Money Talk with Carl Stuart

Carl joins KUT, talks tariff shocks to markets, and IRA tax strategies

Money Talk with Carl Stuart is a listener-supported production of KUT & KUTX Studios in Austin, Texas. You can support this podcast at supportthispodcast.org

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.

[LAURIE] This is Money Talk with Carl Stuart. Carl Stuart is an investment advisor representative of Stewart Investment Advisors. Now, here’s Carl.

[CARL] Good afternoon and welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT 90.5 and KUT.org. Our inaugural program here on KUT.
Money Talk, which I have had the pleasure and honor of broadcasting for the last 30 years, is a broadcast about the world of financial investment planning, where you always determine our agenda by calling 512-773-05– Oh, that’s not right. You can tell this is live radio by calling 512-475-8600. When you say another number for 30 years, this is what happens, 512 475 8600. And if you would like to text, that was the number I was going to give you. The text number is 512-773-0564.
So, we have a lot to talk about, but if you’re a first-time listener and everything seems to be going to heck in a hand basket right now in the global financial markets. That’s fine. We can talk about that. But I think what makes this show interesting is when people ask questions that are really pertinent and relative, you know, just to your own life, that they’re relevant to you.
Whether that’s I’m thinking about how I should align my 401K with my goals and objectives. Or I’ve heard this thing called a Roth IRA. Is that something I should consider? Or perhaps you have a life event. Maybe your parents gave you some money and you’re wondering whether or not you should pay down on your mortgage or other alternatives. Or maybe you’re starting a family and you wanna know about ways and which to save for a college education.
So, we’re really talking about the kinds of things that are really relevant to you. I’ve got an hour here where I was before I didn’t have near as much time that gives you more opportunity to call 512-478-8600 or to text 512 773-0564.
Of course, if you’re a regular listener, you know now what I’m going about to say is if you don’t call or text, then I will bloviate. A lot of times that motivates people to do the call or texts as they don’t want hear that, but here we go. Ah, see, I’m learning now. I’ve got a new app here on my computer, and so I see a call coming in.
You’re on the air, Bob, how may I help?

[BOB] I’m still having trouble with that ingrown toenail.

[CARL] Ha! You know, I thought if I snuck out of that other station, you couldn’t find me, but you’re way too smart.

[BOB] Speaking of needing to soak your foot or your head or something, I’m going to ask a question and I’m gonna hang up and let you bloviate on the answer.

[CARL] Terrific. Thank you

[BOB] –has to do with this volatile market yes I know you’re going to get calls on that all day anyway what do you think is the best thing to do is nothing is run and hide put your savings in there while it’s dipped I’m going to hang up and let you bloviate on what should I do

[CARL] All right, Bob, thanks so much for calling. All right. Yeah. The first thing I would say is that when we have these huge events, it always looks unique. And it is. I mean, if you think about when the mortgage market blew up and we had the global financial crisis or if you lived in Texas when the real estate market blew and we lost most of our savings and loans and most of our large banks or if we really go back for a long time. You remember when everyone thought oil would go up forever and it crashed, and Houston was a ghost town.
So, these things happen. If we saw them coming, markets would be efficient, prices would fall in anticipation, but that’s not what happens.
So, we’ve had the last five calendar years, four of them were just terrific and way above the historic return for US stocks. So stocks were not cheap before all of this happened.
Is this different this time? Well, of course it is. The headlines are certainly about tariffs, and most economists will say that if these tariffs continue, and I did bring some Bloviation material if I have time later in the broadcast, but I’ve done a lot of reading, as you would expect, all week, as well as attend a lot webinars, and I think what’s happening is global investors were not certain when the president was elected to take him seriously about his policy changes as it regards geopolitics, but in this case about tariffs and the world trade order.
And he has put these things in place in a more draconian fashion than people anticipated. And so global investors are looking at valuations of risk assets, particularly equities. and saying, in this new world, what does that mean for corporate earnings? And what am I willing to pay for those future earnings? And that really is a function of how stocks work. And so I don’t know how long this is gonna last, none of us ever does, but it brings us back to the fundamentals of investment planning. If you’re a new listener, you’re gonna hear this a lot in the ensuing weeks and months and years.
Here’s what I think investors ought to be thinking about. What is it that I’m trying to accomplish? For most people, it’s what I call financial independence. You and I want to have a moment in our life when we get up in the morning, whatever we do, we do it because we want to and not because we have to for the rest of our lives. which means that we have to have saved enough and invested wisely, because we don’t know three things. We don’t how long we’re gonna live. We do not know what the cost of living is going to be, and we do not what the return on our investments are gonna be.
So we have approach this with humility. And we have do this in a way that we’re comfortable with. Now, when I say comfortable, I don’t mean. I can sleep nights all the time and never worry about it because to do that is to have no risk. So I know I need to be in risk assets. And in the financial markets, that’s equities, that stocks. But it’s the way in which I accomplish this that will determine how rough and bumpy a ride I have. So there’s all kinds of data that if you just stick your money in an S&P index fund. and leave it there for 25, 30 years, you’re gonna be just fine. The problem is, we’re gonna have periods like this. And there can be years before it comes back. When the NASDAQ peaked in March of 2000, it took 15 years for it to reach that level again. So this is where the term asset allocation comes in. What’s the right mix for me to accomplish my objectives and yet be able to sleep nights? The fancy term for that is what’s the risk adjusted return that I’m interested in achieving? And so when you have a sharp sell-off like the one we’re experiencing, if you had other money and other asset classes that were not positively correlated to the stock market, you would have a very different experience. So historically. We’ve talked about the balanced portfolio being 60% in stocks and 40% in bonds. I would tell you that if you’re a new listener, I don’t necessarily agree with that. We have, not often, but we have periods like 2022 when both stocks and bonds go down. We had a period in the 1970s when we had something called stagflation where we had a slow and even shrinking economy and rising inflation. So there are other asset classes to put together. So the first thing I would do, and Bob’s not the only person in America asking this question today. First thing I will do is take a breath. Because remember when you’re invested in equities, you’re in invested in human ingenuity. And human ingenuities in the arc of history has been a winning bet. So you want to look at what’s the target for you. Now, likely for some people listening, because we’ve had so many good years. you may be above your target for equities. So you have to think about that. Let’s suppose your target’s, I don’t know, 55% in stocks. And because of your holding on and we’ve had good markets, you’re at 63%. Well, is it appropriate today to sell some back to the 55%? The answer is yes. Perhaps your target in bonds was 25%, but now it’s 20%. Well, there’s some place for some of that stock money to go. So you want to look at your asset allocation, whether it’s in your 401k, in your own account, in a joint account, and test what you’ve got to see if that’s where you belong, number one. Number two, something Bob said that occurred this week to me and my colleague, Lindsey, and it shows you the breadth of human reactions and emotion. We had one person call and say, I went out, and we had two people call and said, I’m one in. We are emotional beings, and there’s lots of behavioral finance which says that we experience a 10% gain as a 10 percent gain and we experience 10% loss as a 20% loss. And we have to be able to understand that and put our emotions aside. One of the great things about financial assets, stocks, bonds, mutual funds, exchange-rated funds, is you have daily liquidity. You can sell something and the money’s available the next day, that’s terrific. It’s also a huge liability because it allows you to allow your emotions to rule your decisions. If you own a piece of investment real estate and you think the economy is going south, you cannot get up Monday morning and sell that investment real-estate. You’ve got to engage the marketplace and take weeks, if not months, to sell it. So the good news about financial assets, Is there liquid in the bad news? Is that? because it’s a double-edged sword. So when you look at your online account or you look your 401k account and you look where you are now, think in terms of percentages. Don’t think in the terms of dollars because that can be much worse. After all, if you have a $250,000 portfolio in your 401K and you have 10% decline, that’s $25,000. And you go, oh my goodness, I just lost $25000. That’s exactly the wrong way to look at it. Any more than if it was up 10%, you’d say you made 250. True, but you’re still at this to achieve financial independence. Look at your asset allocation. Make sure that that’s fitting for what you’re trying to accomplish. If it’s not, do some trades to move it back into that range. Don’t look at on a daily basis. Understand that we’re in uncertain times and assume that the news is gonna get worse before it gets better. And then, don’t pay so much attention. As I’ve said for the last 46 years, whenever I get the urge to make a change in my portfolio, I lie down until it goes away. We’re coming up on a time to take a break. The really good news is the breaks are really, really short, so it won’t take much time. I’ll be back.

[ANNOUNCER] 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

[CARL] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT 90.5 and KUT.org. When you have a financial or investment planning question, call 512-475-8600 or text 512 773-0564. Anita, you’re on the air. How may I help?

[ANITA] Hi, Carl, is this Anita?

[CARL] Yes it is, please go ahead, yes.

[ANITA] Okay, well welcome to KUT, your whole family is behind you, and I can’t wait to get on your go.

[CARL] Well, thank you so much indeed.

[ANITA] We’ve been listening since 1995, and I’m just so happy for you. Thank you. I’m thrilled. We were a lot younger. Okay, so the first question, a real quick one, is how do I get the podcast? I’m in, you know, whatever.

[CARL] Yeah, I understand that it’s a great question. It’s my understanding and during the next break I hope that my friend Jimmy Maas who’s there in the studio with Jerry (Quijano) will be able to affirm this. I think you go to KUT.org and I believe that’s where you listen to the previous ones. Now the old ones are on SoundCloud and I’m working on getting I’ve put together what’s called a and pretty soon a website. and we’re gonna put all those old podcasts from the other station on there. But I would look to KUT.org and we are building this, we’re building this car as we’re driving down the street. So I think we’ll have this settled in the next week or so, okay.

[ANITA] Okay, so my question is, last year, we didn’t have enough federal income withholding. And it had happened the year before, and I think the penalty was like $105. But the point is, I have not funded my Roth IRA yet. My spouse did. So what can we do now because there was not enough withholding?

[CARL] Well, the Roth IRA wouldn’t have affected anything because that’s an after-tax contribution. My experience is that, well, do you do your own taxes or do you have a CPA? You do.

[ANITA] No, no, we do

[CARL] My understanding, and of course I’m not a CPA, but my understanding is you get into a penalty when you don’t put in estimated taxes and the amount of money you’ve paid in, withholding or otherwise, is insufficient. So I think the way you want to escape this since you’re doing your own taxes is the easiest way is if you’re employed and have a withholding tax. is to change the number of exemptions. Say, if you’re claiming only yourself or you and your spouse, add one more person. I have a staff person who’s married and actually her spouse is a CPA and for years he’s had her hold zero exemptions so that it takes some out. Or no, it’s the other way around, take one more. You need to look into this, but you change the exemptions so that there’s more withholding. That’s the easiest thing to do, to avoid having to pay estimated taxes. That’s probably the best thing I need to.

[ANITA] Okay, yeah. So this would probably be the last year for the income. Yes. Retiring. Yes, good. A friend said that if you have not taken your IRA yet, we always fund a Roth, then go ahead and just do a standard IRA so that that comes out first and lowers the amount of

[CARL] You know, income that’s considered. Yes, yes. That’s it for 2025, you have until April 15th of next year to do that. And as long as you don’t make above a certain amount, then your IRA contribution is pre-tax. It lowers your tax liability. And then if you chose next year, if you had a lower income, or perhaps even in the same income, you could convert that IRA to a Roth IRA if you chose to. And if you took a tax deduction for putting your money in an IRA this year, anytime you now take it, if you choose to convert to a roth, that will be taxable. The amount that you put in will be taxable income. But the way to lower your taxes, you’ve gotten good advice. You can do a pre, as long as you don’t make too much money, you can do pre-tax IRA. and that will lower your taxable income for 2025. That’s a reasonable thing to do in my opinion, Anita.

[ANITA] Yeah, and so for last year in 2024, we have until April 15 to fund that IRA for last year.

[CARL] For last year, for last year that’s exactly right.

[ANITA] Yeah, okay. Okay, that sounds great, Carl.

[CARL] You’re listening to Money Talk on KUT 90.5 and KUT.org. If you have a question, call or text, we’ll call 512-475-8600 or text 512 773-0564.
Here is a text. Carl, fan of many years here, new people are going to be delighted with your show. Thank you. Welcome to my favorite station. Congratulations! Carol.
Well, thank you, Carol, that’s really nice of you to say.
And here’s another text. Hi, is it worthwhile paying for an active fund manager at a financial institution? For example, Vanguard offers a low-cost active manager. Thank you.
What a terrific question. You have hit upon probably one of the biggest debates in the investing world. So, for everybody else. Let’s just take two stock mutual funds. One is actively managed. That means there are human beings who are making decisions on what to buy and what to sell. We’re talking about stock funds, but it’s also true for bond funds. A passive fund is one that seeks to manage the money to a certain index or benchmark. Probably the biggest would be the Standard and Poor 500. So let’s just use Vanguard since you mentioned it, because Vanguard is one of the largest and was really the pioneer in passive investing. So you can buy the Vanguard S&P 500 either in a traditional what we call Fortiac mutual fund, or you can buy it in an exchange traded fund. The Vanguard also manages some of their own money and some of the bond funds, and they have other managers, So there’s Vanguard Wellington, Vanguard Wellesley, and others. that other people manage for Vanguard. And Vanguard’s known for their low operating expenses.
But the real debate is active management better than or worse than passive management. In my view, it’s complicated. Because when you, let’s just use the S&P. When you own the S & P fund, then you are gonna get, minus their like three or four basis point fee, you’re gonna get the return of the index. That’s just fine. But here’s what my experience has been over the last 46 years. Some managers who manage stock funds outperform in the good times and some managers who managed stock funds outperform at the bad times. So why does that matter? It goes back to my earlier answer-slash-bloviation.
If you’re looking for the risk adjusted return that’s the best for you, you may be a person who says, look, I’ll put the vast majority of my domestic stock fund money in the index fund, but I want to add a little more gasoline to the portfolio. You can find active managers who will do better than the index in good times. Or on the other hand, you may say, you know, I know I’m gonna get all the upside and all the downside of the Standard and Poor 500. Are there managers out there who manage stock funds who tend to not go down as much in bad time, that will cushion some of the decline? And you can find those as well. And that is true for both domestic managers and foreign managers.
I mean, I can give you an example. I never recommend funds on money talk and I’m not gonna change that now, but I’m gonna give you the example. So far, international companies stocks have significantly outperformed domestic on a year to date basis. So if you own the S&P 500, which you have to buy an exchange traded fund. Again, I’m not recommending, but as of today, the SPY, which is Exchange Traded Fund for the Standard & Poor’s, is down 13.53%. Okay, not fun, but I follow a domestic fund that’s down 9.83. On the other hand, take international. Take the Vanguard XUS, the Exchange Trader Fund. Broadly diversified international stocks around the world. down 2.22, now that’s a lot better than being down 13.5. So international stocks have been a real good hedge this year, but I follow another one that’s up 5.19. That’s close, it’s a seven, what, 7.4% difference over just the first quarter of this year. So I would say I would recommend the bulk of your equity allocation in low cost, passively managed index funds, but it’s just fine. to buy some others. Frankly, in my portfolio, I have a little 5% positions in three different funds, one of which tends to outperform on the upside, and one of the which tends to out perform on the downside, one domestic and one foreign. So I think it’s a great question, it’s great debate among academicians. I would tell you, if you’re the kind of person that wants to buy it and forget it, you’re not interested in following your investments or you don’t have an advisor and you don’ want an advisor. You’re not gonna go wrong just owning the index fund, but it doesn’t keep you from that same issue of the right type of asset allocation. And while there’s nothing wrong with, the Vanguard didn’t get to be this big because there’s something wrong with them, they’re gonna keep you down the middle of the highway because that’s what they do. And that’s not a criticism, it’s a feature. So if you have the time and the interest or you have an advisor, there are other strategies besides the ones that Vanguard offers. Great question. You’re listening to Money Talk on News Radio KLBJ. Call 512-478-8600-8000 or text 512 773-0564. Let’s just see what I got here. Fan of many years, thank you. Okay, let’s just say the next one. Hi, that’s the one I just read as well, okay. I just wanna make sure I get. It is a health savings account as investment vehicle, good, bad, pro or con. A health savings account, if you have one, allows you to put money in on a pre-tax basis like Anita and I were talking about for her 401K, for her IRA, excuse me. And you get a range of investment choices and then the money grows, if it grows, and you don’t pay taxes on it. And for a delineated list of health expenses, you can take the money out. So let’s suppose. you have a medical issue and you have a deductible for your medical insurance. If you have money in that HSA health savings account, my understanding is you can take that out and you won’t pay taxes on it. So is that a good thing? I think the answer is yes. There are a couple of limitations. I think there’s a maximum contribution. So if you have major health issue, you may drain that, but you still have it there for that purpose. So I personally have never had an HSA, so I’m speaking based on what I understand are HSAs, and I would say, are there any other cons to it? No, except I actually had a friend who had discovered that he had more money in there than he thought he needed. He was on Medicare. He didn’t think he was gonna have the kind of need to draw it down, but he had to draw down. He couldn’t take it out. and go somewhere else without paying tax on it. Not that that’s a bad thing, but you need to keep that in mind. You’re listening to Money Talk on KUT 90.5 and KUT.org. When you have a question, call for 512-478-8600 or text at 512 773-0564. Okay, we have all of our lines available. I don’t have any incoming texts. Let’s talk about what the heck is going on. And I listened to a lot of economists. There’s one, a fellow named Torsten Slock at Apollo that I particularly find really good. And I attended a meeting with him this week. And he sought to answer what are the consequences of the tariffs that are coming into place now and in the next few days. His view was, if it’s a short-term phenomenon. So some people believe that this is a negotiating tactic on the part of our president. A lot of people don’t, otherwise we wouldn’t see what’s going on in the financial markets. So if in fact he is serious about this, then what are the risks to the economy if this is the long-term phenomena? And Dr. Slott came up with five of them. One, I just got a text and you know my rules So what I’m going to do is go to the text. Carl, I need a simplified answer for TSP funds and when to change funds. Okay, TSP, here’s my understanding. We’re talking about Thrift Savings Plan, which is available for people, I believe who are federal employees. I believe you have two, three or four stock funds. I believe we have bond funds. You may have a stable fund like a money market fund or a stable value fund. So what you want to do? in my view, is you want to figure out how much in stocks and how much and bonds. And here’s the way to think about that. Two or three things. A good way to thing about what your risk aversion is, is you take the value of your TSP. I’m just gonna make this up. Let’s say you’ve been a long time participant and that you’ve got $500,000 in TSP and let’s say, you’re thinking about how much to put into stock funds and how much put in the bond funds. Let’s suppose… 60% of the stock funds and 40% of bond funds. Secondly, let’s suppose the stock funds go down and the bond funds don’t do anything. They just lay an egg, okay? So let’s supposed the stock market goes down 20%. Is that plausible? You bet it is, it’s likely to happen. It may happen right now. So if you have 500,000 and 60% of your money goes down to 20%, well then that would be. what would that be, 20% of 500, so it’s 12%, 60% times 20% is 12%, that would be $60,000. So you just did that in my head, pretty amazing. So you’ve got a $500,000 portfolio, now it’s $440,000, can you handle that? Do you have the, I don’t know how to say this, you have emotional courage to live through that, because based on history, it will come back. That’s how to think about your asset allocation to some degree. You say, nope, can’t handle that, about 50-50. Well, now if the 50% goes down 20%, that’s a 10% decline in the overall portfolio if the bonds don’t do anything. It’s also plausible, like’s happening this year, the bonds are actually going up. So that’s first thing, how much in stocks, how much and bonds. Now, my recollection is you have domestic stock funds and you have foreign stock funds. But long-term listeners know that I’ve been suffering with international stocks for a long time because we’ve had a multiple year, it feels like 60 years, but we’ve have a multiple-year period where domestic equities have outperformed international. That worm may have turned. So far this year, it has. 50% of the world’s public companies, investable companies, are outside the United States. So I would tell you, I would have. 75% of the money allocated to stocks in the domestic arena and 25 in the international arena. And so you can also do that. You may disagree, you may wanna have more internationally. That’s how to think about this from a top down. Number one, how much in stocks, how in bonds, and then number two, what’s the allocation of the stock fund? On the bond fund side, if you have one bond fund, we’re done, that’s it. If you have more than one bond funds. The one that I, if one of them has words like high yield or enhanced income or strategic income, run away as fast as you can. They’re not bad. It’s just that they’re very highly correlated to stocks. And if in fact, we’re going into a recession, nobody knows this. But if in that happens, based on history, because I can’t see the future, those high yield funds will perform in line with and be positively correlated to. to stocks. You do not buy bonds to be positively correlated to stocks, you buy them for total return, for income and price appreciation. So make sure you understand the underlying strategies of the TSP and once you do that, then you’ll be able to decide what’s the right asset allocation for you. You’re listening to Money Talk on KUT 90.5 and KUT.org, you hear the music in the background. It’s time for me to take a break. I shall return. Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT 90.5 and KUT.org, our inaugural broadcast after 30 plus years elsewhere. Thank you for listening. And when you have a financial or investment planning question, call 512-475-8600 or text 512 773-0564. Here’s a text. I’m very curious to hear more about your views and what is happening right now in the markets. The tariffs and subsequent market downturn seem unprecedented and I would love to hear what you think is happening and what will happen. Thanks. Sounds like you’re already addressing this now. That’s okay because people don’t sit up and drive around and listen to the whole broadcast all the time and this is on the top of everybody’s minds. I think what’s happened, when you see sharp breaks like this in my 46 years, it tells me that this is unexpected. The last time, painfully you remember, was when COVID hit in mid-March of 2020, and I mean the stock markets went right in the toilet. But we did a V, once people started understanding the vaccines, we did the V shape and came back. On the other hand, back in the 90s… We had five glorious years as stock investors with the S&P 500 up over 20% a year. It peaked in March of 2000. We now call it the dot com bubble bursting, but a lot of companies that weren’t dot coms went down a lot too. So right now, we can only interpret the announcements from the Trump administration regarding global tariffs as a surprise to global investors. people are running for the hills. But there’s more to it than that. This, I’m gonna get really into weeds, but I think this matters. There’s always a lot of leverage, meaning debt, in the global financial system. Because people can borrow money to buy securities in the hopes of increasing their returns. And I’m going to give you a purely hypothetical example. There are hedge funds that can go to their prime broker, or let’s just say Goldman Sachs. or JP Morgan, and put down $100 million, and borrow $400 million, and buy $500 million of securities, okay? Can you do that? No. Can they do that, yes. Why would they do? Because if that security, let’s just say it’s Nvidia stock, because that was such a terrific stock, goes up 10%, you make 10% by owning it in cash. They make a lot more, because They own a lot more shares with their $100 million. So that’s great when the bet plays off and the prices appreciate. But when it turns the other direction, they’re in trouble because if it drops the $100,000,000 are wiped out. Well, Goldman Sachs and JP Morgan are not gonna let that happen. So as that price starts to decline, those hedge fund people have to sell those securities because the collateral’s declining to pay off that some or all of their debt. So what you have is when prices start to decline after a long trend like we’ve had, then the selling comes into the market because they’re leverage players. They have to liquidate their securities to get out. So based on my experience, once a sharp decline starts, it gets exacerbated as the leverage players in the marketplace have to participate. I think when I watched what happened this week, I think that’s what happened. As the day went on. and prices continue to decline. You saw an acceleration of selling and that was the case. It was those people owning a lot of stocks with debt that were forced to sell. So that’s part of what’s going on in the mechanics of the financial markets. I think the other thing which is much more fundamental is investors are wondering about the outlook for the global economy. Here’s a down the middle of the road nonpartisan view. on what could happen. Tariffs, and I hear this everywhere I read and from the Wall Street Journal to other things, tariffs are a tax. And eventually, you and I as consumers are gonna pay them. So the Wall street Journal has suggested that the price of an average US new vehicle could go up eight to $10,000. Well, what’s gonna happen? A number of people aren’t gonna be able to afford that. And that’s gonna put downward pressure on auto sales, and that’s not gonna be good for the economy. Let’s suppose that you own a successful business, and business is good, and you’re thinking of expanding. Perhaps you’re gonna add factory, or you’re going to add more staff. And you see what’s going on, and go, well, wait a minute, I just think that I’m gonna hold back. See, if that happens, it becomes a bit of a snowball. Prices go up. whether it’s for groceries or automobiles, at the same time that people with good jobs say, well, maybe we aren’t gonna make that extra expenditure. Let’s wait and see what happens. So you start to see a diminishing demand, and after all, 70% of our economy in the U.S. is based on consumption. You have diminishing demands at the time that you could have rising prices. Because tariffs have an immediate effect. And while the president firmly believes that this will work out because we’ll be onshoring a lot of manufacturing, as an example, you can’t just push a button to make this happen. I learned this week, sneakers, 99% of the sneakers in the United States are made abroad. Abroad. That’s why Nike stock took a nosedive this week. They’re made in places like Vietnam, which now has over a 30% tariff. So if Nike’s gonna bring shoes in and they have to pay 30% more. They’re gonna charge some more, whether it’s 20% or 30%, and they’re gonna sell fewer shoes. That’s what’s going on. And because people invest for the future, they’re trying to figure out what is gonna happen to sales, to revenues, and to profits. That’s my view of what’s happening.
You’re listening to Money Talk on KUT 90.5 and KUT.org. Call or text 512. I always say that, but I’m mistaken. Call 512-478-8600 or text 773. That’s 512 773-0564.
Okay, here we go.
(text) Maybe I don’t understand trade imbalances, so please explain.
Oh, good.
(text) How could a smaller country like Canada ever import as much from larger US as we do from them? Doesn’t it make sense to always have an imbalance with them?
The short answer is yes. That’s not what the president and the people who agree with him believe. I mean, if I buy something from Canada, I get a good or a service and Canada gets my money. Well, that’s an imbalance because that’s the trade imbalance. When our economy is the largest in the world and we’re buying stuff from around the world, it’s implausible to expect everybody to be able to buy as much from us. So that’s what’s controversial. about looking at trade imbalances, because according to my reading, what the administration is doing is looking at these imbalanses like with Vietnam, they’re doing some math and coming up with the tariff rate like 32% for Vietnam. So I would tell you based on my reading because I wanna tell you one thing about Money Talk. This is not a political show. Based on my rating, trade imbalanced occur when stronger economies buy goods or services. from other economies, which may be strong, may be big like China’s, may be a big like Germany, or may not, that’s the nature of trade imbalances. So I would tell you that you actually do understand what’s going on.
You’re listening to Money Talk on KUT 90.5 and KUT.org. Call 512-478-8600 or text 512… seven seven three zero five six four
okay now let’s just see um… here we go. [text question] Carl, my credit union gives me an option to change my savings account to one that is a tiered money market account with tiered interest depending on the amount of savings is the money market, a better option than a traditional savings account. What is the advantage to me and to the credit union?
Well, The credit union is competing for deposits. And so, in a rising or a higher interest rate environment where people can go to a money market fund, which is not a money-market account and say get 4.25%, the credit union to some degree has to compete. And they want larger deposits and they’ve learned that deposits are sticky. This is true of banks. I’m not picking on credit unions. They’ve learned that once people have an account at a credit union or a bank, they’re usually there. It takes a thermonuclear device to blow them out of there. And so, they’ve historically gotten away with paying lower rates. I remember when my bank paid me the grand rate of 0.01%. So you get more interest, the bank gets the deposit. That’s good for you and that’s good for the credit union.
I would tell you this, take a look at money market mutual funds. These money market funds invest in high grade securities that must mature in a year or less. The price stays at $1, that’s the net asset value. and whatever they’re earning, minus their operating expenses, is what you get. So over time, if interest rates decline, the return will decline, and over time if interest rate rise, they will rise. There are three general types of money market funds. They’re called prime, government, and treasury. The prime money market fund by quality company short-term debt, The government money market funds by US treasuries and government agencies like Freddie Mac and Fannie Mae and the treasury ones by strictly treasurys.
In my view, the middle one, the government money-market fund is a great way to stash your money that you’re not going to invest. All the big broker-dealers have this; Charles Schwab, Vanguard, Fidelity, or if you work with an advisor, she has one as well. So if I were in your shoes, I would take a look at money market funds and compare them with the tiered money market account at your credit union and see what you think is best for you.
You’re listening to Money Talk on KUT 90.5 and KUT.org. Call 512-475-8600 or text 512 773-0564.
[text] Hi, Carl, this is Sean from the old YMCA days.
Thanks, Sean.
[text] Love your show and really excited to hear you on KUT. So am I. I really appreciate your wise counsel in times like these. Keep up the great work. Well, thanks a lot.
Thank you. Here’s one.
[text] Your mortgage is at 3.375. Congratulations, you win. Investments have been yielding around 11%, but that’s currently changing to say the very least. I have been putting extra from the job. I also collect social security towards paying down the mortgage. and some into investments. In light of what is happening, should I put more into the mortgage and less to the investments or vice versa?
Terrific question. That’s one of the reasons I love this broadcast. I get such interesting questions. Of course, I can’t tell what your risk tolerance is. So I’m gonna answer it with kind of putting that to side. You are so fortunate to have a low interest rate mortgage. If you told me that you had one of these current I would tell you that paying down your mortgage makes sense because that’s an imputed 7% rate of return and you’re not going to get that in CDs and while you’ll probably do better than 7% over time in stocks, there are going to be times like this. But when you’re at 3.375, that’s a whole different calculation in my view. I would say to you that I would take advantage of the current decline in the stock market. Because you don’t have this big lump sum to invest today and you have regular, perhaps monthly cash flow, you can take advantage of a terrific thing called dollar cost averaging. And I hope everyone listening pays close attention to this because if you’re in a 401k, you’re already doing this. And if you are investing on your own and with your advisor, now is a great time to consider this. You take an amount of money, let’s just say it’s $1,000 a month. It doesn’t matter, it could be $500 a month, it could $5,000 month. and you pick a time, the 15th of the month, at just some arbitrary time, and you invest in your stock portfolio on that date, if it’s a business date or the closest business date to that. In 2023 and 2024, as the stock market went up, more times than not, you were buying fewer shares because prices were rising. But in the fourth quarter of 2024, prices declined and you kept buying. Now, here we are today where the S&P’s down over 13 and a half, the Nasdaq’s down 19, the Vanguard total stock market’s down 13.96. Now is a great time to begin dollar cost averaging. because you’re not putting all your money at risk, but you’re taking advantage of lower prices. Because if you think about it, you’re buying more shares with that same $1,000 or that same 5,000.
So over time, because the stock market is volatile, there’s a scoop, you’re gonna buy more shares when prices are declining, and fewer shares when prices were rising, and lo and behold, over time you’re going to have a lower average cost. So if I were in your shoes, I’m putting aside your risk tolerance, and all the things I’ve said earlier in the broadcast about making sure that you have an asset allocation that’s consistent with what you want to do, then I think that that’s what I would do.
Thanks for the text. 512-478-8600 or text 512773-0564. And by the way, if I get texts that I don’t have a chance to answer or fully answer, I will answer them next week. Here we go.
[text] Carl, for your listener wanting to have more withheld, the W-4 form that we turn in to our employer includes line 4C, extra withholding.
You’re gonna find out if you’re a first-time listener that I have this huge pool of listeners who are experts who know these things.
[text] So Anita, the W4 form that we turned into our employer includes line four C, C as in Carl, extra withholding. That’s where you wanna do it.
Thank you very much. Okay.
[text question] Carl, I panicked in early COVID and will never regret it. Since I’ve taken your advice, I am lying down. I hope I can get up soon.
So do I, thanks for your text. Let’s see.
[text] Hi, people talk about bonds versus stocks, but what about real estate as a percentage of the investment portfolio? Is there a recommended percentage? And we currently have no bonds, but just stock and real estate, which is in a self-directed IRA.
And I’ve got about two or three minutes left. I will tell you this, over the long term, it’s two asset classes in which you and I can invest that have outpaced inflation are stocks and income-producing real estate. Why? Because over time, income- producing real estate has rising rents, and as a result of that, rising cash flow. which causes rising value to the building, okay?
I’m putting aside operating expenses, and I’m put aside problems with tenants and all that sort of stuff. So what you have is a risk-on portfolio.
Now, real estate has different cycles, but they’re much, much longer, and they’re obviously tied mostly to the economy to some degree to the financial system as we learned in 2008. So when we lost, when real estate went down and… The Southwest, it was a seven-year decline. And you had to live through that. And if you had a mortgage, you had have to sell other source of cash to service that mortgage because you’re rent.
I had, I’ll tell you this over the years, I had a rent house with two buddies on 32nd Street within walking distance of UT. Everyone told me you can never lose money because there’s always 50,000 students. The rents went from $1,600 a month to $800 a month. I noticed that the mortgage didn’t go down by 50% nor the property taxes. I learned my lesson.
So if you’re a true long-term investor and you own it yourself, you gotta be a hands-on person. If that’s your type of thing and it’s hands-on and you can do it to save the extra cost of having somebody else do it, then you have a risk-on portfolio. Bonds will not come close to delivering those kinds of returns that you ought to get in the stock market and you oughta get in real estate. So you have your asset allocation. is you’re in two fundamentally different risk assets, but it is an on-risk one.
So as long as you’re comfortable with that, then I think I’m comfortable with it as well. Let’s see.
[text question] Carl, I’m a first-time listener. I love what I’m listening to.
Great, and I love when I’m listen to you, thank you.
[text] I have just started a new small business reconnecting with my family in Vietnam.
Congratulations.
[text] Start Dance Heels Shoes Company. How will I be affected by these tariffs and what should I do to weather the storm? I’m down to my last minute and I’m going to think about this over this week.
You will be affected because my understanding is one of the highest tariff rates is Vietnamese. The other thing the president is doing is he’s getting rid of what’s called the de-minimus exemption for items coming in of less than $800. That’s going to affect cheap fashion. It’s going affect a lot of things.
So if you are, if this is happening, the first thing I would do is make sure I had solid finances. The second thing I would do is I would look at, are there other sources domestically or in lower tariff nations where I can source this, which you started Dance Heels Shoes Company. Because right now, shoes are absolutely in the crosshairs of the Trump administration.
Well, it’s been a great first broadcast. Thank you so much for listening. I wanna thank Jerry (Qijano) for doing such a great job there in the studio, my friend Jacob (Rockey) here in my studio. and remind you next Saturday after the news at 5 to be sure and tune in and listen to Money Talk.

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