Money Talk with Carl Stuart

Carl Stuart takes questions from phone calls and texts about a range of personal finance issues, including renting out a mortgage-free home, rolling over an old 401k, looking at alternatives for 529 plans for education – and more on Money Talk.

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

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

Carl Stuart [00:00:22] Welcome to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and on the KUT app. Money Talk, we’re deep into our 31st year here together, is a broadcast about the world of financial and investment planning where you always determine our agenda by calling or texting 512-921-5888. It’s a terrific idea to call or text early in the broadcast. Give me an opportunity to do my best to answer your question. I like calls because we can have a conversation, but I like texts also. I will take today’s calls first and then today’s texts and then texts that I haven’t answered from previous weeks. So before we get started, we have all of our lines available, no incoming texts, because you will hear that on the phone when they come in. Five one two nine two one five eight eight eight. Here’s a text from last week. Hi Carl, my husband is mid fifties. And I am early 50s. We own our home that is valued at $620,000, what Wood would most likely sell as a teardown for $550,000. We have $600,000 in two high-interest savings accounts, a combined earnings of about $1,800 a month, a Roth 401k with $860,000 a Roth IRA with $33,000 We max out on his Roth 401K contributions plus the black plus the back four, I think she means the black back door loophole contribution, and get his company’s 401k match. We have no debt. What should we be doing to better prepare for financial security in our older years? Well, first of all, congratulations that you have no debt. That’s one of the biggest things, frankly, because when you retire, your living expenses don’t disappear. In fact, some people talk about three phases of retirement, the go-go years and the slow-go years and no-go-years, and it’s plausible that the first one, the go go years is when you’re going to want to maybe do some travel that you haven’t been able to do in the past or take up some kind of activity that might have an expense associated with it, and you can’t control what happens to the price of groceries or what happens for the price of gasoline. And in the no- go years, sometimes that’s actually expensive too if you have to have extra health care help or health care expenses so what you want to think about is how can we grow our money uh… In a reasonably prudent fashion that is above the cost of living because as i frequently say here on money talk there are three things we don’t know when it comes to retirement planning we don’t know how long we’re going to live We don’t know what is going to happen to the cost of living, but it’s reasonable to presume it will rise. And we don’t know what the return will be on our savings and investments. So we need to approach this with humility. But because you are debt free, I think the challenge you have, and I don’t how you have the other investments, but the fact that you have $600,000 in two high interest savings accounts is an awful lot of cash to have. And, frankly, historically… The return on savings accounts after inflation, and of course that’s taxable interest as well, is a negative return, it’s a negative number. And so you keep money there for an emergency or for an anticipated large expenditure like a purchase of an automobile, or you’re gonna take a round the world cruise or something really expensive. But to keep that much in savings is, in my opinion, a mistake. I think you wanna see the money grow, but with an acceptable level of risk. And so if I were in your shoes, not all at once, I would begin, I don’t know how you’re invested in your retirement plans, hopefully you’re in stock funds and bond funds. I would be, I would began to put money into stock funds in bond funds, if you’re on your own, then I think that’s a good way to go if you choose an advisor, she or he may have some other alternative investments. The most important decision is what’s the right mix for us. What’s the mix of stocks and what’s the right makes of bonds. And one of the ways to think about that when you are a saver, perhaps not an investor, is to in your mind stress test what could go wrong and how would you experience that. So you have 550,000, I beg your pardon, that’s the house teardown. You have 600,000 in two high interest savings accounts. So, let’s just say you took… 550,000 and you said, okay, if we put that all in the stock market and it dropped 20% which is entirely plausible That’s a hundred and ten thousand dollars. We could not sleep nights. We would be concerned. We can never recoup that money There’s no way that we would be comfortable doing that good So you back off till you get to a percentage that when you test it with a minus 20% You could do minus 30, but you get a different number do a minus twenty at least and then come up with that level that you’re willing to accept, and that’s your asset allocation in the stock market. Now, because the U.S. Stock market, particularly, is hitting all-time highs, that’s why I wouldn’t be in the big rush to start off by putting all the money to work. Once I determine what my allocation is, I would probably put it in over a six-month period. I can’t predict the future. We could continue to go up for the next six months, but if I had to guess, there’s gonna be some rough sliding in here. And when you’re putting money in every month on the same day, some months the prices will decline and you’ll get more bang for your buck. Do the same with the stock funds and the bond funds. If you are doing this on your own and you’re not the kind of person who really gets interested in these things, then I suspect you’re no. Choose a cheap index fund, one that invests in all stock, the all stock market, what we call the total stock market in the United States, and one that does all international. I would prefer you have maybe 75 domestic and 25 foreign. And then if you don’t have the time or interest to have active bond funds, you can buy passive bond funds that have short, intermediate, and long-term. I would go with a short and an intermediate or core and probably stop there. That’s a great question, good luck, and thanks for the text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call with your questions or text me at 512-877-9000. 921-5888 and by the way you can catch past shows at KUT.org slash Money Talk. Alright let’s just see what is the next one from last week. My husband and I and our two kids are currently renters. We currently pay $3,000 in rent. I’m gonna go to the text. I hear that one coming in, so that’s what I’m going to do. Hang on here. While I’m doing that, 512-921-5888. Here we go. My financial planner has done a great job for the last 25 years. I’m being asked by other planners to work with them. What factors should I consider in terms of whether to make a change? Allocate a smaller amount of funds to see how the other advisor does. My sense is that if you are happy with your advisor, I would stay with her or him. I think peeling off a small part and making it kind of a horse race is difficult because it would take a long time to make a decision. I mean, take the last three years. Let’s suppose you did this at the beginning of 2022. And the S&P 500 for the years goes down 19%, and ASDAC goes down 33%, and the Bloomberg Ag, which is the bond market, goes down 13%. You might think, well, this person isn’t worth a darn, but the fact of the matter is they were really swimming upstream. So I think I would, if you’re really satisfied, I’d stay with the person. Now, I read years ago that when people are dissatisfied, and you’re not, with their service professional, their accountant or their attorney. Their architect, their investment advisor, that it’s often not about the performance, it’s a misunderstanding or a miscommunication at the beginning of the relationship about what a happy, healthy, client, professional relationship looks like in terms of communication, meeting on Zoom or face-to-face, et cetera, et cetera. But if you’re satisfied with the relationship you have, even though other people are soliciting your business. I don’t see any reason to make any change. So thanks for the question and I’m glad you’re having a good experience. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Let me find that other one that I was going to look and read and again you can call or text right now. Okay, here we go from last week. My husband and I and our two kids are currently renters. We currently pay $3,000 in rent. If we were to buy a house or something similar with 20 down, 20 means 20%, we’d be looking at a mortgage of $5,500 plus a month. We also co-own a vacation property with my family out of state. We did the down payment, but my parents paid the mortgage, which is at 2.9%. It was meant as an early way to share inheritance. And any profit from the sale of that home would go to us. Theoretically, we could sell the second home and use the money to buy our primary residence, but it would only be enough to comfortably swing a 20% down payment. It doesn’t seem worth it to me to buy a primary residence if it means losing the second-home investment and also doubling our monthly rent mortgage cost, but it also seems silly to own a second home when we don’t own our own home. Thoughts? Well, that’s a unique situation. And I understand your frustration. But given this unique circumstance where you’re going to get 100% of the gain from this other vacation home, I can understand why you wouldn’t sell that and buy a house to live in. Because if you buy a a house to live it will probably go up in value. Not always, that’s for sure. But what are you gonna do? You can’t sell it and live in your car. And so. I’m inclined because of the big difference between 3,000 a month in expense and 5,500. And while I don’t know where your vacation home is, generally I have learned that homes on water, for example, tend to appreciate over time simply because of supply and demand, because there’s not a lot of lots to build on and people are looking for a vacation home. So if it’s, you know, not a log cabin off of a dirt road with no electricity, if it’s really a vacation home just based on general experience, I like your idea of continuing to rent and keeping that equity growing because at some point when your parents have passed away you know you’ve got that equity and you can always sell that to help help you in your retirement or even possibly funding helping fund kids college education. Good question. You’re listening to Money Talk? On KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Well that’s what I think all I had from last week and so I did get this information. If you’re a regular listener, you know that once a month I get an update on the Austin area metro residential real estate market. And I know that a lot of people are interested in this, whether they’re looking for a home or considering selling, they’re just frankly interested. So I’m gonna go through this. But in the meantime, let me give you those numbers again. Number 512-921-5888. So last month, this is through August, the median sales price in what’s called the Austin metro area is $435,000. That’s down 3.3% on a year over year basis. And from my memory, I would tell you, that’s just about the way it’s been this year. And somewhere between three and 4% year over year decline. The median sales price was $218 per square foot. That’s down a bit more. And I think that’s the more significant number because that’s really how you would value your home. That’s now almost 5% year-over-year, 4.8%. The total home sold, this is a bit surprising. 2,522, that’s down a more significant number. That’s down 8.1% on a year-over-year basis. The median days on the market. This is a big number, 68 days, or that’s up 23.6%. So, only 3.6% increase in median days on the markets. And the supply of inventory is 5.7 months, and that’s 18.8% year- over-year, big number. I have read that experts in residential real estate say that six months inventory is what they consider a healthy market. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here is a call. Betsy, you’re on the air, how may I help?

Betsy [00:14:31] All right there i’m and it’s just over to it if i’d like to happen upon your show and i have a situation right now that i’m having to deal with

Carl Stuart [00:14:40] Okay.

Betsy [00:14:41] I am going to be 72 in September. I’ve been retired from some time. I have some money in a teacher retirement system. It’s not vested. It just been sitting there for all this time. I used the years to go to my county retirement. But you know, anyway, I have to move it apparently when I turned 70. I had to do something with it by 72.

Carl Stuart [00:15:08] Okay.

Betsy [00:15:08] I didn’t talk to TRS and they sent me this form, and it’s all pre-tax. So can I just roll all of that into a…

Carl Stuart [00:15:21] So here are your choices, you’re right, that’s pre-tax, and so you really have one choice, you can take the money, but obviously then that’s gonna be subject to income tax, it’ll be added to your income this year, or you can do something called an IRA rollover. You cannot move it directly from TRS to a Roth. You can move it to a Betsy IRA, so, and then if you leave it there, it’ll continue to do whatever it’s going to do. And you won’t have to take it out until you’re probably 75, because right now the required minimum distribution age is 74. And you don’t have take it all out. You’ll just take out a small amount based on the factor determined by the government. The way you would do this, if you chose to do it, is you would select what’s called a custodian. If you want to do this yourself, you can do it at a bank or a savings and loan or a credit union. Or you can it with an asset manager like Charles Schwab fidelity or vanguard And what you do is you choose the custodian. And if you’re going, since you have a pension, the county pension, do you also have a social security?

Betsy [00:16:32] Yeah, ivy county and social and then and i also have another standard account that’s got some other monies out there i kind of you know put it around in my career

Carl Stuart [00:16:42] Yeah, well good for you. Well, I would say I’d probably put some money at risk if I were in your shoes for a couple of reasons. One, you’re a 72 year old female, so you have a long life expectancy. Secondly, you have guaranteed income that doesn’t matter whether the stock market goes up or down, you’re going to get those monthly checks. But the risk you have is that you live to be 88, cost of living goes up 3% a year, and not all of a sudden, but slowly over time. Those monthly checks become less and less sufficient for you to live the life you want to live. So I would not go to probably a bank or a credit union or savings alone and put the money in a CD. I would put it someplace where it would grow. So I will choose an asset manager, like I said, a custodian, do it yourself if you’ve been doing it yourself, and invest it in mutual funds or exchange traded funds. And I would treat that income as if there were this huge bond portfolio because it would take probably millions of dollars in bonds to generate the monthly income that you’re guaranteed to get the rest of your life. I would do an IRA rollover. Now, if you want to put money in a Roth, you can do the IRA rolover and then you can’t do something called a Roth conversion where you take money out of the IRA, pay the taxes, and put money in a Roth IRA. You pay the taxes out of your pocket. Or just put less money into the Roth IRA. You can do all of it, you can do part of it. You don’t want to do so much that it throws you in a real higher income tax bracket, which is unlikely, but you can a Roth conversion whenever you want. As you know, because you asked about a Roth, once the money is in a Roth you do not have a required minimum distribution, and if you choose to take the money out, provided you’ve had it in five years from your initial investment, when it comes out, it’s free of income tax. And so I like the idea of doing an IRA rollover and depending upon the amount, beginning to convert it to a Roth IRA because your pension income is subject to income tax, so I think that’s how I would handle this particular opportunity if I were in your shoes.

Betsy [00:18:57] Okay i’m i’m like that but did pardon me you wouldn’t uh… Which would you this particular walk now that would you where would you go to do it we’ve got to be with the car for all of the regardless

Carl Stuart [00:19:11] Yeah, it would be if you wanted to do it yourself, you would do it with Charles Schwab or Fidelity or Vanguard. You just go to their websites and do some studying, determine where you want to put it and then you can do the whole thing probably, I don’t know, online maybe with DocuSign because it’s safe or paper, but you would open a Betsy IRA and then go to TRS and ask for the money and they’re going to say, Betsy, how do you want the check Mate Well, you don’t want it made to you because that’s a taxable event, but you’ll already have set up your IRA. So you’ll tell them, I want it made payable to Charles Schwab, custodian for the benefit of Betsy IRA. Then you’ll get the check. It’s not made pay able to you. You deposit it to Charles Swab and you’re ready to go.

Betsy [00:20:00] All right. Well, I thank you so very much. I appreciate it.

Carl Stuart [00:20:04] Well, that’s good, and you keep listening now. You know, you never, you might learn some more stuff here.

Betsy [00:20:09] Oh i know like i said it’s not fair they make us old people understand all this stuff i’ve avoided it my whole life

Carl Stuart [00:20:18] Well, but you’re a smart one, you can do it. Thanks for the call, bye bye. You’re listening to Money Talk on KUT News 90.5 and the KUT app. 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.

KUT Announcer Jimmy Maas [00:20:39] 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 [00:21:14] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:21:28] Welcome back. You’re listening to Money Talk, I’m Carl Stuart, and here we are at KUT News 90.5 and on the KUT app. When you have a financial or investment plan in question, call or text 512-921-5888, and you can listen to all of our previous KUT Money Talk broadcasts by simply going to kut.org slash money talk. Hi, Carl. How does a do-it-yourself investor know if we’re on the right track? Do you recommend fact or investing? Seems to be a nice way to continue my value investing portion of my portfolio. Well, that’s two different questions. The big one is, how do you know if we are on the correct track? I’m thinking that you can hear. I think. If you’re thinking about investing for your future financial independence, what you can do, and this is really based on my 46 plus years of experience, and if you could probably, I have a better idea, I’m gonna get back to that. Since you’re a do-it-yourselfer, I would spend some time looking at some financial planning software, because there’s a lot of it out there. But I particularly like the ones that are not cash flow based but are goal based because if you want to do this, you put in a lot of data and the application will take into account your future social security benefit, your life expectancy, and you put it in your goals. And the good ones, you can say, well, when I retire, I want to take an around the world cruise, or I want to pay for our daughter’s wedding. Or whatever the case is, and you put all that in, and you’ve put in your current asset allocation, stocks and bonds and cash and any other investments, and then you plug a number, and almost all of these use something called Monte Carlo simulation, and in about a blink of an eye, they’ll do a thousand simulations of past experiences in the financial markets, and it will give you the probability in a percentage basis of what your odds are of success. So if you’re really, really interested in this and you wanna do it yourself, you’re gonna have to devote some time to it. But after all, it’s hard to imagine from a financial planning standpoint anything more important. So that’s the first thing I would do. Now, if you just wanna do kind of the seat of the pants, then you do this. You look at your current living expenses. Most of them are not going to go away when you retire and you and you look at what you what that is and then you look what you would like to make in today’s dollars when you’re retired okay and then compound that from your age at three percent and that gives you a good idea of an inflation adjusted amount that you’re going to want to have in income all right take that number. Take it times 25. And that lump sum, you take 4% a year out and you get that number. Now that’s seat of the pants. That didn’t take into consideration your life expectancy. I didn’t into consideration social security. But that’s a quick and dirty way to think about it. What we believe is that if you take 4% of year and have say a 60% stock allocation, The odds are that you’re gonna be able to raise that distribution by the rate of inflation and not run out of money. I like the other idea better. Seems to be nice about factor investing. It’s a way to invest. What we’re talking about is probably started with two gentlemen at the University of Chicago, Gene Fama and Ken French, did a lot of statistical analysis and came to believe that, a couple of things. One. That over long periods of time, small caps outperform large caps, and boy that’s been wrong recently, and value outperforms growth, and, boy, that’s wrong recently. And that there are certain factors that help them select which stocks go into their portfolio. They might be value, they might be earnings growth, might be the balance sheet quality, might be momentum, whatever the, and there are various ones out there. And what do I think of that? I think it’s interesting. I personally am not convinced that it’s better than market cap with also doing some active investing around that. And I like active investing rather than passive in bonds. But I’m not opposed to it. It’s certainly very popular. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Jack, you’re on the air, how may I help?

Jack [00:26:53] Hi Carl. Hey, my girlfriend is 74 years old and very sharp. We had a problem lately with an investment company and we want to see if you could help us maybe seek a company that’s more compatible for old people. What happened is she’s got a large account with Fidelity and she manages half of it on her own. Yeah, but, um, he was on a call and she mentioned something, but I forget, I get forgetful sometimes. And so we were called in to get a power of attorney and when we got there we learned that he was considered level one of four levels of incapacitated. Wow, wow. And so she’s pretty angry. And is this typical, I guess question number one, do you all, her advisor actually told her this is mainly something they look at for older people. Is this a common thing and is there a way we can find a company we can trust that will

Carl Stuart [00:27:56] Sure. First of all, what’s driving this is two things. The Securities and Exchange Commission looks at investment advisors and says to them, you must on a regular basis check in with client to see if they’ve had any change. Their memory or any other health problem. They’re supposed to do that. Second, because Fidelity’s advisors are employees, they have very strict rules about how they behave. And if she had said, I forget things sometimes, sometimes I’ll leave the house and realize I forgot my car keys. Well, big deal, everybody does that. Or sometimes I’ll walk into the kitchen and I’ll say to myself, what the heck am I in here for? Right? I mean, that’s a lot different than early stage dementia. So she didn’t know that this person is, he or she has got real clear instructions because fidelity doesn’t, they’re scared to death because of the legal liability. So because she’s with fidelity, And if she’s a do-it-yourself… Investor, then she should go to another do-it-yourself securities firm like Schwab or like Vanguard and move her account there and continue to invest the way she wants to. If she wants an advisor, she ought to get an independent advisor because someone who is under that kind of strict oversight, the minute she says memory, the person’s It blows up. And you get the situation you’re in. If you want a personal relationship with an advisor, and it doesn’t matter whether you’re 72 or 42, then you ought to have a face-to-face relationship with that person, and you oughta expect to pay them. So either go to another do-it-yourselfer, and don’t say I forgot my car keys, or go out and find an advisor and expect to pay the fee, because the fee’s gonna be driven by the marketplace. It’s like all CPAs that are in the same situation with similar overhead are gonna charge similar fees for the CPA work. So either do it yourself or go find somebody. But that’s what I would do. And that’s, what happened to her, which is really unfortunate, and I don’t blame her, I’d be angry too, is that the fear of lawsuits, that’s occurred with her at Fidelity.

Jack [00:30:37] You know, what was interesting is her direct advisor went to bat for her. It was somebody that heard it on the phone, I think, and she was making a self-deprecating comment, you know? Yeah, of course she was.

Carl Stuart [00:30:49] Yeah, and the fact that the phone lines are monitored, I mean, really? That shows you how worried they are about legal liability. So I mean that really confirms what I said. Her advisor has no control. He can’t put his finger on the scale because he’s an employee and that’s the way it is. So if she wants to stay her own advisor, go to another do-it-yourselfer.

Jack [00:31:15] Okay. Hey, Carl, she wants to know how does she find an independent advisor and she’s willing to pay, of course.

Carl Stuart [00:31:23] So here’s, I’m going to go through this, this is really important and I think a lot of our listeners are going to want to know this as well. So if you want an independent advisor, you want someone who is what’s called an RIA, registered investment advisor. Now there’s nothing wrong with going with a big firm if she wants, but she’s going to encounter some of that same oversight because the big firm, the Maryland CUBS, of Wells Fargo than Morgan Stanley. Are gonna have the same concerns and same rules as fidelity. But if she goes with a registered investment advisor, and there are lots of them in central Texas, that person has fiduciary responsibility, which means they must act in her behalf, they receive no commissions or transaction-based compensation, and they have what the law calls a duty of care to put her interest before theirs, full stop. But that’s just the beginning part, because what she’s looking for is a respectful, long-term relationship with these people. And so it’s reasonable to ask your friends who are similarly situated or whatever, but once you go to two or three people, here’s what you want to do. You want to know a minimum of three really important things. Number one, what’s your investment strategy? How do you believe people can grow their wealth? And if they can’t explain it in a easy to understand fashion, keep looking. Second is, if I engage your services, what does a happy, healthy relationship look like? As I mentioned earlier in today’s broadcast, people are unhappy because their expectations were misunderstood at the beginning of the relationship. Get absolute clarity about when you’re gonna visit with each other and in what format, and et cetera, et cetera. And third, last and least important, is the fee. Because the marketplace drives the fee. And so the fee is the fee, and here’s how it’s calculated. It’s called an asset-based advisory fee, payable quarterly, either in advance or in arrears. I prefer arrear. So what this advisor does is, let’s just pretend that your girlfriend is in the September billing cycle. At the end of this month, they take the value of her portfolio, whether it’s one account, two or three accounts. Times the number of days in July, August, and September, times the value, times the fee schedule. That generates whatever the fee is, they debit the account or accounts and move on down the road. That’s the independent advisor relationship.

Jack [00:34:03] Hey Carl, are you one of those RIAs?

Carl Stuart [00:34:07] I am, and I never talk about myself on the air, but yes sir. I know.

Jack [00:34:12] Just curious.

Carl Stuart [00:34:13] Okay. Good to know. Thank you very much. You’re 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. I’ve been hearing the phone go off, so I know that we’ve got some incoming texts. Here we go. Hi Carl, is there any advantage to putting money in a brokered CD versus a money market account? They both seem to have similar yields on Vanguard. I would say the money market fund is going to have a rate reflective of short-term interest rates. So if the Fed this week lowers interest rates one quarter of one percent, 25 basis points, the money-market fund will eventually go down as well. Because the money market fund is taking your cash and everybody else’s cash at Vanguard and the money market fund and buying very high quality, short-term securities that mature in a year or less. So they always have instruments coming due and they have to reinvest. And if rates come down, they reinvest at lower rates. And if the rates go up, they invest at higher rates. If you do a CD, whatever rate is quoted, that’s what you’re gonna get. Unless you break the CD, you’re going to get that. So if you don’t want bond market risk, or stock market risk. And if you believe that, as the financial markets do today, I have no idea, as conventional markets believe, we’re gonna have lower rate, short term rates. Don’t know about longer term rates, if you’re gonna be in shorter term CDs, you’re probably gonna have a better return than the money market fund. So that’s probably a prudent thing to do. You’re listening to Money Talk on KUT News 90.5 and on the KUTF. By the way, you can catch past shows of Money Talk at KUT.org slash Money Talk. Call or text 512-921-5888. Okay, let’s get to it in this next one. I have a home that’s mortgage free. I’m in rural Texas and we’re currently renting closer to work. We don’t plan on living in it again, in the home in rural, Texas. What factors should I be considering when looking at renting it out versus selling? The home is worth approximately $285,000, and our current rent is $2,500. We have no debt, and in our mid-30s. Okay, and the home would rent for $1,800 to $2K a month. Okay, first and foremost, while this is a financial planning question, let me start with, I think, the most important thing about rental properties. There are two kinds of people. The people that ought to manage the rental properties and the people who should not. Let me just tell you a story. So back in the late 80s and early 90s, real estate in Central Texas was booming and in the Southwest. And I’m in this business and everybody I talk to is doing real estate. The doctors are doing real estates, the lawyers are doing a real estate, the architects are doing on real estate the real estate people are doing in real estate I couldn’t stand it. I said to my spouse, I may have made a career mistake. So two buddies and I bought a rent house within walking distance to UT. Everybody said, it’s a great investment. There’s always 50,000 students. You can’t possibly lose money on this deal. The rents went from $1,600 a month to $800 a month. I did notice that the mortgage, the property taxes, and the operating expenses did not go down a like amount. Now I became like the boat owner whose two favorite days were the day he bought the boat and the day sold the boat. That was a really important lesson. And in my career, I’ve observed people who have been very successful at rental real estate. And the reason is they are hands on people, hands on. They actually enjoy the process. You’re going to have to be hands on on that and get out to rural Texas. I have someone I’m talking with who sold her home to her kids in an island in the state of Washington. They then. Rented it out and moved clear across to the other side of the country. They have now discovered that the renters have trashed the house and have had more people living there in the garage. And to sell this house, which is now their desire, they’re going to have to invest tens of thousands of dollars to bring it up to a saleable type situation. So as one of the great pundits I think of who’s a foreign policy guy named Thomas Friedman. He said, there’s a phrase, nobody ever washes a rental car. Nobody takes care of your house like you do. So you’ve got to decide that if you fit that personality profile that I just described, and you’re happy to take care of it, then you go ahead and do it. Otherwise, if you can sell it, sell it and invest the money. Great question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Time for me to take a break a perfect time for you to call 512 or text 512-921-5888. Stick around, I’ll be back.

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KUT Announcer Laurie Gallardo [00:40:21] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:40:35] Welcome back to Money Talk, I’m Carl Stuart and you’re listening to KUT News 90.5 and on the KUT app. We have all of our lines available in just one text which I’m fixing to answer so call or text 512-921-5888. Here we go. Hi Carl, my son is 15 years old and in 10th grade in high school. My husband and I have some savings, but we have not opened any kind of college fund. With only two and a half years to go before our son will be college age, what do you recommend for college fund options that could help us get more saved up in the next few years? Great question. So, I think the short time you have before you start the son in college, I would not do a 529 college savings plan. When they first came out, I thought they were terrific because people aren’t saving for college and then we end up with people with thousands of dollars of student debt, and they have a hard time paying it off, and it’s not a good way to start your post-graduate adult life. The other thing is they’re limited in their investment options. They’re run by states, but they’re actually run by asset management companies, and I believe you can only make one change in the portfolio per year. That’s my understanding. I’m not positive. So they’re not bad. Certainly, they’re a lot better than nothing. You don’t pay taxes on the growth, and when it comes out for a… Useful, for useful, and not even college now, lots of educational expenses regardless of whether it’s college or not, it’s tax free. Okay, fine. But on the other hand, if you invested this money in index funds that are tax efficient, so you’re not going to have current taxation, and when you sell them, you’re taxed at the lower flat rate of the long-term capital gain. So, I generally say I’m comfortable investing in the stock market when I have a three. To five-year horizon, and you’re two and a half years, but you’re not gonna spend all the money in two and half years because it’s gonna take this person probably at least four years to get through school. So the stock market in the U.S. Is at an all-hot time high, not true internationally. So start feeding it in, probably some, every month. 75% in a U. S. Total stock market index and 25% in an ex-U.S., international. Or if you want, go and do that yourself, or at Fidelity, Schwab, Vanguard, or go hire yourself an advisor, both of them are equally fine, and pay the advisor whatever the fee is. But you can even open an account, and you can call it education account. You can name it the Jane Doe Education Account. The beauty of that is, if it turns out that all the money isn’t spent, it’s yours. There could be other factors that happened over the next five or six years that you just don’t, you can’t predict, keeping it this way, in your name, in a tax-efficient environment, tax-sufficient mutual funds or exchange-traded funds, and having the money accumulate. Based on history, I can’t see the future. Generally, the stock market goes up two out of three years. Last three years, we had a stinker in 2022. We had two good years following, and we’re up about 11 or 12 percent this year. So who knows what’s going to happen, but that’s what I would do if I were in your shoes. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Ok here we go. Carl, what has to happen to any brokerage firm for SIPC to kick in and how likely is it? I don’t want to move money out just because I’ve reached the insured limit. So what this person is asking about is something called the Securities Investors Protection Corporation and it’s set up on Wall Street and brokerage firms, securities firms pay into this pool just like it’s modeled after the FDIC, it’s not a government guarantee and it is my recollection that if the brokerage firm fails, if you have cash there, you’re it up to $500,000, but you have to realize that the securities firms have people who keep tens of millions of dollars in there. So they go out in the commercial market and buy additional insurance. So if you’re concerned about your brokerage account, talk to your broker dealer and ask them what additional insurance they have over and above SIPC. Your securities are safe. Your securities or safe. Your cash is what you’re worried about. So if don’t have cash, I wouldn’t worry about it. I’m unaware. In my four, I guess it’s coming up on 47-year career, I’m unaware of a failure where people lost their securities. So that’s how I would think about that if I were you. 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. Carl, is it better to pay off credit card debt from investment accounts? Or keep the investment accounts gaining interest and paying the credit card debt down monthly over the minimum monthly amount. Well, the problem is the credit cards debt’s about 20% and interest, and there’s no investment that you’re gonna make year in and year out 20%. Yeah, you might take a whole bunch of risk and get lucky and make 35%. You might make 30%, but then you have a year. Like 2022, where you lose 40 or 50%, and it takes you years to get back. The question to ask, and this is more than you articulated, how did I get in the credit card debt in the first place? And if I pay this off, let’s be an optimist, when I pay it off, am I gonna get in credit card that again? I mean, if I got into debt because I had an unexpected emergency, my car blew up and I had to buy a new car, had an expected health… Emergency that my insurance didn’t cover or I’m not insured. Okay, that’s what credit cards are for. Credit cards are not to maintain a forever balance. You have to realize it’s an unsecured debt. You get a MasterCard Visa, they do a credit check, maybe, but it’s not like going to the bank where you gotta show your income statement, your balance sheet. That’s why you’re paying 20%. So is it better to have investments or is it to pay off credit card debt? It’s better to. Pay off credit card debt and never have credit card debt and then have investments because your investments will do well but they won’t do as well as the return that you get by paying off the credit card debt. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Carl, how do you suggest handling money from a previous Employers 401k. Let it remain or move. I’m with a small company now that does not have a retirement plan. I have a Roth IRA. Okay, so my experience is some companies will allow you to leave the money there even though you’re not a plan participant and others will not. So I’m taking it from your question that your company will allow to leave it there. So I can argue this long or I can this wide. So let me argue leaving it there The benefit of leaving it there is that your company had a fiduciary responsibility to go through a process to select the funds that are on your menu. So somebody else did that, took that load off your shoulder. Plus there are probably a large number of people in the plan. So the operating expenses of the plan are spread across a lot more money. So on a per person basis, that makes lower expenses. So the benefit is somebody else picked the investments and you’re paying low expenses. That’s the reason to keep it there. The reason not to keep there is because I don’t know the quality of the plan and I don’t know the range of investments and you have to decide whether you want to take charge. The fact that you have a Roth IRA, I’m going to take from that, I infer from that that you’re working on retirement planning and that you pay attention to these things. If that’s the case, then you wanna consider an IRA rollover because now if you’re happy with your Roth IRA, you can use the same custodian. You go there, you open up a IRA, and then you go to your former employer and you say, I want my money, and they’ll say, well, write you a check, and you’ll say no way, I don’t wanna pay the taxes. Well, then how do you want the check? Well, I’m with the check made fidelity for the benefit of Jane Doe or Charles Schwab. Or Merrill Lynch, or Morgan Stanley, or wherever you are, and then you put that in an IRA rollover. Now you have your IRA rolover and you have you Roth. And you’re now managing it, where you and your advisor are. And if you choose now, whether you want to do it all at once or a little bit at a time, you can take money out of that IRA and you can convert it, that’s what the term is, to a Roth IRA. That’s a taxable event, so you have to be prepared to pay the income taxes. But now it’s in your Roth. You’ve been there a long time. You don’t have to take the money out for a required minimum distribution. And if you’re over 59 and a half, you can take as much as you want out and pay no income taxes. So that’s how I would think about it. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. I heard what might have been a random comment by President Trump that he may eliminate the capital gains tax on primary residences. Have you heard of any credible discussion about this? If so, is there a potential timeframe for this? There is no credible discussion about this, I can assure you. That would be extremely popular, as you would imagine, but it might put a hole in tax revenues as well, because right now, if you’re single, you get $250,000 above your cost tax-free. If you’re married. Filing jointly 500,000, but a fair number of people, because what’s happened over the years, particularly during COVID and right after, have larger gains. And I’d just be shocked that that would be popular, but I don’t think it’s particularly fiscally prudent, not that we’re ever fiscically prudent in this country, but I have not heard anything in the financial press about it. So keep your fingers crossed. Thanks for the text. You’re listening to Money Talk on KUT News 90.5. And on the KUT app, 512-921-5888. Hi, Carl. I’m recently widowed, I’m sorry, hear that, and am in the process of transferring our property into my name. Long story there for another time, okay. My question is in regards to asset protection for my adult sons. I have a number of investment accounts, as well as substantial savings. I want to set up a trust, but have been advised that all but my IRA could be included in a trust. Is this accurate? Yes, you could put the IRA in your trust and make the, if you wanted to, there’s no real benefit to that because your kids are your beneficiary in your IRA. This is my largest investment account. It just seems odd that it would not be allowed to be included and a revocable trust. I think you could, here’s what I know. I’ve seen people make the trust the beneficiary, but I’m trying to figure out the benefit of putting the IRA trust because what’s going to happen is upon your demise, let’s say you split it 50-50 if you have two kids, they’re going to get a beneficiary IRA and they’re gonna have ten years to take it out. If you were taking your required minimum distribution when you passed away, they will have to take a required minimum based on their age and if there’s money left at the end of 10 years, which is likely if it’s well invested. They’ll have to take the money out and pay income tax. So I can’t figure out why you would want for asset protection, because an IRA is already protected and there’s already a beneficiary. So I don’t think that I would wanna do the IRA in there. Putting it in a trust, if you put it in the trust, you’re worried about if you don’t put it into a trust it can be attacked because it’s your money. You have to think about what’s the probability or plausibility of that. Because if it’s in the trust you’ve got to distribute all the income to be taxed at the Beneficiaries rate because if you leave it in the Trust income tax rates are quite high on Trust so I’d really rethink that before I did that. I’m going to try to get here to another Because we’re running out of time Hi there when buying gold should I expect to receive the actual gold or am I getting a promise for the gold? I purchased okay There are three ways or more I can think of to own gold. You can own the bullion, you can get the bullions, now you’ve got to go someplace and store it, you can buy gold coins and then you have physical possession, but that’s not a good idea because you’re paying more than the price of gold for the gold coins because you’re playing for the minting, and you’re being a broker-dealer, right? And the commissions on that can be ridiculous, anywhere from five to ten percent And with gold at this price, that’s a lot of money. You can buy the gold mining companies, they’ve done super this year, but when you buy a gold mining company, it’s like buying an oil and gas company. What’s their cost of discovery and what’s their costs of production? Some companies might make money at $2,500 an ounce, and others might not make money until it’s $3,500 an ounce. So gold mining stocks tend to outperform when gold’s going up and tend to underperform when gold is going down based on my experience. That leaves you… And you can do that in a gold mutual fund, as opposed to owning individual companies, but the performance characteristics are similar. But the good news is you can buy an exchange-traded fund. It’s truly an exchange traded trust. There are several of them. Two of the biggest ones are the iShares, I think the symbol’s IAU, and the SPDR symbol GLD. I’m not making a recommendation. I am only answering your question. And they have many shares, IAUM and IAUG. And that’s GLDG. These things are dirt cheap. The IAUM is nine basis points. That’s 0.09%. They own the actual metal. You can do your homework. Go to State Street’s website. Go to BlackRock’s iShares website. And study up on this. They trade throughout the day, which is wonderful. And if you have a do-it-yourself broker or you’re with an RIA who doesn’t have transaction charges, if you want to add to the add to your gold position. You can easily do it. If you want to rebalance because gold’s done so well, you can easily to that. So I’m a big fan when you own gold of owning in an exchange traded fund. Thanks for the text. You’re listening to Money Talk on KUT News and on the KUT app. I’ve got a couple of more minutes. If have that text number and it comes in, I’ll be happy to do it. And if not, I’m going to sit here and bloviate for a couple minutes. I want you to understand the concentration of stocks that are doing well in the U.S. Stock market. There are lots of ways to look at this, but let me just give you one of those that I read today in a Barron’s magazine. 30 artificial intelligence companies, these are artificial intelligence companies, make up 43% of the S&P 500’s value. Does every company take, what you do is you take the market price times the number of shares outstanding. And that’s what goes into the index. And 30 companies out of 500 make up 43% of the S&P 500. Another way to look at the S& P is if you look at value of the leaders in the S and P 500 today, and you compare it to the top of the market in 1999, what we now look back and call the dot com, but they weren’t all dot com. They were great companies like Dell and Cisco Systems and Microsoft and others. The market’s more expensive today than it was then. What am I saying? I’m saying you want to diversify away from just US stocks and the ones that are attractive and cheap are outside the United States in my professional view. You hear the music in the background, I’m gonna thank Mark for doing his usual terrific job and I’m going to thank you for listening. Oh, next week we have a special show. Be sure and tune in next Saturday to Money Talk after the news at five on KUT 90.5.

KUT Announcer Laurie Gallardo [00:57:55] This is Money Talk with Carl Stuart. Carl Stuart is an investment advisor representative of Stuart Investment Advisors.

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