, you’re going to get that monthly check. Now, a lot of people who work for the state may also have social security around here. A lot of teachers do not, so I’m not sure about that. But I would say to you that getting that monthly pension is a wonderful base. Because you can count on it. What are the risks of taking it? Well, one is that you don’t know what’s gonna happen to the cost of living, which is how much you’re gonna need to live, but probably it’s going to go up. And there’s no guarantee that that pension benefit will go up with the cost living. I think you need to be fairly skeptical about that, frankly. And so the question is, what will it feel like? And I use that term feel intentionally. What will it like to know? That every month that check is deposited into my checking account and I don’t have to worry about it. Because you are a young person and if you’re going to be retiring and you have access to health care and you’ve got good habits, you’re not a smoker for example, you are looking at a very long life expectancy. I think you need to plan on living beyond 90 years of age and as a consequence that you figure out how much that income is over the next 30 years, it’s a whole lot. Now, if you take the money and invest it, and if you invest it wisely, could you end up being able to increase your income by taking regular distributions from your IRA rollover? The answer is yes, but it’s not guaranteed. People who did that at the beginning of 1970 lived through a decade of very poor returns in the U.S. Stock market and in the bond market. On the other hand, people… Retired in the beginning of 1980, had a tough couple of years, but then we had an 18-year bull market from August of 1982 until March of 2000, and they could end up with a substantial increase in their income. So part of it is can you live with the risk and the volatility? And do you have the ability, or do you and your advisor have the ability to invest it in a variety of diversified and non-correlated financial assets that, based on history, but certainly no guarantee, will grow. So, my view is you have to look at yourself in those circumstances. It really is an individual situation, and if at the end of the day, the security of those known future payments is going to be something, then I would take the monthly pension payments if that were an opportunity that I had, unless I thought ahead. Intestinal-emotional fortitude to invest the money for the long term. 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. Taylor you’re on the air. How may I help?
Monica [00:06:05] Hi, my question is also about kind of a pension. I work for the state and I started really early. So I’m actually eligible for to start pulling my retirement at 52 in about 10 years. I don’t plan to retire that early, but I haven’t done a lot of planning outside of that because I know I’m already vested and I’ll have healthcare and that pension. And so I wasn’t sure. What else I really should be doing outside of that.
Carl Stuart [00:06:37] Taylor, are you also participating in the Social Security system? So you’re going to have, when you retire, lifetime income from two sources. I would tell you, unless you really needed that Social Security income, because you’re a female, you have a long, long life expectancy, what we call longevity, I would postpone taking to Social Security if I didn’t have to have the income until I was 70, because between full retirement age, which for you is probably about 67 years of age and 70. That monthly benefit grows at 8% a year, which you can’t get an investment guaranteed to do that. So if you look at your future pension benefit and social security, and if you have extra cash flow, that’s a big if. I would invest that extra cashflow on a regular basis. And the reason is, as I just mentioned to this, to the answer to the text, is that the one thing you can know is, what will happen to the cost of living. Actually, we don’t know three things. How long will I live? What will be the return on my investments? And what will happened to the costs of living? So the weakness, if you will, is that pension income and social security income is not guaranteed to keep up with the cost of living if you had the ability to go on, if you’re paid, for example, every two weeks, twice a month, to set up an account. If you want to do it yourself, you can go to the big companies and study the Fidelity and Schwab and Vanguard and set up an ACH out of your checking account into your account at one of those places and invest in stock index funds. And the reason is they have a lot more risk than the pension guarantee or Social Security, but they do, based on history, keep up with and can actually exceed the rate of inflation. And if you could build that up over the next few years, even decades. You will have a big lump sum that will allow you to do extra things you want to do. You want to take a trip, great. You have some other things you wanna do that are outside the normal expenditures. So if I could afford to invest on a regular basis so that periods, years and months when the stock market goes down, you’re still putting money in, buying more shares, and years when the market goes up, you’re so putting money but you’re buying fewer shares and over time. You have lower cost basis because you’re buying more shares when prices are depressed. I would do that if I were you, and that’s my inflation hedge. I would that. I think that would be really helpful for you.
Monica [00:09:16] Awesome. Thank you.
Carl Stuart [00:09:17] Okay, you’re welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. I heard a text coming in. Let’s see. Hi Carl. Two related questions. What is going on with silver in the past year? And are metal exchange traded funds actually backed by the tangible by the tangible goods, I think you meant to say good. So silver was up 144, if you owned the exchange traded fund all of 2025, you had a return of 144.66%. We had a huge decline at the end of this past week, largest decline since 1980 on a percentage basis for silver. But it’s still up over 17% on a year-to-date basis. There’s two or three things going on based on my reading. One is there’s been something on Wall Street called the debasement trade. Concerns about the fiscal outlook for the United States. We’re spending 6% of our gross domestic product on debt, and we’re also. Grading adding more to the debt and so people are thinking well, maybe as a hedge. I should have precious metals Gold was up 64 percent last year And so part of it was just a trade into what we’re perceived as being precious metals But it really was a commodity trade as well because copper was up and copper is not a precious metal This other thing that was going on frankly is said Wall Street phenomenon Which, when something has a lot of momentum, like last year, Nvidia, common stock, and silver and gold, there are a lot of traders who will jump on that bandwagon, and a lot them will actually borrow money to do that. A lot of the hedge funds do that, and they’ll ride that, and then when it looks like that trend may be under pressure, they’ll bail out, and that will accelerate the downward move. So the stock, I beg your pardon, the ETF of silver, the metal itself, virtually went straight up. My life experience is that what happened on Friday, I think that was the big down day, is inevitable. But generally speaking, things don’t go way up and then turn around and go way back down. They tend to sharply sell off and then bounce around and bounce around and may go up and test that former high. So I think you have a combination of the so-called debasement trade. As well as just frankly speculative money hopping on the momentum. The second thing is are metals exchange traded funds actually backed by the tangible goods? And the answer is yes. I don’t follow silver like I do gold, but if you, there are two gold exchange, well there may be a lot more, but there are very heavily traded gold exchange traded fund. One is Symbol GLD and the other is IAU. And they have what are called mini shares or micro shares GLD. And IAUM they’re very very inexpensive the IAU the annual expense ratio is 0.09% and GLDM 0.01% no 0.1 so one’s nine basis points and the other is ten basis points you can go look and actually see the gold it’s under one of the parks I can’t I know it’s not Grant Park it’s one of the parks in meant in manhattan the actual gold is there so those are not we call them exchange traded funds technically they’re exchange traded trusts and you own shares of that if you own that you’ll see a fractional share sold every month why is that it’s because it’s to cover the expense of storing the gold so yes they do actually own the gold thanks for the question you’re listening to money talk on AUT News 90.5 And on the KUT app, we have all of our lines available. You may call or text 512-921-5888. I heard some texts coming in. Let’s just see what’s next. OK. Carl, I am 65. I have mutual funds, simple IRA. I’ve contributed to it over 20 years. The total has gone up, but sometimes down. That’s for sure. The current political climate feels really scary and volatile. I’m afraid the fund will drop suddenly and soon. Monday morning I’m planning to roll it over into an Irish CD in my local bank. Is this unwise? I have other support. CDs will have social security, own a house and farm. Just hate to have capital go poof. Yeah, poof is not a good thing. I agree with you. I gotta tell ya, I think you’re making a mistake. Uh… But it’s easy for me to say that because i think the odds of stock market goes down this year relatively high i mean uh… I my colleague and daughter lindsay and i were discovering a few weeks ago that when you ask the question how many times as a u s stock market risen for four consecutive weeks i beg your pardon years and we’ve already had three consecutive years twenty three twenty four and twenty five If you exclude the five-year run when the internet and the communication stocks were skyrocketing back in the heyday of Dell Computer from 1995 through 1999, then in 50 years we’ve only had two times where we’ve had four consecutive up years. I don’t think any stock analyst suggests that a lot of U.S. Stocks are cheap. Some are. Small cap stocks are, but the large cap stocks and particularly the tech stocks are quite expensive on a historical basis. But last year should have taught us a lesson. If we were sitting here on the last Saturday of January of 2025, and if I said to you that the president will announce the highest tariffs in our history in April, and the U.S. Stock market from January to April last year dropped 15%, and the so-called FAANG stocks, the tech stocks, dropped 20%, and the Magnificent 7 dropped 25%. And the Russell Growth 1000 dropped 20%. That’s a lot, but guess what? From October, I beg your pardon, from April the 9th until December 31st, the S&P was up 38%. The Fank stocks were up 52.5%. Something called the Bloomberg Magnificent 7 was up 68%. That’s the nature of the stock market. Why? Liquidity. You can’t sell your house just because you want it to today. Or Sunday, or Monday, or six weeks from now. So real estate is an illiquid asset. Financial assets are a liquid asset, so people can do what you’re fixing to do on Monday, which is sell out. I think it’s a mistake. If you have a three-year horizon or longer, and certainly if you have a five-year or longer horizon, I think you’re going to do well. Obviously, I don’t know anything about the specific funds, but because you already have CDs, and what do we know about CDs? We know that based on history after income taxes and inflation, you will lock in a negative return. That is correct, a negative returns. So if you have mutual funds and you have CDs, if it were my money and I expect the stock market could go down, I would not do what you’re getting ready to do, but good luck. 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. Bob, you’re on the air, how may I help?
Bob [00:17:18] Well, congratulations on, what is it, 31 years?
Carl Stuart [00:17:21] Yeah, and you’ve been listening the whole 31 years. You were a young man
Bob [00:17:25] Yeah, I was going to say congratulations, but we’re both older than dirt.
Carl Stuart [00:17:30] William, we’re still vertical. That’s exactly right.
Bob [00:17:34] I was kind of uh… I finally got uh… The uh… Live show to uh… Coming over the internet uh… Ten minutes so i’m a little late but anyway uh… My question to you carl is i’ll follow up on that other gentleman’s question or timing about the stock market if carl do it is buying gold is not time to get out of the market
Carl Stuart [00:17:58] Well, that’s so rude of you to say that, Bob. So I started adding gold to the portfolio. It was about seven years ago. I remember vividly that I had a caller like you, a regular listener, and he said, I never thought I would hear the day when Carl Stewart started buying gold. I was a skeptic from 1978, it peaked in 1980, all the way up until seven years ago, but I kept reading. And talking with people whose opinions I really respect, who are not speculators, but long-term investors, who pointed out the role that gold plays in an overall portfolio, tends to reduce volatility in the stock market, can also possibly serve, not always, but as an inflation hedge, and in long declines in the market, it tends to hold value. 2022, the S&P was down 19% and the NASDAQ was down 33. And the Gold Exchange Traded Fund was down 0.63% so it was really a contributor. I fully expect it to pull back this year because it was up so much in the last year, Bob. But I haven’t sold any in my portfolio and if I didn’t have any, if I could dollar cost average in on weakness into a Gold Exchange traded fund, I would do it. I think the exchange traded fund you can add and subtract from it. It’s very daily liquid. I would still be an owner of gold, Bob
Bob [00:19:23] in in terms of uh… Acting as a hedge on the internet on on the uh… For on the stock market yes general what percentage of somebody’s portfolio you talking five ten or more
Carl Stuart [00:19:37] I personally have seven in my portfolio and I really like this exchange-rated product because if gold goes down and now you’ve got five percent, you can add to it. If gold goes up and now, you’ve 10 percent, and you can sell part of it off and you’re in a no-transaction fee-based relationship at Schwab or Fidelity or wherever, it’s really a wonderful way to manage your exposure. So my number is seven, Bob.
Bob [00:20:04] And you are definitely in favor of one of those stock holdings rather than the metal itself.
Carl Stuart [00:20:14] Absolutely. I like the liquidity. I don’t have to worry about security. Coins are expensive. You pay a bunch of money to buy and sell them. Bullion, you’ve got storage problems. Now, I think the exchange rate of trust either GLD or IAU, but I would use the one that has a little M after it because it’s even cheaper, GLD costs 0.40% a year, IAU costs 0,25%. GLDM is .10 and IAUM is 0.09. So either of those would be just fine for me personally.
Bob [00:20:45] Thank you for taking my call, Carl, and happy 31.
Carl Stuart [00:20:49] Okay, Bob, thanks for calling. You’re listening to Money Talk on KUT News 90.5. I was responding to Bob’s question. Please know, and my lawyers know, I do not make recommendations on here because I don’t know your situation and I do NOT want to be held responsible for you doing something I’ve talked about and having it go down and having my lawyer call me and say that you’ve that your lawyers contacted my lawyer. So you are on your own. I am simply answering questions. What a relief. Well, it’s time for me to take a break. Good time for you to call or text 512-921-5888.
Jimmy Mass [00:21:44] 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 [00:22:20] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:22:34] Welcome back to Money Talk. You’re listening to KUT News 90.5 and the KUT app. I forgot to mention our first segment that you can catch past shows at kut.org slash money talk or talk about it with your friends and colleagues. Maybe they would enjoy a previous broadcast as well. 512-921-5888. Andy, you’re on the air, how may I help?
Andy [00:23:02] Yeah, so can you tell me, given that so much wealth is concentrated in a few companies in the stock market, are there any index funds that are really diversified these days?
Carl Stuart [00:23:14] What Andy’s talking about is, and this really was the revolutionary work of Jack Bogle who went on to found Vanguard funds, that it was his belief that if you owned an index fund, let’s say of the S&P 500, and you owned it in the same proportion that existed in the index. And so the concept here is market capitalization or market cap. And what happens is the market cap of each company is the number of shares outstanding times its public price. So when you have a stock that skyrockets like Nvidia, it becomes a bigger and bigger portion of the index. And that’s what you’re talking about. We have a very concentrated leadership in the stock market. This happened back in the big run from 1995 through 1999 that ended in what we now, we no one called us at the time, And we now call the dot com bubble bursting. So do we have that phenomenon going on now? Yes. Now, people who believe in indexing believe that you get the best return over time, because let’s suppose that leadership changes, I don’t know, energy stocks, become the focus of the market. They will grow in size, because the price will go up for Chevron, or Exxon, or Halliburton, or Schlumberger. And so the people who believe that the stock market’s efficient, and that every price of every stock represents global investors’ best judgment of the outlook for that company, will stick with market capitalization. So that’s the background. So I just want you to know that there are trillions of dollars in market capitalisation indexes. Are they concentrated? Yes. But there’s a real academic argument between whether that’s a good thing or a bad thing. Now I’m going to answer your question. You can own an index fund, for example, of the S&P 500, and if it’s equal weighted, so it’s not market cap weighted. So if it a 500 stock index, each stock in that will have an equal weighting, 1 5 hundredths. That will eliminate your very issue of concentration. The other thing you can do is you can go look at the stock market, and you can cut it into smaller pieces. One of those examples would be from the company named Russell, R-U-S-S E-L-L, they have the Russell 1000, the Russell 2000, the Russel 3000 by market cap. They also have the Russell growth and the Russell value. The Russell 1000 growth and that value, the russel 2000 growth and value. So you can slice and dice the market by those ways. So I believe there’s still market capitalization weighted but you don’t have to own the Russell 1000, which is the big names, you can run the 2000, which is a small. So yes, there are indexes that would take you away from the current concentration in the S&P 500. I would recommend you take a look at those Andy. 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. Mark, you’re on the air, how may I help?
Mark [00:26:44] Hi, Carl. Hey, I’ve got a couple of granddaughters, 8 and 11, and I have 529 accounts for both of them. I’ve had them for quite a while. But I was talking to a friend, and he said that he put his in a trust to help manage them. And so I was wanting to get your thoughts on that. Yeah.
Carl Stuart [00:27:04] Well, Mark, I can’t think of a reason to have him in a trust because you’re in a state-sponsored plan, you’ve made that choice, you have a range of mutual funds, you made those choices, so there’s no more incremental management benefit by putting him in the trust. And I know you know this, you’re the owner, they’re the beneficiary, let’s just say that you had all of a sudden you passed away, there would be another owner, you can set that up in your own will, who would come in and take over for the benefit of your grandkids. I can’t think of a single reason why a trust would be a good idea. No, unless we have a lawyer listening who can explain why, I don’t think that’s a particularly good idea, in my opinion.
Mark [00:27:58] Yeah, their mother is the co-owner. So if something happens to me, she just takes right over. You know, he was concerned that if one of the grandkids went rogue, that it’s their money when they’re 18, and the trust would add a layer of protection on that.
Carl Stuart [00:28:16] Yeah. He’s mistaken. But I guess that’s a question for a lawyer. Yeah. While he’s mistaken, he’s thinking of a custodial account. We used to have something called UGMA, the Uniform Gift to Minors Act. Now we have UTMA, The Uniform Transfer to Miners Act. And when you open an UTMA account for your granddaughter, even though you pay the taxes on any dividends, interest, or capital gains distributions. You’re the custodian it’s actually hers and when she turns 21 your name goes off the account and it’s hers and if she goes rogue that’s the way it goes the 529 plan is a very different deal the beneficiaries can be changed at any time to the other grandchild there’s a whole list of relatives that can be made beneficiaries so that is not it he is he is misunderstanding that is not a risk in my opinion
Mark [00:29:10] Okay, that’s awesome. I like things when they’re simple.
Carl Stuart [00:29:13] Ha ha, so do I! Thanks for calling and good luck. You’re listening to Money Talk on KUT News 90.5 in the KUT app. Call or text 512-921-5888. Let me take a look here at the text and see where I can get okay. Carl, do you have any advice for very low income and struggling listeners? It seems Austin is one of few areas without an individual development account program. I must tell you I’m not familiar with that. Are there any nonprofits that can help with financial literacy? Yes, there are. We have a, you might wanna Google foundation communities. They provide income housing. They provide housing for low income people, but I also know they provide free tax preparation. And I believe they also provide financial education. So that would be, I would go to Foundation Communities and go to their website, and I guess, as I don’t know this, probably foundationcommunities.org, it’s a fine, fine organization. There may well be a number of others here in town. I’m just not familiar with them, but that’s what I would do. You’re doing the right thing, getting financial literacy. And then you could also… If you have access, online access, you could simply do a Google search for financial literacy. I suspect you could find quite a few programs that wouldn’t cost you anything that you could look at as well, so good luck. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. I listen to yourself and mostly I hear questions from folks who seem to have set themselves up well for the future financially. I have not done that. I have always been self-employed. I have never made more than $70,000 a year. I grew up poor and did not get a good financial education. I’m sorry. That said, I’ve managed to put $36,000 in an IRA and I have $35,000 in the bank, congratulations. When you make $70,000 and you can do that, congratulations. I gross about $5,000 a month on average. I’m 50 years old and divorced and have three children. What can I do with what I have to better my financial situation? Okay, here’s the good news. When I got started in this profession 47 years ago, you would have had a real problem. Getting involved because there were a lot of, shall we say, barriers to entry. That’s no longer the case. What you want to do is you want educate yourself. And I would spend some time at the websites of the big do-it-yourself people like Fidelity and Schwab and Vanguard and look at their stock index funds and find out what their minimums are. I don’t know this. They may be as little as $500 or $1,000. And what you can do is begin a wonderful program on your own called Dollar Cost Averaging, where you decide, say you take that money that you’ve got, and let’s just assume that you, other than an unanticipated emergency, because you are self-employed, that you can put this money away for the foreseeable future. You find a couple of index funds. I would recommend one that says total stock market, that’s a U.S. Oriented one, and one that’s total international. And I would start with whatever the minimum investment is and I would set it up so that I could have the money automatically withdrawn from my checking or savings account or from my IRA and put into those funds. Because you have an IRA and it’s $36,000, you can go to one of those companies. They are what’s called a custodian. You can set up an IRA with them, and you can transfer your existing IRA to one of those companies. They do have service representatives. And then you can make those monthly contributions. And frankly, you ought to hope that things go badly for a while because you put that money in every month you’re buying more and more shares. The IRA by definition is a long-term investment. Uh… And you’re only fifty years old and based on history and on my own personal experience over the last forty years seven years you’re investing in human ingenuity and over time between the time you’re fifty and the time your seventy your return there i can’t see the future i can tell you what’s gonna happen stock market on monday but i can say that based on his tree because you’re invested in human in human innovation and because you are not picking stocks. I think that’s the best thing that I would do. You can start slow but make one of those companies your custodian and slowly put money there because you can’t get it out anyway because of the tax consequences. And then with the $35,000 in the bank, you’re going to have to decide since you’re self-employed, you know what your cash flow is like. If it’s solid and you have the other things in your life covered financially, you can began to suicide. How much do I need to leave in the bank for a rainy day? And then you can do the same thing with the same company, Vanguard Swab Fidelity, somebody else, but do it in your own, what we call individual account, and start to build wealth that way. I think that’s what I would do if I were in your shoes. Good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We have all of our lines available. You may call or text your financial and investment planning questions. At 512-921-5888 and you can catch past shows at kut.org slash money talk. What specific exchange traded mutual fund investments do you recommend for the bond portion of a portfolio? Then the person goes on to give some examples. Total bond market, high yield, corporate bond, government, long term, intermediate term, short term. I’m an index fund ETF investor. Okay, so here’s my experience. I think when it comes to the stock portion of your portfolio, putting the bulk of your money into index funds. Makes a whole lot of sense. I don’t do all of it, because I think there’s a place in small amounts for active investors. I don’t agree with you being an index investor in bonds. And here’s why. If you own, let’s just say that AGG, that’s the iShares bond fund that matches the Bloomberg Act, or the Vanguard Totals Bond Fund. Both of those are virtually free. I mean, 0.03% expense ratio. But their market cap weighted. So what does that mean? That means that the people with the most amount of debt, the companies with the amount of the most debt are the ones that have the biggest piece in the index. So you’re getting, and sometimes that’s treasury, so you’re not diversifying, or you’re a lot of debt of companies that you wouldn’t necessarily wanna have. So I think indexing or ETFing bonds is a mistake. Now, if you’re ETFing active management in bonds… I’m 100% okay with that. I know what I would do, because we don’t know what’s going to happen to the direction of interest rates. I like having three different bond funds, whether they’re 40 act funds, or if you can find the exchange traded funds, that would be fine as well, because they would be lower expenses and tax efficient. But I would have a short term bond fund, so that if rates go up, you’re gonna have a higher income from that, and less price risk. I’d have something that was in that core bond fund category that mirrors but tries to outperform the Bloomberg egg. And then I would have a multi-sector bond fund that allows the manager to go anywhere. The one that I happened to use for my portfolio was up over 10% last year and can buy US debt, foreign debt, emerging market debt because there are inefficiencies in the bond market that I think are less likely, don’t exist as much in the stock market. And so I like active management, whether it’s in a form of a 40 act fund or an exchange traded fund. I think you’re in luck because now I see more and more active managers offering their product in an exchange-traded fund that gives you those daily liquidity, although that’s true with the 40 act funds, but also tax efficiency and lower expense ratios. And because bond funds by nature have lower rates of return. Lower expenses can have a big impact on your total return, and that’s how I would do that if I understood your question and if I were in your shoes. Well, it’s time for me to take a break. A perfect time for you to call or text 512-921-5888. I’ll be back.
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KUT Announcer: Laurie Gallardo [00:39:35] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:39:49] Welcome back. You’re listening to Money Talk on KUT News 90.5 and the KUT app as we celebrate our 31st anniversary of Money Talk. When you have a financial or investment plan in question, call or text 512-921-5888. Here we go. Kelly, you’re on the air. How may I help? Are you there?
Kelly [00:40:18] I am here, sorry, I was on mute, I turned the radio off.
Carl Stuart [00:40:22] Okay, good. I’m glad you did. How many?
Kelly [00:40:24] I was on hold for a spell, I’m glad you took a break.
Carl Stuart [00:40:28] Good. How may I help?
Kelly [00:40:31] I’m recently divorced and I work and I have enough income to pay my mortgage, but I’m not sure I can retire ever if I’m going to be able to afford the mortgage.
Carl Stuart [00:40:44] Yeah, exactly.
Kelly [00:40:47] So I have just a tiny bit of money at the end of my paycheck, and I’m trying to decide if an emergency fund made out of three-month CDs staggered every month for three months is a real strategy, or if it’s better to have it be in just a savings account.
Carl Stuart [00:41:08] So I’m going to answer your question, but I think perhaps in a broader way, because of your concern about your future, because so much of your income now that you’re divorced is going to pay the mortgage, you might want to consider that you need to sell that place and buy a less expensive place and reduce your monthly payments because, and I know Do you know this? A house is a wonderful thing. Home ownership’s a wonderful things. Expensive, but wonderful. But it’s not an investment because you’re gonna live somewhere. If you sell it, you gotta buy someplace else. And it’s no liquid. You can’t sell your bedroom and raise $50,000. So what you don’t wanna end up is being house poor. And it sounds like maybe that’s where you are because of the divorce. And you know we’re in a relatively soft a real estate market in central Texas. I get the Austin Metro numbers every month, and the kind of about 90 days on the markets, kind of the median average, and sometimes a lot shorter, sometimes a little longer. But I would give serious consideration to looking around, seeing where you could live, that you could buy a house for a lot less money, so that you can take whatever proceeds you have after paying off the mortgage. To reduce the mortgage of the next house and increase your cash flow. That’s first of all. Now I’m gonna answer your question. I think three months is fine, as long as you have stable employment. There’s kind of a myth out there that I’ve encountered over my career, about six months of cash. I think it depends entirely on the individual. If you, I’m going to give you two extremes. If you work for the state of Texas and you’ve been there 15 years, and you’re participating in the pension fund and is getting social security eventually, you don’t need a lot of extra cash because you’ve got access to healthcare and solid income. If on the other hand, you sell cars for a living and one month you make $10,000 and the next six weeks you make zero, you got a lot volatility to your revenue but you’ve still got the same expenses. So if you have a solid employment, three months is plenty in my view. I would do one of two things. I think there’s nothing wrong with your CD strategy. I’m 100% okay with that. The other one is you might look, yeah, you might into something called a money market fund. That’s not a money-market account, okay? A money-market account will be at your bank, savings and loan, or credit union. A money market funds a mutual fund, but it invests in high-grade short-term bonds. It’s priced at $1 a share. You get in any day you want. You get out any day that you want, in it will pay whatever short-term interest rates are on those bonds. And you can go to the big players like Fidelity and Vanguard and Schwab. They all have money market funds. There’s three kinds, prime, government, and treasury. I won’t bore you with the definition, buy the government one in my view. So the CDs is fine, but do your homework on a government money market fund and give some, you know, when you’ve got time, when you got some time off, just go do some house shopping around the community. And see what prices are, what you think you can afford, and begin to make a long-term plan for that. I think that would be the smart thing to do if I were you.
Kelly [00:44:40] Do you have a follow up question?
Carl Stuart [00:44:41] Of course you can.
Kelly [00:44:44] The fantasy is that I have $300,000 in equity and I’m finding houses at $300k, but currently I only have $200,000 that I owe, but I still have the higher monthly mortgage payment. So I’m trying to figure out if the value of a different property that’s not so valuable Yeah. Would be, you know.
Carl Stuart [00:45:10] Prudent but over time yeah yeah prudent it is prudent because that’s what that because then you become saved then you just start saving for your retirement i mean i mean in a perfect world if you bought a house for three hundred thousand dollars and your payments were just the upkeep with property taxes and insurance you’d be free at last thank goodness i’m free at last you now have some cash flow to begin to invest for your future so you can become financially independent and not have to work the rest of your life right right okay Thank you. Thank you! Okay, you bet. Good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here we go. Patrick, you’re on the air. How may I help?
Patrick [00:46:00] Hi there, I had talked to you a few months ago and my question to you, you said you need to do some research on it and I may have missed your show between now and then. So my question was, I’m getting near retirement and I was hoping to be able to move out the country, but I had heard something that if you are taking Social Security that you have to come back into the country every six months, spend a month in country and then you can leave again. And you said you weren’t sure on that and you were going to do some research.
Carl Stuart [00:46:40] Yeah, I’ve run into some people who are full-time expats, who are retired and live in Paris. They do not have to do that. They do have to know that. That’s my life experience. All right. Okay, you bet. Good luck. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-58. And Mippy, you’re on the air. How may I help?
Mippy [00:47:12] Yeah, so, um, I have fortunately been smart enough to take advantage of my 401k’s throughout my various jobs. Um, I, every time I changed jobs, I would roll them over into that next jobs 401k and I had them all under a Roth. My last job that offered a 401k had no Roth and I just had to roll it over into a non-Roth. Um, then… I got let go and I was not able to get a job with a 401k for like two years and so I just put it in an IRA in my bank. I wanted it to not do nothing, so I put it into a certificate at 4.20% interest. It’s expiring in six months, what should I do, can I do a Roth, is there something that I can do to make that money work harder for me?
Carl Stuart [00:48:09] Well, you can leave it in the IRA, but you need to get it held. Let me start over again. How old a person are you?
Mippy [00:48:15] Oh, I’m 30. I’m going to be 35.
Carl Stuart [00:48:18] You got a really long life expectancy. You need to put that money at risk. You need be able to take that IRA and put it with a do-it-yourself or get an advisor. Say you do it yourself. If you choose to do it itself, you go to Schwab or Fidelity or Vanguard’s websites. Look at those. You want to buy some index funds. And you can move the money. It’s called a trustee to trustee transfer. Uh… You can move the money from your bank as a custodian for your IRA to one of those companies and you can invest the money in that if i understood you correctly you had Roth 401ks but when you move to this most recent employer they didn’t offer a Roth option so you put the money that were in Roth 401k’s back into a pre-tax 401k is that correct
Mippy [00:49:10] uh… So yes uh… That was the last job that i had two years ago that i i turned my roth into a non-roth yeah and then from there i don’t put it in i a r a in my bank
Carl Stuart [00:49:22] Okay. Well, I was hopeful that because you had money in a Roth 401k, that there might be some tax benefits to you, but that’s really complicated.
Mippy [00:49:34] Yeah.
Carl Stuart [00:49:35] Yeah, you went from an after-tax Roth into a pretax 401k and then into an IRA. It’s plausible at some point that you’ll be able to get some of that money out without paying taxes on it, but boy, that’s a CPA question. That is complicated. But I think at 35, having your money in the bank at 4%, I guess I’ve been doing this 47 years and I’ll tell you, CDs after inflation and after taxes have a negative return. And you wanna grow your money faster than inflation because you wanna be financially independent. You need to be taking risk with that money and that’s what we do.
Mippy [00:50:12] I agree i uh… I just you know within that looking for a job in my field in all of the people i didn’t want to think about it so i know it’s not in an ideal place and i want to make up for lost time
Carl Stuart [00:50:23] Well, go do that, and then you can move that IRA over to one of those providers and invest in index mutual funds, okay?
Mippy [00:50:30] Excellent, thank you.
Carl Stuart [00:50:32] You’re very welcome, thanks for calling. You’re listening to Money Talk on KUT News 90.5. Call or text 512-921-58. Ben, you’re on the air. How may I help?
Ben [00:50:47] Hey, thanks for taking the call. I appreciate your show. I’m calling because I’m planning on going in the Coast Guard in the next month or two and I’m 23. I haven’t started any In any accounts investment accounts or retire. Sure from what I understand just from other veterans that I’ve talked to there are Sort of armed service specific that you can get maybe through the VA or something retirement account I was urged to start as soon as I joined and after listening to your show, I think it might be a good idea.
Carl Stuart [00:51:21] So I don’t know about the Coast Guard. I know that government employees have something called TSP, which is the, which is a savings plan. And it’s, if you’ve got your radio on or something’s We’re getting a lot of feedback, thank you. It’s like a 401k in the sense that it’s an employer-sponsored plan. They give you a menu of choices to invest the money, and the money’s taken automatically out of your paycheck, and you don’t pay taxes on it, and it goes into that plan. And that’s what you ought to do, find out what the Coast Guard retirement plan is. I suspect it’s TSP, and that’s exactly what you want to do. And you got very good advice. And I can tell you if you can afford it your target eventually is to put 10 to 15% of your income in there, because if you do that and you stay in the Coast Guard for 20 to 30 years, you’re gonna retire and you will be financially independent. You’ll have a defined benefit pension plan from the Coast guard, and you’ll also have this other large pool of capital, which will make you financially independent, so look into the, again, maybe you wanna Google it or ask ChatGBT, but I’m pretty sure it’s called the… The TSB stands for Thrift Savings Plan. And that’s what I see when I talk to federal employees. Thank you, yeah.
Ben [00:52:48] That’s great advice.
Carl Stuart [00:52:50] Ok thanks for calling. You’re listening to Money Talk on KUT News 90.5. Brady, you are on the air. How may I help?
Brady [00:53:01] I am interested in investing in real estate and specifically, you know, personally owning and not through a company that actually purchases and owns the property, is our way through an IRA that got a substantial amount of money and I just can’t get to it and I’ll tell that I’m about, I’m 54, so there is a point in the future where I could. Possibly get that money out without a tax penalty, but yeah, that’s five years down the road.
Carl Stuart [00:53:37] There are certain trust companies that specialize in illiquid assets, private assets, that allow you to do that. And they’ll charge you maybe a couple hundred dollars a year, not very much, for the custody fees. None of the big providers, not the Vanguard Schwab’s Fidelities, not the big brokerage firms, are gonna do this because it’s messy for them. They want to be able to to evaluate and mark to the market the value on a regular basis and report that to the IRS on form 5498. So yes, you need to do some searching for companies that specifically allow people to put illiquid assets in there. And yeah, that exists, yeah. The short answer to your question, Brady, is yes. I don’t have the names of any that I can give you, and of course I wouldn’t do that on the air I don’t have I don’t make recommendations, but as a rule, I’ve seen this occur, and yes, you can do that, Brady. OK, thank you. You bet. You’re welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Monica, you’re on the air. How may I help? Monica? Monica?
Monica [00:55:01] Hello, Monica?
Carl Stuart [00:55:02] Okay, hi, please go ahead, how may I help?
Monica [00:55:05] Yes, I have $20,000 in a CD that’s about to mature on the 5th of February, and I actually don’t know what to do with it. I want to keep the money and live off of my social security right now, but I don’t know where I should put it besides a CD.
Carl Stuart [00:55:30] Well, first of all, of course, the CD is safe. You have the $20,000. You’re subject to the insurance coverage to $250,000, so that’s safe. There is one other thing that doesn’t go up and down in value that’s called a money market fund. So money market accounts will be at your bank. They tend to pay a little bit more than a cash or checking account. There are also some banks and credit unions saving loans that have what’s called a high high-yield savings account. You might just see if you can look around, see if anybody offers a high- yield savings account and this money market fund, you can put your money in and take it out any day and it pays whatever short-term interest rates they earn on the bonds in the fund, probably over 3%, maybe closer to three and a half, to three-and-three-quarters. The interest rate will go up and down with whatever happens to short- term interest rates, but if you do that, There are three kinds. There’s what’s called a prime, and then there’s one called a government, and one called the treasury. I would look at the government money market fund, and you can look at all the big mutual fund companies, the Deli Schwab, Vanguard, T. Rowe Price, they all have these. You can look their websites and see if that makes sense. Either a high-yield savings account at a financial institution or a money market funds. Either one of those, in my opinion, Monica, be worth your taking a look at. Okay, thank you very much. You’re very welcome, thanks for calling. Well, we are running out of time, so rather than try to take another question, I will just thank Mark for doing a terrific job. Thank you for listening to our 31st anniversary broadcast and to remind you next Saturday at five, be sure and tune in to Money Talk.
KUT Announcer: Laurie Gallardo [00:57:33] 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.
