Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on qualified charitable distributions, short-term investment options for retirees, and IRA rollovers and consolidation,

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. Money Talk is a broadcast now in our 32nd year about the world of financial and investment planning where you determine our agenda by calling or texting 512-921-5888. It’s always an excellent idea to call or text. Early in the broadcast giving me the opportunity to do my best to answer your question of course we have all of our lines available you may also hear text coming in once again the number is 512-921-5888 here is a text that I received as we went off the air last Saturday Hi Carl, I have a six-month-old who received a gift of $10,000. From his very generous grandparents. Good for them. I’d like to invest his money in an optimal way without being bound by the restrictions of a 529 plan. I’d for him to be able to use the money as he needs once he becomes of age. Which investment route do you recommend for the most growth and the least tax? I think it’s a really good question. And let me just kind of, if I might give some background. I believe that 529 college savings plans were invented, if you will, at the legislative level because college got more and more expensive and people were taking on lots of debt to get a college degree. And so presumably the legislature in Congress said, let’s see if we can’t give people an incentive to save for college and they created the 529 college savings plan. Which by and large are sponsored by various states. And at first, it was really for post-secondary education. And you put the money in, and as long as you leave it in there, and if it grew through dividends, interest, capital appreciation, there were no current taxes on that. And as long you took the money out for a list of post-Secondary educational expenses, it was not taxable. And then in subsequent years, 529 plans were made. Even more flexible into pre into school before post-secondary education however they are limited and i happen to think that i agree with this person who sent the text that you could also say for college but you could, also have the flexibility of gee what if they turn out to be a great piano player. And you want to provide lessons for her when she’s 12 years old? Or what if you want buy a used car for your child? Or let’s face it, you don’t know when someone’s a newborn if they’re going to, how they’re going to turn out, right? And so what I would recommend you do is you can open a separate account. If you have an advisor, open an advisor. Open it with her. If you’re a do-it-yourself person, you can go to the do-it-yourself custodians, the big ones with names like Schwab and Fidelity and Vanguard, you can open an account and you can style the account, an education account. So you can say the Jane Smith education account, in this case you can put your $10,000 in there and because this child is six months old, you can invest for growth and fortunately index funds and exchange-traded funds. Are tax-efficient. So you can probably, not probably, you can buy a couple of stock funds. Regular listeners know what I’m going to say. I’d probably put 7,000, 7,500 in what’s called a total stock market fund, the U.S. Total stock markets, and put the other 2,500 or $3,000 in a total international market. If you use exchange-traded funds, are extremely inexpensive and also they’re tax efficient. Now these indexes own underlying companies and some of those companies pay dividends and so there will be some very modest dividend income and you reinvest this at no cost to you so that you end up with more shares over the years and compound the growth and then when and if you want the money you can take out whatever amount you and presumably you’ve owned these for longer than a year. So while they’re taxed at your rate, they’re taxed the much more favorable long-term capital gain rate. So I think 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. Call or text 512-921-5888. I also got this text at the end of the broadcast having to do with how you implement. Qualified charitable distribution. So let me spend a minute on that so the revenue service the government made a what I think is a very favorable decision for people who are 70 and a half or older and have money in their own individual retirement account if you are philanthropically inclined you can give up to a hundred thousand dollars out of your IRA and If it’s, you can use it, say for example, your required minimum distribution happens because you’re 73, and let’s suppose your required minimum distribution is, I don’t know, $25,000. If you’re usually philanthropic and you’re giving to qualified charitable organizations, rather than taking money out of your own savings or investments, you can actually use the required minimum distribution to give to the same institution. Now you don’t get the charitable deduction, but a lot of people can’t use that anyway because of the standard deduction. But what you do, two things you accomplish. You don’t pay income taxes on the required minimum distribution, and you get the benefit of funding that organization. On the other hand, even if it’s not your required minimum of distribution, you get the distribution from your IRA and it’s a taxable event. Now, this person… Was pointing out that I said last Saturday on Money Talk, you can have the custodian send the check directly to the charitable institution, or you can them send it to you, because the check is made payable to that entity, and then you can give it to them. I like to do the second one. I actually had a situation occur where I used a QCD, and the institution, when they got the check from the custodian. Didn’t know it was from me. Now this person said that they worked with a custodian and it worked out just fine so that’s what that was about. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here is an incoming text. Hi Carl, I’m almost ready to retire, just short of 70, good. Social Security and other investments have us covered. Recently, we sold the house with a gain of $350,000. We want to travel after dealing with some health issues. We have a high yield options in 2.7% to 3.8%. Are there other short term options? The answer is yes, if you want short term options, and I’m going to answer your question. But let me just kind of. Push back a little bit because you’re in such good financial situation and now you’ve got your health issues behind you. But your risk is that the cost of living is not going to come down just because you are almost 70. And there are three things that none of us knows that we wish we did from a financial planning perspective. Number one, how long am I going to live? Number two, what’s going to happen to the cost to living? And number three. What’s going to be the return on my savings and investments? You’re in a situation with social security and other investments that you have good income. The question is, are the other investments going to keep up with the rate of inflation? If they’re not, if they’re in CDs or money market funds or high-yield savings accounts, based on history, so I’m not making any kind of prediction. After inflation and certainly after inflation and after taxes, you’re looking at a negative return. So I’m gonna give you your answer of where you can put it, but I would also caution you that if you don’t have exposure to what we call risk assets, specifically global stocks, I think that’s something you should consider with a portion of your money, because based on history, those investments over your lifetime are going to increase faster than the rate of inflation. So please give that some consideration. Now, I would say to you that the other possibility, since you already have money in these other, what I call cash equivalents, I would consider a short-term bond fund. And the reason why is that the bond fund can own say two-year treasuries, which currently are yielding about four and a half percent. You still have daily liquidity. They pay interest out in the form of dividends virtually on a monthly basis based on my experience. And so you reinvest that, so you’re actually compounding the growth. Do you have any kind of risk in this? The short answer is yes, and that is if interest rates go up, it puts downward pressure on bond prices. That’s why I’m not recommending that you buy a longer term bond fund. Also, I’m not recommending that you buy a high-yield bond fund because they tend to be very correlated, possibly, to the stock market. But right now, those are yielding. I’m just using one that I happen to be familiar with. I looked at it this morning, and it was yielding about 5.62%. On it. Got that right? That sounds too good to be true. It was too good to be too. That’s a multi-sector bond fund, 4.17%. But this year, it’s up 3%. So that’s 3% plus 4%. It’s a pretty darn attractive total return. And if short-term interest rates go up, and based on the financial news and comments from new head of Fed, Mr. Warish short rates could go up. I think that’s the other place to go to complement what you’ve already done. So take a look at a short-term, Morningstar uses ultra-short and short- term bond funds and you want to stay with investment grade and I think thats something for you to consider. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We have all of our lines available call or text five one two nine two one five eight Okay, I’m just going to go to another text. Oh, I want to remember this. You can catch past shows at kut.org slash money talk. And I know this because we had a texture from Italy say that he listens on Spotify. So I know you can do that as well. 512-921-5888. Hi, Carl. I have four retirement accounts across my past four companies, okay? Would it make sense to make those into one? I look at it as diversification, but I could be wrong. Yeah, I think you would be well said to put these together. Since they’re in what you call past four company, they’re probably in either 401k or 403b plans. And since because you call them companies I suspect 401k plans you could take all of those and with each of those you can do what’s called an IRA rollover what you can’t do is select either do this on your own or select an advisor and then that that person or if you do it on your on that company access custodian you set up your IRA and then you go to these four different passed. Companies that you work for and you say to them I want to do something called an IRA rollover and they will have a form and the form will say do you want us to send a check to you payable to you the answer is absolutely not because that becomes a taxable event to you do you want us To send you or the custodian a check made payable your retirement account So it would be A, B, C, Custodian for the benefit of John Smith, IRA rollover. That’s precisely what you want to do. You’ve simplified your life and you are, whether you have four retirement accounts or you have one retirement account, in my view, the same person with the same goals and objectives. I don’t think you’re really getting diversification unless you have completely different asset allocation in each of these because 401k plans are going to have very similar funds because that’s what they’re supposed to do. They’re supposed to give participants a menu of reasonable fund options, including target date funds and so-called life path funds. So I think if I were in your shoes, would I consolidate? The answer is yes. I think you’ll find it makes more sense and easier to take care of. And then you do the following things. You decide what’s the right mix, what’s the right asset allocation for me. And then you can implement that in the fund on your own or with an advisor. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here’s a text. In fact, you probably just heard it. Hi, Carl. I will be taking an IRA, Required Minimum Distribution. Please explain what an in-kind transfer is. Many thanks. An in-kind transfer and a required minimum distribution are actually two different things. So an in- kind transfer is taking the securities in one type of investment account and transferring the securities to another type of the investment account. So you can go from one custodian to another. You can go UBS to Wells Fargo or from Fidelity to Vanguard and you can transfer securities. As long as the new custodian has a selling agreement with that mutual fund company or that exchange traded fund company or if you’re an individual securities, that shouldn’t be an issue. So you’re moving securities from one custodians to another. But when you have a required minimum distribution based on my experience, that has to come out as cash. So you have an IRA, you’re subject to a required minimum distribution that has to come up and then you. You can pay the taxes on that and reinvest in a taxable or individual account or even a joint account, but it does have to come out. So I’ve answered your question about what an in-kind transfer is, but its been my experience that the requirement of distributions, you cannot take securities out and put them in another account. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text. 512-921-5888. Hi, Carl. Let’s see. That didn’t come through with any copy. Let’s go this. Back to the 529 conversation. I have 529s for each of my grandchildren. I am guessing I can cash them out and pay a penalty and tax to create each one of the individual education investment funds you were talking about. You think this is a good idea. There are nine and twelve right now. Boy, that’s a tough one. I think you obviously wanna pay attention to the tax consequences. Remember, the tax is only on the growth. So if you have been putting money in, which you have, and that comes out, to my understanding, obviously I’m not a CPA, my understanding is that’s not taxable because you put in after-tax dollars, you’re taking out after-tax dollars. So, you would be paying tax on the growth in value. I would probably look at it like this before I decided I would take what I believe would be my taxable income and I would add the amount of the taxable growth if I took the money out and see what my tax liability would be on that. Since they are young, ages 9 and 12, if the flexibility that I talked about earlier makes sense to you and it doesn’t say take you from the I don’t know, 24% marginal tax bracket to the 32% bracket, I’d probably do that. The other thing is, you don’t have to do it all at once if it’s going to throw you into a higher bracket. I’ve just come, at first when 529 plans came out, I was very enthusiastic and I don’t mean to imply they’re bad. They’re not bad at all and they were started for a very good reason. I just love the flexibility of this other approach. So that’s how I would think about it if I were in your shoes. Time for me to take a break. We had a lot of calls last week. We had total silence this week. If you’d like to call or text, as always the number is 512-921-5888. I’ll be back.

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

Carl Stuart [00:20:34] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. When you have a financial or investment plan in question, call or text 512-921-5888 and you can listen to past shows by going to kut.org slash Money Talk, I know you can also go to Spotify and I believe you can go to Apple as well. I would tell you when you go to KUT.org, all of the podcasts are listed there and it’s really easy to find Money Talk and they’re listed there with the dates of their broadcasts. Call or text, 512-921-5888. So I have had this information and in the past I haven’t had a chance to share it with you because we’ve had lots of calls and texts, but not today. Every month I get an update on the what’s called the Austin Metro Area Residential Real Estate Market. And I just know that we have a lot of listeners who are homeowners and who are interested in what’s going on in that, but I’m gonna follow my rule when you heard that tech coin come in, that’s what I’m going to go to. Hello, my taxes are getting a little more complicated and I don’t want to do them myself anymore. How do I go about finding someone I can trust that will do them at a good value? Well, boy, that resonates with me, because decades ago, I decided I would do my own income taxes. And my family all wanted me to go away, because all I did was stay home and have receipts all over the floor and get frustrated. And then I got that bone-chilling letter where the return address was the Internal Revenue Service. And I had made a mistake and took care of it, but I decided at that moment, really, I don’t want to do this any longer. And so when you look for any service professional, and I’m gonna answer your question about taxes, but I would argue it’s the same if you’re looking for an attorney or an architect, an investment advisor, anyone who’s what I would call a service professional. I think this is the methodology. First… We’re all circles of influence, whether we consider that or not, and we have friends, whether they’re colleagues at work or, I don’t know, we play mahjong with them or golf or we go to our church or synagogue or mosque together, and it’s perfectly reasonable to, and I think frankly a good idea, to ask them, do you use someone to help you with your taxes? And if they say yes, you can say, well, who is that? Uh Now this is just the first step because just because they use this person doesn’t mean that it’s the right person for you. Each of us is an individual but it’s a good place to start and then the next thing you want to do is if you if you can you want to have a face-to-face visit with the person. Now in today’s world that can be on zoom rather than at their office perhaps but you want do this for a couple of reasons. First of all Uh, we are all. Intuitive animals. We make decisions about people partly with our brain but partly with our intuition and in my view it’s perfectly appropriate on a face-to-face visit to think about is this person going to be a good fit and then you want to talk about several things. Don’t immediately go to the fee because you mentioned you’d like to do this at a good value. What you think about this, similarly situated accountants are going to be driven by the marketplace. If you interview three locally owned accounting firms, what they’re going to charge you for your taxes once they understand your situation. The odds are they’re gonna be very similar because that’s what drives the market. If they charged twice as much, they wouldn’t have clients and they have no incentive to charge half as much as what the market rate is. So I think first and foremost, it has to be a good fit for you and your personality. Secondly, there’s quite a bit of data that indicate when people are unhappy with service professionals, it’s because there’s a misunderstanding of expectations. So you wanna ask the question, help me understand what a happy, healthy client relationship looks like in terms of our communication with each other and the services that you provide. And you wanna get a sense that this person speaks English in a way that you understand it because if I hear one common complaint About service professionals is that they’re so tied up in the jargon of their own profession that you feel like an idiot which you’re not because you can’t understand what the heck they’re saying. So they need to be able to be a teacher and they need to tell you how a client relationship works. That’s how I would go about doing it if I were in your situation. Thanks for the text. You’re listening to Money Talk on KUT News 90.5. And the KUT app. Call or text 512-921-5888. We have a call. Michael, you’re on the air. How may I help? Michael, are you there? Michael? Hello? Don’t call Money Talk and then not answered the question. I’m going to have to hang up if you don’t. Michael, are you there? Hello? Well, folks, it’s live radio and Michael decided to, I don’t know, take a walk. You’re listening to Money Talk on KUT News, 90.5 and the KUT app. Call or text 512-921-5888. But if you call, stay on the line. Here’s the text. I recently ended my relationship with my future fiance, due to I’m not going to go into that. Thankfully. I am secure with a job and I have savings, but I wish to feel more secure with my future. I have a retirement account and a high-yield savings account. What else do you recommend to do now that I am on my own? The first thing is one of the keys to financial independence is to have no financial liabilities. Now, this is easy for me to say, but you… At some moment in your life, based on my experience, want to have financial independence, meaning when you get up in the morning, whatever it is you do that day, you do because you want to and not because you have to. So you might be a person who loves her work and wants to work the rest of your life or you may be a a person who’s looking forward to the freedom of retirement to do several things that are important to you. The best way to get there is to not have a mortgage, no credit card debt, and no automobile debt. So A secure future is a future that’s debt-free. If you’re already debt- free, congratulations. If you are not, then you have to begin to reduce your liabilities. Because if you have $100,000 in savings and $50,000 dollars in debt, you really have a $50 thousand dollar net. So number one, eliminate your liabilites. Number two, make sure that your retirement account is invested for growth. How you’ll save me’s account is fine to have. For a modest amount of money, if you are in a secure employment position, this is a big if, then keeping a lot of money in savings is, in my experience, a mistake. The opportunity cost of what that money could do for you over the next five years is significant. So, put the money into high-yield savings because you know you’re gonna buy a car or you’re going to take a trip, but then the balance of it should be invested for growth. So if your retirement account is invested for growth with a heavy allocation to global stocks, and you have enough money in your high-yield savings account, and you a plan to reduce and eliminate debt, then the next thing to do is to invest on your own in your own account where you don’t have to worry about being a certain age to get your hands on the money. That’s what you want to do, is you want become financially independent. And as I said earlier in today’s broadcast, the high-yield savings account is a great thing to have. You can sleep nights because you know it’s there and it’s safe. But after taxes and after inflation over my 48-year career, it has a negative return. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Casey, you are on the air, how may I help?

Casey [00:30:02] Hi Carl, great show. You got a text before about in-kind distributions, and I just wanted to clarify it a little bit for the listeners. If you take an in- kind distribution out of an IRA, the IRS will treat it as a cash distribution, but you don’t have to liquidate it in order to satisfy the RMD. You could transfer the stock to. A regular account, the IRS will consider it cash, but you don’t have to sell it first. The other advantage is the capital gains, the price of the stock will reset when the transfer occurs. So the dual advantage there is you dont have to liquidate it first, and then second, the capital gains resets on the transfer date.

Carl Stuart [00:31:00] I just wanted to clarify that. Well, I’m really glad you did because that I made a mistake. I was going on my experience. I’m not an operational person, but my experience was that you had to sell it and take the cash and then reinvest. So you’re saying you can take shares of a mutual fund or any security and move them to your individual account. That’s a taxable event. And then whatever the amount is, whatever the value of that security is, once it hits your taxable account, that’s your new cost basis.

Casey [00:31:29] That’s exactly right. Yeah, you can do it. That’s why it’s called an end time. It’s a stock for stock. Yeah. Yeah and it resets. So it can be very valuable for a lot of folks if they own stock in an IRA.

Carl Stuart [00:31:43] Right. Right. Okay. Well, I’m glad you told me that, because I misinformed the public, so I’m happy you did that. Casey, thank you very much for your call. You’re listening to Money Talk, where we sometimes stump the chump, and that’s why we have such intelligent and informed listeners. 512-921-5888. Sarah, you’re on the air. How may I help?

Sarah [00:32:11] Hi, can you hear me?

Carl Stuart [00:32:13] I sure can, please go ahead Sarah.

Sarah [00:32:16] Yes, I have about $35,000 and I’m wondering if I should put that in the stock market or if I could use that money to pay down the mortgage on an investment property.

Carl Stuart [00:32:31] Sure, what is the interest rate on your investment property?

Sarah [00:32:38] The interest rate on that mortgage is approximately 5.25 or 5.5.

Carl Stuart [00:32:44] Yeah, okay. That’s very helpful. Go ahead. Excuse me. Please go ahead

Sarah [00:32:49] It’s a relatively new build home in a suburb between Austin and San Antonio.

Carl Stuart [00:33:00] And it’s currently leased, is that correct?

Sarah [00:33:04] It is leased, however, we bought it in 2022, so it has depreciated some and the rent, the monthly rent is a little bit less than the overall monthly obligation.

Carl Stuart [00:33:19] Okay So it’s really good for you to share that with me and for everybody else, because that’s now four years. And so people need to understand this. If you look at the overall history of the United States and you ask the question, what are the two asset classes that have grown faster than the rate of inflation over time? One is income producing real estate, and the other is the stock market. Income producing real estate because Over time, and there’s lots of caveats to this, rents go up, and as a consequence, the value of the property goes up. Now, there are numerous variables. Fortunately, and you know this, you wouldn’t have purchased this, the Austin-San Antonio corridor is a robust economic corridor. My hometown, from where I left, graduated high school, had 16,000 people, and now it has 9,000. There’s no way you could have a real estate investment bought back then that would do anything but lose money because the value has gone down because the rents have gone down. So you have a four-year hold. You have a negative return on the market value. And so the question becomes, I’ve got this 35,000. If I pay down on the mortgage, I’ve gotten an imputed return of what the mortgage costs are. And that’s a perfectly reasonable thing to do. However Having said that, what you’re doing is obviously concentrating your investments in that single property. And you’ve just shared with us that real estate, and we know this, is a long cycle investment. And real estate can go down for years and it can go up for years. The stock market can go for years but it tends to be a much shorter cycle. And part of the reason for that, Sarah, is liquidity. If you decided this afternoon to sell your rental property, which you’re clearly not going to do, it could take you weeks or months to sell it, particularly in a soft market. If you had the $35,000 in the stock market, and you changed your mind and wanted to sell it, bingo, you could do that on any business day. The good news about real estate is because it’s illiquid, in my experience, people take a long-term view. If they did that with stock market, they’d be better investors and have greater returns. I’m a little concerned about having a concentrated position in your portfolio being a one real estate product. I would tell you over time you can expect a competitive investment return from your property and from the stock market. But from a point of view of diversification, I lean a little bit towards the stock market. I would probably do this. I would probably… Take that $35,000, I’d probably take it in five or $6,000 pieces, and over the next five or six months, I would put equal amounts into two kinds of stock investments. They’re exchange traded funds. I’d put 70 to 75% of my five or 6,000 in something called a total stock market. Exchange traded fund, and the balance in something called a total international stock market. Why would I do this? I don’t know if the stock market is going to go up or down from here, but we’ve had three and a half terrific years, and in 2022, the stock markets, depending on which index you measure, was down 19 to 33 percent. So putting 35,000 in and having it drop $7,000, 20 percent, which is always plausible. Doesn’t sound like a very attractive thing to do, so take some time. Historically, I can’t see the future, historically, the third year, the midterm election year, is the weakest of the four-year presidential cycle, and we’ve enjoyed terrific returns over the last three years and eight months, so I would probably go with the stock market because it diversifies your portfolio, and I would say because the return on the stock markets is likely. Over the same period of time as that mortgage is likely to have a comparable return to your real estate and that both of those will exceed the cost of your debt. And that’s how I would look at that.

Sarah [00:37:51] Got it. Well, thank you so much.

Carl Stuart [00:37:52] You’re very welcome, thanks for calling. You’re listening to Money Talk on KUT News, 90.5 in the KUT app. It’s time for me to take a break and a perfect time for you to call or text 512-921-5888. I’ll be back.

Jimmy Maas [00:38:20] Money Talk airs every Saturday at five o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTX Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a nonprofit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org

KUT Announcer: Laurie Gallardo [00:38:50] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:39:05] Welcome back! You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a question, call or text 512-921-5888. Here’s the text. Carl, what are your suggestions on investing a windfall of say $100,000 into the stock market. Does one invest it all at once or stagger it? I have struggled with this. For my entire career, I cannot find a study or statistics that indicate that as long as you are a long-term investor, you plan on leaving this there five years or longer, there Odds of a positive return are exceedingly high. And at 10 years, they’re really, really high. But at any moment, as I said a moment ago, because of the ability for people, institutions, individuals to make decisions and immediately implement them, the stock market is a volatile asset class. And what I’ve observed is we’re human beings. See, that’s how incredibly intelligent I am. And there’s a whole area called behavioral finance. In fact, a couple of people, Danny Kahneman and Richard Thaler got Nobel prizes for this. They were able to prove in the lab with presumably students that we experience a 10% gain as a 10%, and we experience 10% loss as a 20% loss. And the other thing is we live in a world where if it’s on the news, the odds are it’s bad. Because if it was good, it wouldn’t be on the News. So there is never a shortage of things to worry about. Today there isn’t, but there hasn’t been over my entire lifetime. I won’t go into the litany of what they might be because we don’t have enough time this afternoon on Money Talk. So I think that investing it is a wise, wise thing to do. If you’re a regular listener, you know I’m fond of saying investing in the stock market is investing in human innovation. It’s just absolutely my life experience. But if you have some concern about putting the $100,000 in and we go into a bear market for the next 18 or 24 months, then I would stagger it. I can’t prove that’s better off than putting it in, But I will say it’s a more emotionally satisfying or less frightening experience. And if you think this through, let’s just suppose you put, I don’t know, $20,000 in over the next four months, up 25,000, or 20,000 over five months, or whatever six into 100,000 is, or whatever, and you do it mechanically, so you’re not watching the headlines, right? You say, okay, I’m gonna do this on the 15th of the month with the nearest business day to that. And you set that up, you can even set it up with your custodian or your advisor on an automatic basis. Then if we have sharp declines and then coming back, one or two or three of those months, you’re going to get good prices, better than where they’re going be over time, because that’s the nature of investing in the stock market. So again, the odds are, if you put it all in, you’ll have a very attractive return, but the emotional side, our so-called, amygdala our serpent brain allows me to say that probably stagger it. I would say if it weren’t a windfall and you were already invested and you were moving it from say your 401k which was invested in the stock market to your IRA rollover I’d just go ahead and invest the whole thing but that’s not your situation because this has been a wind fall. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Let me just keep going to these texts. Let’s just see here, if I can get to the text. There we go. Get back here. All right, the give me, here we go, sorry to keep you waiting, but what I have here, there we go You give me a Samsung’s phone from KUT, and that’s not what I use so periodically. Stumble along 5 1 2 9 2 1 5 8 8 8 Carl I have two properties that I own paid off, congratulations. Combined worth a million dollars, good. I use them as rental properties. They roughly earn me $35,000 after taxes, homeowners association, insurance, utilities, et cetera. I’m thinking I might be better off selling the properties and just investing the money. What would be the tax burden on that sold real estate? Is that a smart move? Well, my understanding of the tax burden, I’ve already proved this afternoon that I’m not a tax expert. My understanding is you have a cost basis in those properties. If you’ve been taking depreciation on the properties, your cost basis is then reduced by those depreciations and what will happen is you’re, you have what’s called an adjusted basis, and my understanding is that you will sell them. And that you will have a long-term capital gain on the difference between your adjusted basis and the sales price. Now again, you wanna talk with your accountant so you understand the tax consequences of this. And the long-time capital gains rates are and have always been throughout my career at a lower rate than income tax rates. The maximum long-terms capital gains rate is twenty three point eight percent twenty percent plus if your total gains is above two fifty filing jointly they add another three point eight per cent so twenty three-point eight percent but the maximum tax on income is thirty seven percent so that’s a big difference so you want to talk with a tax professional about what your tax liability is before you do anything uh… Is it a smart move Well, here’s my experience. Rental real estate, the people who, in my experience, have been really successful can own it for years because they’ve paid off the debt just like you have and they can live through long-term down declines. We’re in one now, but boy, when things really went bad here around here in the late 80s, early 90s, it was years and years they went down before they started back up. But you have good properties. And I’ve learned that if you are a do-it-yourself type person and you’re willing to deal with With the aspects I was going to say hassles, but that’s a judgment the aspects of owning property That’s fine. But what I’ve observed is even people who’ve successfully owned investment real estate Get to a point where they say, you know, I just don’t want to do this anymore I prefer something more passive than this than investing in financial assets, where you’re not having any kind of ongoing operating expenses and you’re also not having any kind hands-on experience, is probably a wise thing to do. Now, here’s the rub. People who have invested in do-it-yourself real estate may wanna be do- it-your-self investors, but they’re generally smart enough to know that I’m not an expert in the financial markets. Here’s the rub. If you engage an investment advisor, financial advisor, two different things, but they provide similar services, you need to let go. And if you can do that, particularly when things go to heck in a handbasket periodically in the stock market, then investing in financial assets where you have total liquidity, right, you want it $50,000, you’ve got it. You want 100,000? You’ve got. You’re not gonna have that with your real estate. If you If you have the mindset, you’ve been a long-term investor in your real estate. If you had the same mindset with your investments, then would I invest in financial assets based on my experience? The answer is yes. You’re listening to Money Talk on KUT News 90.5 and the KUT App. Call or text 512-921-5888. Hi Carl, is there a limit on how many distributions you can make from an IRA to qualified charities? The limit, my understanding, is it’s $100,000 a year, and while you can do it with your required minimum distribution, you can also do it once you’ve reached the age of 70 and a half. So there is a dollar limit, and that’s what it is based on my experience. You’re listening to Money Talk. On KUT News, 90.5, we’re down to our last 10 minutes. We have all of our lines available. It’s a great time to call or text 512-921-5888. A text. Hi Carl, I’m 67 years old. I have a net worth of $3.5 million. Congratulations. I’m very healthy and there’s no reason not to believe I will live to my late 90s. I agree with you. I live frugally and I’m not currently withdrawing any money out of my investments. I’m living on social security and rental property income. Terrific! You are financially independent. My thought is that we are overdue for a recession in the next five to seven years. I want to keep as much value in my investments as possible so I can ride it out. Am I being overly cautious with my money as a strategy? I think you probably are. I agree with your longevity expectation, and as you’ve probably heard me say, we don’t know what you’re going to make on your investments. We don’t what’s going to happen to the cost of living, and we don’t know how long we’re gonna live. But sometimes, the last few years of our lives are among the most expensive. As my colleague, Lindsay, says, when you are 67, there are three things that can happen. Or the go-go years, you’re healthy? And you’re energetic and you wanna get up and do things and go places, then there’s the slow-grow years where you’re still pretty good, but you’re not nearly as energetic, and then there is the no-go years where you really may need to live in a retirement place or you may need help with taking care of your life, and that can be very expensive as well. I think investing with an outlook to the economy in my experience has been a mistake. Are we due for a recession? Gosh, I mean, I spend a lot of time thinking about this and reading every day, seven days a week. And I would tell you that the US economy is remarkably healthy, okay? I’m not talking about consumer sentiment, which is remarkably negative, but when you look at the broad span of public corporations and their earnings, it’s just stunning how good business is and how unhappy people are. Now I am in no way justifying what we call this K-shaped economy, where people in the middle and lower income areas are having a hard time and not keeping up with the cost of living. I’m just saying that the economy is good. I would tell you that new business start-ups are amazingly growing, that artificial intelligence is allowing people to start businesses. With much less in the way of operating expenses because of AI, and so am I optimistic? The answer is yes. Have we had a great economy? We have, but remember in 2022 we had 9.1% inflation, interest rates went up, the stock market went down, bond market went and now we’ve had three and a half good years. I would be reluctant to pull my investments out of my risk assets if I were you. Now, having said that, you can do some things to offset some of that risk, depending on your asset allocation. That’s the single biggest decision you need to make. How much should you have in stocks? How much you should have in bonds? How much would you have cash? And are there other investments that you, or if you choose to have an advisor, can make that when bonds go down and interest rates go up? They hold value or when stocks go down and interest rates go up they hold value or appreciate. The answer to that question is factually yes and so you can build a portfolio where you retain your allocation to some degree and your exposure to growth in the economy while having other aspects of your investments that based on history are defensive because I think that’s the thing to do, because I’d like to see you have the ability to grow your money faster than the rate of inflation with an acceptable level of risk. And if you do get into your 90s, and if this net worth grows to, say, 6% a year in 12 years at $7 million, you’re going to have a wonderful opportunity to make the world a better place, either for your family or for other institutions as well. So good luck. You’re listening to Money Talk on KUT News, 90.5, and the KUT app. Call or text 512-921-5888. What’s something fun to do with $5,000 investment? We can go to Las Vegas. I don’t find that fun, but I happen to have a very close relative if you catch my drift. Who thinks that’s a lot of fun, I would tell you that anything that’s fun with an investment is probably just way too risky. And that would include cryptocurrencies. It would consider calcium and the predictive markets which you can gamble on. So I would say, I don’t know that the stock market’s lot of fun because Over time it may be a bit like watching the grass grow, but it grows over time If you really want to take the risk of fun then individual stock ownership because it allows you to have a point of view and say I think that SpaceX is a has a great future or I think that I don’t want to have that kind of risk and but I think there’s businesses like Procter& Gamble or Coca Cola that over time do well. I mean, you can have fun in the financial markets by investing in individual companies. Understand that I don’t recommend that because you could have a good company but the stock market could ignore it for years or you could a mediocre company but it’s in the sweet spot and as a consequence, it does well. So if I had fun, I’d invest in individual stocks. You’re listening to Money Talk on KUT News, 90.5, and the KUTX. Let’s just see here what this is. Is age minus 100 any good for bonds versus stock proportions in retirement? Also, just keeping one broad index fund of 500 or 1,000 stocks not good enough instead. Great question. So back in the day, you were told put your age in bonds and the balance in stocks. As you got older, you put more and more in bonds. I would say that over my career, that’s not been a good idea. It didn’t work in the 70s for stocks or bonds. So I would, say if your objective is to up pace inflation, but with an acceptable manner of risk, having a broad index fund of 500 or 1000 stocks. As long as you can live through the volatility, is that a fine thing to do? Yes. Putting money in cash, basically, as I’ve said today several times, you get negative returns after inflation and after taxes. If you have the time and the interest on your own with your advisor, because things have gotten so available for individuals, there are some very sophisticated strategies. Available in mutual fund format and exchange traded. They go by fancy names. Morningstar has categories. Event driven would be one. Market neutral would be another. Trend following would be other. These are strategies that for most of my career have only been available to institutions and they’re now available in mutual funds and exchange-rated funds. And that’s something worth, I think you can take a look at. Well, we’re running out of time. As always, I wanna thank Alyssa for doing a terrific job. Thank you for listening to Money Talk and next Saturday at five o’clock, be sure and tune in again to Money talk.

KUT Announcer: Laurie Gallardo [00:57:32] 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.