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Carl Stuart takes caller and text questions on retirement planning for self-employed individuals, including discussion of SEP IRAs and Roth IRAs, advice on finding and evaluating a financial advisor, investing in cryptocurrency, selling gold bullion, and using a brokerage account while living abroad.
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 [00:00:21] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. Welcome and 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 a great idea to call or text early in the broadcast because my rule of thumb, actually just my rule. Is I take today’s callers first, and then today’s texts, and then previous texts that I have not had the opportunity to answer. So we have all of our lines available. You’ll hear the text coming in. And the number again is 512-921-5888. So here’s a text from last week. Carl, how could a 50-year-old self-employed barber who sells $50,000 in services a year, start to plan for retirement, asking for a friend and then a smiley face. Actually, I know exactly what you can do because it’s what I’ve done. There are in retirement plans specifically designed for self-employed people. They call SEP, self- Employed IRA. So you could start an SEP IRA. You do this on your own or you can select an advisor to help you, and you will have what’s called a custodian. If you do it on your, it might be one of the do-it-yourself large custodians like Schwab or Fidelity or Vanguard. And you can put money in, and you can a lot of money in. Now you could also do an IRA. Because the limits, I think, this year are 7 or, depending on 50 years old, I haven’t memorized them, it was 7,000 and above 50, it might be 8,600. And that may be all that this person can afford to do. And so doing an IRA will be a tax deductible contribution for them. If they need the tax deduction, they may not need it because of the standard deduction. But then the money will grow depending on what investment they select. And there are no dividends or interest or capital gains subject to taxes. And provided that this friend leaves the money there until she or he is over 59 and a half years of age, they can take the money out and pay taxes then, but no penalty. If they have the ability to put more than the maximum in, then the SEP IRA is a good idea because you can put up to something like 25% of your compensation, which I think off the top of my head would be. Something like $12,500 or something like that for this person. Now there is one thing, if this person is self-employed and doesn’t have any W-2 employees, then that’s it. But if he or she has employees, they have to go along for the ride as well. They have their own separate accounts. And let’s just say that Barbara puts 15% of his or her service income in. Then she would have to put 15% of any W-2 employee, although my memory is that you can postpone putting it in for employees until they work their three years and they have to be full-time employees and the statute indicates how many hours a year they have work. So I think the, provided that they can afford to put more in, I think SEPIRs are terrific and so are IRAs. The last thing I would say is, Hmm, because they’re in a- low tax bracket and may always be or not the benefit of the tax deduction may not be there for them. They could also do a Roth IRA, the same rule applies to the maximum annual contribution, and once again they don’t pay taxes on any growth in value and provided they’ve had it there for five years from the initial investment and they’re over 59 and a half, they can take money out tax free. The other benefit of the Roth is that There’s not something called a required minimum distribution or RMD. In the case of an IRA, there is a required minimum distribution and they do have to take that. 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. What are your thoughts on cryptocurrency as part of a retirement portfolio? I don’t think that they’re very attractive for a retirement portfolios. They’re extremely volatile. And there’s, we’re just in the early stages of kind of legitimizing cryptocurrencies in my view. Certainly some of the large asset managers like Fidelity Uh, offer, uh, funds. It changed, I think it was an exchange traded fund. That will allow you to follow Bitcoin, but it’s extremely volatile. And unless you have a large portfolio and you just find the whole cryptocurrency thing just terribly interesting, and you wanna put a small portion in, then I guess that’s okay. But I don’t think it’s a particularly attractive investment, frankly. You’re listening to Money Talk on KUT News 90.5. And on the KUT app. Call or text 512-921-5888. Here’s another text. Carl, how do I sell gold bullion? So you go to a dealer and they will buy it from you. Just like if you wanted to buy bullion, you would go to dealer and then they would sell it to you. If you already own the bullion, which I’m gonna assume since you’re asking about selling, I would do some shopping to see what the fees are. Back when gold was a much lower price, I did that for someone, and the fees were quite expensive back then, approximating 10%. And I can’t imagine now that gold’s in the high 4,000s, low 5,000 per ounce, that they’re still charging that much. So you want to do some comparison shopping because It’s the same gold bullion no matter where you take it, and that’s how I would think about it. So I would just do what I did, just do a Google search, and then see what comes up. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Let’s see here. Hi Carl, I bought a car a few years ago with a five year loan. I got about $10,000 left on the loan at a 7.44% interest rate. I also have a really healthy 401K and Roth IRA, plus about $20,000 in a regular brokerage account. Is it a good idea for me to use some of that money from my brokerage account to pay off my car? I grew up being taught that it was bad to have debt. Good for you. But not sure if taking money out of my brokerages account for this is smart. Also, I recently moved into a new tax bracket. Translation, big raise from a new job, yay. With that, I’ve been thinking I should get a financial advisor. What’s the best way to look for one? And what factors should I consider? And thank you for all your great advice. I think because your interest rate is high for that car, 7.44%. When you pay that off, you have that imputed return of 7.44% because if you don’t pay it off, that’s what you’re going to pay, right? Probably equal to or even better than perhaps the long-term on your brokerage account. I mean, you can argue that US stocks will bring in maybe 8%, 9%, but there’s years and when they drop 15 or 20%, and the car’s not going to continue to grow in value at all. So I think because you do have a healthy 401k and a Roth IRA. And you do have the $20,000 in the brokerage account, I think if I were in your shoes, I’d take 10 of that out and pay off the car. As it regards getting a financial advisor, this is a terrific question and one that, as you would imagine over the last 31 years, I have gotten rather frequently. So let me start at the very high level and say that the phrase financial advisor is a term of art and not a term law. So people can call themselves financial advisors. Typically, they have some form of securities license or an insurance license. There’s another term called investment advisor. That’s a term of law. And those people are generally either under the state or the Securities and Exchange Commission regulatory authorities. Financial advisors can work on an asset-based fee. Or on a commission basis in some circumstances. And a lot of the big brokerage firms would allow that. And then the investment advisors cannot receive any transaction-based compensation. And so that generally, and I have friends over the years that have been in the transaction commission basis and they’re fine, fine people, so I’m not saying anything against them. A lot of it depends on how much money you have to invest, because the fees for an investment advisor are generally, in my experience, lower than what the transaction costs and commissions would be. What you want to do is find to ask friends, socially, or at work, if they use someone, who it is. But you want, if you can, get in face-to-face contact with the person, preferably in her office, but certainly at least on Zoom. And there are a lot of questions, but the first thing that should happen is they should ask your situation. What’s your income? What are your assets? What are you liabilities? Do you have dependents? Do you school-aged kids? It’s a diagnostic process, okay? In fact, if you call them, some good ones will say, well before you come in, let us email you a list of things we’d like for you to bring. So if they immediately launch into about the investments, that’s a yellow flag in my view, because every person deserves to have their story told so that the advisor can have a solid understanding of their background regarding their education level with financial assets, et cetera, et cetera. Then there are at least three fundamental questions that you should get answered. The first is, if I were to engage your services, how will you manage my money? Or to put it in a different phrase. What’s your investment strategy or what’s your investment philosophy? How would you invest the money? This person needs to be able to explain it to you in plain English so that you understand it, because there’s a lot of jargon in every profession, and this is one of them. And secondly, it ought to make sense to you, because if it doesn’t, then you just keep looking. The second is, if we engage or I engage your services, what does a happy and healthy client relationship look like? When will you be in contact with me? What kind of communication will we have. Well, how frequently can I expect to visit with you? When do you, what’s the time period in which I can expect you to respond to an email or a telephone call? Because there’s a lot of data that indicate when people are unhappy with professional servants of all kinds just because there’s a misunderstanding of expectations and mismatch. And lastly, how are they compensated? They should be absolutely perfectly clear about this. One of the things that you have to watch out for is some people, this is critical, but some people. Will sell you certain insurance products will say, well, you don’t pay anything for this. That’s baloney. Everybody gets paid. What they do is they can put you into a high-priced insurance product with extremely high surrender charges so you can’t get out. And that’s how the insurance company makes the money back from you that the agent paid. So that’s a long-winded answer, but I think that’s I would approach it. You’re listening to Money Talk on KUT News and on the KUT app. And by the way, you can always go. To kut.org slash money talk and listen to previous broadcasts. Five one two nine two one five eight eight eight. Harish, you’re on the air, how may I help? Hello, yes, please go ahead. How may I help? Um, I-
Harish [00:13:34] I’ve been listening to your podcast for a while and you’ve been talking about non-conforming funds and is it possible for you to give me some names of some funds that you believe are non-confirming?
Carl Stuart [00:13:51] I’m talking about non-correlating funds rather than non-conforming and for everybody else what we’re talking about is I’ve learned through trial and error over the last 47 years that there’s a distinction between diversification which is having various asset classes or various subsets of asset classes and correlation which is understanding how they have historically performed relative to each other. So, for example, When we’re in a period of rising interest rates, bonds decline, there are strategies that have bond-like returns, but that are not positively correlated. They can actually go up or hold value in a declining bond market. Now I’m gonna disappoint you, Harish, but I’ve had a policy for the last 31 years. I don’t make any kind of specific recommendations. I just can’t take the liability. So I don’t mention any specific, I would just all I do is give you There are strategies, the terms are market neutral, that’s one. Another one term is event driven, that’s another one. Another term is trend following. Those are three specific strategies that are available to you and to all our listeners in either mutual fund or exchange traded fund format. So there’s event driven market neutral and trend following Each of those has a different return pattern and may be appropriate to help hedge some risk in stocks or help hedge risk in bonds. But that’s the best I can do for you, Harris. I’m sorry.
Harish [00:15:30] I wasn’t really looking for recommendations, just some names.
Carl Stuart [00:15:34] Yeah, but then I know but you went I just I gave you I’m not can’t give you the name Okay. Okay. Thanks for calling. Thanks for call. You’re listening to money talk on KUT news 90.5 and the KUT app I don’t mean to be rude it’s just I make a specific fund name listener makes an investment that particular strategy goes to heck in a handbasket. And I don’t think that I want to have their lawyers call me or call KUT, which by the way, you’re listening to KUT News 90.5 and the KUT app. Call or text 512-921-5888. Harley, you’re on the air, how may I help?
Harley [00:16:21] Hi, Carl. Thanks for taking my call. So it’s about to be Valentine’s Day. And I guess I’m kind of asking both financial advice and relationship advice. My fiance wants to have me make more like financial investment decisions for her. And I’m like, I want her to be more involved in the process. Is there any advice you can give me to encourage her to be a little bit more independently, financially literate?
Carl Stuart [00:16:58] Well, first of all, congratulations, because you’re exactly right. You’re absolutely right. My colleague and daughter who’s 45 feels very strongly because in some generations, certainly in older generations, it’s not uncommon for a female to not be involved in the financial decision making. And you can tell your fiance that just based on the historical data she is likely going to outlive you by seven years. That’s number one. Secondly, both of you, if you have access to good healthcare and you don’t have any bad habits, you’re not a heavy alcohol user or a tobacco user, you have to plan on living into your middle 90s because when we look at life expectancy, that’s the whole country. But people who were sabers and investors. And have solid health care are gonna live longer than the life expectancy. So she’s gonna be a long-term investor and she’s going to be around when you’re not around. And so it really is important. And the second thing is that a lot of the data indicate that one of the biggest problems in a marriage are money problems. And so by commingling your financial resources, your checking account, your savings account. By knowing what each person is doing in his or her 401K, doing these things together is proven from a relationship standpoint to strengthen the relationship. And she no doubt, just like you, knows that you’re entering into a lifetime partnership and the stronger you can have that. There will be tough times and if someone loses a job or their 401K drops 40% or whatever, that sense of mutual participation. Is really, really important. So you can just have her listen to this podcast. But those are the things, you’re gonna live longer, you need to understand what we’re doing together and it will strengthen the bonds of our relationship.
Harley [00:19:09] I love that advice. Thank you so much.
Carl Stuart [00:19:12] You’re welcome. Thanks for calling. You’re listening to money talking and not the marital advice show It’s time for me to take a break a good time for you to call or text 5 1 2 9 2 1 5 8 8 8. I’ll be back
Jimmy Mass [00:19:41] Money Talk airs every Saturday at five o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTx Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a non-profit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org
KUT Announcer: Laurie Gallardo [00:20:11] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:20:25] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and on the KUT app. When you have a financial or investment planning question give me a call or text at 512-921-5888. Let’s go to the phones. Andy, you’re on the air, how may I help?
Andy [00:20:50] Yeah, hi Carl. I’ve listened to you for a while, first time I’ve called in. I’m hearing you over my speaker here, which is not good, but anyway, I think I’ve turned that off. Anyway, I have a managed IRA account for my wife and I, and recently retired. She is working part-time, but will retire in not too long. About one-third of that account is in cash, really in CDs. Yeah, and I’m thinking of it as kind of a ballast in case the market goes belly-up for a while My health is not good, my wife’s health is fantastic, so I’m wondering, one, is that an okay strategy? And the second question is, I talked to a friend about it, and he said, well, you should do T-bills. It makes a lot of money if you know what you’re doing. I have no idea about T-Bills, I’ve heard of them, and that’s it, yeah.
Carl Stuart [00:21:38] Well, yeah, I disagree with your friend, by the way. So, treasury bills are short-term debt instruments issued by the government. They mature in 13 weeks, 26 weeks, and 52 weeks. And they are considered among the safest assets in the world. And they will pay whatever interest rate the market demands to sell those bills. So with the Federal Reserve. Decides this year to lower interest rates, which they may well do, the new issuing of those bills will likely be at a lower return. I would get to your fundamental question. It will be a ballast. Cash will be ballast, so let’s just, I agree with you there. Here’s the issue. Throughout history, cash, and by cash we mean as well CDs, after taxes and after inflation have a negative return. I mean, I’m so old that I remember when we had high interest rates and people would sit around and regale each other at cocktail parties about their 10% CDs. The problem was inflation was 12%. So they were losing money all the time. So it will hold value, CD will hold when the stock market goes in the tank, no question about that. But you might consider taking some of that money. And spreading across some B-O-N-D bond funds, not always, not always. But frequently when the stock market has a bad year, bonds tend to hold value. The best example of that was during the global financial crisis when everything went to hell. High quality bonds held value because people were frightened and they were selling stocks and selling their stock mutual funds. And real estate was already in the ditch in parts of the country, and they were looking for safety, and the safety they felt was in the bond market. So you might consider, and I would say, since you are a conservative, I would spread it out. I’d have three things. I’d had certificates of deposit, then I would have, and I’m gonna use jargon, I’m sorry, a short-term investment grade bond fund, okay? And then I would have a core, C-O-R-E, core bond fund. Now, I don’t think if rates go up, the short-term will do better. If rates go down, the core will do better and you get monthly dividends. You reinvest the dividends. You don’t take them out. So over time, you’re buying more shares. So now that monthly dividend is being paid on more shares, so you grow your income from it, even though you don’t need it. And when you need it, you have daily liquidity, and you can get your money out. I would be better off with a three-leg stool like that than what you’re doing currently, in my opinion, Andy.
Andy [00:24:42] Okay, okay, that sounds sounds right to me. Yeah, good
Carl Stuart [00:24:46] Okay.
Andy [00:24:47] Yeah, I really appreciate what you’re doing. I found this show a couple months ago and I just love it.
Carl Stuart [00:24:53] Thank you. Thanks so much for your calling and for your kind comments. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. I did get this one thing I want to make sure. You may have answered this today from a previous message in terms of you specifically. Are you a financial advisor? I’m not gonna answer that, because it’s a bit self-serving. I will tell you that a fiduciary is an investment advisor, and I’m gonna leave it at that. This is a conundrum. You can always Google the website and that’ll explain everything to you. You’re listening to Money Talk on KUT News 90.5. And on the KUT app. Call or text 512-921-5888. Let’s go to the phones. Bruce, you’re on the air. How may I help?
Bruce [00:25:59] I call great uh… Thank you know uh… I’ve heard you talk about international box in the importance of diversifying internationally but i wanted to take now that international outperformed u.s. Box last year and they’re off to a great start again this year
Carl Stuart [00:26:17] Yes.
Bruce [00:26:17] Are you changing your your attitude toward toward international at all?
Carl Stuart [00:26:24] I will tell you, I am on the cusp of changing and adding more. I’m on the cost of adding more, but as I tell my friends, whenever I get the urge to make a change in the portfolio, I lie down till it goes away. I will to tell you my thinking, and I haven’t done it, but my thinking is, as a group. International stocks are valued substantially cheaper than U.S. Stocks. Secondly, I think our fiscal situation, I’m talking about our government debt, is going to continue to grow, and I think that long-term puts more pressure on the dollar to go down. And when the dollar goes down and you own international stocks, it’s a lovely tailwind, okay? And then I think third, based on history, These l- periods of leadership, like the US leadership for so long, tend to be longer than a year. They tend to several years. They may be consecutive. They may not be consecutive, but in the previous 10 years, International was outperformed three times. And so seven went to the US. So I am not backing off whatsoever, and I’m frankly thinking about adding. I uh Stay tuned, if I get my courage, I’ll let you know.
Bruce [00:27:51] Great, thanks for your insight.
Carl Stuart [00:27:53] 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 512-921-5888. I got a text, I need to answer it, because it is timely. And the person was saying that back in January I got call where someone said that his mutual fund had been converted to an exchange-traded fund. And I thought you couldn’t do that. And it would be wonderful if you had a mutual fund with lots of gains, and you could turn it into an exchange traded fund, which is a tax-efficient model of investing and equities. But he mentioned the names of the funds. They were ARC funds. So I talked to the people at ARC. And I thought it might be too good to be true, and it was. They did not accomplish that. I cannot find, I’ve talked to several mutual fund experts, and I have yet to find an expert who has suggested that we will be able to do that. So stay tuned. I will say this, of course, we’re seeing a big movement among active managers, particularly in the equity markets, of coming alongside with new exchange-traded funds. And they will say they are substantially the same. But they will also say they’re not exactly the same as their 40-act traditional mutual funds. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888, and you can catch past shows at kut.org slash Money Talk. Here is a call. Mimi, you’re on the air. How may I help?
Mimi [00:29:43] Hi there, my name is Mimi, hi.
Carl Stuart [00:29:45] Uh-huh, all right.
Mimi [00:29:46] I am 45. I’m late to starting investing and saving for my future I’ve paid off all my debt and my medical fees. I have a young a young child. She’s four I have about fifty thousand. I’ve saved in cash
Carl Stuart [00:30:00] Uh huh.
Mimi [00:30:01] And as a reserve, safety reserve, and I put about 2,000 away, 15 to 2,00 away a month, but I don’t know what to do with it.
Carl Stuart [00:30:09] Where do I start? Right. Great start. Would you say that your employment situation, Mimi, would you say it’s stable?
Mimi [00:30:18] It stable but it does not provide any retirement benefit
Carl Stuart [00:30:22] Because $50,000 is probably more than you need to keep in cash reserves. Okay. So give some thought to that because there’s a phrase in economics called opportunity cost, which is in your case, what would that 50,000 or what would 25,000 of that be worth five years from now properly invested versus leaving it in cash? You don’t have to do it all at once because it can be scary. Because you’re saving and you’re putting money away regularly, there’s a great, I’ve got a terrific idea for you because it’s called dollar cost averaging. So let’s just use your $1,500. You go to and do your homework, go to the websites, Fidelity and Vanguard and Schwab, take your time. And my advice to you is to get started by owning index funds. I prefer another piece of jargon, exchange traded funds, index funds, Schwab has them, Fidelity has them. Vanguard has them they’re very inexpensive and they’re tax efficient. And you pick two funds, one for the entire US stock market and another for the international stock market. And you can set up an account with something called an ACH where they have your checking account. You’re still in charge, and every month they will draft your account until you just tell them to stop or to increase it or to decrease it. They will draft to your account $1,500 a month and put it into those two funds. Now, here’s what’s going to happen. This shows you what a genius I am. Some years it’s going to go up and some years are going to go down.
Carl Stuart [00:32:11] So.
Carl Stuart [00:32:12] So what happens is in months when the stock market goes down, that $1,500 is buying more shares because the shares are lower price. And then in months, when the stock market grows up, the $1.5 million are buying fewer shares because the price of the shares is higher. So what that does accidentally on purpose is you buy more shares when prices are depressed. You buy fewer shares when the prices are high. You have a lower average cost. It’s just the mathematics of it. So you want a dollar cost average into an international stock fund. 25, because you’re young, 25 to 30% in the international index.
Mimi [00:32:53] Yes.
Carl Stuart [00:32:54] To 30 in the international index and the remainder in the all US index, exchange traded funds and do that. And if you’re fortunate in that if your job, if your compensation begins to go up, then just bump up the money out of your account because what we’ve learned is if people for retirement and you don’t have a 401K, if you start at say 5% of comps, and raise it 1% a year, you don’t notice it, but it compounds over time. So, that’s what I would do with the money, and I would look at that 50,000, and I’d say, okay, all right, Amy, Mimi, how can I sleep nights with this? Can I take, let’s just start with take $10,000 out. What if I took $10 thousand out, and in addition to my 1,500, for the next four months, I take $2,500 out of my savings. So for the next four months, I’ll reduce my savings to $40,000 and I’ll increase my monthly contribution to $4,000. That’s a way to get started.
Mimi [00:34:05] Okay, that’s great.
Carl Stuart [00:34:06] Alright, you need to-
Mimi [00:34:08] I’ll get that started and call back another time after I’ve done it.
Carl Stuart [00:34:11] That’s exactly what I’m talking about.
Mimi [00:34:11] Exactly what I hope you’re
Carl Stuart [00:34:12] I hope you were going to say. I look forward to it. Okay. Good luck. Thank you. I love this show. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-58. Raphael, you’re on the air, how may I help?
Raphael [00:34:36] Hi Carl, how are you doing today?
Carl Stuart [00:34:39] Thank you. How may I help?
Raphael [00:34:54] The So I’m trying to invest on that, around $5,000. So would you recommend, what’s the best way to start? Just like my first house, my first investment.
Carl Stuart [00:35:06] So I would do the same thing that I just mentioned to Mimi. So what you want to do is you want to buy a fund that has this huge number of companies in it so you’re not making a bet on one stock or one company. And I would take your time. Go online. The big do-it-yourself investment firms have lots of educational information. Schwab and Vanguard and Fidelity are three of the biggest. And you want to buy two index funds this is a you want to write either write this down remember you want to buy two exchange traded funds etf two exchange traded funds and i and i want you to put 30 percent in it all international international stock fund and 70 percent 70 percent and the total u.s stock market stock fund you put you put the five thousand in there, you buy the house. And if you have cash flow, you can then add to that 5,000 a little bit at a time and have it grow and have it grow, have it grew over the years, Raphael.
Raphael [00:36:17] Awesome. Thank you so much. So I’m kind of nervous. This is my first investment, so we’ll see how it goes, but I’ll give you a call back when it’s done.
Carl Stuart [00:36:25] But just remember, you’re gonna own this house for a long time. You’re a long-term real estate owner. You gotta be a long term investor. Do not allow the stock market when it goes down to get you scared and get out. You stay with that investment because it’ll work out for you. I’m confident of that.
Raphael [00:36:45] Thank you for your advice.
Carl Stuart [00:36:46] Okay, good luck to you. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Let’s just see. You know, I think it’s, Corinne, it’s just about time to take a break. So it’s great time for you to call 512-921-5888. I’ll be back.
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KUT Announcer: Laurie Gallardo [00:37:55] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:38:09] Welcome back to Money Talk. You’re listening to KUT News 90.5 KTF. I’m Carl Stewart. Thanks for listening. And if you enjoy the broadcast and you have friends or relatives who you think might learn something as well, they can always go to kut.org slash money talk and listen to past broadcasts. I’m gonna answer this question because it came in last week and it’s a short answer then I’ll get back to the phones. My name is John and I wonder whether on my 401k, how do I get started? Okay, John. You go to the custodian. So I’m gonna have to make some assumptions because we’re not having a phone conversation. If you’re still working and you’re a planned participant, you may not be able to withdraw it. If you don’t work there anymore, then you can withdraw it if you take the money out, you will pay income taxes on all of it. And if you’re under 59 and a half, you’ll pay another 10%. So if you can pay anywhere from 25 to 40% of the money could go away. If you want to keep the money, you just don’t want it in the 401k. You can put it in an IRA, that’s called a trustee to trustee transfer, where the money goes from your former employer’s 401k into your own IRA. You go select an IRA custodian, a mutual fund company, a bank, a savings loan, and you move the money over there, and they will help you do that, so good luck. You’re listening to Money Talk on KUT News 90.5. The KUT app. Call or text 512-921-5888. All right. Jeff, Jeff, you’re on the air. How may I help?
Jeff [00:39:50] I grow thanks so much for taking my comma i’m a longhorn but um… I’m from virginia i’m in the foreign service right now um… And i’ve been in the for in service for about uh… Eleven years i have about ten years to go to liar have to retire the boat is out at sixty five and uh… In case you don’t know what the foreign services we live in government housing when we’re at are working at embassies and consults around the world so we don’t have housing costs which is great uh… So when we go back to see. I have a domestic assignment, then we have to pay for rent and everything else. So what a lot of people do is they, in the foreign services, they’ll buy a house around D.C. And rent it out, I haven’t done that, and I have been saving up for a house.
Carl Stuart [00:40:33] Mm-hmm.
Jeff [00:40:34] Uh… But i haven’t found anything yet and so in the meantime the cash just house up and i’ve been putting it into cd is and came to june renewing them but uh… Barely keeping up with inflation with without cd rate you know you know it’s kind of a a conundrum i’m not really sure i i could buy house and at anytime so i want to have a you know but any other cash available Sure, but at the same time it’s possible. I won’t buy a house until I retired ten years from now So, in the meantime, I’m shuffling around probably close to 300,000 TBs, which seems silly.
Carl Stuart [00:41:10] And frankly, you see these after you pay your taxes and inflation don’t make money either. So I’m gonna give you a range of choices starting with the least nominal risk. I’m going to be careful how I say that. Nominal meaning it doesn’t fluctuate in value and then move out on the spectrum. Money market mutual fund. A money market fund, not a money market account at a bank. Money market fund is a mutual fund, but it only invests in very high quality securities. They keep the price per share at $1, and you have daily liquidity. There’s no transaction cost to get in or to get out. So if you decided in 12 months to buy a house, you just take down the 300 to put down on the house. There are three kinds of these, I’m going to describe each, prime government and Treasury, prime buys, high grade. Corporate securities U.S. Government buys treasuries and government agencies primarily Fannie Mae and Freddie Mac and then treasurys only buy treasuaries. I like the middle one government money market fund. The big places like Schwab and Fidelity and Vanguard all have government money-market funds. The rate of return will fluctuate depending on what happens to short-term interest rates. So if rates go down eventually it follows it down because these are maturing every day. And the fund is reinvesting. There are billions upon billions, if not trillions of dollars in these funds. They’re nominally safe because they don’t go up and down, but they will follow. They could yield more than CDs or the same as, but you get daily liquidity. Next out would be to build a bond fund portfolio. This is what, will they fluctuate in value? Yes, will it fluctuate and value a lot? Probably not, based on history. What I would do is I would spread the money out into three different buckets of bond funds. So I would have a short term investment grade bond fund that will be reflective of short term interest rates. Then I would a fund, I’m using categories now so you can do your homework, Jeff. These are Morningstar categories. A core CORE bond fund which will be very similar to the index we use for bonds. That would have intermediate term higher quality bonds. And then the last sector would be a multi-sector bond fund. And this will be interesting to you because multi-sector funds can buy foreign bonds and you are living abroad. It can buy bonds all over the world. Now, I would tell you that the current yields on these range from say 4% to 6%. And the price fluctuation this year, the bond index is up 0.58, the short term fund is up zero point five oh, the core fund is 0.62 and the multi-sector is up 0.87. So you can see we’re not talking about a lot of volatility and change in value, but if I thought that I was gonna do, I wanted a greater return and I’m just step out a little ways onto the risk, Risk profile and there’s a lot of historical data that indicate whatever the yield level is when you purchase these That’s likely going to be your five-year return Whereas when you buy a CD or you do a money market fund that five-Year return can be all over the map because it’s just Going to go up and down with short-term rates
Jeff [00:44:55] Okay. And so, right, I do have the money market account, whatever, that’s at this point, I’ve been paying 1%.
Carl Stuart [00:45:00] Yeah, the money market fund will pay over 3%.
Jeff [00:45:06] Right, money market fund, great. And then finally, just real quick, I have the thrift, my savings as well, and I’ve almost got that maxed out, but not fully. And I think at this point, it makes the most sense to fully max that out as well. Yes, yes.
Carl Stuart [00:45:22] Yeah, that’s the Thrift Savings Plan, TSP. Yeah, you want the common stock fund and the international stock fund in there. And if you want a somewhat ameliorated risk, they also have a bond fund in their as well. But you want, and if you’ve been listening, you know I’m a fan of international equity stocks because they’re less expensive as a group than U.S. Stocks. And I think that would be, I’d want to have an international stock fund, a domestic stock fund, and then if you wanna. Have slightly less volatility of bond funds as well.
Jeff [00:45:55] Sounds good okay well thanks much the life and by any chance of these uh… Shows can you get a transcript of his one information that not really a
Carl Stuart [00:46:03] Yeah, you just go to the KUT website, KUT.org, and you just put a slash money talk and every broadcast since April of last year is on there.
Jeff [00:46:17] Great. Well, thank you so much, Carl. Really appreciate it. Great show.
Carl Stuart [00:46:19] You bet, thanks Jeff, and good luck to you as well. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888, oops, oh nuts, Mary call back, I hit the wrong button. You got to realize I’m doing about three things at once here and I put the mouse over the wrong buttons so please call back and Corinne will be sure and get you on the year. All right, let me take a look at these incoming texts here and see what we’ve got. OK. My husband and I are moving abroad. We have a brokerage account with Vanguard, and we are trying to decide what to do with the account while living abroad. Should we invest in European markets? We also want to supplement some of our income with the amount, but we are worried about how to balance double taxation on capital gains and opportunity loss with liquidating a large sum. Boy, you have got a, that is a very thoughtful question. I have just enough information to know that some securities which you can own in the United States, you can’t necessarily own abroad. We have clients who live in London, and they can’t buy every mutual fund that they can living in the US. I would say, is there about investing in European markets? You bet. I like to take a broader stance. I would invest across the globe, away from the United States. You can get in it. So when it comes to the jargon of mutual funds and exchange traded funds, the term international means no US headquartered companies. The term global means US and foreign companies. And since you already have a Vanguard brokerage account with domestic, then you would want to do international and not global. And check in to see whether or not you can buy, since you’re a Vanguard client, see if you can Buy Vanguard Exchange Traded Funds. I think. You can buy ETFs because they trade like stocks, whereas I think buying mutual funds can be more difficult. So should you invest in European markets, I would say yes, but more across the international markets. And we want to supplement some of our income with the account. Well, you can obviously just draw down. You can leave money in the money market fund or sell some shares when you want to supplement your income. And of course you’re worried about double taxation. Capital gains and I just that’s you know I’m not a CPA it’s over my head so I want to have a good conversation with the CPA who knows all those answers thanks for your thanks for you text you’re listening to money talk on KUT news 90.5 and the KUT app 512-921-5888 Steve you’re on the air how may I help
Speaker 13 [00:49:19] by carlos hi i just do it inherited uh… Forty thousand dollars worth of uh… A popular electric car stock and uh… Family member yes i understand i only get taxed when i sit
Carl Stuart [00:49:39] So if you inherited it, so yeah, you are, but can you hear me? Okay, when you inherit a stock or any capital asset, a mutual fund, a piece of real estate, your cost basis is the value at the time of their demise. So wherever that security is held, that custodian was supposed to change the cost basis because they were notified with a death certificate of the decedent’s date of death. Let’s just pretend you own Tesla. Then your cost basis on Tesla is not what they paid for Tesla. It’s the value and the date of death. That’s your new cost basis. If they bought it a long time ago and had a big gain, you will not be paying tax on that gain when you sell it. Now you own it at the step-up in basis, and now you’re correct. When you sell, you will be subject to presumably long-term capital gains tax, which is, we both know, is lower than income tax. But just getting an inheritance is not a taxable event to you. But I would have to pay taxes when I sell it to diversify those funds.
Carl Stuart [00:50:56] Yeah, absolutely. And depending on how long you’ve owned it, you may sell it for a gain or you may sale it for loss. Stocks are volatile, but that’s when you would pay the tax. That’s correct. All right. Thank you. You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUTF. And Mary, if you’re still listening, since I accidentally cut you off, there’s time for you to call 512. Nine two one five eight eight eight okay let’s just see what would you do with a four hundred thousand dollar windfall as someone who’s in middle age Because you have a long life expectancy, the first thing I would do is look at my liabilities. Do I owe any money on other things other than my residence? Because the rate of interest on credit cards is ridiculous and there’s no investment that you can make that will earn you as much as paying off the credit cards. If you owe on an automobile, a vehicle, I would pay those off. Then I would not, unless you have something extenuating, like 11% interest rate on a mortgage, which is highly unlikely, I would then take the balance because if you are middle-aged and you have $400,000 and if you could grow it, let’s just say you’re 50, if you can grow it at 6%, it would be $800,000 when you’re 62 years old. Just think of that. And then you could take $32,000 a year out of it. And based on history, never run out of money. So what you should do is you should build a portfolio. Now, here’s the big deal, you have enough money that if you wanna do it yourself, that’s your personality, and you have the time and the interest, then go ahead, or if you don’t, and you wanna engage somebody to help you, $400,000 in Central Texas will allow you to engage an investment advisor. She will charge you, or he will charge, you a fee based on the value of the assets every three months. They will not charge you any commissions or sales charges. And they have full access to mutual funds and exchange-rated funds from all the names you recognize like Vanguard, Fidelity, Schwab, but lots of others as well. So you need to go shopping for this person if you don’t want to do it yourself. If you want to do it yourself, pick one of those big custodians. They have a full menu of funds and they also have funds that you can buy that are not just their company. So you want to see what list of funds you can buy if you open a Vanguard or a Fidelity or Schwab account so that you don’t just have to, if you go to a Chinese restaurant, you can’t get Mexican food. So you wanna go someplace where it’s a smorgasbord, there’s an old term, where you can get anything that you want, or you wanna work with an advisor who has that ability as well. So you want to work, I’m going to spend the time on that. You want to go meet this person. They should ask you a lot of questions. You should be prepared to be totally honest with them. You should able to share your financial situation with them, and then they should tell you three things. This is how we would invest your money. This is we think the world of investment works. In other words, what’s your investment strategy? Does it make sense to me? And secondly, if I engage your services, What’s a happy, healthy client relationship look like? Make sure that you and the advisor or advisors has absolutely clarity about how you’re gonna interact with each other, and then the last thing is how are you compensated? Now, I like it when they are fiduciary because that means that they have to put your interest before those, before their own, they cannot earn commissions, and they have what the law calls a duty of care. They’re subject to oversight by either the State Securities Commission or if they’re a larger investment advisor by the Securities and Exchange Commission. Good luck. You’re listening to Money Talk on KUT News 90.5 and I’m not going to give out those numbers because is getting close to the end of the show, so here we go. I’m Scott from Temple. I had money in Acorns account for a couple of years now and it’s had a really good rate of return, enough so that I’m thinking about putting significantly more of my money into it. I don’t know anything about Acorns’ account. Great question, never heard of it, so I’m not gonna even guess, but good luck. Here we go. Carl, what do you think of a money market mutual funds as a safe haven? One I have is currently returning 4.5%. I’d look into that very carefully because that’s above the market. Be sure that’s what you’re getting because rates have come down. I like money market funds very much. As I’ve said to a previous caller, there’s three kinds, prime, government, and treasury. I like the government one that buys treasuries as well as Fannie Mae and Freddie Mac government agencies. But I don’t think they’re paying 4.5%. So, I’m worried if you’re getting 4.5% now. Because I think that’s above the market, and it makes me anxious. Carl, are indexed rate a good long-term investment for retirement? Indexed rate, if those are index rate annuities, the answer is run as fast as you can in the other direction. Here we go. Carl, I have a three-year-old granddaughter for whom I want to create a college fund. Good for you. I have retirement assets sufficient to create an UGMA or an UTMA rather than a 529 plant. Which route is best? I want to maximize her ability to pay for tuition and perhaps a European trip upon graduation. Well, the UGMA or the UTMA, the uniform grant, yeah, I’ll get it out, uniform to Miners Act, gift to Miner’s Act, and UTMA uniform transfer to Minors Act. I’m gonna tell you, the UTMMA believe you get to have control of the money until she’s 21, but it is her money. The 529 plan could affect her ability with FAFSA. You know, I’m just running out of time. If I have time next week, I will do a better job of answering that. I wanna thank Corinne for doing such a good job today. Thank you for listening and to remind you next Saturday at five, be sure and tune in to Money Talk.
KUT Announcer: Laurie Gallardo [00:57:38] 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.
