Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on the growing financial independence, retire early movement, the real risk of over-concentration in stocks, and investor anxiety.

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

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

Carl Stuart [00:00:20] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. If you’re a first time listener, welcome or otherwise welcome back. Money Talk is a broadcast about the world of financial and investment planning where You always determine our agenda by calling or texting 512-921-5888. It’s always a great idea to call or text early. Give me the best opportunity to do my best to answer your questions. I have no held over text today, so we have open lines and if people text, you will hear those texts going off on my phone right here by the microphone. The number is 512-921-5888. And I might add that if you would like to listen to our podcasts and broadcasts, simply go to KUT.org slash Money Talk. Okay, so I’ve had this question come up several times regarding the recent initial public offering of SpaceX and people saying, gosh, am I going to have SpaceX in my 401k plan or in my investment account even if I don’t want to have it there because I have a target date fund in my retirement plan or I own an index fund and I’m assuming the SpaceX is going to be in there and since it’s this huge trillion-dollar company, am I going to have significant exposure to it? Based on my reading and study, I think the answer is no. Two or three things. First of all, Standard& Poor’s 500, Standard and Poor’s, which I would say is probably along with the total stock market index, the two most diversified large cap and large stock funds the S&P people are not going to bring SpaceX in based on my understanding it could be anywhere from six months to a year. On the other hand the NASDAQ which has a lot of tech stocks has indicated that probably within 15 days of the initial public offering that SpaceX will be added to the index and if you have a more targeted index like the NASDAQ 100, I would suspect you would see it there as well. Now, having said that, market capitalization, the amount of the impact of a stock in, let’s say, any of these, but maybe not the NASDAC, I’m not sure about that, but the 100, but say the S&P 500. Every moment of every trading day, they take the price of a company’s stock, times the number of shares outstanding, and that creates the location. The bigger the market cap, the higher it goes, the greater the weighting it has. Well, a lot of the stock that’s at SpaceX is not outstanding. So you have to look at something called the market float, F-L-O-A-T, which indicates that there’s a relatively small market float on SpaceX when compared to say Nvidia or Microsoft or Amazon or Meta. And so again, based on my reading, if SpaceX were to sharply sell off the New York Times, call that event minuscule to a large index. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Carol, you’re on the air. How may I help?

Carol [00:04:12] Thank you for doing Money Talk. I’m an 85-year-old faithful listener and rely on your guidance. Thank you. I understand that that one big, beautiful bill… contains a provision which has tax implications for converting a 401k IRA into a Roth IRA. I know we pay taxes, but I believe that the lower tax rates have been extended. Is that correct?

Carl Stuart [00:04:49] So here’s my understanding. If you have had at a workplace a Roth 401k, that means it’s with an employer and you no longer work there, you take the 401k Roth IRA and you roll it over to your own individual Roth IRA. It’s my understand that that is not a taxable event. It’s not a taxable event and I can tell you studied these things. Most people, because Roth 401ks haven’t been around as long as just your traditional pre-tax 401k, people, when they have a pre-tax 401k they can roll it over into their individual IRA and leave it there, there’s no tax when that occurs, or of course, as you know, they can take money out of that array and do what’s called a conversion into a Roth IRA. Whatever amount they do that with, because taxes have never been paid on that, will be taxable income and added to their other sources of income. I have in front of me the 2026 tax rates, and I don’t see anything that indicates that the big beautiful bill had in some way affected this situation with Roth 401Ks. I’m not aware of anything Carol, as you know as a long term listener. We have lots of really smart listeners, including tax experts. If I’m mistaken, we may well hear about it this afternoon, but I’m not aware of anything special in the bill that would affect a Roth 401k being rolled over into a Roth IRA.

Carol [00:06:31] Thank you.

Carl Stuart [00:06:32] You’re very welcome, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. So. There’s something, you must pay attention to the news because you’re KUT listeners. And there’s a lot of talk about a coming sharp decline in employment associated with the advances in artificial intelligence. And you know, that. Just on the face of it makes sense that artificial intelligence will do work that humans do today and the humans will no longer be needed perhaps that will happen there’s another way to look at this and uh… I follow a particular economist where i get a daily piece from him and i’m going to not read it right now because i just heard just the uh… I heard the text go off, so let’s go over and do that. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Carl, this is an old tennis buddy of yours. I took your advice and invested and now I have an estate problem. You’re making me cry. And single and have over 50 million? No you don’t. What should I do to prevent tax on 35 million? Best regards after all these years. Good for you, Eric. I haven’t seen you in a long time. Now I know you are and I do believe you are. There is really the thing about estate taxes for everybody else. We’re all walking around with a lifetime exemption and in the statute, it goes up every year. This year is $15 million. So if you are a single taxpayer, upon your death, if your assets, minus your liabilities, are more than 15%. You will pay, and your heirs will pay an estate tax, and it rapidly goes up to about 40%. Obviously, if you’re married finally jointly, then you can, with the work of an estate attorney, actually get it so that you have that whole 30 million happen, and there are ways, frankly, to be helpful with that. But… There’s just something called a life insurance trust, I’m trying to think of what that is, that you could possibly put assets in. You really want to go to a really competent state attorney. You basically have to get rid of assets. You could, for example, if you know that you’re going to be leaving assets to children or grandchildren, you could put those assets into a trust where they’re no longer yours. Now that would take part of your lifetime exemption, but if you put growth assets in there and you’re the grantor and they’re the beneficiary and you have future growth in your estate and it’s in that trust, that might be a way to go up to irrevocable life insurance trust. Bingo, that’s what it is. You can look up irrevocables life insurance trusts and also look at family-limited partnerships. And also look at grantor trusts as well. And I’m not an attorney. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. I must have played tennis with him and he’s worth $50 million. Where did I go wrong? Hup, we got a call. Daniel, you’re on the air. How may I help?

Daniel [00:10:26] Oh wow, hey Carl, thank you for what you do and taking my call. You’re welcome. I just was curious, I currently am 35 and I work two jobs. I wanted to learn about early retirement, my goal is 45, and how I should contribute my allocation between my HSA, my 401, my IRA, and using my taxable account as a bridge.

Carl Stuart [00:10:54] Yeah, so I think, I’m not really familiar with HSAs, but I think there’s a maximum manual contribution. And frankly, as a young person, I don’t know that that’s the best use of your capital if you want to retire at such an early age. The second thing I would say is, one of the things that we’ve observed myself and colleague, Lindsay, is that when people get to retirement age. If they’ve done a good job of saving and investing in a 401k or a pre-tax IRA, they’re unhappy about the fact that they’re forced to take the money out and that they have to pay income tax on it. And of course, if you retire at 45, you’re still subject to the 59 and a half rule where you wouldn’t want to take money out of your pre- tax IRA because you’d pay income tax plus a tax penalty. So if you have a 401k You want to put enough money in to get the company match, if there’s a company match. If you qualify by not making too much money, you also want to have a Roth IRA. And the reason for that is that, eventually that money also will grow tax-free. And once you’re over 59 and a half and it’s been there for five years, it comes out tax- free. But the other one, and this is one of your, I think you ask a really thoughtful question. And that is, what about if I also put money in my own? Particularly when you have an early retirement age, investing on your own, in your own name, in tax-efficient, exchange-rated stock funds is a great way to build wealth. You have minuscule dividends, like the S&P dividends, like 1% that you’ll pay tax on. They’ll grow over time, you’ll have, if you retire at 45, you have complete access to it, and… When you sell those to supplement your income or to provide income, it’ll come out at the favorable long-term capital gains rate. So you have an aggressive plan. You can’t put too much in pre-tax investments because you’re at 45, you’re 14 and a half years away from when you can take the money out without a penalty. Get the employer match, do a Roth IRA and emphasize the investment in your own account. And invest in tax exempt, broadly diversified, domestic and international exchange traded stock funds. If I were in your shoes, Daniel, that’s what I would do.

Daniel [00:13:30] Okay, that really helps me out. I will take your advice. I really appreciate it.

Carl Stuart [00:13:34] You’re very welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here is a call. Kirby, you’re on the air. How may I help?

Kirby [00:13:55] Yeah, hi Carl. I, by the way, I’m also Stuart, but that’s neither here nor there.

Carl Stuart [00:14:02] I can tell that you’re by the intelligence sound of your voice, but go right ahead. Yeah.

Kirby [00:14:08] Yeah, well, go Scotland.

Carl Stuart [00:14:10] That’s right!

Kirby [00:14:13] I heard some time ago on your show a recommendation that you made for a couple of options for Purchasing gold. Yes or gold certificate

Carl Stuart [00:14:26] Yes.

Kirby [00:14:28] I lost the piece of paper that I took that note on, and I want you to reiterate that, if you would please.

Carl Stuart [00:14:36] I’d be happy to do that, and I’m going to, as I always do, give a full explanation for everybody else as well. So for the majority of time of my career in this investment profession, you either had to buy the bullion and then store it, and it was, you know, you couldn’t slice off a piece if you wanted to sell part of it. You could buy the coins, which are very expensive because you’re not just buying the gold you’re paying for the minting of it. And typically you have strong, not strong, big commissions or draw what we call markups and markdowns if you want to sell the coins or you could own the stocks of the gold mining companies and that took some real analysis because just like say an oil and gas exploration company one company might make money when oil is $50 a barrel but another one won’t money until oil $65 a barrel because of of the nature of the reserves and how expensive it is to get them out of the ground. So you could buy gold mining stocks or a mutual fund that own gold mining stock, which would be better because at least you got experts doing the analysis. But here’s what I really like. We have exchange traded funds. They’ve been around now for quite some time. And there are what we call passive ones that invest in say the S&P 500 or the NASDAQ. They’re actively traded ones that invest in stocks and bonds, but they’re also exchange traded funds that actually own the gold. I mean, it’s in the ground, in vaults. You can go to the websites and look at it, and their daily liquid, which is not the same with the bullion, you can, if you’re on a no transaction fee, no transaction cost platform at Schwab or Fidelity or Vanguard, you can buy these. At virtually no cost. The holding costs rank from on the high end, 40 basis points, .40 to nine basis points .09% of the asset value. Obviously, since it’s the same asset, you wanna buy the one that has the cheapest costs. The two big providers of this are State Street and BlackRock. State Street has symbol on theirs of GLD, and then they have what’s called a micro share. I believe that’s GLDM, and BlackRock has iShares Gold, which is IAU, and iShaers Micro, which IAUM. I want to be clear, I’m answering your question, because I really don’t make specific recommendations, and the SEC doesn’t want me to make recommendations, and my lawyers don’t want to either. I’m just explaining to you. The various ways in which you can invest, and that I think the gold ETFs are the most efficient and the most cost-effective ways to do that curvy.

Kirby [00:17:38] Thank you. That’s exactly what I wanted to know. I appreciate it.

Carl Stuart [00:17:43] You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We have a call coming in. I think I’m going to take a break here and remind you to call or text 512-921-5888. Stick around, I’ll be back.

Jimmy Maas [00:18:11] Money Talk airs every Saturday at five o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTX Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a nonprofit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org

KUT Announcer: Laurie Gallardo [00:18:40] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:18:54] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. And if you’d like to listen to this broadcast again or previous broadcasts, or you have friends who think you would enjoy Money Talk, and after all, who wouldn’t, then you can go to kut.org slash Money Talk and you can listen to all of those. This afternoon, give me a call if you have a financial or investment plan in question at 512. 921-5888. We have a call. John, you are on the air. How may I help?

John [00:19:32] Hello carl thank you for taking a phone call you that uh… You and a account i have recently become mayor with it uh… And uh… Do with it research is somewhat there’s plug plug in line up with but uh… Uh… Basically i hear it’s a it’s very uh… Help you manage taxes uh… In a uh… Taxable account of those two a rocker iran retirement account Are you familiar with? UMA accounts

Carl Stuart [00:20:02] I think I’m probably at about the same level of familiarity as you are or a little less. I would tell you this. I ALWAYS- A-

John [00:20:19] you you don’t have for ultra but it sounds like an ultra-manager micromanage the heck out of it where they they uh… By himself and uh… Everybody somebody behind the curtain is pulling all the strings

Carl Stuart [00:20:35] Yeah, color me skeptical, there’s something in business called the first mover advantage where the person who does things first gets ahead but I’ve also seen first mover advantages blow up. I’d have to do more homework on that, you’d have look at the tax efficiency because if You’re in your own individual account and If you own primarily exchange traded funds, they are so tax efficient and they’ve just really grown and there for a while, you primarily own passive index funds, which were terrific. And now you’ve got, you can even cut and slice those into large, mid, small cap indexes, growth and value. And then you had actively managed ETFs and bond funds. And then now you have actively managed ETFs and stock funds. And if you own those, it’s hard for me to understand how you would have to pay an extra fee. These people are not working for free and they should not. When you can manage those and absent you’re liquidating anything, you wouldn’t be creating any taxable gains. You’d be creating tax deferred gains until you wanted to sell something. I just think the, go ahead, please.

John [00:22:01] That’s what I get to is at some point, this is a taxable account, it’s my money, I want to take it out, and at some points, it has to, in order to grow, it is going to create taxes, it will create gains, which create taxes, and if you use the money in the end, you’re going to have gains and taxes.

Carl Stuart [00:22:21] Yeah, exactly right. I agree with you and you sound like a thoughtful person. It’s always troubled me when people let the tax tail wag the dog. I’m not saying that I am. I’ve heard you say that before. Yeah, I mean, if you’re paying taxes, it’s because you have either income or you’ve had capital gains, which means you have gains and why would you be unhappy about having gains? So I think you can do such great tax. I mean if you wanna own bonds You’re in a high enough bracket. You can buy taxes at municipal bond funds, either ETFs or actively managed. If you want to own stocks, you can own tax-efficient ETFs. And there you have it. So for the average person, if he wants to manage his tax liability, I think we have more tools available today than we ever have. That seems how I see it, John.

John [00:23:13] Yeah, and my broker or financial advisor has told me now with AMI they can do it so much more efficiently, so much more, which means they’re not actually doing it. They’re just leaving it up to a computer to do it and that certainly scares me.

Carl Stuart [00:23:31] Well, I understand that, um, and you’d have to have a compelling reason that I can’t come up with to make that look attractive. So I support your skepticism, John. Okay

Carl Stuart [00:23:46] All right. Well, thanks very much. I appreciate it. You bet. You bet, my friend. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. All right, let’s see here. Hello. Let’s see. I think I got that out of order. Well, let me just try this one. Carl, this is Joanne. Hi, Joanne, I am a 76-year-old widow. I’m wondering if I should pay off my mortgage. My mortgage payment is $1,713 a month. It pays off in 12 years and nine months. I owe a little over 200,000 on a home worth a little bit over a million. My husband left me with a portfolio of a million 364 as of June of 2026. My property tax is 9,000 a year. I should read the homes worth a little over a million. I understand that. So. One of the things that I would like to know is what the interest rate is on the mortgage. If you were fortunate enough to get a low interest rate back in the day when people were getting two and three quarters and three and a half and 4% interest rates, that’s a considerable thing to think about, Joanne, because what your portfolio, and again, I’m not sure how it’s invested, but let’s assume. That it was a balanced portfolio of stocks and maybe stocks and bonds and cash or stocks and bond and some alternative strategies. And I think a properly invested portfolio of balance, not just all stocks and not all bonds, has a target rate over time of six to 8%. And now, if you say I’ve got a 7% mortgage. Now then you have to think, well, maybe the future growth in my portfolio is more or less what the payoff on the mortgage is. And the payoff and the mortgage is a guaranteed return, so I’m not paying that interest. And the pay off of my portfolio last few years have been terrific, but it was down probably in 2022. So I would say you have to look at the opportunity costs. If you pay down the mortgage, then that money, the $200,000 goes there. Now your portfolio, instead of being worth the $1,364,000, is worth $1.164,00. If you are living on income from that, and you can still generate that at 76, because you’ve got to plan on living to be 90 or older, if it’s a higher interest rate, it might make sense for you to consider paying it off. If it’s lower interest rate where you think there’s enough of a difference, if you will, a spread, if you well. Between what you think your portfolio will provide over the next decade, and you know what the cost will be in the mortgage, then you might be better off to hold the mortgage. So I think that’s how I would think about that. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We have all of our lines available and don’t see any incoming texts. 512-921-5888 Okay, now. I was starting to bloviate about this. I just think this is something that’s not getting attention because the press is full of scary predictions about people, lots and lots of people losing their jobs because of being taken over by AI. So I’m gonna start reading this. If I get a call or a text, I’ll stop. But I think it’s important. A lawyer drafts contracts, negotiates terms, manages filings, advises clients, and flags risk. An accountant reconciles books, prepares work papers, handles audits, and prepares tax returns. A consultant scopes projects, runs interviews, builds decks and tracks implementation. Giving AI tools to knowledge workers will lower the cost of doing some of these tasks, and when things get cheaper, demand goes up. This is the Jevons Paradox, J-E-V-O-N-S. It’s the name of an economist, and if I have time, I’ll give you the background. When steam engines made coal more efficient, Britain didn’t burn less coal. It burned more. The same pattern is happening for cheaper legal services, consulting services, and financial services. Call it the Jevons’ employment effect. When the cost of professional work falls, the addressable market expands. And the total number of firms and workers in the field grows. That includes startups launched by recent college graduates who can now compete with established firms on certain tasks. That is likely the reason why the unemployment rate is falling more for younger workers and the number of new businesses created every week is at the highest levels in U.S. History. The bottom line is that cheaper inputs don’t shrink industries. Instead, AI is growing to increase both productivity and employment. So, by the way, the number to call or text, and I’ll keep bloviating until you do, is 512-921-5888. So my understanding was back in the 19th century when the steam engine came along, in 1865 this British economist wrote a piece and he said, all my colleagues or Most of my colleagues say. Because the steam engine is so efficient, will use less coal, and that will create a longer life to the coal reserves in England, which was a very big deal. Turned out that the steam engine started being used, not just for railroads, but for lots of other things. And what happened was the cost of doing things dropped and the demand for what the steam engines can do grew. So this isn’t to say that AI is not going to replace certain kinds of work. It is, but it doesn’t mean this kind of Armageddon thing. Where… We’re all going to be unemployed because the AI is going to do it all. The same economist pointed out 10 years ago that a lot of people thought that radiologists would go away because artificial intelligence would read the results of an MRI or a CT or some other kind of imaging. And in fact, the opposite has happened. There’s been a big increase in the number of radiologists and their compensation has gone up as well. You’re listening to Money Talk on KUT News 90.5 and on the KUT app, 512-921-5888. So I am, there we go, here is a call. Shandon you’re on the air, how may I help?

Shandon [00:31:06] Hi, thanks for taking my call. You bet. So I am a first time home buyer, new homeowner, and at this point in my life I can basically put away a little over $1,000 a month towards my various accounts. I have a 401k, a Roth IRA, and then an active investment account. The way it feels to me, and a lot of people have told me not to pay off my mortgage more quickly or not to put extra money into it. But to me, it feels like the rate of return on my house, which is in a good location, my interest rate is 5.6%. It seems like the area I am in is going to blow up in the long term. And it feels that putting that money in now is better growth than I would get through any of my other accounts. And I would also like to add that I’m a very risk-averse investor. Okay. Well, um…

Carl Stuart [00:32:11] We had real estate here in Central Texas, Austin specifically, where at one moment we had the strongest commercial real estate market in the world and real estate prices crashed and our savings and loans went away and most of our Texas banks were taken over by other banks and real-estate declined for seven years. In 2007, 2008, 2009, 2010 people with homes in places like Florida and California, which are growth areas, their houses were worth less than their mortgage. So real estate doesn’t always go up and it doesn’t go up in growth areas. It has a lot to do with supply and demand and pricing, of course. We had a 40%, that’s right, 40% increase in house prices during the pandemic in central Texas. House prices over the last two years had been dropping very modestly at one to two percent a year. And as of last month, the median period of time on the market’s 88 days. So that’s three months, and that’s median, so half of the houses take longer than that. I don’t think a house is an investment. I think a a house as a place to live. And it’s illiquid, right? You can’t sell off a bedroom if you want $50,000. And when you sell the house, what are you gonna do? You’re not gonna live in your car. You’re gonna live someplace else. So, I’m a homeowner, and I like being a home owner. In your future financial picture, you want to be financially independent. So if you sell the house, what are you going to do? People talk about downsizing. Trust me, that’s not nearly as easy as you say, because now you’re older. The only way you can get a lower priced house that you want is you need to move further and further away from the city and further and further from healthcare and easy access. So no, I think if you told me you had a 9% mortgage I’d say, yeah, it’s a really expensive liability. But the fact is that based on history, you need to have liquid assets because you can’t plan on your house being the big asset because you gotta sell it and you gotta go buy someplace else. I really like taking the 401k and making sure I get the employer match, do a Roth IRA, if you qualify for that, at the maximum amount, 7,500 a year, and investing on your own, in a conservative fashion, you’re a younger person, investing in widely diversified passive stock index funds. In history, the two asset classes that have outpaced inflation are income producing real estate, not residential real estate. And the reason for that is, income producing a real estate provides what? Income. And if interest rates stay flat, and if over time the income from the real estate goes up. The value of the property goes up. And the other class that outpaces inflation over time is common stocks, because you’re investing in human innovation. The iPhone didn’t exist until 2007. Will there be down times in real estate? Absolutely, we’re having one right now. Will there down times and stocks? Oh, of course there will be. But because stocks are more liquid than real estate, those down times happen more frequently because people can affect the trades. They’re sharp and they’re painful. But if you’re putting away $1,000 a month and you’re investing for every month and the stock market goes down 19% for the S&P 500 and 33% for The Nasdaq in 2022, and you were putting $1000 in there every month, you’ve got some very attractive gains because you’ve had three and a half years, three years of double digit gains and a nice single digit gain this year. So I’m not convinced that putting the money in there. I think you end up with an illiquid situation and that’s not where you want to be if you want to become financially independent. That’s how I see it, Chandon.

Shandon [00:36:12] I see. That’s a great perspective. Thank you.

Carl Stuart [00:36:15] You’re very welcome, thanks for calling. You’re listening to Money Talk? I’ve lost money in every conceivable asset class over 47 years. You’re listen to Money talk on KUT News 90.5 in the KUT app. Call or text 512-921-5888. Gary, you’re on the air, how may I help?

Gary [00:36:39] Uh… Yes carl can you hear me okay

Carl Stuart [00:36:41] yet yes i can hear you loud and clear here

Gary [00:36:44] I just wanted to comment on the first caller who asked about the One Big Beautiful bill and changes regarding traditional 401k funds to Roth funds and Google says the One Big Beautiful did not alter the direct mechanics of how you convert traditional 401K funds to Roth Funds however it indirectly impacted your strategy by making the lower 2017 tax track is permanent. Which creates a favorable window for executing conversions at lower tax rates, which I think is what you said, but anyway, I just want to make sure that it didn’t look to me like there was some change. And I know my, at least I believe my 401k allows conversions within it. Some may not. I wondered if the law changed to where they had to, but I don’t see anything that indicates that. And then anybody can Google this and it gives some other information that people might find helpful extended lower tax rates, which we already talked about new reductions, like the salt and the, I guess the, uh, the senior deductions to help compensate for the tax on social security and, and potential tax torpedo. So anyway, anybody wants to be like,

Carl Stuart [00:38:01] Okay my friend, thanks for calling. Thank you, you bet. You’re listening to Money Talk on KUT News 90.5 and the KUT app. It’s time for me to take a break. It’s a perfect time for you to call or text 512-921-5888. I’ll be back.

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

Carl Stuart [00:39:13] Welcome back. You’re listening to Money Talk on KUT News 90.5 and the KUT app. I’m Carl Stewart. Thanks for listening and if you’d like to catch past shows, go to KUT.org slash Money Talk. Okay, here is a call. Rob, you are on the air, how may I help?

Rob [00:39:38] Uh… Hello i think i’m obscure question well thank you for pick my call sure uh… So i’m i’m pretty well-invested in stock uh… And i don’t i’m not at all risk averse i have not all my ira is in ten years i working about twenty percent term well for all my cash management account averaging about thirty five percent

Carl Stuart [00:40:00] Wow.

Rob [00:40:01] Now the other reason is because I’m not risk-averse.

Carl Stuart [00:40:04] Yes, for sure.

Rob [00:40:06] But what’s recently come up to my attention is a company called Force Global. When I’m not looking for recommendation or company, I’m just looking for filling you in on what they do. And I found out that Schwab recently bought them and they allow investors who don’t have millions and millions, but are, you know, doing okay, have a few million or whatever to invest in a hundred thousand dollar increments in pre IPO companies. Do you know anything about that? Not about that company, per se. And what I want to throw out there is what’s got me concerned, besides the money, obviously, but is that they’re looking for a 2-5% fee up front.

Carl Stuart [00:40:51] Yeah, for sure.

Rob [00:40:52] Uh… Idea i’m just curious what you what your understanding of that scenario so

Carl Stuart [00:41:01] At the high level, which is what you’re asking about, what I’ve learned is that the retail investor, meaning the human being, is pretty much at the end of the food chain that the vast sums made are made by venture capital firms who are very early investors. They see massive amounts of deals. That’s what their business is. They put money in, a whole bunch of them fail, but the ones that make it make up for the ones that fail, and so what you’re seeing like with the SpaceX initial public offering, Fidelity was an early investor, but not for their funds, I don’t think. And there were some large, large venture capital firms and then The second group are the private equity firms who are looking at two kinds of companies, companies that want additional capital to grow, that’s growth equity, and companies that are looking to sell, that’s buyout. And there’s hundreds of millions, frankly, billions of dollars with people like Blackstone and Apollo and KKR in the private-equity side. So, then comes along… What you and I are talking about. I don’t think that the returns are going to be better than what you’ve just articulated to me. And the reason is not because Schwab’s charging a high fee when that is a high-fee, but because money, because it’s supply and demand. There was so much capital looking for return that the experts I talk to, I’m on the investment community of endowment of a Big Ten University, and we do private equity, and we do small pieces being $25 to $35 million of different deals, and I would tell you that there’s so much money looking for returns and endowments and pension funds and like that. I think by the time the deals that the average person could see at Schwab are going to be – Schwab’s got a reputation. There are going be deals that are quality deals, but they’re going to modest return deals. I think the good returns are not going to there. And you can argue that that the fees on private equity are 2% every year and 20% of the gains, so I’m not really surprised at their high fees. I just think the investment as an investment does not look nearly as exciting as I think it’s made out to be. That’s my view.

Rob [00:43:52] Yeah, it sounds like basically even though they’re offering you an opportunity to get in on the early side, you’re still late to the table.

Carl Stuart [00:43:59] Yes, that’s my view. The best deals have already been taken. I learned my lesson back when we had a bull market in energy in the late 70s and early 80s. I was shown limited partnerships. I finally figured out that the general partner was making money through the fees, but the people on the ground who saw the real deals, they had raised money on their own. They didn’t need my money. And so I learned a hard way that the retail investor is generally the last one to the party and you don’t know when the punch bowl is gonna be taken away, Rob.

Rob [00:44:36] Yeah, well that was my suspicion when I saw one that their minimum was a hundred thousand, which sounds like a lot, but in that scheme of things it’s not.

Carl Stuart [00:44:45] Is not.

Rob [00:44:46] And then you’re looking at a 5% fee. It’s like, how long is it gonna take? Like I said, I’m already doing 20 to 35 just on my own.

Carl Stuart [00:44:53] Yeah, yeah, no, you’re doing great. Keep doing your own deal, Rob.

Rob [00:44:59] Well, you answered my question, I really appreciate it.

Carl Stuart [00:45:01] Thank you so much. You’re welcome. Thanks for calling. You are listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Michelle, you’re on the air. How may I help?

Michelle [00:45:21] Hey there, I have a kind of a two-part question. I have, you mentioned just about the iPhone. I have Apple stock. Yeah. It has bases, it’s like $5 or something. Yeah. So now selling it means half the capital gains that are significant, but because of it splitting, it’s become almost my whole portfolio or a huge chunk of it, and it’s a lot. Lot of money right on the digital screen. So the broker keeps calling me but I haven’t called him back saying, ìI think we might make a look at your account.î And so I was wanting your insight about diversifying. But the other part, maybe your show or somewhere else, I heard about people who have a lot of monies instead of selling that they operate on loans, they borrow money. Yeah, yeah. I am thinking about building a, doing a build of a second home, so I was wondering how that might factor in as well. Sure, sure.

Carl Stuart [00:46:30] What, more or less, okay, you’re 53, more or less what’s the market value of your Apple position, more or less?

Michelle [00:46:40] Er, more than a million.

Carl Stuart [00:46:42] Okay, and do you have any other financial assets besides your Apple stock, Michelle?

Michelle [00:46:50] Yes, yes, some mutual funds and it’s been, when I’ve sold before, I’ve sold them for a couple of different reasons, you know, one being that the capital change stopped being so much.

Carl Stuart [00:47:02] So when you add up the value of those other things, the mutual funds, you’ve got over a million in Apple, how much do you have in those other thing?

Michelle [00:47:14] I… I really don’t. I don’t know. I kind of not look at it and pretend it’s money for some future…

Carl Stuart [00:47:20] Good. You did the right thing. You do the right thing. Well, I will tell you that. I’ve been doing this for 47 years and back I read a book about 1929 and there was a man who was famous at the time named Bernard Baruch and he said put all your eggs in one basket and wash the basket very carefully. I would tell you that it makes me very anxious to do that because yes you’ve done terrifically well. But I was around when Enron was a fantastic stock, and it went to zero. And people had all Enron stock in their 401k, and they were wiped out. And then there was this wonderful period in the 90s when technology stocks skyrocketed. And there was his company that had an initial public offering called Netscape, and it was a search engine. And it went zero. And then we had here in central Texas. Transformed our community with Dell computer and it made, we ended up having people we called DeLionaires, but if people held it and never sold it, Dell peaked at around $70 and collapsed and Mr. Dell took it private at $10.50 and that’s a permanent loss of capital. And so what I think, that’s number one. Number two, and I know you know this, the capital gains tax is a flat tax. Maximum rates 23.8% if your gains are $250,000 or more. And I think. If I were in your shoes, I would design a plan. You don’t have to sell all of it today, but we call something dollar cost averaging where we’re putting money in every month into our portfolio because we know some months prices are up and some months, prices are down. I would designed a plan to say, I’m going to either eliminate or substantially reduce my Apple stock and I’m going to do it over a fixed period of time. Because I like your attitude and not paying attention to the market. I think that’s, if everybody did that, we’d have a lot more successful investors. So I have no reason to think negatively about the outlook or the future earnings of Apple, but I’ve just been around long enough that I would come up with a plan, whether it’s over the next six months or the next nine months, pick a target of how much Apple you wanna own. It oughta be a fraction of what you own now, $100,000 maybe, and then rateably sell it. You know, on the 15th or the 20th or 10th of the month. That way, if the stock keeps going up, you’re going to participate. If the stock starts to go down, you’ve still got money out at a higher price, and you’re gonna be paying long-term capital gains. Now to the second part of what you talked about. Yes, people that have tens of millions of dollars and billions of dollars can, the way they avoid paying taxes is they use their. A company stock, a lot of times these are founders, they use their company’s stock as collateral and they go to Morgan Stanley and Goldman Sachs and people like that and they deposit their stock and then they borrow money against it. And since they don’t have, let’s assume that the stock doesn’t pay any dividend or small dividend. They have very little income tax, because they don’t have a lot of taxable income, and they’re just using that as collateral. But when you have a million dollars of stock, that’s not a viable option. There’s something called a margin account, where you could go to a broker dealer and pledge your Apple stock, and they would loan you up to, let’s say it’s a million dollar value, they would lend you up to $500,000, and you don’t ever have to pay that off. If the price of the stock sharply declines and the value of the equity declines, you’ll get what’s called a margin call and you’ll have to come up and pay the money from someplace. And the interest rates are high and they’re variable because the broker dealer wants to make money and they are loaning you the money and so I think a margin account with a million dollar of Apple stock is not attractive at all. I think rateably selling the stock. If you wanna build a second home, you’re in a position where you can do that. If you have other savings, you’re a young woman, you need to plan on living for a really long time. And if you can have the second home and still have millions of dollars when you retire to draw down on, because now you have two pieces of real estate, that’s okay. But if you take the million dollars and sell it and put $750,000 in a beautiful home. Now you got $250,000 plus your mutual funds, that’s way too little for a 53-year-old female to have as she ever hopes to be financially independent.

Michelle [00:52:29] Yeah, okay. All right. Well, thank you so much. That’s a lot of helpful information

Carl Stuart [00:52:34] Thank you, you’re welcome, thank you, and thank you for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Let’s see if I got any texts. Here it looks like one. Hello Carl, how do I decide when to withdraw money from a Roth account? I’m 68 and have been deferring Social Security until 70. That’s generally the right thing to do in my view. My expenses are low, my house is paid for, and I have no debt. I’ve been selling stock in a cash account to live on. The basis on my stocks is about 50%. So with the standard deduction for a single file or over 65 being 23,000, I can take about 50,000 out of the cash tax free, which is more than I need to live off. This allows me to let the Roth grow tax-free. This works great for now. My question is, if I have to need to withdraw more, say for a new car, should I take it from the cash account and pay the taxes, presumably at a low rate, or is this when I should draw from the Roth? Is there a tax bracket where it makes sense to draw from a Roth? Both accounts have approximately equal balances and holdings. Thanks in advance for your advice, you’re welcome. So I think at your age, at 68, The question then becomes what’s going to happen if you let the Roth grow and then it’s there and you pass away and it goes to your beneficiary, they have ten years to take it out and they are tax free. On the other hand, if you hold the stocks and you don’t take the money out of there and that continues to grow upon your demise. They get a step up in basis. Presumably the stock’s values have gone up. And as a result, when they sell it, they get paid no taxes on that. And they can sell it or hold it and have a new hire basis. So I think in your case, if I had a chance to make, would I rather leave a legacy of a beneficiary Roth IRA or would I leave a legal legacy? Of a stock account. I’d rather leave a legacy of a stock account if they’re of equal value, because it’ll leave the most money to my beneficiaries. I therefore would probably take the money from the Roth. Thanks for your question. We got a question coming in here now. Judy, you are on the air. How may I help?

Judy [00:55:12] Okay you’ve been a big help all these years and i was going to advocate first of all to have a stump the chomp on um on mpr i thought it might help them uh to have you on for two hours you know what i mean and i think used to be on the other am station for players in the old days And it would help the listenership. Now here’s gonna be my quick question. Yeah. I’m getting a 1099R for a Roth conversion. I can understand that. What I don’t understand is I have what I think is an annuity and there’s saying 1099 R, so it confuses me because the annuity is still. And captured in the immunity account.

Carl Stuart [00:56:12] Huh, you think you’re getting a $10.99 on income from the annuity, do you think, Judy?

Judy [00:56:19] Yes sir, or reporting the annuity. Now maybe they made a mistake. People get mixed up and they do things wrong. Could that be it?

Carl Stuart [00:56:29] It could be it. My understanding of annuities is unless and until you take money out, there simply is no taxable income. Obviously, the 1099 comes if you have dividends, interest or realized capital gains, which you could have in your own name. But if you’re in an annuity, whether it’s a fixed annuity or a variable annuity they’re designed to not pay taxes. Those are called tax-deferred and you’re designed not to pay taxes until you take money out of the annuity. So I’m concerned, as you are, I’d look further into that. There may be a mistake there, okay?

Judy [00:57:04] Would a CPA be able to figure that out?

Carl Stuart [00:57:07] Yes, yes, yes the CPA would, Judy.

Judy [00:57:10] Okay, I may find out something and call next week. I sure do. Thank you. God sure did thank you.

Carl Stuart [00:57:15] Okay, thanks for calling. Well, we’ve run out of time. I’m gonna thank Mark for doing his terrific job, as always, as my producer. I want to thank you for listening, and as always remind you that next Saturday at five, be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:57:40] You’ve been listening to Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. And this is KUT and KUT HD1 Austin.

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