Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on tax-efficient investing, Roth conversions, and retirement planning.

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

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

Carl Stuart [00:00:20] Welcome to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and the KUT App. Now in our 32nd year here together, 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. If you’re a regular listener, you know I take today’s calls first. And then today’s texts, and then previous texts that I haven’t had the opportunity to fully answer. It’s always a great idea to call our text early in the broadcast. You’ll hear the text come in because that gives me the best opportunity to do my best to answer your questions. So before I get started, one more time. 512-921-5888. Okay, let’s go back to the ones we got last Saturday. Hi, Carl. I have a 4.5% five-year adjustable rate mortgage that just matured and now I’m paying 6.5 percent on a $700,000 loan. Now my wife and I are spending everything we make. I did a construction loan in 2019 and transferred that to the traditional loan when construction finished. So that means I can’t take a home equity line of credit. What should I do to afford our life? Well first of all that’s a serious question and there’s not a simple answer i would tell you this it unless you have some way to kind of magically dramatically increase your income you’re gonna have to look at the expense side of your income statement you’re sufficiently leveraged with that mortgage and i would suggest that you and your wife sit down and make a commitment to evaluating your expenses it from a relationship standpoint, it’s really critical that both of you are on board with this process. And then what you do is you keep track by keeping receipts of all your charges, any cash purchases you make. And you sit down together, I would suggest at least once a week, perhaps once every two weeks, and you go through these and you put them into categories. And I hope and frankly I suspect that you will find that there are expenditures And you will say gosh I didn’t realize or we didn’t realized we spent that much money going out for dinner or for fancy coffee or for whatever the case may be. What you’re looking to do is to begin to make small but significant changes in your expenses. There’s nothing you can do about the loan and you can’t just immediately increase your income. So if you can’t change the loan and you can change your income The only thing you can do is change your expenditures. We live in a consumption-based economy and we’ve been told we can have it all. And Americans are highly leveraged and what we have to do is begin to experience what happens when we look hard and deeply at our expenses. So I hope that this is helpful and I wish you the best of luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. We have a call coming in. Cynthia, you were on the air, how may I help?

Cynthia [00:03:58] Yes, I have a question about allocation in a T-I-A fund, two to three years out for retirement. And last, the house is paid for, car is paid, what do you recommend?

Carl Stuart [00:04:13] Sure, and Cynthia, how old a person are you?

Cynthia [00:04:16] I will soon be 65. OK.

Carl Stuart [00:04:19] The reason I ask that is frequently when people ask about asset allocation and they’re near retirement, they believe that they should get considerably more conservative with their investments. And I disagree with that. And the reason is that people who have savings and investments typically have access to healthcare. You’re going to either be on Medicare or an employer-sponsored healthcare, and you don’t have any debts. And you have to plan on living to be 95. Not that you will, I hope you will. But the fact is that longevity is different than life expectancy. And people in your cohort have longer life expectancies than the overall general population. So when you look at your TIA asset allocation, just because you’re fixing to retire doesn’t mean that you should make a change. In fact, I would argue that you probably shouldn’t make a change. I think that what you want to accomplish is you’d like to have this TIA account grow faster than inflation. And if you have to, you can take money out. You can take this and put it in an IRA rollover, but you’re not gonna have to touch it until you’re 75 if you don’t want to. So given those parameters in my 48 years of experience, I think you should have somewhere between 50 and 60% of the money. In the stock market. Furthermore, I think you should have about 75% of it in US stocks or 70% in US Stocks and 25 to 30% in foreign stocks. And then when you have the balance because the menu is, while there are lots of choices, the menu was nevertheless limited. You just can’t go do everything you wanna do. So you really gotta look at the bond alternatives and the fixed account alternatives. The fixed account. Works a bit like a short-term bond fund. And you wanna spread your bond money up. If you can, through three different categories, either a short term bond fund or the fixed account, and then what’s called a core or intermediate term bond, fund. And then a fund that can go anywhere, can buy bonds across the globe. That’s called the multi-sector fund. We don’t know whether interest rates are going to rise, stay the flat or go down. And by having money in each of these different maturities of bond instruments, you’re less likely to lose a lot of money if bond interest rates go up due to inflation or federal policy. So that’s the fundamentals that I would do. And I wouldn’t change that simply because you’re going to retire, Cynthia. Okay. Okay. Good luck. Good. 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 call. Larry you’re on the air, how may I help?

Larry [00:07:26] Thank you Carl. Thank you, Carl. Two fast questions. One, I have a number of individual municipal bonds. I just wonder if I’m better off just keeping them as it is for the rest of my life or selling them and this that money in a municipal bond ETF. Number two Yeah, I’m sorry. Okay.

Larry [00:07:47] Thank you, Carl. Number two, I’ll be quick, but two, as you both know, the nemesis of good investing and making money is an exuberance of emotions. So my question is, in your opinion and in your experience, what’s the best way to control your emotions or basically to think to think rationally when you’re investing.

Carl Stuart [00:08:15] I think that’s the more important question. I’d keep the individual bonds because you’ve called previously. I recognize your voice and the bonds are in 10 and $20,000 pieces and you’re going to take a real hit if you tried to sell them, so keep the bonds. More importantly, here’s what I’ve learned. The liquidity of financial assets that you can buy and sell ETFs and mutual funds in stocks and bonds. Virtually any business day of the week that you want to. That’s both an asset when you want to change your asset allocation or you want a raise money, but it’s also a liability because to your point, your emotions can get caught up in it. I often compare this with the other income, if you had an income producing property, say a duplex or an apartment complex that you owned, just because you wanted to sell it doesn’t mean you can sell it. It might take you months to sell and so you become a much longer term investor. And what I do personally is, I mean, I’m in this profession. I don’t have a TV in my office. I don’t look at the market. Frankly, I don’t know how the stock market’s doing until I turn on the PBS news hour at 6 p.m. In Austin, Texas. And I don’s do anything about it because I think that’s, to your point, you make more mistakes by paying attention to the headlines. And taking advantage of taking advantage of the liquidity of the financial markets. Once you’ve determined, A, what it is you’re trying to accomplish, and B, what’s the right mix of stuff, your asset allocation, then checking in on a quarterly basis is plenty in my view. So that’s what I would do in answering your question, Larry. Thank you, Carl. Thank you so much. You’re welcome. Thanks for calling. You’re listening to Money Talk On KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here is another call. Michael, you’re on the air. How may I help?

Michael [00:10:21] Hi, well my problem’s a happy one actually in that I Have an IRA that’s gonna my wife and are both in our later 70s Uh-huh.

Michael [00:10:34] And I have an IRA that’s gonna last us the rest of our lives. Good. But we also have some money that’s in personal trust accounts. Uh-huh.

Michael [00:10:43] And I have adult children who are hardworking, they’re employed, they have families, and they’d like to buy a house, but they’re having a hard time managing that. I’m wondering how I could best get that money to them, knowing limits of annual gift-giving and also tax implications.

Carl Stuart [00:11:02] Yeah, sure. Are you and your wife the trustee and the beneficiary?

Michael [00:11:09] Right

Carl Stuart [00:11:10] And so the trust, to the extent that the assets stay in the trust. The trust pays the tax, you take the income from the trust you pay the tax fine. IRA, you’re subject to the required minimum distribution. So here’s something that a lot of people don’t understand. There is what’s called an annual gift tax exclusion of $19,000 this year, so. You and your wife could give each of your children, or for that matter, anyone else, up to $38,000 and not have to file a gift tax. But you’re walking around, each of you, with a $15 million lifetime exemption, meaning that unless your assets, minus your liabilities, exceed $30 million and you both die this year, you have zero estate tax. So there’s no limit as to how much you can give the kids. You just reduce that lifetime exemption, which by the way, by statute, goes up every year. It used to be $13 million per person. So I would say if the assets in the trust are subject to capital gains, are they stocks or bonds or mutual? They are.

Michael [00:12:22] They are, yes, they’re mutual funds and they have capital.

Carl Stuart [00:12:26] Good. So if you want to minimize the taxes to yourself, you liquidate the mutual funds at the capital gains rate to the extent that you want, you give that money to your children and you simply reduce your lifetime exemption. You’re also, because you’re likely to outlive your IRA, both of you, you also may want to consider beginning to take some out of your IRA and convert it to a Roth IRA every year. Giving your children, since they’re both well employed, 10 years to spend the money tax-free when you and your wife are no longer here. So that’s a two-part answer. I answered your question, then I answered one you didn’t ask.

Michael [00:13:11] Okay, well, no, that’s good information.

Carl Stuart [00:13:13] Okay. All right. Well, thank you very much. You’re very welcome, Michael, and thank you 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 have been hearing some text coming in. Let’s see here. The man that had a possibly deadly prognosis that needed 172. I don’t know what that is. I’m so sorry. I don’t the answer to that. Okay, here we go. Thank you for the great service you provide, Carl. You’re welcome. By answering our questions, a friend in their early 50s wants to buy a gold bar after getting a small settlement. Is this the best way to grow more last $4,000. For someone are no savings or investments. They worry they will end up spending the money if they invest it in some other way. Well, it’s a bad idea to buy a gold bar, but the contingent problem is that if they have liquidity, they think they’re gonna spend it. Because if you’re gonna buy gold, and I’m not suggesting that they buy gold. They oughta buy an exchange traded fund that holds the gold because it’s a lot less expensive than buying and selling the bullion. And you don’t have storage issues and you can buy an exchange traded fund. There are two big ones, GLD and IAU. They have micro shares GLDM and IAUM. Their costs are only 10 basis points for GLD, and nine basis points IA. I would tell you this, if you are an effective teacher, I’d put the $4,000 in two exchange traded stock funds. I put $3,000 in what’s called a total stock market fund, and you can get this from Vanguard and Schwab and Fidelity, and I put a $1,000 and a total international fund. If you can help your friend understand that what you’re doing for him or for her is investing in human ingenuity, will the stock market go down? Of course it’ll go down. Will the real estate market go Down? Of course, it will go down But if you want to grow the money faster than inflation over the next long time period, you want a bet on human ingenuity. I don’t know what’s gonna happen to artificial intelligence any more than I knew in 1994 what was gonna happen in the internet or in 2007 when the iPhone came into existence. But that’s where they’re gonna make a good solid. Inflation adjusted return and oh by the way they won’t pay tax on it but if they insist on buying a bullion now I suppose that’s better than coins because you’re not paying a minting cost but if you can talk them out of it I recommend that you do so. 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. Let’s see, how about this one? Can you talk more about how and why the retirement recommendations have changed over the years, pegging your age to your bond allocation versus today’s recommendation to keep 50 to 60% in equities? You’re awesome, thanks, you’re welcome. I think there’s a couple of reasons, and what you’re talking about for the rest of our listeners. When I got into this profession in 1978, The textbook said, as you grow older, you need to put more and more money in bonds and less and less money in stocks because stocks are riskier than bonds, which is, of course, absolutely true. Secondly, we’d had what’s called the lost decade of the 1970s, when both bonds and stocks had negative returns, we had the OPEC oil embargo and gold and farmland and some commodities were the only things that really worked. But I would tell you this. Part of the reason to put your age in bonds was because people, frankly, died at a younger age. And the thing is, when you think about your long-term investing in retirement, there’s three things you should know. Number one, how long are you gonna live? Number two, what’s going to happen to the cost of living, better known as inflation? And what’s gonna be the return on your investment? We don’t know any of those things. We just have to be humble about this. And say that we know inflation is going to occur. And we know that after inflation and after taxes, bonds have a very meager return, better than CDs, but a very major return. I think all those things came together and caused the asset allocation model to go higher on stocks. And I think also, let’s just face it, the market bottomed, I’m gonna use the Dow industrials. In August of 1982 at 888, and now it’s whatever it is, 50 some thousand. So we’ve had this long stretch in spite of the dot com bust in spite the global financial crisis. So longer term investors have been rewarded by having that allocation. Thanks for the question. It’s time for me to take a break. It’s a great time for you to call. We have all of our lines available or send me a text at 512. 921-5888, I’ll be back.

Jimmy Maas [00:18:55] 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 [00:19:26] Is Money Talk with Karl Stuart? Call or text him with your questions at 512-921-5888. Now, here’s Karl.

Carl Stuart [00:19:39] Welcome back to Money Talk, I’m Carl Stuart and you’re listening to KUT News 90.5 and the KUT app. And I forgot to mention this in the first segment. You can catch past shows at KUT.org slash Money Talk. So I went to Kut.org and they have right across the bottom, they have podcasts and you can click on the Money Talk ones and they’re there by date and you can enjoy whichever ones you would like or tell your friends and colleagues. Right now, we have all of our lines available. And you may text me as well at 512-921-5888. Here is a text. Hello, this is Paresh. I’m wondering whether the 4% rule still stands with how bloated the market is and whether I can retire with 40 or more years to live with 25 times my annual expenses. Invested mostly in VTI, that’s Vanguard Total Stock Market, and VOO, that Vanguard S&P 500, or should I push my retirement out until I have 30 to 33 times the money? So here’s what Paresh is talking about. A long time ago, a person whose name I forget came out and said, based on his analysis, and I think it was his, if you had a balanced portfolio. Maybe 60% in equities, and you retired, and you took 4% each year of the previous year-ending value that the money would last for 35 years, and that you could live on that, plus social security and other savings. And so that’s become kind of the mark that a lot of financial planners use. And the reason Paresh mentions 25, Because when you pick a number If you want $100,000 in retirement, 25 times that’s two and a half million dollars in retirement savings invested appropriately because 4% times two and half million dollars is 100,000. The risk that Parish talks about and it’s a significant one is when you start your drawing down, there’s always the short-term risk that things go in the ditch, frankly, in the first year or two. Think back to someone who retired in 1995 and kept 60% of her investments in the stock market. Let’s just use the S&P 500. Well, the first five years that she retired, the S& P was up over 20% a year. Yeah, we had the dot-com bust, but her bonds held up, and she probably could take a lot more than 4% from her starting value today. But let’s suppose that she’d retired. Five years later on December 31st of 1999, the market peaked in March and from peak to trough, the S&P 500 went down 55% and the NASDAQ from peak to trought to back to where it was took 15 years. That’s why you have to have a balanced portfolio. So that beginning period is really, really risky. And what I like to do is take that first year’s expenses or if you want to be more conservative. 18 months expenses and don’t keep it invested in your IRA or your own individual account or joint account. Put it in the money market fund, use that for your cash to live on so you can live through a market decline. Now will the market decline longer than 12 or 24 or 18 months? Possibly, possibly so. But at least that gives you a buffer. Yes, the market has gone up for three and a half years and certain segments of the market are clearly very, very expensive. So I share your concern. I would be much happier to tell someone, number one, take a year’s worth and put it in the money market fund. And number three, when you start withdrawing, withdraw 3% initially to see if that will help you in a downturn. Paresh, that’s a great question, and I struggle with it all the time myself. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text with your questions at 512- 921-5888. We have a caller here. Melanie you are on the air. How may I help? Lonely?

Melanie [00:24:10] I’m sorry.

Carl Stuart [00:24:11] That’s okay. Please go ahead.

Melanie [00:24:15] I had, when I was a teacher, I contributed to a TSA. I retired from there since then, and it’s earning 4% guaranteed, it won’t go any lower than that, but I don’t see that it ever has gotten any higher than that either. Recently I took out some money against that and it the loan amount the loan percent with six percent so i don’t like well up only paying two percent interest because i’m already earning so my question is the t s a a good that you know something or other to keep my money

Carl Stuart [00:25:00] So I think, let me ask you a few questions. How the person are you, Madeline?

Melanie [00:25:05] No, only 76

Carl Stuart [00:25:08] Okay, do you have, and so you have social security? Yes. And do you a teacher’s retirement pension? Yes. Okay, so you two streams of guaranteed income. Are you, but you took a loan out, so can I assume that social security and your TRS pension were not enough to meet your needs and that’s the reason you took the loan?

Melanie [00:25:36] Well, I took the loan out to paint the house. It was for renovation. Okay.

Carl Stuart [00:25:42] So normally, if you weren’t gonna paint the house or have some other significant expense, you can live comfortably on Social Security plus TRS? Yes. Okay. So. The one risk you have long-term is that you can’t make Social Security increase your monthly payment by the cost of living and you can make TRS increase your payment by cost of living and that tax sheltered annuity is not going to pay any more than 4%. The question is really going to be do you want to take the money out of the tax shelter annuity. Or what would there be income tax consequences? You need to know that. And the second thing is, can you live with greater risk? I’m not sure that you’re allowed to take money out of the TSA, as long as you have an outstanding loan. I think you may be locked in, because I’m sure that that loan, if you took it out of a tax sheltered annuity, I don’t know if there are other investments you could make and carry the loan with you. I know when people have a 401k. Or they have a 403B with an employer and they have plan loan and they leave the employer, if they don’t pay off the loan, their balance is reduced by the amount of the loan and the loan amount is taxable income. So I think you may be locked in. If you weren’t locked in, there are other investments that would do better than 6%, but they have more risk. So I thinking the current circumstance. Given probably the cost of getting out of the TSA and perhaps the inability to get anything else while you still have a loan, will you be paying off the loan from your other income? Yes. Good.

Melanie [00:27:31] Yeah, that’s not a problem.

Carl Stuart [00:27:32] Good, then you should just stay right where you are, and when you get that loan paid off, if you and I are still around, which I’m confident we will be, you ought to call back and we’ll figure out something else to do with it, okay?

Melanie [00:27:47] Sounds great. Thank you so very much. I appreciate it.

Carl Stuart [00:27:49] You’re very welcome. 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. Jenny, you are on the air. How may I help?

Jenny [00:28:09] Yeah. So I am eligible to retire next year, next August. I am 50, I will be 54 at the time. So I have a bit of time before I can start pulling for my 401k tax free. So I have not put any money into a 457, but my financial advisor is recommending that I do that. The the recommendation is to put as much as I can in there. I currently have some money in like I I guess it’s like an after-tax um account right and so the suggestion is that I start living off of the money in that like pull You know the amount I need monthly from that Account and then put as as much I can of my actual income into that 457.

Carl Stuart [00:29:10] I disagree, um, so, um you’re, you’re a young woman. You’re 54, you going to retire when you’re 55. So that means to me that you’re going to have a pension. Is that correct?

Jenny [00:29:23] Correct, yes.

Carl Stuart [00:29:24] Now, when you hit 65, 62 or 67 or 70, will you qualify for social security? Yes. Okay. So you have this money that once you retire, you’re gonna have enough money to live on. And you’ve got some other money and you maybe even have some cash flow over and above your monthly expenses. No, you don’t wanna put it in a TSA because when you take that money out, you’re going to pay income tax on it. You’re already gonna pay income taxes on your pension. You’re gonna pay in income tax ultimately on your social security. You need to build a pillar of money that grows that’s not subject to income tax and also gives you maximum flexibility. You should open a GENI account and invest in stock exchange traded funds. I’m gonna tell you why. I’m not suggesting this is right for everybody, but you will have within a year and in the fullness of time, you’re going to have two guaranteed streams of income. That’s very wonderful and doesn’t occur for most Americans. So you need another asset. You want a three-legged stool to your financial independence, your pension, your social security, and your own GENI investment account. The benefit of the GENi investment account, properly invested, it will grow without any capital gains taxes. You will have complete control. If you need the money, you don’t have to wait till you’re 59 and a half. You don’t to worry about any penalties. And when you take money out of this Jenny account because you will have held these funds for longer than a year, you won’t pay income tax on it. You’ll pay a lower amount, which is a capital gains tax. You’re gonna be in the same tax bracket after you retire because of your pension and social security. So I disagree with your advisor. My specific advice to you. I’m gonna use some jargon here, and I’m sorry, but you can always listen to the podcast and write this down, is because these two things are like huge bond funds, they’re gonna provide you lifetime income, your long-term risk as a 54-year-old female is the cost of living goes up 3% a year and doubles in 24 years, but your pension and social security don’t go up 3%, and now you’re in your 70s and you don’t have enough income to live on. So we need to get something over here on the side that’s gonna grow faster than inflation that you can leave alone. And you can put money in, you can set this up, you can take a withdrawal from your checking account every month or put it in when you want to, and you wanna put it into, I’m gonna say the words, exchange traded funds, one that’s called a total stock market, U.S. Stock market and one that is called international, total international. Three quarters in the first one and a quarter in the next and put it in on your own because your advisor’s recommending a TSA which has an upfront sales charge and creates a future income tax liability. You’re gonna have plenty of income tax from Social Security and from your pension. Go do your homework, you’re an educator. Go to the websites of Schwab and Fidelity and Vanguard and study up on these exchange traded funds. And keep listening to Money Talk. I think that’ll be a much better thing for you based on what you’ve told me, Jenny.

Jenny [00:32:55] Okay, thank you, I appreciate your help.

Carl Stuart [00:32:57] Ok 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 and I’m not going to forget it this time and you can listen to past shows at KUT.org slash Money Talk. Ok here’s a text from today. Hi Carl, I’m turning 31 this year and haven’t started saving for retirement. Well, while that’s a bad thing, I will tell you this, a lot of people don’t think about it at 31 or 41 or 51, so I’m glad you’re thinking about it. I don’t know anything about the subject. Where and how should I start? I have a good paying job that I intend to stay at for several more years and bought a house this year with my husband, but not sure if we will stay together, so I am not sure how that plays into retirement savings. Thank you for in advance. Okay, you’ve got a good job. The first thing is you want to see if you have an employer sponsored plan. You said you have a good paying job and I think that probably means you probably do. If you have employer sponsored plans, if you’re working for a for profit company it’s called a 401k plan, if your working for non profit it’s called a 403b plan. What you want do is you wanna see if the employer has what is called a matching contribution. It doesn’t mean that they match it dollar for dollar, but it’s common Once you qualify by working there six months or a year, it depends on the plan, they will put money in when you put money. Let’s pretend, because it’s common, they’re gonna put money up to 5% or 4% of your compensation. You ought to do the same darn thing, because if you don’t put the money in, they won’t match it. So let’s pretend it’s 5%. You put 5% in out of your paycheck, they put 5%. That’s 10%, that’s doubling your money, right? You wanna do that. You don’t pay any taxes on the growth and value, and when you take the money out, you pay taxes on it. Now, however, it’s also possible that your employer has something called a Roth 401k option. I like this a lot. The employer contribution will go into the pre-tax 401k, and your contribution will grow into the Roth 401K. Yes, you won’t get a tax deduction, but in my view, it is worth it. Now, several years down the road, you change jobs. You can take that money and put it in your own Roth IRA and your pre-tax money in your IRA or you can transfer it to your new employer if they have a pre-tax and a Roth IRA. The second thing is you should be investing on your own and since you’re uncertain about your marriage, you wanna make sure that you invest your money and you want that account to say your name, separate property. Now, any dividends, interest, and capital gains will be subject to both of your taxes, but by keeping a separate property, if down the road your marriage doesn’t work, that’s your money. Do not open a joint account if you’re uncertain about your relationship. Open an individual separate property account. If you wanna do this yourself, you can go to the big places like Schwab and Fidelity and Vanguard, and you wanna set up what’s called dollar cost averaging where you have money taken out of your. Savings or checking account every month. And if you’ve been listening, that’s a common advice for me for young people to get started. Just 75% in a total stock market exchange traded fund and 25% in total international exchange traded funds. So to conclude, see if you have an employer sponsored plan. If you do, put in the amount to get the maximum employer contribution. If there’s a Roth choice, take that and then set up your own account. And call a separate property and invest in that as well. I think you’ll come about really, really well over the next few decades. Time for me to take a break. You’ve been listening to Money Talk on KUT News 90.5 and the KUT app. We have all of our lines available. Call or text 512-921-5888. Stick around, I’ll be back.

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KUT Announcer: Laurie Gallardo [00:37:48] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:38:02] Welcome back to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and the KUT App. When you have a financial or investment plan in question, call or text 512-921-5888. Let’s go back to the text. Carl, I inherited $150,000. She’d I pay down on my mortgage, which has a $220,000 balance. At 3.5% annual interest or invest in stocks and bonds? Well, I have to make some assumptions. I have assume that you have not been able to accumulate and invest a large amount of money that will help you and supplement your social security when you want to have financial independence. Based on that, number one, and based on the wonderful 3.5% APR, which is about 50% of the current 30-year mortgage, I would not pay down on your house. The second reason is that a house is not an investment. A house is a house, and I have a house. And I’m glad I do. But when I retire, I’m not gonna sell my house and live in my car. A house an illiquid asset that takes the place of renting an apartment. So it’s not gonna help you in your retirement. And I would suggest you invest the money because the return properly invested over the next period of time while you still live in that house, you can reasonably expect an annualized return in a band of six to 8% properly invested. Easy for me to say those terms properly invested, take your time if you are the kind of personality that who is a do-it-yourselfer. There’s tons of information out there. Stay away from anything that tells you how to get rich quick, or they have a great investment strategy. Rather, as I tell our listeners, go to the websites of the asset management companies. They have information on retirement planning and investing, and they’re not just Schwab Fidelity and Vanguard, or many of them, that have good information, educational information, and take your time. And the last thing is $150,000 is a lot of money. I would not put the money in stocks and bonds or any other financial asset all at once. I would spread it out over time. I would take all of the next six months and put the same amount in, or when you’re ready to start, take six months and pick a day, the first of the month, the 15th of the months. Don’t look at what the market’s doing and put it in that asset allocation, the same about every month. If it’s 15,000 or whatever the amount, a 17.5 or whatever. Leave the balance in a money market fund, okay, and then put it in, and stock market’s gonna go down some months and up some months over the last three months. It went up in May and it went down in June and July. And if you’d been doing what I just said, you would have better pricing and lower costs than if you put all the money in at the beginning of May. Good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-0-1-4-5-6-7-8-9-10-11-12-13-14-15-16-17-18-19-20-21-22-23-24-25-26-27-28-29-30-31-31 921-5888. We have a call. Jim, you were on the air. How may I help?

Jim [00:41:30] Hi, Carl. So I am about three or four years out from retirement and have kind of money in different places, 401k cash and annuity. And so I’m kind of curious at this point, I want to find a financial advisor to kind of help me because I’m not a do it yourself or okay. And I’m curious about sort of advice about how to identify and interview or evaluate somebody before I commit to them.

Carl Stuart [00:41:55] Yes, I am really glad you asked this question because so many people need to hear this in my view. And you first of all, I’m going to come back to your question. Jim starts out with a really important self-awareness. Some of us are do-it-yourselfers and some of us aren’t. And the most unhappy people I’ve encountered around this issue is the do-it-yourselfers. Who engage in the advisor and then constantly look over her shoulder and say, what did you do about this and what about that and what about the war in Ukraine and what about the War in Iran that that drives to do it yourself for crazy. He ought to do it himself. The other person thinks, oh, I can read up on this and do it. And then the stock market drops 20% and they panic and they get out. You’re not, you have self-awareness. You’re, you’re not to do yourself for great. Now here’s the deal. It’s perfectly fine. To talk to people in your cohort, whether they’re at work or your social group or church or synagogue or whatever, and ask them who they use. That’s fine to gather data, but that doesn’t mean that this person is the right person for you. So you want to, because there’s a lot of these people in the listening area, so what you wanna do is you wanna have a face-to-face visit with these people. And there oughta be a minimum of several, what I’m about to, oughta happen. First, when you sit down, they ought to ask you a lot of questions. I analogize this to going to the free annual physical. The doctor says and say, hi Jim, take this statin. He wants to know about your lifestyle. He wants a look at your blood work, right? He wants you to see what your blood pressure is. Same deal. These people should want to know about your income. They want to about your assets. They want know about you liabilities. All those kinds of things. See, they want to have a full picture of your situation. Secondly… They ought to ask your story. They want to get to know you and you want to know them. So you should disclose that’s where I grew up and went to school and this is my professional path. And then they should be able to answer the question or ask you the question. At the end of this consultation, if I, Jim, have had my questions answered, what is it I want to accomplish? Now, having said that, there are the following things that they should tell you. Number one, how do they invest money? A good advisor has a strong investment philosophy or investment strategy. And she or he should be able to articulate this. If they cannot articulate it, that’s not the person for you. And if they articulate it and it doesn’t make sense, that’s also not the personally for you, they oughta be able to explain the world of investments and finance in plain English, just like we do on Money Talk. That’s number one. Number two, you ought to ask, what are their legal responsibilities? A lot of these people are what are called investment advisors. Technically, their firm is a registered investment advisor under the Securities and Exchange Commission. And they are fiduciaries, which means they have to put your interest before theirs. They can receive no transaction-based compensation, no sales charges, no commissions, no insurance products that pay agents fees. And the third thing is they have what’s called a duty of care. They have to put your interest before theirs. You want to understand the business relationship with them and make sure you understand the benefits and the drawbacks if there are any of those. And then finally, how are they compensated? Investment advisors, the standard compensation model is called an asset-based fee. Actually, it’s called an annualized investment advisory fee. Typically, paid in arrears, although some pay in advance. In arrear, what happens, Jim, is let’s just say you’re a client of theirs and you’re in the billing cycle that just ended July 31st. They take the value of your investments, whether it’s an individual account, a joint account, an IRA, or Roth IRA, they consolidate for the purposes of calculating the bill. They take value of total portfolio with them. They take that times the number of days, in my hypothesis, of May, June, and July, times the fee schedule. That gives the fee. They debit each of the accounts rateably and go on down the road. Generally, these people work on a discretionary basis, which I really like, which means you give them discretion to invest the money the way they want to for your benefit, because after all, if you didn’t think they had integrity and intelligence and experience, you wouldn’t hire them in the first place. So that’s a template that I would use if I were in your shoes, Jim.

Jim [00:46:46] That’s great, Colin. Is there any type of, does the SEC or anybody else have any sort of evaluative components to this, or you can look somebody up to make sure that they’re not in trouble or not in some sort of issues with that?

Carl Stuart [00:46:58] The SEC doesn’t, let me get this right, the Financial Industry Regulatory Authority may have something called broker check. It’s not really adequate. The answer is no. The SEC is there to make sure that the individual follows all the securities rules, fully discloses their compensation, et cetera, et cetera, but there really isn’t what you asked for. The answer to that is sadly no.

Jim [00:47:26] Thank you, Carl. Thank you very much for your help today.

Carl Stuart [00:47:28] You’re very welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888 and you can catch past shows at kut.org slash Money Talk. Here’s the text. Carl, thanks as always for your show. You’re welcome. I am recently retired and married. With a retirement account totaling just over $3 million. Having just left my employer, I’m about to roll over my 401k valued at about $850,000 into my IRA. The 401k will be liquidated to cash to rolling over. Since I obviously benefited from dollar cost averaging and the 401 accumulation, how should I purchase more shares of the mutual funds and exchange traded funds with the newly rolled over cash. Cash lump sum, or incrementally. And what would be a good timeframe if not all at once? Carl also, I’m married, filing joint, and delaying Social Security until age 70. Congratulations, good luck, and you did the right thing. We’re both 67. Here’s my rule of thumb. If I’m moving from a 401k in which I’ve been invested to an IRA in which have cash, I go right back into investments. I only think the dollar cost averaging makes sense. If you have a lump sum like Jim just had, and you haven’t been invested, but you’ve already been invested so you’re already taking the market risk, I don’t see the intellectual case for going all the way to cash and starting over again. I would go to my IRA, I’d have the asset allocation like I had my 401k, I take the cash that was invested and invest it in my IRA. I think that’s the logical thing to do. Great question and good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We’ve got some time left, so if you wanna call, do so now. Call or text 512-921-5888. Here’s a text. Hello, this is Ivy, Ivy. I’m a 54-year-old self-employed person. I don’t have any debt. Congratulations, cars or mortgages. I have $50,000 in treasury bills, 2020 with Capital One making 3% interest, two years of a Roth IRA that I just recently opened with maximum deposit. Should I be doing something else? And thanks for your answer, Roth Fidelity. Okay, so you’re a young person, you’re 54, the $50 thousand in bills is pretty to cash. The $20,000 with Capital One is cash. I don’t know quite what your Roth is invested in, but I would tell you the challenge here is while the cash looks safe, based on history, after inflation, and after taxes on everything but the Roth, you have a negative return. If you’re making 3% interest and inflation is 3%, and you pay income tax, that’s a negative real return. And based on what you’ve told me, You don’t have money growing. You don’t have money at risk. You’re self-employed, so you are, by definition, a risk taker. You need to have money, at risk, in the global stock market, because based on history, over the next 20 years, when you’re 64, you’ll look back and be glad you did this. You don’t need to do it all at once. When those treasury bills mature, put it in a money market fund. Right now, they’re paying about 3.6%. If you’re a do-it-yourself person, and you may be because you’re self-employed, Vanguard, Fidelity, and Schwab all have money market funds. There’s three types, prime, government, and treasury. I’d use the government. I’d put the 50,000 in there. I’d say to myself, I’ve got 20,000, 20, 20 you say, with capital one. That’s enough to backstop me. I’m going to take the 50 for my future financial independence. I’m going to invest it. In exchange traded funds and stock funds over the next six months. No rush, let’s hope the stock market goes down so your money buys more shares. But right now, you’re cash heavy and as a 54-year-old self-employed person, that’s not where you want to be. You need to have money grow faster than inflation. Good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512. 921-5888. Here’s a text. Carl, we have a 529 for our son at approximately $300,000 but at this point we don’t think he will go to a four-year college. What are our options to use it? Sorry we didn’t hear about your advice about a stock plan 18 years ago. Well, I am sorry too. This is really important. I’m going to get back to your question but we got so enthusiastic about 529 plans. I was talking with a good friend recently, she’s a retired attorney, really, a terrific, well-known attorney. And she said, I, Carl, I wish I’d listened to you. I’ve got one son and he’s grown and well-employed and I’ve gotten all this money in the 529. There is no way out unless you’ve got somebody who’s got one of your beneficiaries, doesn’t have to be your son, who you want to give the money to. I don’t think you wanna give the money to it. So what you need to do is study what the penalty is going to be, how much of the 300,000 have you not paid taxes on, figure out what the penalties gonna be, and take it out if, let’s just make this up. If $150,000 of that is untaxed, and if you took it all out at once and it would throw you into a substantially higher tax bracket, then don’t do that. Look at the tax code. Determine how much you can take out with throwing yourself into a higher bracket, like from going to 24% to 32%. Then take it out over a couple of years if you have to. But there’s no way to get out of it without the taxes. I’m sorry that occurred to you. You did the right thing, and now you’re getting punished for it, which really frustrates the heck out of me. But that is the way it goes, and good luck. Here’s a new one. Thank you so much. It was helpful. One follow-up, my employer does not have a retirement plan. Where I just go with a separate property of your account or is there a different way to set up a 401k? There’s not a different to set a 401K. If you don’t make too much money, look at doing a Roth IRA because you can make your taxes, your filing jointly. There’s an amount under which, if you make less than that, you can do a Roth ira. I think it’s $7,500 this year. If you can save more than that open up the individual account and invest it the way I set it. Thanks. You’re listening to Money Talk. I’m not gonna give this phone number because we got about a minute and a half left. Let’s just see if I can answer this. Carl, hi Carl. Last week you referred to the length of the bull market as well as it being a year of midterm elections. For those of us approaching the parliament, do we stay steady or make adjustments to preserve the gains of the last two, three years? Here’s the problem. There’s an old adage that says trying to pick the time to buy in a falling market is like catching a falling knife. You are getting ready to retire, but I’ll bet you the combined life expectancy for both of you is really long. Yes, you’ve had gains in the last two, three years. Most of our listeners who are investors have had that. Check your asset allocation. If the gains have taken you above what you’re comfortable with in stocks, take an amount out to get back to that, but do not take the whole thing out. Just make sure that you’ve got the asset. If it’s 60% in stocks and the market goes down 20%, that’s a 12% decline. 30, if it’s bigger than that, you can figure out what the risk is and get to that asset allocation that you want, but do not take more than that because you’ve got a long life expectancy. Well, we’re at the end of our time. I want to thank Jerry Kehano for being my terrific producer today. I want thank you for listening and as always encourage you next Saturday after the news, not after the new, next Saturday at five o’clock. Be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:56:11] You’ve been listening to Money Talk with Carl Stuart. Carl Stuart is an investment advisor representative of Stuart Investment Advisors. And this is KUT and KUT HD1 Austin.

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