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Carl Stuart takes caller and text questions on how persistent inflation fundamentally changes investment strategy, practical guidance on consolidating retirement accounts with fee-only advisors, understanding tax advantages of holding appreciated assets until death, and emphasizes that investors can’t time markets, so success depends on proper asset allocation, broad diversification, and long-term commitment rather than fear-based reactions.
The full transcript of this episode of Money Talk with Carl Stuart is available on the KUT & KUTX Studio website. The transcript is also available as subtitles or captions on some podcast apps.
KUT Announcer: Laurie Gallardo [00:00:01] This is Money Talk with Carl Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:00:20] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. Money Talk is a broadcast now in our 32nd year 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 terrific idea to call or text at the beginning of the broadcast. Giving me, I hope, ample time to do my best to answer your questions. And of course, you can always listen at another time by going to KUT.org slash Money Talk or wherever you get your podcasts. I know we have a listener because he texted a military person. He’s in Italy and listens on Spotify. Let me start with a correction from last week. We had a caller who was talking about setting up accounts. So that they would pass directly to his and his wife’s beneficiaries. And he said about a transfer on death account that was a joint account. And I misspoke, I was mistaken. I said it was my understanding that when you had a spousal joint account, that when the first person passed away, then you would put transfer on depth for the second person as an individual account. What I learned this week is you can I’m now talking about securities accounts, not about what happens at your bank or credit union or savings and loan. That you can have a transfer on death on joint accounts. Generally, I don’t see it done simply because it would happen that the two owners would pass away simultaneously and the odds of that are extremely low, but you can in fact do that. So I wanted to correct that. You’re listening to Money Talk on KUT News 90.5. And the KUT app. Call or text 512-921-5888 and we have a call. Casey, you are on the air. How may I help?
Casey [00:02:26] Hey, hi, Carl. I’m a long-time listener, enjoy the show. Thank you. In the past, you’ve talked about bonds, but I don’t recall you talking about tips for inflation protection securities. Can you discuss that a little bit and maybe how you might use them in a portfolio?
Carl Stuart [00:02:46] Yeah, so what we’re talking about and what Casey is talking about is generally people look at bonds and say, what are the, shall we say, enemies of the bond investor? One of them is inflation, which is you buy, let’s say, a 10-year treasury with a 5 percent coupon, and you put, say, $100,000 in there, 10 years from now. If you haven’t done anything, you get your $100,000, and you will have received that 5%, $50 per $1,000 coupon. But with the rising cost of living, inflation, that $100000 won’t have the same purchasing power. And so that’s always been considered a risk for bond investors. Tips allow the amount at the end to have been updated by the CPI, so. That you do get inflation protection when compared to the consumer price index in owning a TIPPS bond. Now, I haven’t personally purchased these. My understanding is that you get them from certain depository institutions, and I believe this is old information, that you’re limited to $30,000 purchases. But there are mutual funds and exchange-traded funds that own tips and I’m And when it comes to bonds, I tend to be more in favor of active management whereas it comes to stocks. I’m a big fan of passive management and when it come to bonds I like the ability for the bond manager or managers to adjust their maturities based on where they see the most attractive buys. So tips can be part of an overall bond portfolio. However, I will tell you the last time we tested this they didn’t do well. In 2022, when the consumer price index spiked to 9% and the Bloomberg Ag, which is the major index following bonds, declined between 13 and 14%, TIPS went down as well. It proved that in a rising rate environment when normal bonds declined in value, TIPS declined in values as well, so I’m not opposed to them. But many years ago, I had just a specific tips fund, and I’ve decided I’d rather have a multi-sector bond fund where the manager can buy tips when she or he thinks it’s appropriate. So they’re okay, but they are interest rate sensitive, just like other bonds. So that’s how I feel about them and how I see them fitting in an overall balanced portfolio, Casey.
Casey [00:05:33] Okay, well, Carl, thank you very much, as always, it’s great to hear you, yeah.
Carl Stuart [00:05:38] Thank you. Thank you for calling. I appreciate that. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a financial or investment plan in question, call or text 512-921-5888. You hear those texts coming in, but we have a call. Larry, you are on the air. How may I help?
Larry [00:06:02] Me for all cause I keep two fast questions one I just want to ask you your perspective your view on the US and US economy world economy to the next six months like I know no one has crystal ball I get that but you’re very you’re very smart second question call of course have to do with the owner’s advisory funds I’m said now my plan is that after my after I pass and my I want to have my money transferred to Donor Varsity Fund so that it can distribute my assets over there. I kind of have a legacy. I’m a legacy donor, right? My problem is, my problem is that as I understand, once the money is transferred to the DAF, I have no control over it, in fact, I mean, I can’t even tell them, I kind of enforce them to follow my wishes, so in a case like this, what do you advise?
Carl Stuart [00:07:00] So donor advised funds are becoming increasingly popular and the concept is that you put money into a donor advised fund. You can put cash, you can put securities in there and depending on the amount and whoever the custodian is you can select from a range of portfolios. And then where I think you don’t quite understand Larry is you can, if you’re alive. You can tell the donor advised fund custodian who you want to give the money to. They have a legal obligation to make sure that that’s okay. In other words, they will follow your wishes if you are giving money to legitimate 501C3 tax-exempt organizations. So, now that’s how it works during your lifetime. What I can’t answer is, if you leave a donor advice fund at your death, then I suspect you’re going to have, I don’t know that you have the ability then to have the custodian make the decisions. I think you would have to have a successor to the, to yourself who would be, who would then tell them Larry was most interested in. You know animal rights or Larry was most interested in public education or or health care or whatever But that somebody’s got to tell the custodian Where to donate the money and then the custodean has to verify that that’s a legitimate place So I’ve never seen a donor advice fund set up after a person passed away Larry on your other question What’s a remarkable is that the US economy? As measured by the earnings of public companies is on fire. I mean, the S&P earnings are up over 25%. It’s just shocking. And the labor market is stable. The unemployment rate is 4.1%. And all of this is in spite of above target inflation and tariffs and wars in the Middle East and in Ukraine. So right now the economy in the United States looks extremely strong and whether or not raising interest rates, which is what it looks like the Federal Reserve is going to do. Whether or not raising interest rate will cool that or not, it’s too early to tell because back in the 90s when Greenspan was the head of the Fed, there was a period time when he raised interest rates. But the economy was so strong that it was largely driven by technology companies, the stock market continued to do well. So I would tell you the most economists that I read, in fact, frankly, all the economists that I’ve read suggest that over the next six months, the U.S. Economy continues to be strong.
Larry [00:10:05] Okay, well, thank you so much
Carl Stuart [00:10:07] You’re welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a financial or investment plan in question, call or text 512-921-5888. Here’s a call. Laura, you are on the air. How may I help?
Laura [00:10:30] Yes, hi Carl. Thank you. I really enjoy your show and I guess this is a good piggyback question to your last couple of points you made my
Carl Stuart [00:10:38] Mm-hmm.
Laura [00:10:39] Question is, I’m in my mid-forties, and I’ve heard that inflation is temporary, oh, we’ll be fine, it’s going to be a thing that lasts for months, not years, but that’s not true, because now it’s persistent. And everything that I’ve learned, including in my UT classes and finance classes that I’ve taken, that was never a huge consideration like it should be now, at least for my lifetime. So what? As your advice on the sort of new persistent inflationary world in which we live and if the rates do continue to go up, what do you think we should be thinking about as kind of average investors who are employed but don’t have anything particularly unique?
Carl Stuart [00:11:23] Yeah, so when you look back over the the last half of the 20th century and the first 26 years of This century there was a period of time where we had sharply higher inflation and that was the 1970s and There was a. Period where in in areas around commodities They were turned out to be very good investments Uh, so. Farmland in places like Iowa and Illinois were good investments. We’d had the OPEC oil embargo and every expert said we don’t have control of supply. This is long before fracking came along and oil prices skyrocketed and the Texas economy was booming but the rest of the economy was in a recession. So we had a combination of a recession in the overall economy and rising inflation which theoretically wasn’t supposed to occur and that was called stagflation and ultimately what occurred was a couple of things. The Federal Reserve Chairman came in, Paul Volcker, and he decided that there was so much inflationary expectation on the part of citizens and investors that he was going to take that out of the system and he raised interest rates. I read the other day… A portfolio manager was remembering when she got a mortgage and the rate was 17%, 17%. And when rates came down, she was felt so lucky to be able to refinance at 13%. I will tell you that I bought a house here in the summer of 1978 and the rate was 9 to 7 eighths percent. So where we are now with 5% treasuries and 7% mortgages is frankly normal. What’s abnormal? Was the time you referred to when ten-year treasuries were down at one and a half percent and people were getting mortgages at 2.75 percent. That’s a historical anomaly. The rates we have currently are much more normal over long periods of time. That doesn’t mean that we aren’t going to have a slowing economy. I will just tell you what I just to Larry is right now the numbers in terms of corporate profits. Which over time drive stock prices, have been fantastic. And we haven’t seen the layoffs anticipated so far with artificial intelligence. In fact, so far what we’re seeing is slow but steady integration of artificial intelligence into businesses and human enterprises without seeing a commensurate situation in layoffs. I would tell you that I would say this is a time where if I had a 401k and I were in my 40s, there are a couple of things that I would, levers that I could push on. I wouldn’t have a whole lot in bonds because I think the inflationary pressures can continue and as I mentioned earlier in the broadcast, inflation is the enemy of bonds. I wouldn’t have a lot of money in bonds. Secondly, U.S. Stocks have outperformed foreign equities for years and years and years, with a few exceptions, until last year when international stocks outperform domestic. I think it’s plausible that internationals, because the companies are less expensive, I think I would want to have exposure to international. The data indicate most people, whether in 401ks or on their Laura. Either don’t have any or underweighted international. So I would be light on bonds, whereas maybe the traditional’s 40%, I might have 20%. And on the stock portion, where a lot of people don’t any, I’d probably have at least 25% of my stock money outside the United States. Now, let’s go to the cautionary side. Right now, as of yesterday, the S&P 500, and you can’t buy that, but you can buy an exchange traded fund. Year-to-date is up 12.57 percent. The Nasdaq is up 14.6 and the international market is up 14.60. Now that’s ridiculous when you consider that the three previous years we had double digit returns. If this were December 31st, this would be the third time in 100 years that we had four consecutive double digit years in the stock market. Also, while you can’t depend on it, The weakest year in the presidential cycle is the midterm year, the one we’re in right now. So am I cautious about the outlook over the next few months to a year? You bet I am. I’m absolutely cautious. If I had money to invest, I’d be putting it in over time rather than a lump sum. But you just, my life experience, having done this for 48 years, is you don’t wanna bet against human ingenuity. You just, frankly, because that’s been a loser’s bet. So. I would want to do all the normal rules. I wouldn’t want to pick stocks. I’d want to have broad exposure to equities using very inexpensive, tax-efficient, exchange-traded funds, light on bonds, make sure I have an international exposure. And yeah, I mean, what’s gonna happen is leadership in the economy will change over time. I don’t know if it’s gonna be bio, is AI gonna change medicine? Maybe, I don’t know. Is energy going to be a dominant player? I don’t know. What happens if the price of oil stays above $100 a barrel for the next six months? You gotta believe that has a negative impact on the global economy and have a negative effect on inflation. So am I cautious? You bet I am. And if I were investing for less than three years, I’d have money in money market funds as well. I’d take some risk off the table. But if I’m in my 40s, and I can’t time the market because I don’t know when it’s going to go down, then I’d have the answer that I’ve already given you, Laura.
Laura [00:17:46] Thank you. No, I appreciate it. And that confirms some of the things I’ve been reading, but I wanted to hear more about it. I appreciate.
Carl Stuart [00:17:55] Thanks for calling. You’re listening to Money Talk, our KUT news, 90.5 and the KUT app. It’s time for me to take a break and a perfect time for you to call or text 512-921-5888. I’ll be back.
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KUT Announcer: Laurie Gallardo [00:18:47] This is Money Talk with Karl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Karl.
Carl Stuart [00:19:01] Welcome back to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT app. When you have a financial or investment planning question, give me a call or a text. We have all of our lines available, 512-921-5888. Here is a bit of a difficult text. It says, do you have business where I can contact you outside of the radio or for financial advice? Concerning and I won’t go on. I just simply do not talk about my business on the radio If you want to take a look you can google and go to the website and leave a message there Thanks for your thanks for your text five one two Nine two one five eight eight eight. Okay. Here’s a text. Hi Carl Oh says a good one this came in last week right after the show was closing my wife and I 50 years old have a actually that’s not what it says my spouse and I so this could be my husband my spouse tonight are 50 years old have one and a half million dollar investment portfolio that includes a 401k two rentals that produce four thousand dollars I presume that’s four thousand per month and we owe three hundred thousand dollars in the mortgage we have no other debts we have no children. My question is, going forward. Does it make sense to continue to invest in stocks, exchange traded funds, etc.? Would it be good to include another rental? I’m just wondering if it makes sense since we don’t have kids to pass on the houses to but I like the idea of having rental income on retirement. Excuse me. Well, I will tell you this. A common experience I have is that people who have owned rental real estate for decades get to a point in their life where they don’t want to do it anymore. And they say, I want to get out of this because it’s time consuming or I have to pay somebody else to do, which reduces my rate of return. And I want have daily liquidity. And so you really need to know yourself about that because You’re obviously a financial asset investor, if you have 1.5 million, and you’re a hands-on person if you had your own rental real estate. Think about when you’re 60 and 65 and 70 and 75, do you really want that rental property? You say you like the income, but if you invest properly in a balanced portfolio, you can take income from that balanced portfolio to supplement any other sources of income that you have. So, there’s no question that income producing real estate and stocks are the two asset classes that based on history over your remaining life are going to outpace inflation. So I’m not talking you out of retirement having a fixed income, I’ll get it out here, fixed income investment. Investment real estate, but I’m not affected. Most times I see people get tired of it as they grow older, so you really want to keep that in mind. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888 and here is a call. Roy, you are on the air. How may I help?
Roy [00:22:38] So in my experience, and I’m sure yours, you’re very familiar with the idea that everything returns to the me.
Carl Stuart [00:22:46] Right, reversion to the main, that’s exactly it.
Roy [00:22:50] So everybody talking about we’re in the largest stock market bubble in history.
Carl Stuart [00:22:56] Which is not true. It’s not true by the way, but keep going. Several others have been much bigger than this one, but please.
Roy [00:23:03] Going okay so relatively speaking we’re at market highs or you know very close there in when when this bubble pops and we revert back to that mean do you expect that that’s going to be something that can be avoided or limited or and or how would you do that if you were a holder in this market sure
Carl Stuart [00:23:31] I’d look at non-correlating assets. In other words, I’d investigate strategies in mutual funds and exchange-traded funds that based on history either hold value or go up when stocks go down. Because I can’t pick the top, and I can pick the bottom, I’m gonna have my stock exposure at a level that I’m comfortable with. So let’s suppose that you have 70% of your assets in stocks. And let’s suppose that the other assets go flat, they don’t even go up, and we have a 30% decline in the stock market. That’s a 21% decline in the overall portfolio. That’s how you intellectually and perhaps emotionally stress test your portfolio. You run various declines on the portfolio you own and convert that percentage into dollars and think about that experience, okay? That’s how you would do it, because you can’t pick the top, and you can pick the bottom. I mean, COVID happened, no one saw that coming. We closed down the global economy, the stock market collapsed, and it was down for a long time. No, it wasn’t. 43 days after we closed the economy, the market was back to where we were before. You can’t, you simply can’t take it. Secondly, if you look at the earnings of corporate earnings right now, and take that and put it into the Standard& Poor 500, are we above the historical average? Yes. Are we anywhere close to where we were in 1999? The answer is no. So the way you avoid it is you make sure that you have domestic and foreign, that you had broad exposure so you’re not overly concentrated in one industry other than through the passive index, and then you own things around that because every portfolio has a minimum of three risks. And the fancy names are equity, duration, and credit. Equity risk means the stock market goes down periodically. We know that. And duration risk means interest rates go up and bonds go down. And credit risk means you own high-yield bonds or you go into a recession and the bonds fail. You can avoid that by not owning high- yield bonds. But you can’t avoid the other two if you want the money to grow. So on the bond side, You wanna own strategies that tend to hold value or go up when interest rates go up. And then on the stock side, you wanna hold strategies that either hold value or go. There are strategies, I’ll give you an example. In 2008, you and I could have had a diversified portfolio of U.S. Stocks, foreign stocks, real estate investment trusts, commodities, and high yield bonds. We were fully diversified. U. S. Stocks went down 40%. Foreign stocks 50%, real estate investment trusts peaked to trough 55%, oil went from 130 to 30, commodities collapsed, and high-yield bonds went down 20 to 25%. The ST trend index, the ST trend index was up 17%. So there are strategies out of there that are not correlated. So you express your view by doing what I just said. That’s how I would do it, Roy. Crystal clear. Appreciate it. You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 in on the KUT app. Call or text 512-921-5888. And another call. James, you are on the air. How may I help?
James [00:27:16] Hey Carl, thank you so much.
Carl Stuart [00:27:17] Hi, you’re welcome.
James [00:27:18] My question is, with so many sophisticated index funds available today, can an investor build a diversified portfolio on their own while keeping more control over their investments? I guess, at what point does paying a brokerage firm 1% a year become too costly compared to doing it yourself?
Carl Stuart [00:27:38] That’s a great question. I happen to think that the answer is much more personal than that. Here’s what I’ve observed in my career around the issue of whether or not you’re willing to pay someone one percent. If you are a do-it-yourself person, you have the time and interest and the desire to manage your own money, you’re probably the kind of person who may consider doing his own taxes, a person who may consider owning investment real estate. You should pay no one anything to manage your money, because it will drive you crazy. Because if you hire a manager, you need to let the manager do what she or he thinks is best. Or otherwise, there’s no reason to hire them. So you need to be either in an advisory relationship with discretion, where they’re doing what they think is best for you. Because number one, they have a fiduciary responsibility. They have to put your interest before theirs. They have what the law calls the duty of care. And they can receive no transaction based compensation and you let go of it. But if you’re a do-it-yourselfer and you do this, it will drive you nuts and you should never do that. So the decision in my view is not the plethora of index funds, the decision is what kind of investor am I? Because it may well be, if you are not a do it yourself investor, that your advisor will use the same index funds that you can get on your own. But the question then becomes, how are you going to behave through that? Because here’s my experience watching good advisors. It’s not that in good markets they somehow do better than the index. They can’t, because if they own the index, take away the fee, they’re gonna do less. The question is, can they keep you on your plan? And that’s where people fail. People failed in the global financial crisis because it looked like the place was coming apart, and they went to cash. And lost massive amounts of money that they would have made if they’d stayed on plan. So the real issue is do I wanna do it myself or do I want to hire somebody? If you’re considering hiring somebody because you asked a sophisticated question, you want to sit with this person and you want a one, they ask you questions because it’s a diagnostic process. If they start talking about what they’re gonna do with your money without getting to know you, that’s the wrong person. And then they ought to be able to articulate in plain English, without a bunch of jargon, what their investment philosophy is. And then, they ought say to you, James, if you’re our client, this is what this client relationship is going to look like. This is how we’re going to communicate with one another. This is when we’re gonna meet face-to-face. And then finally, the least important thing, how do we get paid? They get paid on an advisory of any of the assets, which is what I would highly recommend. Then is 1% a reasonable number based on everything else I’ve said? The answer is absolutely yes. It’s wildly expensive if you want to do it yourself, and that’s how I see it.
James [00:30:46] Thank you very much.
Carl Stuart [00:30:47] You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Laurie, you’re on the air. How may I help?
Laurie [00:31:09] Hi, I am 68 and I have a Seph with 50,000 in it and Ross with 10,000 but my savings I have 360,000.
Carl Stuart [00:31:22] Mm-hmm
Laurie [00:31:22] My question is, is what do I do with that 360,000? I don’t know anything about investing. And I’ve talked to several people and it seems like they all have a template. They’re all identical plans. And I don’t know if that’s a good thing or where I go from here.
Carl Stuart [00:31:45] Sure. Well. I’m, first of all, I’m glad you’re talking to people because what we know is that 360,000 sitting in CDs or high-yield savings account after inflation and after taxes is going to have a negative return. I mean, if I can make 3.6 in a government money market fund and inflation is 3.4, and oh, by the way, if my income taxes, I don’t have to be a math major to know I’m losing money. And so you do need to talk to somebody. But as I was just saying to the previous caller, they ought to be able to explain things in plain English. And they oughta understand your situation. And it’s a little bit like this. If you and I go to the doctor and we both have a summer cold, we’re likely to get the same prescription. But if we go to, if we to the the doctor And, you know, I’ve got… I don’t know, I’m making this up a different problem than you have, then there’s gonna be a different prescription. So, having a template’s not a bad thing. It’s just making sure that the template fits you, and if you’re uncomfortable, if it’s your intuition, I mean, at 68, you have plenty of life experience, and you can smell it out. You can smell a rat as good as anybody, as well as anybody else, and if it doesn’t smell right to you, keep looking. Because if it’s a cookie cutter thing and you’re uncomfortable with it, just keep looking because there are people out there who will listen and care and say, based on my understanding of your goals and objectives, here’s what I think you ought to do. And then you can say, that makes sense to me, or, you know, I’d like to dial it up a little bit and have a little more return in risk, or I’d to dial down a little and have a little less return in. That’s a thoughtful. Productive conversation, so I’d keep looking if I were you, Laura.
Laurie [00:33:48] Okay, great, thank you.
Carl Stuart [00:33:50] You’re so welcome, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here we go. Joe, you are on the air, how may I help?
Joe [00:34:11] By carl uh… I’m with her first-time caller
Carl Stuart [00:34:14] Okay, thank you.
Joe [00:34:16] Yet my question is actually uh… Historical one who read a book briefly called the alibi of capital and i thought it was an interesting way of thinking about uh… Joint stock companies when you buy stock it or do that effectively when you by a dot you were buying it at a different and the idea that you know the group the company that will get paid back one of the things that the author talked about was that essentially you’re taking something from future generations at the end of the day. It’s something that ultimately needs to be paid back by somebody. And I never thought about stocks like that. I wanted to hear your thoughts. Yeah.
Carl Stuart [00:34:55] I think when you buy stocks, you’re buying human innovation, and they’re priced in the market based on the outlook and for their, the outlook for their earnings, their outlook for the market share, the quality of their balance sheet. And because what you and I both know is that changes over time. I mean, there were technology companies back in the 1990s when they just went up up and up and as people were. Thrilled with basically the advent of the internet and we know that a whole bunch of them failed. But what you’re doing is you’re buying future earnings. You’re buying the promise of things getting better in the future. That’s why I think stock investing is ultimately a case of optimism. I don’t think you’re taking anything away from people in the feature though. I really don’t. And that you can even make the case. That if the companies you own are successful, they probably end up creating a better place in the world. They either, they hire more people, they come up with products that are better, they invent new things. So, no, I see, I really see stock investing as making the optimistic bet on the future that based on history has paid off. Now, periodically, things go to heck in a handbasket. And I’m old enough to see the rise and fall of energy, and the rise and fall of real estate, and rise and fall of technology, and a global financial crisis. So I’m not some kind of Pollyannish crazy optimist that doesn’t understand what risk is. But I’m just saying when I look at my range of choices, if I want my money to grow, I look at My range of choice is investment, real estate and stocks stand out as the ones that have been consistent winners over longer periods of time. And that’s that’s just how I see it, Joe.
Joe [00:36:53] Awesome, thank you so much.
Carl Stuart [00:36:55] You’re very welcome, thanks for calling. You know what, I just looked at the time, it’s time for me to take a break and we have lines available at time for you to call or text 512-921-5888, I’ll be back.
Jimmy Maas [00:37:16] Money Talk airs every Saturday at 5 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 [00:37:47] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl Stuart [00:38:01] Welcome back. You’re listening to Money Talk on KUT News, 90.5 and KUT app. I’m Karl Stewart. When you have, there’s the text. When you have a question, call or text 512-921-5888. Here is a call. Allison, you are on the air. How may I help?
Allison [00:38:30] I’m 65 years old, about to retire, and I am a little concerned about the stock market. I was very similar to your previous caller, about the same amount of savings, real estate, stock bonds. Do you have any advice regarding the current situation with the concerns about AI future? Yeah. Yeah.
Carl Stuart [00:38:51] Well, you hear me hemming and hawing, because I read all the stuff that you read, Allison, and you read people that say this is going to be even bigger than the invention of the internet or the steam engine or the printing press. It’s going to increase life expectancy. It’s gonna do all kinds of remarkably positive things that couldn’t be accomplished without And then you read all the negative stuff, like this young man, this young British man who’s 27 years old, that quit and said everybody inside companies like OpenAI and Anthropic are convinced that within a few years these could end the human race. And you know, what I decide is this. I can’t stop what’s going to happen. And so I look I want to be concerned and I want to be intelligent and thoughtful, but I don’t want to to be fear-based. And so I look at my investments and I ask myself the question, how will they do and when the next time we have a really, really big sell-off in the stock market? I will tell you that in my experience, these big sell-offs almost always come when no one’s expecting them. And frankly, everybody, yours truly included, expect a stock sell-off. I mean, this is a very common theme here on Money Talk. We’re all wondering, when is this all gonna end badly? And it just keeps going better. And so I want to stress test everything. I mean if you own real estate and you owned it back in the late 80s and early 90s, First of all, you couldn’t sell it if you wanted to, and your operating expenses exceeded your mortgage, your operating expense and mortgage expense exceeded your rental income, and unless you had another source of capital, you went bankrupt or you lost the real estate, because I saw that happen all over central Texas. But if you had the capital to live through it, because Austin was a growing area, it came back. Now, my hometown went from 16,000 people to 9,000 people. There’s not a single piece of real estate that ever made money in my hometown from 1965 to 2026. So can things go bad and stay bad, yes. But I think you have to look across and the real answer is, I’m not trying to be academic here, it’s asset allocation. Where is my money and what do I anticipate to be the return on that money over what period of time? And if I’ve got concerns over the next 24 to 36 months then move to short-term bond fund or a government money market fund and give up the potential for growth. But if rates go higher, we both know that’s gonna be negative for your real estate. It’s gonna depress real estate values because high rates are not good for mortgage, for leveraged buyers. If we have some kind of major AI catastrophe, that’s going to be bad for the stock market. And so, as I said to an earlier caller, depending on how much time you want to put into this, there are mutual funds and exchange-rated funds in strategies that are not tied to the stock market and the bond market. These are strategies that, when I got into this business, were only available to, I don’t know, the teachers retirement system of Texas, or hedge funds and sophisticated institutional strategies. There’s been this giant democratization of access to financial markets, I’m inundated with innovative ideas and daily liquid investments that are not tied to the stock and the bond market. If I had the time or if I had an advisor, I’d ask her to help me understand what those strategies are that based on history, not just guessing or predicting, have provided positive returns and everything goes badly. And I’d add those to my portfolio. And that’s how I would do it, Allison.
Allison [00:43:12] That’s very great, Carl. Thank you more, more faith-based than fear-based. Thank you.
Carl Stuart [00:43:17] You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT App. Call or text 512-921-5888. Here is a call. Kate, you are on the air. How may I help?
Kate [00:43:38] Hi, Carl. I’m partly calling to say thank you. I called you in March when my sister and I were going to go visit with my mother in Northern California about her real estate and assets and things like that as she’s kind of getting on. And that was very, very helpful. What questions to ask. When a question I have, I’ve now met twice with her lawyers and A lot of the discussion was about capital, the downside of selling before she passes. She’s lucky enough to actually own two homes outright in Northern California, and the lawyer was talking a lot about if you sold it before she passed, about capital gain tax, and I really don’t know exactly what that means, so that’s kind of what I’m calling about.
Carl Stuart [00:44:28] Sure, of course. So when any of us owns a capital asset, and that means a piece of real estate, stocks, bonds, mutual funds, farmland, oil and gas reserves, if we sell it for more than we paid for it, and we have held it for longer than a year, We pay tax at a rate, a tax rate, that’s lower than our income tax rate. The capital gains tax is lower than the income tax. So the maximum income tax is this year is 37% and the maximum capital gains rate is 23.8%. That’s a huge difference. Now here’s the part that the lawyer’s counseling you. And this, I’m glad that she or he is, because a lot of people don’t understand this. When you own capital assets, and I’m excluding your personal residence, okay, I’m talking about you own a home that’s not your personal residents, you own other real estate, you own stocks, bonds, mutual funds.
Kate [00:45:42] Yeah, could you rent one of them?
Carl Stuart [00:45:44] Right, right. So she’s got a cost basis in that rental property based on what she’s paid for it. If she’s made any improvements, that goes into the cost basis. And let’s just say that she paid $500,000 for it and it’s worth a million dollars and she doesn’t sell it and she dies. And let suppose you and your sister are the beneficiaries. The value at the date of her demise becomes your new cost basis. Not her 500,000 basis, but your new million dollar basis. You now sell the property for a million dollars in this hypothetical example. Your cost basis is a million, your sales price is a billion, and your tax is zero. That’s called a step up in basis. That’s how that works. So if she has a large gain… And she doesn’t need the money, and it’s your view that when she passes away, the property is saleable property. I met with someone yesterday who turned down a $10 million purchase price for her home several years ago, and now she’s selling it for $5 million, okay? So you gotta be able to sell it. But if you’re strictly looking at it from a tax standpoint, that’s how that works, Kate.
Kate [00:47:11] Mm-hmm so it’s true that like if you sold it now it would be to the detriment of
Carl Stuart [00:47:21] From a tax standpoint, if you’re only talking about taxes, the answer is yes.
Kate [00:47:29] Okay, great. Well again, I want to thank you again. That was really helpful. Okay
Carl Stuart [00:47:33] okay you thank you thanks for calling you’re listening to money talk on kut news 90.5 and the kut app call or text excuse me five one two nine two one five eight eight eight here’s a call jerry you were on the air how may i help
Jerry [00:47:55] Hi Carl. I want to thank you first for your efforts in doing this program. It’s really really awesome. I really enjoy it. Okay, I recently retired sixty-six, seven years old. This is where I’m at right now, what I’ve learned from you. I have about $35,000 of inherited IBM stock. I’ve got about three or four IRAs. I got a 401k from that company. It’s managed and also diversified. Uh… And i also have a annuity that are just that are recently purchased it’s got a four thousand dollar writer for a lifetime payment so that being said um… On hands-off i really i’m i’m smart enough to make a decision but i just don’t it’s it doesn’t interest me so i was wondering if you could tell me what will be a good thing going forward for me to deal with all these accounts that I’m not managing.
Carl Stuart [00:48:52] So let me ask you a question, Jerry. Um, when you, when you add up your 401k or your retirement accounts, plus your IRAs, what’s the value of all that when you add it together? It’s about 400,000. Okay. Now. You’re either going to study this and do it yourself, which you don’t wanna do, cause you just don’t want to. And as I’ve said earlier today, that’s the first step. You’re even gonna get somebody to help you or you’re gonna do it your self. Now, if you’re going to get somebody to help with $400,000, what you would do is first you pick this person, I’m gonna come back to that, but you will put all of this in one jerry. Account one Jerry IRA the money the money from your yeah the money from your previous employer will be called an IRA rollover and it will go into your IRA along with your other IRAs you’ll consolidate all those in one place now that makes life a lot simpler and because and you and you go out and you interview people it’s perfectly reasonable to ask friends as colleagues If they have an advisor and you can go talk to that person But being your age you have life experience and you are looking to make sure That this is a good fit for you and you want it if you if you find in my opinion you want to find a person who is an investment advisor Financial advisor is a generic term and everybody who is in financial services that has certain licenses is a financial advisor. Investment advisor is also a financial adviser but she or he is under either his firm or them personally are under this Cures Any Change Commission. Lots of regulatory oversight and they don’t charge commissions or sales charges like, you know, if you buy an annuity somebody’s got to get paid to sell that. So they’re going to charge you a regular fee that you’re going to have debited from your IRA every three months. They’re going charge you an annualized fee. But when they select stock mutual funds and bond mutual funds and other funds for you, they’re not going to receive any compensation. Now the benefit of this is first, it eliminates the appearance of conflict of interest. You know that they’re doing what’s best for you because they’re legally required to, and they’re get in compensation for that. Secondly, it opens up this huge menu of various funds because they’re not working with just one company. And so, and third, they’re gonna get paid based on the value of your IRA. So, if your IRA grows over the years, they get paid more. And if it shrinks over the year, they get payed less. You want them on the same side of the table with you. So when you sit down with this person, They ought to ask you questions about yourself, your life. They want to understand your story. Are you looking for income from this? If so, how much? They really want to it understand. It’s a diagnostic process. And then they’re going to say, OK, this is how we would invest your money based on what you’ve just told us. And they need to do that in a way that makes sense to you, that’s understandable, and that you believe fits your situation. And then you ought to be sure that you understand what that relationship is going to look like going forward. There’s a lot of data that indicate when people are unhappy with professional servants, or unhappy with their lawyer, or their accountant, or their investment advisor, or the architect, frequently there’s been a misunderstanding or a mismatch of expectations between the service provider and the client. We have absolutely clarity about what that relationships looks like in terms of contact, communication, et cetera. And then third, you want to know what their fee is. Don’t lead with the fee. The fee is the last thing, because if they pass the test of making sense of their investment strategy, and they pass the test of what it’s going to look like as a happy, healthy client relationship, now you’re two-thirds of the way. And if the fee is reasonable based on the marketplace for $400,000. Then you found the right person or people. And if it isn’t, you just keep looking. And there’s no rush to this, because you don’t want to make a mistake and have to go through all of this again. That’s how I would approach it if I were in your shoes.
Jerry [00:53:37] Okay, that’s awesome. You used a lot of words and covered a lot of ground. I really appreciate it.
Carl Stuart [00:53:44] And remember you can go back and listen to today’s broadcast and the podcast and listen to it as many times as you want.
Carl Stuart [00:53:52] I will man, I will.
Carl Stuart [00:53:54] Thank you. I appreciate it sir. Cheers. Good luck to you. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Let’s just see. Hi Carl. You recently mentioned people buying homes at 13 to 17 percent rates. I’m curious, what was the financial case was then and what is it now? The financial case was if you wanted to buy a home that’s what you had to pay. It wasn’t a choice. It’s like today’s mortgages are 7%. You either pay 7% or you don’t. So we lived in a world where CDs were paying 12%. The problem was inflation was 13% or 14%. What did it do to the economy? It put the economy in a recession. And a whole lot of people couldn’t afford to buy homes. But there wasn’t a financial case. It was just a function of the Federal Reserve. Paul Volcker ran short-term interest rates up close to 20%. Okay? And that’s what the rates were. We then went into a recession. The Dow Jones Industrial Average, which is why I don’t know, 40,000, 50,000 60,000. I don’t know, I don’t pay attention to the number. It was in August of 1982, the Dow Jones industrial average was 888. Okay? So what happened was we went into one heck of a recession I remember even the Wall Street Journal saying, is this a recession or a depression? We set the bottom in the summer of 1982, and we had one rip-roaring bull market until the market peaked in 2000. So that’s what was going on around that. Now, you say even at around 7%, I’m struggling seeing the benefit of buying a 300 to 500,000 starter home when I can rent something nice for around 2000, and have plenty of options up to 3000. Once you add interest, taxes, insurance, maintenance, and closing costs, why not rent and invest the difference in a broad index fund instead? I know double-digit market returns are not guaranteed, but I also have a hard time imagining a complete market collapse and so much of the market is driven by companies that are deeply tied into government policy, infrastructure, and spending. Especially if I may only stay five to ten years, what am I missing? Is the main benefit of buying leverage, appreciation, tax advantages, and forced savings? Or is renting and investing the difference often the better financial move now? I would tell you that you make a compelling case. I think home ownership is not just a financial decision for a lot of people. I think it’s an emotional decision. You know, I’ve read that a lot people in Western Europe rent their entire lives. I know people who’ve lived in their entire life in New York City and rent. There you can make a compelling case to rent. And then to invest the difference. I understand that. I will just tell you that in America we have an ethos, if you want a myth, I don’t mean that as a negative term, of the value of home ownership. And for some people, it’s the only savings they have by paying off that mortgage, which is a sad thing to say. But nevertheless, you make a compelling case for someone who doesn’t see the emotional benefit of having their own home. Well. We’re running out of time, great broadcast this afternoon, and today I’m gonna thank you for listening. Couples, we’re gonna have a special session next Saturday, so as always, oh, I forgot, I’m going to thank Alyssa for doing a terrific job, and remind you next Saturday at five o’clock to tune in to Money Talk.
KUT Announcer: Laurie Gallardo [00:57:37] 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.
