Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on personal finance, including retirement planning and pension benefits, 401(k) rebalancing, investment options within IRAs, and managing finances for different life stages and situations.

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 [00:00:21] Welcome to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and on the KUT app. 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 at the earlier part of the broadcast. Giving me ample time to do my best to answer your questions. My order of priorities is I take today’s calls first and then I take to today’s text next and then text that I have been unable to answer after that because we simply run out of time. So let me give you those numbers one more time. Five one two nine two one five eight eight eight. And I’m gonna start with a text from last week and then we’ll. Stop doing that when you call or text. Carl, I’m 55 years old and am eligible to retire from multiple three government systems, Employees Retirement System and the Teachers Retirement system. And I’m currently working for another governmental system. Will it, let’s see. Will it and it goes blank. I want to continue to work for a few more years. If I file for retirement from one former employer. Will it affect the amount from others? It’s my understanding it will not because you created those benefits by participating in the defined benefit or pension plan where money was on a mandatory basis taken out of your paycheck and money was put in by your employer and then in your case, ERS and TRS invested the money and when you qualified for the pension, they made a guarantee. Of sending you money on a monthly basis for your life or for your life and your spouse or one other of the options. So it’s my understanding that you will not have a diminution in any of those benefits if you keep working. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. And by the way, you can catch past shows at kut.org slash Money Talk. We have a caller. Michael, you’re on the air, how may I help?

Michael [00:02:42] Hey, Carl. I’ve got a question on rebalancing 401Ks. Sure. I’ve gotten about three different 401K’s from different past employers, and I’ve noticed that one of them consistently is underperforming the other two. So last year was a difference of like 9% versus 14. This year more like 9 and 19 It’s pretty big gap

Carl Stuart [00:03:08] Yes, it is.

Michael [00:03:10] So I’m wondering, how do I go about, when do I know when to rebalance, to change my elections, and what’s a good strategy for that?

Carl Stuart [00:03:22] So I always take the view that you’re, regardless of what bucket your money’s in, you’re the same person with the same goals and objectives, whether it’s in a one or two or three 401ks or in your own taxable account or someplace else. And so the big driver of return, and this goes back to the beginning of the financial markets, the single biggest determinant of the investment return, Michael, is your asset allocation. So for example, If you had had all US stocks in 2023, you would have had a great year. If you have all your money in international stocks this year to date, you’d have a great here. But in 2022, not so much because stocks were down. So the way I think about this is, I would step back from the various fund options that I have in my 401k, and I would decide what’s the right allocation for me. Now let me ask you a question. Are you selecting individual funds? Or are you using something like a retirement date fund or a target date fund?

Michael [00:04:28] So the underperforming one is with a company that auto rebalances for you. My highest one is things that I had selected many years ago. And then the middle one is a target date.

Carl Stuart [00:04:43] Okay, so because you have paid attention to this, you might want to avoid the target date fund because you’re letting, and the balanced one too, frankly, because, and that’s not that you’ve made a mistake, but you’re experiencing this variability in return because of the asset allocation. The target date fine is going, the people, the firm that provides that is going to regularly change your asset allocation as you reach the target date. Now that’s not a bad thing, but it assumes that you’re going to have the money at a certain age, you’ve picked the year. You may wanna say, no, I’d rather know that I’m gonna have, I’m making this up, it’s not recommendation, I rather have 60% in stocks and 40% in bonds, and I’m going to make sure that that happens across all three portfolios. And so what’s happened, based on what you’ve told me, is you’ve had this long enough, and we’ve had with significant. Declines like in 2022. But since the global financial crisis bottomed the stock market in March of 2008, we’ve had a pretty long bull market run. So I have to infer that you’ve had a heavier weighting in equities or stocks. The second thing is until this year, we’ve pretty much a domination of what we call growth stocks. So the high tech companies are a perfect example of that. So I would say to you that I would probably start with index funds. I’d first decide what my allocation is, and then if you want to add some actively managed funds around it. But I want to get to that asset allocation that fits your needs and goals, and also you can sleep nights. Because if you go back and look at the one that’s really outperformed, before I made any changes in that, I would go back and see how it performed in 2022. And compare that to the other two, because it apparently has. A higher risk and higher return. And if you slept through that and you did, and you didn’t worry about it, maybe the allocation you’re using in that one that’s doing so well is the one that is appropriate for you. You may not have the opportunity to have exactly the same funds, but you can go online and you can look at those funds and you even see how they’ve done compared to one another. And you’ll find that a large cap growth fund or an S&P 500 index fund or a core bond fund. Are all gonna perform very much in line with one another. Number one, get your asset allocation. Number two, understand how the funds have performed in good markets like 23 and 24 and bad markets like 2022, and then align them across all three to the best of your ability. That’s what I would do if I were in your shoes.

Michael [00:07:31] Okay, any guide for how to determine what my allocation percentage should be and do I change it all at once?

Carl Stuart [00:07:38] I change, there’s no tax consequences, you’re the same person, I change it all at once. I see no benefit in doing it slowly over time. You’re already invested, you are not sitting in cash and so you just want to align yourself across it. Now the big question you ask of course is not one that I can answer on the air because I don’t know you and I don’t t know your full situation. What I can say is this, one way to determine asset allocation is to look at what happens when things go badly. And whether or not you can stand that and you won’t change your allocation. So I’m just gonna take that standard 60-40, not because I’m recommending it. And let’s suppose the stock market drops 20% and bonds don’t go up in value, they just lay flat. Well, 60% of your portfolio dropping, 20% means that your portfolio dropped 12%. And so you can look and say, okay, this fund is worth $400,000 and twelve percent is is $440,000 or $400,000. Yeah, I think that’s it. And nevermind, I’m not gonna do the math in my head and embarrass myself on live radio. That’s what you wanna do. You wanna stress test it. And if you can live through the periodic and inevitable declines in the stock market and you want the money to grow faster than the rate of inflation, you need to have, not 80% or 100% necessarily, but you need have more in the equity market. Than you do elsewhere. The other thing I would tell you is this. I’ve been wrong on this for years, although now I’m a genius this year. You wanna have about 25% of the money allocated to stocks, to international stocks. We’re in a period where US stocks have outperformed for several years, and international stocks are just statistically more attractive than US stocks, and also the dollar may continue to be under pressure, and that’s good for international. That’s about the best answer I can give you, Michael. Thank you. You bet. 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. Okay, here’s another text from last week. Stay with me. It’s important and it’s lengthy. Hello, Carl. My name is Julia. I’m managing finances for a 76-year-old parent with dementia. Despite this disease… She’s expected to live well into her 80s. She has money all over the place, certificates of deposit, various low interest bank accounts, an IRA, thrift savings, and TIAA, which is Teacher’s Insurance Annuity Association. She also gets my father’s federal annuity and social security, which really helps to offset the cost of her memory care, which is about to double. An increase to $10,500 per month, which is a lot of money, I have a multi-tiered question. First, what is a good way for me to consolidate these accounts, and do I need to worry about FDIC insurance limits? I believe you do not. Knowing what I know and seeing what’s happened in really stressful times, we have what some people call the Fed put, which is when things really go haywire, like the federal, like the global financial crisis, The Treasury, Federal Reserve, the federal government all stepped in to make sure that our banking system held and people who had $250,000 plus in certificates of deposit in deposits, particularly in the larger banks Did not get in trouble. So I don’t think that’s as significant a worry as you might as you understand Secondly, we’ll have to take about $80,000 in required minimum distributions before the end of the year. What’s the best way to reinvest this? Well, you apparently are all in CDs and cash type instruments. You don’t own bonds and you don’t know in stock. So if that’s what you wanna do, first and foremost, that’s up to you. If that’s you wanna to do, you keep a year’s worth of cash, you know what your expenses are. $80,000 of that, because you’re going to need about $130,000. $80 thousand of that’s going to be your required minimum distribution, and then you’re going to have another $50,000, and you want to put that in something called a money market fund, not a money market account at a bank, money market fund. You go, I know later on you tell me you haven’t done much of this kind of thing, but you can go and go to the websites of Vanguard and Fidelity and Schwab and look at their money market funds. They have three types. They’ll call them treasury, government, and prime. And you put the money in the government money market fund. You get in and out on a daily basis without any transaction fees. And you will earn whatever short-term interest rates are. And historically, that’s been better than a money market account. Now, let me see this. Lastly, what’s the best way to keep funds accessible for expenses? Well, I just answered that. Having six months of expenses not earning interest seems foolish. Yes, it is. If you want to keep six months fine, even a year, fine. Okay, now, you said, thanks so much, I’m a paycheck to paycheck person, and find all of this very intimidating. Of course it’s intimidating. All of us have small areas of expertise surrounded by huge areas of ignorance, and I’m living example of that. And so, what you want do is get these CDs as they mature into a ladder, L-A-D-D E-R, so that you don’t have all of them maturing at the same time. You have some, you’ve got a year’s worth of cash. You have CDs for one year, two years, three years, and four years, okay? Now, a year from now, when that cash runs out in the money market fund, guess what? A year’s worth of expenses shows up in the CDs because you say that you have over a couple of million dollars. So stagger the CDs, you can use one institution. They have a program to get you CDs at other institutions to keep those CDs at $250,000 or less. That’s what I would do if I were in your shoes. Thanks for this. Thanks for the long and important question. 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. Neil, you’re on the air. How may I help?

Neil [00:14:14] Hey Carl, thanks for having me. So I’ve got a traditional IRA and a SEP IRA and they’re mostly self-directed, so I’ve just got stocks or what I’ve got within those IRAs. But I’m curious, what else can I invest in without being penalized within those IRAs? Can I do real estate deals? Can i invest in crypto? Is there any way to use that money to put it to use? A better return without getting penalized tax-wise.

Carl Stuart [00:14:48] Okay, so there’s no other tax deductible thing that you can do. Are you a sole employer? Yes. Okay, I’m gonna give you a really interesting answer that I seldom give on the air. If you decide that you really wanna do this, you need to talk to your accountant about a defined benefit plan. You can actually have your own pension plan and the maximum annual contributions are quite high. Six figures as I recall, because you’re putting money away to guarantee yourself lifetime income at some future date. If you’re having your own teacher’s retirement system, much, much bigger contribution limit, but you’ve got to be prepared to pay for the actuarial computations, etc. But if you’re a hands-on person, and you are, and if you really want to put a lot of money away, then that’s the thing, is you look into a defined benefit plan, but you’re the only, you’re the sole participant and sole beneficiary. Let me answer this another way. There are trust companies that specialize in being IRA and SEP IRA custodians where you can put real estate. So you wanna do your Google on that because then you can move your SEP which has larger annual contribution limits into one of those and you could either do real estate deals as a limited partner or if you chose to do your own real estate, you could. It’s complicated, you need to make sure you do this with the help of a CPA, but you can do that. So the first part is, if you really wanna put more away, do a defined benefit plan. If you wanna do individual on-hands investing in real estate, do what I said. And finally, you can own, and I’m again not recommending Bitcoin, but you could actually own an exchange-traded fund, the symbol is IBIT, that matches, that owns Bitcoin. Just like if you wanted to buy gold, you could buy an exchange traded fund that’s like IAU that owns gold also. So those are the answers in my view for your question.

Neil [00:16:59] Awesome. Thank you. I appreciate it.

Carl Stuart [00:17:01] You bet, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We don’t have anybody texting today. You’re gonna, don’t wait till the end. Now’s a good time. I think I’m gonna take a break here. Mark, give me a call or text. 512-921-5888. I’ll be back.

KUT Announcer: Laurie Gallardo [00:17:29] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:17:43] Welcome back to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and on the KUT app. Also, if you’d like to listen to a previous broadcast, and let’s face it, who wouldn’t, then you can go to kut.org slash Money Talk and there they are. But this afternoon, call or text 512-921-5888. I just heard a text come in. Here we go. What are your favorite international exchange traded funds? So, I have a couple rules on Money Talk now in my 31st year. One is I never recommend specific securities. And the reason is, there’s something about, I don’t know what’s suitable for you and I don’t want you to do something that I’ve recommended and it doesn’t work out and the first call I get is from your attorney. So all I will tell you is this, There are two types of international funds that I use personally. One’s an index. So you can just Google international indexes. You want the broadest one. You know that the big companies offer indexes, the Schwabs and the Fidelities and the Vanguards. And then the other is actively managed, which I would have a smaller amount of. You do not want to own funds that have the word global because that means they have both US and foreign stocks and that would dilute your returns, good or bad. And you want to look at their return profile. In other words, how they do on calendar year basis, just because that’s the easiest, in good years and how do they do in bad years. It’s been my 47-year experience that when you own an actively managed stock fund, domestic or foreign, the good ones tend to either outperform in good times for their asset class or outperform by going down less in bad times because you want them to not look like the index. You want them. To be much more concentrated and give you a bumpier ride because that’s what active management does. If you don’t want to do that, then stick with the index. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here comes a call. Braden, you’re on the air. How may I help?

Braden [00:20:10] Hey, Carl, great show. I listen to you all the time. Super informative. Thank you. I just had one comment about the great advice you gave the previous caller about investing in real estate through a custodian in an IRA or Roth IRA. Yeah. One thing to look out for is you have to pay what is a pretty punitive tax. It starts at pretty low rates on any income earned. That has uh… Debt so any portion of the return that you know generated through leverage there’s some pretty if you bt i you’ve been right on a business taxable income but i don’t look out for when you’re investing in real estate it ask me how i know uh… Uh…

Carl Stuart [00:20:58] Well, that’s a great that’s that’s great. I’m really glad you told me that brain. So thanks for your call. Appreciate it. You’re listening to Money Talk on KUT News 90.5. I love that sound of incoming texts. Call or text 512-921-5888. Here’s another call. Phillip. , you’re on the air. How may I help?

Phillip [00:21:21] Yes, Carl, I would like to understand what would you recommend for a fund for a son that is starting college in 10 years? What is the strategy for that kind of short-term investment to maximize growth but also be sure that the monies are in 10-years?

Carl Stuart [00:21:45] When you look over what we call rolling 10-year periods, so from now out 10 years, the next year out 10-years, the next you’re at 10 years and you look at the performance of the stock market and you ask what percentage of the time does the stock market deliver a positive return? And the answer gets very, very high, but not 100%. And so if I were you, because the cost of college is continuing to go up faster than the general rate of inflation, if I were you, I would have a significant portion in the U.S. Stock market. Now my preference would be to have it in the global stock market by either having a U. S. Stock index fund and an international stock index or I would have a global stock index fund. They’re very, very inexpensive. They’re very, very tax-efficient. So they’re not going to pay out a lot of capital gains to you. And based on history, you’re going to get closer to the annual increase in cost of college education. There is no risk-free investment that will accomplish that. If you put that money, say, in certificates of deposit at the bank, you have no what we call nominal risk. But after inflation and after taxes, Historically, that’s a negative return, not a positive return, because you’re trying to keep up with the rising cost of college. So a global stock index fund, or a international index fund for 25%, and a domestic stock index for 75%, that would be the thing to do. The second thing I would say is, if you can afford to do it, do it over a period of time. In other words, if you have a sum now, and go ahead and invest it. But if you can add to that over time, that really increases your rate of return opportunities and it decreases your risk because what will happen is we’ll have two or three good years like 2023, 24 in year to date, but we’ll a bad year like 2022. And during that year, when your funds are declining in value, you’re putting money in, right? And getting lower costs. So you’re buying more shares when prices are lower. And fewer shares and prices are higher. So if I were in your shoes and I had that 10 year horizon, I believe that’s what I would do.

Phillip [00:24:19] Thank you. Thank you so much.

Carl Stuart [00:24:21] You bet, you’re very welcome and 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. Okay, let’s just see here, the latest text, okay. Carl, I am considering a change of employment. I would be working for a small company and they have been flexible. About whether to put me on payroll, or alternatively to have a consulting arrangement with me. Can you explain the pros and cons of these choices from a tax perspective? If they’re offering you both, I’m assuming that either you don’t want or need medical insurance or they don’t provide medical insurance, okay. So if that’s the case, then if you go and they may or may not have an employer sponsored retirement plan like a 401k. But if you were your own self-employed person, the downside from a tax standpoint is that you’ll have to pay payroll taxes, you may have to pay, I don’t want to be careful about this, I’m not a CPA. You may have pay more payroll taxes. I’m sure about that, I take that back. You need to talk to an accountant. I’m positive about that. I’m confusing something with my own personal situation. But the benefit for long-term retirement planning is if you’re self-employed, you can open something called an SEP IRA and you have very large contribution limits. So if you have a particularly good year or you have other sources of income, or if your partner has other sources of income you can put more money in there, thereby accomplishing two very attractive things. You reduce your income subject to income tax and you grow money on a tax deferred basis for your future financial independence. So unless there were other mitigating factors that would cause you to be an employee, I think the benefit of being an employer from an investment strategy and financial planning standpoint might be better for you because of larger contributions to an SEP IRA. You can open those at any custodian, whether it’s a bank, a credit union, a savings loan, a mutual fund company, with a financial advisor, all those kinds of choices. So look into SEPIRA as a self-employed person. 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. And if you’d like to listen to this broadcast or previous broadcasts, go to kut.org slash Money Talk. Okay, here we go. Online, I found a retirement calculator and told it I expect to retire at 66. Does it assume I am correct or does it assume, I’m just guessing? Ha ha, it assumes you are correct. And it’s gonna look at all those factors. It’s gonna to look at your life expectancy. It’s going to look your social security and your projected social security benefit. The ones I like, some of them are what are called income-based, and it tells you how much money you have and how much you can take out for income. That’s fine, but I like some that are what we call goals-based that allow you to put things in there that much more approximate the real world. For example, you may put in there, that I want to contribute to my child’s or grandchild’s college education or I want help pay for my son’s or daughter’s wedding or when I retire I want to be able to take an around the world cruise and you can drop those in there and that will also go into giving you what the odds are of achieving your objective because it will take the assets that you have and how they’re invested whether it’s in your 401k or your own money and it will run something called Monte Carlo simulations, which will take a thousand actual returns from the financial market. And will give you the odds as a percentage of your ability to accomplish that. I think that’s what I would do. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Let’s just see where I am. Here we go. Carl, I’m 69 years old and still working. My wife will be 62 next July. If she draws Social Security but does not work, how would my earnings impact her Social Security? I don’t think they would. Would IRA withdrawals have an impact? No, I know IRA withdraws don’t have an effect. She has a defined benefit in her Social security. I don’t see how what you do has an impact on that. It might have an on the level of taxation of the Social Security. Presumably, since you’re presumably married finally jointly, there’s a first modest amount from Social Security that’s not subject to income tax, but I would think your joint taxable income would be above that, so I can’t think of any reason why her benefit would be be diminished by that. You’re listening to money talk on KUT News 90.5 and the KUT app, call or text 512-921-8000. 5888, Carl, what is the best way to invest $1,000 and be able to liquidate it immediately? Well, that’s the great thing about financial assets. They have daily liquidity, and I mean daily. When I started in this profession, if you put money in a mutual fund and you later decided to take it out, you put in the seller order or you had your advisor put in this seller order and the money was available five business days later. Today, it’s available one business day later. So if you put it in on Tuesday, and six months later on a Wednesday you decide to sell it, you’ll have the money in your hand on Thursday. So that’s the great thing about the financial assets. Unfortunately, the terrible thing about financial assets is if you really wanna ruin your life, you can watch them go up and down every day, then something bad will happen in the world or the economy, it’ll go down and you’ll panic and get out. That’s why. Real estate tends to work because people can’t get out when they want to and as real estate values fall, they can’t find buyers and they’re stuck. They live through the decline, come out the other side and have attractive returns. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Do you have any advice on how to find a good tax accountant? My first advice is it’s gonna be painful and tedious. I’m not kidding. So yes, what you want is a tax accountant that works with people like you because there’ll be accountants that work with large corporations and they’re extremely knowledgeable, extremely sophisticated and extremely expensive because they have high overhead. But if you find smaller accounting firms, they’re probably either local or regional, they have competent people, and they work with individuals and families. And I’ve always felt, and I think in my experiences, this is borne out, that they’re going to be in the marketplace and their fees are going to determined by the marketplace. So if you went and found two of these people or three of these and you interviewed them and you showed them your tax situation. My best guess is that their fees are gonna be very similar to one to the other, but you have to be prepared from a minimum like $1000 or $1500 or something like that for it to be profitable for them to have a client like you. So 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. Nine two one five eight eight eight and we have a call stan you’re on the air how may i help

Stan [00:33:10] uh… I’m ninety years old i have adequate funds both in my ira and in my brokerage account and i have about fifty k i’m trying to decide whether to invest it in and s and p five hundred index fund or in an actively managed allocation equity fund will you discuss the disadvantages and advantages of putting it in the five hundred index versus an actively managed allocation fund.

Carl Stuart [00:33:37] In my experience, let me argue the pros of both of them. If you’re in an SMP index fund, your operating expenses are extremely low. For example, I know, and I’m not recommending, but I know for example, that you can get the SMP for less than five basis points at the annual expenses, that’s 0.05%. Secondly, I would probably purchase an S&P 500 exchange-traded fund. They have the lowest expenses, and the way that they’re structured in a unique fashion, they don’t distribute capital gains, and so it’s tax-efficient, inexpensive, and you will get extremely close to the actual return of the S&p 500. Active management, for the rest of our audience, are a bunch of really smart people sitting around, selecting stocks. And here’s what I’ve observed in my 47 years, Stan, that when I visit with portfolio managers, and when I go to New York and visit with PMs, besides being really smart, they have a distinct point of view. They have a selection criteria, and they may lean toward rapidly growing companies. Or they may lean toward companies that are maybe dividend payers, slower growth, but the stocks are selling at lower valuations. And the good ones stick to that discipline through thick and thin. So when we have a stock market that’s driven primarily by so-called growth stocks, like we’ve had recently, they’re gonna outperform the people that take that other point of view. When we have a period of time when value stocks outperform, like coming out of the dot com bubble, they’re gonna outperform. So what you want is you want performance away from the index. If they so-called hug the index, then there’s no benefit in getting active management. Now, if it’s in the exchange traded fund, it will be tax efficient. But, if on the other hand, it’s a traditional mutual fund, they are required by law. To distribute at the end of their fiscal year all of their net realized capital gains. What does that mean? So during the day, if it’s actively meant, during the week, I’ll get it out, during the year, because it’s actually managed, they will buy and sell securities. Some of these funds are tax efficient and some are not. And if they have a net gain, even though you don’t take it, you just reinvest and buy more shares, that’s still a realized gain for you. You’ll get a 10.99 and you’ll have to pay the taxes on it. It’s not, it’s just the way it’s always been. And you raise your cost basis when you do that. So I like both indexes and active. You just have to be careful when you start looking at active that you understand what you’re getting. Because if someone says, well, look, this trade, this did, the stock market did really well and so did this one. That’s not good enough for me. Why did it do really well? Did it do well? And better than the S&P because of the nature of its discipline, that looks good to me. In 2022, when we had a bad year, did it do worse in the market? That doesn’t make it a bad fun. It happens to be one of those strategies that tends to outperform at the good times. Or did it better by going down less than the stock market, makes it more defensive than my S&Ps? So this is complicated, but those are the distinctions, Stan.

Stan [00:37:22] To be honest about it, most of the actively managed funds that I’ve looked at don’t do quite as well as the S&P 500 because that’s the one they compare themselves to. So would you think that I would be wiser just to put that money in S&B 500 and just accept whatever it does?

Carl Stuart [00:37:41] Yes, I given that even the view that you just articulated is precisely what I would do if I were in your shoes, Stan Thank you. You bet. Thanks for calling. 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 great time for you to call or text 512-921-5888 and Megan and I are gonna visit when I return

KUT Announcer: Laurie Gallardo [00:38:20] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:38:34] Welcome back. I’m Carl Stuart and you’re listening to Money Talk. Thanks for listening. We’re here this afternoon and you can call or text 512-921-5888. We have a caller. Megan you’re on the air. How may I help?

Megan [00:38:53] Hi, I’m 25. I’m a PhD student. I have about a year and a half left. I have about $15,000 in savings, but I haven’t invested any of it. Yeah. Because I can’t really save a whole lot of money. I don’t make very much. And I’m just wondering how screwed am I for retirement?

Carl Stuart [00:39:12] First of all, you’re less screwed because you called me and asked the question. A lot of people who are 25, 35, 45, and 55 are really in that boat because they haven’t become aware of it or they’re just in denial. So obviously, if you think about the mathematics of it, the sooner you start investing, the longer you have to invest, the bigger the amount of money you have out at the other end toward retirement. Just because of what’s called the magic of compounding. So you wanna start as soon as you can. You wanna start with a modest amount. So you look at that $15,000 and you say based on my expenses and another year and a half of graduate school, can I put $1,000 in or $2,000 or maybe can I $1000 in and now I have $14,000 and let’s just see how that goes. And can I be comfortable, sleep nights, do my academic work and not be anxious? And the answer is yes, maybe six months from now, you slide another thousand dollars in there. And what you’re creating for yourself is a habit of not spending all of your money. I can tell you that I’ve observed in my 47 year career that people who understand what you and I are talking about, Understand. Savings is a discipline, and as you get into the workforce and you live below your means, which is practically un-American, I realize that, but you live below your mean so that you can put aside money, that is the deal. Now, since you’re going to start with a small amount, the thing to do is to go to a Vanguard or a Fidelity or a Schwab website. You want to start with an index I’m gonna give this specific index exchange traded fund, ETF. They all have them and you want to invest in stocks because you don’t want to be in something conservative because you’ll never accomplish your objectives. Now, if they will allow you to buy two funds with $1,000, put $750 in a US stock index fund, my favorite would be a total stock market fund. And it’s $250 in a total international fund. If they won’t allow that, then do it all in the U.S. Fund. They will not cause you any taxable income. You just leave it alone. It’ll trade up and down. And when you have either more comfort to put more money in or more income, you can begin to do that as well. And if you start that when you’re 28, let’s just say two years, three years from now, and you continue to make that a lifetime habit, You will accomplish your objective. Which is financial independence, which I define as when you get up in the morning, whatever you do, you do it that day because you wanted to and not because you have to. And so you’re aware of this, start small, use very inexpensive, tax-efficient, exchange-traded funds, and you’ll get there. I’m confident of it because you’re aware of the situation when you’re 25 years old begging and good luck.

Megan [00:42:29] All right, thank you.

Carl Stuart [00:42:30] You’re very welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 921, actually 512-921-5888. Here we go. Hi, my name is Amber, and my fiance and I are in our 20s. My fiance recently had a car totaled, oh, I’m so sorry, and she has to buy a new one. She will be using the insurance money from an accident to pay for a used vehicle around $20,000. At the moment, she only has one line of credit, which is a credit card. We’re trying to decide if it’d be worth taking a loan on the car to open a new line of credits and build her credit score versus paying it outright and not having any sort of debt. Could you provide some advice, please? Thank you from a couple of new adults. Well, you’re talking to an old adult. I understand your thinking. And yes, it is good to have a solid credit score, but you’re going to be paying a high rate of interest. Credit card interest rates are ridiculous and auto rates are high because the lender wants to make money and you’ve got your collateral is a used car and a used will decline in value. So the value of a collateral against your loan is gonna go down over time. And for the lender to loan you that money, And knowing that… They’re gonna have a higher interest rate. So having a higher rate would not be a good thing. If you can avoid that, you should. You should be saving. Should be saving, you have three buckets. Should be savings number one, to pay your weekly and monthly bills. Two, to put a bit of a money aside, not too much now because you’re just getting started, for a rainy day. You put that in something called a money market fund and then you start. Investing together for your financial independence. There’s good data. I’ve learned this from my colleague and daughter, Lindsey, that couples who share their finances, it’s actually good for your relationship. It’s good for you marriage, and I recommend that you do that. So personally, I would not borrow money for the car. 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. Here’s something that I haven’t heard of. What exactly is circular investing? I don’t know. That sounds like something that’s a particular style or brand of investing. I’ve never heard of circular investing. Sorry. And do you have thoughts, opinions, or concerns about potential AI bubble. Of course I do. As long-term listeners know… I’m fond of saying if you’re not worried, you’re paying attention. Stock investors have to at one and one at the same time be optimists because you’re betting on human ingenuity and it’s been a great long-term bet. And secondly, you have to recognize that the world’s a flawed place and investing involves risk. And you can be worried about that as long as it doesn’t impact your investment strategy. Am I worried about an AI bubble? Yes. I’ve lived through bubbles. I lived through the dot com bubble, which was wonderful. And it had good companies like Microsoft and Cisco systems and Dell computer. And people made tons of money until it collapsed. And then that NASDAQ, which is the index that really had a lot of those companies in it from March of 2000 when it peaked, it took 15 years. That’s right, 15 years to come back to that level. So am I concerned about it? Of course I am. That’s why I wouldn’t just have all my eggs in the AI bucket. And I read all the time, and you probably do too, lots of really smart people say this is a bigger deal than the internet, and lots of other smart people say it’s way overpriced. So that’s why don’t specifically invest in individual stocks and don’t invest in stock, what we call sector funds that only invest in one sector like the AI sector. Thanks for the question. Well, we’re down to about 10 minutes, so if you’ve been thinking of calling or texting, now’s the time to do that, especially if you wanna call 512-921-5888, and let me remind you that you can listen to previous broadcasts at 5129, I’m sorry, previous broadcast at kut.org slash Money Talk. I’m trying to do about three things here simultaneously. Okay, here we go. Carl, I currently have $100,000. In a high-yield savings account, and $35,000 in a regular savings account. My mortgage balance is $294,000 at a 4.9% interest rate. This is my first year contributing to a Roth IRA. It’s already maxed out. Plus, I’ve invested about $3,000 in the market. My salary is around $80,000. Do you recommend that I pay more toward my mortgage, or should I invest instead? I’m 32 years old. What a terrific question. This was so easy to answer when people had a 3% mortgage. But it’s not as easy now, simply because 4.9% is a higher return hurdle. You have to have confidence that over time, your investments, after expenses and taxes, will get more than 4. 9%. Based on history, the answer is yes. But there will be periods of time where the answer is no. So, the first thing I would ask is to think about, if I were in your shoes, that’s a lot of money to keep in a high-yield savings account, particularly for someone who’s 32 years old. I don’t think that’s some very good idea for you. I think what you ought to do is keep enough money in that savings account. If you have a really volatile income, where some months you don’t get paid, or you’re in a really volatil profession. Regularly laid off, or let’s say you’re a consultant and you have a gig, but those gigs come into fruition and then you have periods where you’re looking for new clients, that’s volatile income. If you have stable income, keeping $100,000 in a high-yield savings account at 32 years old is, in my professional view, a very big mistake because you will not accomplish financial independence in a High-Yield Savings account. So what I would do if I were you, is I would start investing. I do like the idea of paying down some of your mortgage. So for me, I’d probably do a little bit of both. I might take 35,000 to 50,000 and pay down on the mortgage. And then I would take the balance and I would begin dollar cost averaging because you obviously don’t need the money to live on because you’ve kept it in a high yield savings account. I would star dollar cost-averaging into 75% total stock market or S&P 500 and 25% and international. I would use an exchange traded fund. They’re very tax efficient. You can do this on your own. If you would like to do active investing, that’s fine. If you want to get an advisor, that fine, but I would reduce or substantially reduce my $100,000. I’d put some of it down on the car, on the mortgage, but I put a lot of it in the equity market. 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. Is it, I see, I love your program, thank you. Any industry you’d recommend, is it better to take, no, that’s, oh boy, I got a bunch of questions here. Let me just take this one. Is it better take Social Security early and invest it or later and get a higher monthly payout? In my view, when you think about your long-term success, the base of it is any guaranteed income. The defined pension plan, Social Security. I like the idea of keeping your social security benefit. It has a cost of living adjustment in it. And I gotta tell you, in a republic like this where we have elected representatives, we are not gonna eliminate social security. We have huge problems. It’s likely that we’ll increase the retirement age. It’s like that we will have. Income that today is not subject to Social Security tax be subject, but it is not going away. Keep the Social Security and postpone taking it as long as you can. Between full retirement age and age 70, it grows at 8% per year. There’s no such thing as a guaranteed 8% percent per year in the world of investing, so that’s what I would do. Now, you ask if there are any industries I would recommend. I learned a long time ago. That that’s really, really difficult because the marketplace is like, I tell you, it’s like we’re in a boat coming to, in the ocean, coming to onshore and it’s a dangerous place with lots of rocks and boulders and there’s a lighthouse and the lighthouse shines on those boulderes and we know how we can get in. But then the lighthouse moves and now we’re back in the dark again. Stock market is like that. It will like certain industries for periods of time, sometimes longer periods, and then it will hate those and it’ll like completely different. It loved high tech stocks from 95 to 99, and it hated them from 99 until about a long time, probably 2008, and value stocks did well. So I just don’t think that doing that from an industry standpoint, on what I’m gonna use a fancy phrase, on a risk adjusted basis, makes a lot of sense. I’m not gonna give you the numbers because we’re down to about three minutes. I’m just gonna read another text here. Hi Carl, I’m 50 years old. Have the opportunity to inherit a property overseas. Do you know of any financial implications of taking ownership? Great show, really enjoy listening, thank you. Yes, I do know that property rules and real estate rules are very different. I have a very good friend and he and his wife who is a British citizen. An American citizen, put a buy-in and got a contract on a house in England and my friend’s an attorney and a really bright guy and somebody came along and made a higher offer and the higher bidder got it, even though he and his wife had the contract. And he learned the hard way that the rules were different there than they are here. So I would tell you that there probably are financial implications and the tax laws are very different. And so before I took that property, I would do a lot of homework, thank goodness for the internet, I would a lot homework before I take it to understand since you inherit it. Because in this country, when you inherit something like a piece of property or a mutual fund, your cost basis is not what the person who’s deceased paid for it. Your cost basis has stepped up to equal. Of the value at the time of the donors or the person’s death. I don’t know that that’s the case in the country where the property is. You may be inheriting it, decide to sell it, and have a massive tax bill, or maybe not. So yeah, very complicated. Be very careful. Carl, at the risk of putting you in the middle of a disagreement with my wife and me, not gonna take that one, gonna do that next week because that’ll be really interesting. Let’s see if this one My daughter is 16 and has started a profitable business. She has earned $7,000 and wants to invest. Can she start an investment account on her own? No, she can have an account though, and she has it called a custodial account under the Uniform Transfer to Minors Act. You will be the custodian and when she’s 21, it will be her money. During the time that your name is on, if there’s any taxable income, dividends, interest, or realized capital gains, it will your liability. But I’m so pleased that she wants to invest. Allow her all of the flexibility. The best thing could happen is it goes down for a while because she has to learn that’s part of investing, but it’s just wonderful at 16 that she want to invest, open a custodial account under the Uniform Transfer to Miners Act and let her buy some mutual funds or individual stocks. Thanks for the question. Well, been a lot of fun this afternoon. I wanna thank Mark for doing his usual terrific job. And as always, encourage you and remind you that next Saturday, after the news at five or before the news, if we don’t have the news next Saturdays, we didn’t today, be sure and tune in to Money Talks.

KUT Announcer: Laurie Gallardo [00:56:04] Support for Money Talk comes from Better Business Bureau, serving the heart of Texas, offering accreditation to businesses, handling disputes, publishing customer reviews, and more. Details at bbb.org. You’ve been listening to Money Talk with Carl Stuart. Carl Stuart is an investment advisor representative of Stuart 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.